Trump has cut a deal with China and the US Dollar is going to go down in value about 20%, the RMB will go up about 20% and both Cryptos & Precious metals will be moving up. Part of that deal is that Gold’s USD value will increase 2-3 times it’s pre-deal value of $1300. By year’s end, expect a value of near $4,000.
Stocks closed higher on Friday, boosted by bank shares, as investors looked ahead to a key meeting between President Donald Trump and Chinese President Xi Jinping. Wall Street also wrapped up its best first half to a year in two decades.
The Dow Jones Industrial Average rose 73.38 points to 26,599.96 as J.P. Morgan Chase shares outperformed. The 30-stock index rallied more than 7% this month, notching its biggest June gain since 1938.
The S&P 500 advanced 0.6% to 2,941.74, led by the financials sector. For the month, the S&P 500 jumped 6.9%, its best June performance since 1955. The broad index is also up more than 17% this year, marking its biggest first-half gain since 1997.
The Nasdaq Composite gained 0.5% to end the day at 8,006.24. The tech-heavy index also rallied 7.4% this month.
J.P. Morgan Chase jumped 2.7% while Citigroup, Bank of America, Goldman Sachs and Wells Fargo all closed more than 2% higher. Morgan Stanley shares advanced 0.7%. Their gains come after they passed the Fed’s annual stress test and got approval to boost dividends and share repurchase programs. Goldman hiked its quarterly dividend by nearly 50% while J.P. Morgan raised its dividend by 10 cents.
The basic premise is the same one he has used for years now in his ads — the dollar is going to weaken (or collapse) and be replaced by some variation of the gold standard, because that’s the only way to solve the US dollar’s problems and reset the global economic balance (and deal with our massive debt). He used to refer to this idea as “Reagan Gold,” since Ronald Reagan was a proponent of returning to the gold standard but was reportedly talked out of it by his advisors… and the fearmongering for a while was focused on the Yuan supplanting the dollar as the world’s “reserve currency” … now it’s “Trump’s Reboot” that features as the ad headline.
I’ll go out on a limb and let you know my bias up front: I think that’s ridiculous. The notion that any government will willingly give up control of its money supply and be restrained by a gold backing of any sort is laughable. The cat is out of the bag, we’re not going to be able to catch it and stuff it back in.
I do agree that “fiat currencies” (that’s “all currencies,” in case you’re wondering — there are no asset-backed currencies currently) are going to lose value over time, and that we might see that accelerate into real inflation at some point, but I can’t see Donald Trump or Xi Jinping deciding that fixing the currency to some arbitrary amount of gold and giving up the ability to print and borrow from the future is a good idea. Those who have control don’t easily surrender it — candidates are happy to talk about the gold standard and a return to monetary discipline, but once they’re actually in office no one wants discipline if they’re told that it will hurt their ability to increase military spending, or provide tax cuts, or constrain their options in whatever way they care about.
If gold is used to somehow back a formal currency again, I suspect it would be by China in an effort to competitively leverage the yuan into prominence, as the US did with the dollar in the first half of the 20th century… and I suspect it wouldn’t work for long, because China is going to have to go on a deficit spending spree to keep its own population mollified in the next few decades, too, as their country ages and increases its consumption.
US debt and consumption and Chinese industrialization and manufacturing will no longer be the twin pillars of the global economy in the decades to come, most likely, but I don’t expect that the world will give up on its addiction to growth (which is partially fueled by inflation, and currency devaluation, because that makes people feel that they’re making progress), or that countries will surrender their ability to undercut their neighbors by devaluing their currencies — the world monetary order will probably evolve in some way none of us can predict, but it’s hard to imagine Germany and Japan and China lining up behind the US to support US consumption or monetary leadership again, as they have in the past, or even just to prop up their US customers.
Trump speaks following G-20 meeting with China’s Xi
So that long-winded screed is where I’m coming from… now that I’ve got that off my chest, let’s see what Rickards is actually recommending….
“I believe President Trump will host an international monetary summit at his ‘Winter White House’ in Florida, the historic Mar-a-Lago resort.
“Using his stature as leader of the free world, he’ll bring the financial leaders of the globe together.
“This would include delegates from the U.S., China, Japan, Germany, Italy, France, the UK and the International Monetary Fund.
“Then, they’ll agree to simultaneously revalue all of their currencies against gold until the price reached $10,000 per ounce. (If you’re skeptical, I’ll give you ironclad proof that this could happen in a second.)
“The Federal Reserve board will then call a special board meeting… vote on the new policy… walk outside and announce to the world that effective immediately, the price of gold is $10,000 per ounce.
“The Fed will make the $10,000 price stick by using the Treasury’s gold in Fort Knox and the major U.S. bank gold dealers to conduct ‘open market operations’ in gold.”
And dammit, he plays unfair by saying he’s going to use math! People hate math!
“For mathematical reasons I’ll explain in just a second, gold will need to be $10,000. No more, no less.”
And, of course, you’ll get rich from this if you own the right assets:
“This will immediately put an end to the currency wars and the debt-based dollar system.
“It will be a one-time “reboot” period that will put the world on solid footing for economic growth for decades to come.
“The immediate adjustment would create a massive windfall for gold bullion holders and owners of gold mining shares (though that’s not the true opportunity here).”
You can’t create value out of nothing, of course, not on a grand scale, so if this does turn out to happen it would not be because gold suddenly becomes four or five times more valuable… it would be because the value of the US dollar is slashed versus gold. So yes, the gold price would go up dramatically in dollar terms — but in that case, there would also likely be massive stock market inflation in US$ terms. Everything would go up in dollar terms, but the dollar would collapse (as it arguably should… but who would vote for that?)
I think the problem, at least in Trump’s view and in the view of most recent Presidents, if they were being honest behind closed doors, is not that the US economy needs a stronger backing to the dollar… it’s that the US needs a weaker dollar to help deter imports and encourage exports and make it more feasible to service the mounting federal debt and meet other financial obligations. Rickards cites a Stratfor article about Trump’s interest in a new global monetary accord to reset exchange rates (with or without gold being involved), like the Plaza Accord of the 1980s or the Bretton Woods Accord after World War Two, and that’s worth a read if you want a broader perspective.
I’m not an internationally renowned economist, I haven’t written any books about monetary policy… that’s just my opinion and assessment. I might be wrong, I’d just urge you to keep an open mind to the many different possibilities that exist — the same story about the end of the US dollar has been peddled with vigor by newsletter and TV pundits since the financial crisis (well, really since the 1970s, off and on), and the return to some sort of gold standard, and wealth for those who choose the right gold-related investment, is the common thread that runs through most of those pitches in recent years.
So far, those predicting the collapse of the dollar have all been very, very wrong — or, at the least, absurdly hyperbolic. The dollar is collapsing… it’s just happening very, very slowly.
Unsustainable debt in the 1980s became catastrophic deficits in the 1990s and the end of the world in the 2000s and the rise of the Yuan and Euro to crush the US$ in the 2010s, and we’ll soon find out what the predicted calamity is for the 2020s… sometimes some of the predictions of doom will be right, at least for short periods of time, but taking all of them seriously and being frightened out of the market for any big chunk of the last thirty or forty years could easily have been catastrophic for your portfolio.
So yes, read the doomsayers, sure, but don’t believe everything you read — for the past thirty-plus years it has been pretty easy to build a logical argument for the collapse of the US dollar (or of the United States in general), and for the past 30 years that has been the wrong argument to follow. That doesn’t mean it will always be wrong… but it means making a big bet on the timing is foolhardy.
The Economic Event that Could Trigger a Collapse
A collapse couldn’t occur without a triggering event that destroys confidence in the dollar.
Altogether, foreign countries own more than $6 trillion in U.S. debt. The two largest are China and Japan. If they dump their holdings of Treasury notes, this could cause a panic leading to collapse.
China owns about $1 trillion in U.S. Treasurys. China pegs the yuan to the dollar. This keeps the prices of its exports to the United States relatively cheap. Japan also owns around $1 trillion in Treasurys. It also wants to keep the yen low to stimulate exports to the United States. Japan is moving out of a 15-year deflationary cycle. The 2011 earthquake and nuclear disaster didn’t help.
But would China or Japan ever really dump their dollars? Only if they saw their holdings declining in value too fast. They would also need another export market to replace the United States.
The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, that would further depress the value of the dollar. That means their products, still priced in yuan and yen, would cost relatively more in the United States. Their economies would suffer. Right now, it’s still in their best interest to hold onto their dollar reserves.
China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still the best market in the world.
When Will the Dollar Collapse?
It’s unlikely that the U.S. dollar will collapse at all. That’s because any of the countries who have the power to make that happen (China, Japan, and other foreign dollar holders) don’t want it to occur. It’s not in their best interest. Why bankrupt your best customer? Instead, the dollar will resume its gradual decline as these countries find other markets.
Effects of the Dollar Collapse
A sudden dollar collapse would create global economic turmoil. Investors would rush to other currencies, such as the euro, or other assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.
U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates, and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.
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