Trump Versus Nixon
September 25, 2018 |
When President Hebert Hoover lost the 1932 presidential election, he famously said:
“We have gold because we cannot trust governments.”
Hoover, a businessman and trained mining engineer, believed that only a currency backed by physical gold could keep corrupt politician’s spending in check. And his seat in the Oval Office wasn’t even cold when his successor FDR would put that trust to the test.
Despite running on a campaign of lowering government spending and balancing the budget, the Democrat began spending ferociously the moment he entered office. But he quickly realized there simply wasn’t enough money to pay for the glut of spending.
Because of the gold standard — which stated that all paper money had to be backed by 40% gold — he couldn’t print more money. So, in a desperate attempt to fill the government’s coffers with gold, he signed Executive Order 6102.
6102 was a draconian law that criminalized the ownership of gold coins and bars, punishable by 10 years in prison and a fine of twice the value of the gold.
The prohibition was lifted by President Gerald Ford in 1974. But by then, Hoover’s worst nightmare had already been realized. President Nixon had eradicated the gold standard just three years earlier.
Today there are rumblings in the gold ownership community that President Trump, a businessman like Hoover, might be the president to bring the gold standard back.
I asked gold expert Olivier Garret if there are big changes on the horizon. And what he said surprised me.
All the best,
Editor, Money & Crisis
Will Trump Bring Back the Gold Standard?
There are whispers in the gold community that Trump is gearing up to bring back the gold standard.
A few Hard Assets Alliance customers told me that big names (like financial expert Jim Rickards) have speculated about a meeting between Trump and other major leaders to achieve a resolution.
Donald Trump is one of the most unpredictable politicians in history. If anyone was going to reinstate the gold standard, it would be him.
But I don’t think it’s likely. Unless our entire financial system collapses — which could very well happen — I highly doubt that we will ever return to the gold standard.
Shooting Yourself in the Foot
The president who brings back the gold standard would be giving up their monetary control.
President Nixon put an end to the gold standard because the U.S. had run up a large deficit during the Vietnam War… and the dollar was buckling under the pressure.
Foreigners were demanding en masse to exchange their depreciating dollars for gold.
Had the U.S. remained on the gold standard, Nixon would have had to pass massive budget cuts and the electorate wouldn’t have been happy.
Nixon was up for re-election the following year. So, he did what most politicians do… whatever was necessary to stay in power.
In his defence, any president would have done the same.
Britain abandoned the gold standard twice between WWI and WWII. That eventually led the dollar to replace the pound as the world’s reserve currency.
Holding an uncontested reserve currency, the U.S. has been able to finance its growing deficit by printing money.
Any time we need money we simply print off a stack of treasury bonds — basically, an IOU from the U.S. government — and sell them foreigners and the FED.
For decades, China, the Middle East and Japan have been financing our $1 trillion deficit.
And that’s allowed our politicians to do whatever they want without any real consequences.
Trump is able to cut taxes, increase spending and run a whopping $1 trillion deficit (a 2019 forecast) with no instant ramifications.
Returning to the gold standard is undoubtedly the right move… but no politician is going to give up the ability to spend indiscriminately.
So far, no currency (let alone a cryptocurrency) is even close to becoming a legitimate substitute. I don’t think that situation will change for at least a decade — maybe longer.
Unprecedented Gold Rally
There’s one thing to keep in mind.
Since the dollar left the gold standard, gold has appreciated at an average rate of 7% per annum. That’s almost in line with the S&P 500. Meanwhile, the dollar has lost 97% of its value against gold.
But these losses have been highly cyclical. The dollar lost most of its value in the 1970s and in the 2000s. We also saw prolonged gold bear markets in the 1980s and 2010s.
In the last 10 years, gold has been almost flat against the dollar. It rallied in 2009 and 2010 but has been declining since then.
In this period, the U.S. government doubled its already excessive debt… and it shows no sign of pulling back. This imbalance will eventually correct, and gold will resume its rally against the fiat currency.
While I don’t think we will ever get back to the gold standard, I am confident that we will see gold at $10,000 in the long run. The timing is a big unknown, but the direction is inevitable.
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To golden opportunities,
Founder and CEO
Hard Assets Alliance