I continue to get lots of questions about this Jim Rickards ad from Agora, and the ad itself has been (clumsily) updated a few times since we covered it back in November of 2017 (the latest “by March 19, 2019” ad even suggests that Yellen is still President of the Federal Reserve, and the date under the signature is still July, 2017), so I’m (lightly) updating my coverage here…
I’ll cut to the chase at the start and say that no, President Trump did not nominate a “gold bug” to run the Federal Reserve, and the US did not cooperate with the world’s other major economies to form a new gold standard on January 1, 2018… and I’d bet you whatever you want that they won’t do it on November 8, 2018 or on March 19, 2019 either (those are all ‘critical deadlines’ that were hyped in previous versions of the ad).
So that’s a long way of saying that most of the article below was first published on November 7, 2017, when I first covered this ad. It has been lightly updated, with some additional sarcasm applied to cover the interim 15 months or so… indeed, I’d say it has been more carefully updated than the ad itself, which seems to have been updated solely through the use of a “find and replace” change for the dates and still refers to Janet Yellen as a member of the Federal Reserve Board of Governors, but, well, that’s just a little extra snarkiness from me — no charge.
This ad is so ridiculous I resisted spending time with it for a while… but the questions are piling up again, so let’s dig in and see what Jim Rickards is peddling. Be warned, I’ll probably use too many words and may do a bit of ranting.
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 nei