The Trump Gold Standard with China and Russia

Economics, Premium POM

POM called the China Mar-A-Lago visit 4 months ago. Let’s see what happens this week as Xi visits Trump on Thursday and Friday.

From the Dec 5 post:

The stage could very well be getting set for a return to sound money principles with the establishment of semi-gold standards in not just China and America, but also Russia and India, and perhaps a few smaller players as well. It is obvious that the Trump machine is more aligned with these international players than the Anglo-American establishment which he just overthrew domestically.

This also aligns with the recent announcement of coordination between China and Russia on monetary matters as the Central Bank of Russia opens a representative location in Beijing.  The South China Morning Post is also reporting that Russia and China will be making transfers between their gold trading platforms more open and efficient.

Some are getting excited about this and promoting the concept that China and Russia are about to switch to gold-back currencies and completely by-pass the USD.  I can assure you that this is not the case.  Ease of trade between each others gold trading platforms does not support the leap of gold backed currency.  But it could be a step towards some form of partial gold backing as was described in the POM post from last December.

America has to be a part of whatever path forward is taken.  This is why Russia and China are working towards alignment with Trump on monetary and geopolitical matters.  It will take the coordinated effort of both of the worlds largest economies, America and China, to rebalance the international monetary system.

Unilateral action by America, China, or Russia will not be constructive and will not facilitate the forward movement on monetary and financial challenges which the world faces.  It may appear that they are opposing the policies of the other but that would be only appearance.  Trump could spark renewed outrage if he asked the Federal Reserve to devalue the USD to combat China currency manipulation.  But this would in fact be the actual plan unfolding.

As I stated almost two years ago now, the Trump doctrine will be used to transition American institutions and culture to accept the larger multilateral monetary transformation.  Trump is the bad cop to the good cop position which is attempting to be played by China, Russia, the Democrats, and other nations who find themselves on the disintegrating end of America’s shifting policies and strategies.

Here is the complete post from Dec 5, 2016:

The Greatest Deal of All Time – Mar-A-Lago Monetary Conference to Discuss American & Chinese Gold Pilot Projects

We have previously covered the addition of gold to the Special Drawing Right (SDR) of the International Monetary Fund. The SDR is being further developed to act as the international reserve unit of account and will replace the international role of the USD through an incremental process which began after the financial crisis. The need to re-form the international monetary system has been well defined and explained here, but the exact role of gold in that re-structuring has not been so clear.

The debate has been around whether gold should in fact play a role in helping re-structuring the international monetary system, and if so, would it be added directly into the SDR weighted composition alongside the US dollar, Chinese renminbi, British pound, euro, and Japanese yen, or would those currencies move to a gold standard domestically?

Either scenario would add support to the SDR. But let’s consider that the rise of the new modern nationalism, and a re-focus on using national currencies to strengthen domestic growth and financial markets, would suggest that gold would be better used to stabilize currency and act as an indirect support of the SDR.

The new modern nationalism, which we have also discussed in previous posts, is meant to encourage economic growth and assist in selling the new international monetary system as an anti-globalization strategy. This may not be as clear to everyone at this point in time but it will be as larger pieces begin to move into place.

President-Elect Donald Trump has suggested that he would favor a return to a gold standard and has in fact surrounded himself with some advisors who want the same. Dr. Judy Shelton, co-Director of the Atlas Sound Money Project, has been serving as an economic advisor to Trump and has been in broader discussions with Steve Mnuchin. Mnuchin has now been nominated for the position of Treasury Secretary.

Trump has also met with John Allison, former CEO of BB&T Bank. Allison also wants to bring back the gold standard and wants to remove the independence which the Federal Reserve has had for a long time. Allison is also part of the Cato Institute which is interested in monetary reform as well.

Interestingly, the Cato Institute was founded by Charles Koch, who will profit from the approval of the Keystone Pipeline (Koch Industries owns the holding facilities at Hardisty, Alberta, which is where the pipeline starts) and has been helping Trump, even though he doesn’t like Trump. Business is business, and even the Koch brothers can recognize that Trump is being supported by something more powerful than them.

The stage could very well be getting set for a return to sound money principles with the establishment of semi-gold standards in not just China and America, but also Russia and India, and perhaps a few smaller players as well. It is obvious that the Trump machine is more aligned with these international players than the Anglo-American establishment which he just overthrew domestically. Such an alignment on huge monetary challenges will shift the world away from military conflict and larger war risks. It also aligns America with the interests of China as Beijing has been a huge supporter of the SDR and re-forming the international monetary system.

How Trump interacts with China will tell us a lot about the direction moving forward.

Sometime in the first quarter of 2017 we could see a monetary conference held at Trump’s property in Mar-A-Lago where such a gold standard will be discussed amongst the major international banking interests. Discussions would include concepts such as running a gold standard pilot project, which would see some US Treasury bonds and Chinese bonds supported with gold, and re-aligning the exchange rates.

There could be a period of time where gold backed bonds and regular bonds run parallel to one another. It could even be a permanent strategy to maintain parallel and dual bond issuance systems between the two largest economies in the world. This alignment of strategy and team work, with semi-gold standards, would be beneficial during times of financial and economic volatility when the value of gold goes up. Having bonds from both nations pegged to the price of an ounce of gold would make exchange rates more market driven.

It would only be a matter of time before more nations followed America and China and strengthened their own domestic currencies with such semi-gold standards. The more stable these currencies become the more acceptable the SDR as an international unit of account will become. Keep in mind that the Bretton Woods gold standard was used to get the world to accept the USD based unipolar system. A similar strategy could now be used to get the world to accept an SDR based multilateral system.

Nations will buy into this multilateral framework by stabilizing their own currencies and economies with gold standard systems. Such a strategy could very well be discussed at another Bretton Woods like conference. But this time, instead of being held in New Hampshire, it will be held at Trump’s Mar-A-Lago, as he gathers the world for the greatest deal of all time. – JC

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JC Collins can be contacted at jcollins@philosophyofmetrics.com