Guest Post by Hugo Salinas Price
Way back in 1995, when Mexico was in the throes of another financial crisis, I figured out the problem of the existing world’s monetary system, based on the paper dollar as the fundamental currency of the world.
In my ignorance, I did not know that a man named Triffin had already pointed out that problem, which became known as “Triffin’s Dilemma”.
The problem is really very simple:
If the dollar – such as it is – is going to be the basis of the world’s monetary system, and therefore required by all Central Banks as Reserves, there is only one way that these CBs can obtain those Reserves: their countries are forced to undersell all US producers, in order to be able to sell more to the US, than they buy from the US. The difference between the dollars they get from sales, is more, than the dollars they spend to buy from the US. That difference – known as the US Trade Deficit – flows to the CBs of the world and swells their Reserves.
So if Mr. Trump wants to cut down, or even ideally abolish the Trade Deficit, that would mean that foreign CBs would have to find it much harder to obtain dollars for their Reserves. Mr. Trump apparently does not want to have foreign CBs use dollars as Reserves, by making it very difficult to obtain those dollars – which they can only get if the US runs a Trade Deficit.
What that great world monetary system based on the paper dollar has done to the US, was quite unexpected: it consists in obtaining foreign goods by tendering paper money in payment, something that is fundamentally fraudulent. And that fraud has come back to haunt the US, quite unexpectedly.
The unexpected result of Triffin’s (or “Hugo’s”) Dilemma, has been the de-industrialization of the US, as the world geared up to undersell all US producers wherever they could do so, in order to obtain the indispensable US Dollars.
Mr. Trump is wildly alienating all the rest of the world, with the threat of Tariffs in order to reduce the Trade Deficit. What he does not understand, is that the Trade Deficit is built-in to the US economy, because the world´s CBs need Dollars for their Reserves: that is the System.
There is one way, and only one way, to do away with the Trade Deficit and renew the productivity of the US: abandon the present International Monetary System (derived from the original Bretton Woods Agreements of 1944) and return to the gold standard.
There are no “Trade Deficits” under the Gold Standard, because all countries have to pay Cash Gold for their imports, and collect Cash Gold for their exports. Result: Balanced Trade. No Trade Deficits.
A question in the back of my mind: Is Mr. Trump’s “madness” really leading to the Gold Standard? Is that what he really wants? Because if he continues to undermine the present US Dollar as the World’s Reserve Currency, by making it impossible for CBs to obtain Dollars through the US Trade Deficit, that would appear to be the likely final outcome.
That was just a tremendous skit; it really helped me this morning.
I don’t think Hugo understands things very well. He conflates two weakly related things and assumes that the jobs left because of the trade deficit. Perhaps he is correct but I doubt it. I don’t even think that the Triffin dilema relates directly to the “trade deficit”, I think it simply states that the economy of any country that provides the reserve currency is going to run at a deficit. That deficit is not necessarily only due to an imbalance of trade. There are other ways for countries to get the reserve currency. They can, for instance, buy some of it. It doesn’t all come from the trade deficit.
https://en.wikipedia.org/wiki/Triffin_dilemma
But he is correct in one way. If you want to be the worlds reserve currency, you will have to run a deficit. I think of it as the deficit which is baked into the cake is the cost of providing all of those dollars to others without having it enter into the merkin economy.
US$ is only approx. 38%, and has been falling for years, of CBs reserves. EUros are approx. 30% of CB reserves. Yuan and other currencies make up the balance!
As long as you have a non US$ flowing into CBs you can always buy US$.
Trump wants to disintegrate the EU and kill the euro as competition!
The Chinese yuan is on the destruct list too!
Fact!
Forget Triffin. Hugo sees the real dilemma. If Mexico can’t bleed the United States dry, via trade deficit, remittances, and narcotics trade, Mexico has no economy whatsoever. Suck on that Fred Reed. Hugo’s argument is nonsense.
Starsky, if you listen to the media, you begin to imagine all Mexico has going for it is crime; human trafficking, drug smuggling and illegals working.
Mexico also has lots of maquilas manufacturing American products at a fraction of the cost here in the US. They have auto assembly plants and aircraft manufacturers.
They are in the process of destroying their tourist business in Cancun (but that may be an inside job) and killing reporters and politicians may seal Mexico’s kakistocracy in the making.
The destruction of the peso was not all their doing. Dick Cheney said they would have to do something about the peso problem when Mexican yield rates were so high that Americans were investing in pesos. The peso was devalued overnight but it was anticipated over here.
In politics, nothing happens by accident. If it happens, you can bet it was planned that way. Franklin D. Roosevelt
Why does almost everyone consider Mexico to be a friendly country? Some people even seem to think of them as an ally for some reason although they’ve never been on our side on anything outside of their own interests.
I read somewhere that they sent part of their air force to help in WW2. I didn’t know they had an air force but what the heck.
Why does almost everyone consider Germany to be a friendly country? Some people even seem to think of them as an ally for some reason although they’ve never been on our side on anything outside of their own interests.
Ditto most of Europe.
Hasn’t Trump thrown it out there that he would like to return to the gold standard?
So where would we get the gold? Confiscate it from the people again?
And how would we keep it instead of having it all migrate to Europe, China, Mexico, etc. the way it did in the first part of the last century (mostly to Europe at that time)?
That’s why we ended up going off the gold standard (along with every other nation) in the first place, give some thought to where all those old US gold coins you see for sale came from after gold was re-legalized for private ownership again.
If you wish to delve into how a gold standard can work with a fixed amount of gold I believe Mises.org has all manner of information.
The problem for TPTB which I generically label Ivy League shitheads, is that they control paper money, get to use it first upon creating it, can get it free or at 0.25% at the FED Window etc.
Every new federal reserve note created, whether printed or digitally summoned reduces the value of every Dollar you have as it is not an increase of net worth but an additional subdivision of it. As Lenin told Keynes, eventually the government confiscates all the wealth of a society and “not one man in a million understands it.”
A gold standard is deflationary and rewards saving and investment. Fiat money is inflationary, punishes saving and promotes malinvestment and the breathless wait for “quarterly results.”
Jake, you didn’t answer any of my questions.
All of which need direct answers if a gold standard is to be considered.
The first being, where’s the gold going to come from and how do we keep it (remember last time that it was taken from Americans and given to Europeans to pay our debts to them and back the paper dollars we were, at that time, calling gold certificates).
So we go to gold and the amount of foreign debt we owe in treasuries and cumulative balance of trade deficits immediately leaves the country. What does that do to us other than seriously reducing our remaining gold (money) supply since there is little of it left here to use for our own debts to each other?
I suggest you investigate Mises.org. They explain it much better than I can. They do explain it and why the amounts of gold are less important than many think when first presented with the idea. Keep in mind we have been propagandized endlessly and gold has been off the table for nefarious reasons since 1933, with the big kibosh in 1971.
Keynes knew this in 1943. That is why he said ‘Nobody lives forever.” Triffin finally put it to paper in the 60’s after it was painfully obvious. We get free shit by printing dollars, the trap is the interest that eventually cannot be serviced.
Hi guys, I’ve been lurking for several years. Thought I’d chime in. As far as I’ve seen this is one of the most intelligent and interesting sites I’ve found. Thanks for what you’r doing. (Snowman is my trail name since 1986)
Nice comment above. Welcome aboard.
Fuck you anonymous, who are you to welcome anybody here? We don’t know what Snowman stands for; selling state secrets to Russia with the help of Falcon (another noob here)?
Thanks for that Dumas. I stand for freedom and the liberation from the tyranny of the Federal gov. Shut your gob if you don’t know me. Cheer’s.
You’re not a Jew, are you?
Anything other than a French Cajun is insulting.
With a name like >>>shey<<<< hardly! Remember the Liberty.
Everybody, don’t mind Snowman, he can’t help it.
Here’s what I think most people do not understand, moving markets are a requirement to make money.
Not but a few years back, a wall streeter went on air and said wall street does not care if the
market goes up or down, they make money on movement. Movement or disruption causes money
to change hands. So, by going after the trade deficit, Trump will cause massive movement.
That’s true for both stocks and commodities.
FWIW, you don’t actually make or lose money till you sell.
In your opinion, where are the investment opportunities if the trade deficit shrinks?
Business, not paper
If you’re not into trading the cycles of stocks, commodities, etc (i.e. buy low sell high as the cycles continue to do the same over and over again) I would thing productive land is probably the best place to put your money if you have enough to get into it. No matter which way things go, you still have the productive land and it still produces income for you.
If these observations are true; which they seem to be, then it will be good for the United States.
We need to restore our manufacturing base to serve our own needs. And we need to restore this base; not through the large corporations that bought up all the current brands, but by new companies started by engineers creating and marketing new products, that can compete with these large corporations. These large corporations are monopolies with excess corporate baggage, less than competent foreign engineers and underpaid workers who have no incentive to produce quality products or provide true customer service. The true aim of these corporations is to provide the best return possible to the investors. Customer service and quality products leaving their manufacturing facilities is secondary. This is the true job of the CEO of these corporations. Why do you think these brands were bought up by these huge corporations? It is because these brands build up a name by providing a quality product for a reasonable price along with quality customer service. These large corporations are using the brand name; not to provide quality products and services, but to increase profit for their investors. These corporations have traded quality for quantity, dedicated managers for flunkies in middle management as “yes” men, and well paid quality workers replaced by less than qualified low paid workers on the assembly lines. And for quality control? It is out the window. Brand name products in durable goods are not the quality they once were.
This is why wages in manufacturing has not kept up with inflation while the price of the products have and at the same time the quality of the products have declined.
I have worked in manufacturing a good part of my life and can see the difference before the brands became part of the mega corporations and after. These mega corporations are the reason we have so much government regulation in the manufacturing standards of durable goods. Who do you think suggests and writes the regulations for the government? This is done to increase the cost of goods and at the same time eliminate competition. Why is it that a refrigerator that sells for $2500 in the big box stores but only costs $200 to manufacture can be allowed to happen? It is because of the monopoly these corporations have in the market place. It is this way with all durable goods. Real free trade without government interference would end this practice.
One more scam initiated by these mega corporations is so called high efficient products that save energy. What you are not told about these products is that to get this efficiency quality has to be discarded. Years ago when american engineers designed products they built into the products a service factor that accounted for rough service. That is why their products lasted so many years; unlike the products made today under the scam name of “high efficiency.” This goes for such products as automobiles, appliances, air conditioners, electric motors, pumps, compressors, and many other durable goods. These goods are less expensive to manufacture because they have been stripped of their durable nature yet in today’s market they cost a lot more. Do you see what has happened here? Quality is removed without a reduction of retail price means more money for the investors and the CEO.
If america is to be first again these large corporations need to face competition.
So donald trumps madness is not madness after all. He is shaking up the status quo. It is long past due.
Thunderbird – your opening sentence is proof you do not know what you are talking about. Your comments re quality are also nonsense. You parrot positions that have no basis in fact. Manufacturing quality, for instance, has skyrocketed because more is being done without human intervention. Robotics and automation are inherently superior in manufacturing. And more and more is being done each day without the need of human input.
The US manufacturing base is same as it ever was. Manufacturing as a percent of GDP remains unchanged. It has been constant, more or less, for decades. Manufacturing never went anywhere. It just became far more efficient than it was, and requires far fewer employees as a percent of population to produce the same percentage of GDP as it always has produced. And the percent of workers needed to produce that same percentage of GDP will continue to fall. It is not yet bottomed out.
So why is there a deficit? Because of debt, both personal and private. Consumers and govt are consuming beyond what they produce. In addition to what is produced, they have decided it is a good idea to borrow and consume even more. Borrowings/debt have been used to buy cheap foreign shit. Each year the US consumes more than it produces, financed by debt.
The US is a massive manufacturing nation. Massive. But it no longer requires many workers to produce its manufactured goods. Manufacturing is not returning for that singilar reason. No matter what, manufacturing is a dying industry with respect to employment. Nothing will cahnge that.
You did not address Thunderbird’s inference to the stripping of durability.
Well, you all know how I hold pooh in such low regard. But here he is exactly right. And it isn’t just in manufacturing either. Lawyers are being laid off. Nurses are being laid off. McDonalds burger flippers are being laid off. And it’s all because it is cheaper to do the job with a computer…that’s capitalism baby. It’s all great as long as the capitalism is working for you, but it get’s real ugly when the capitalism turns on you – as it inevitably will. I am not saying that socialism is a better version of capitalism. What I am saying is that as the jobs start to disappear, eventually it will get down to your job. Even picking strawberries will be done by a machine. Now that might be great for profits and it might be great for capitalists like pooh, but it won’t be great for you and it won’t be great for me. Well it might be great for me but definitely not for you.
So in the end, once all the jobs are done by computer and none of us can have a job, just what are you going to do with all of the useless people? Remember, you will be one of the useless people. I am pretty sure that you will still want to eat some of those strawberries. You will want to live someplace and you will probably want to do something all day besides carping on the internet about how you cardboard box melted in the last rain storm. Pooh is right, but it doesn’t end there. It always ends with one player holding all of the monopoly money.
Yes, I believe unfettered capitalism is a dead end.
There are plenty of fetters.
Ok. Unfettered crony capitalism.
Monopoly’s a game. It ends when the cash all ends up in one spot. In the real world, you’re still left with the pissed off poor people still sitting at the table. The guy who leaves the table with the cash is never able to hold on to it forever.
Personally, when the SHTF I’ll back a pissed off loser over the guy with all the cash as long as I can.
Llpoh I’m not sure where you are coming from. What part did you play in the manufacturing scene? You don’t talk like you had anything to do with the manufacturing process other than statistics about robotics increasing production at the expense of quality. In that case your only concern is with bodies needed for the work robots cannot do.
When it comes to quality verse quantity you really don’t seem to know what your talking about. My experience with manufacturing involved the technical aspect of production and quality control. I can tell you in no uncertain terms that quality went down with the introduction of robots along with quality control. Remember a robot cannot think nor is it creative. It can only do what it is programmed to do. And that is limited in the fabrication and assembly process. It does not have the human touch that assures quality.
Robots are designed for quantity not quality in the manufacture of durable goods. They cannot build up a pump station, an air conditioning unit, a refrigerator, a washing machine and a long list of other durable goods that take skilled labor. Robots can do certain tasks but far from doing many other factory jobs. So I really don’t know where you are coming from.
Don’t get to high on robotics. Skilled labor will not be replaced by them. Robots are part of the process but not the entire process by a long shot.
In food manufacturing I agree robots have taken over production. The functions in food production are more suited to robots. But I am talking durable goods which will always take skilled labor to produce quality.
The bottom line with the mega corporations seem to be make the product as cheaply as possible using cheaply made parts and as fast as possible using the cheapest labor possible so the investors can make money. Durable goods are made up of many parts from various sources. To cut costs many metal parts of more durability have been replaced by plastic parts. One year warranties are standard because that is how long the item is designed to last. How does this square with what you say about quality going up?
If you don’t mind me asking what was your function in manufacturing?
The silence is deafening.