Source: Lew Rockwell | VIEW ORIGINAL POST ==>
“Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems.”
– Stephen Miran, nominee: CEA Chairman
“We’re going to monetize the asset side of the US balance sheet, for the American people.”
– Scott Bessent, US Treasury Secretary
– Matt Smith, entrepreneur and rancher
Henry George observed that tariffs are nations doing to themselves in peacetime what enemies inflict during wars.
Donald Trump disagrees.
Last week, the president issued…then postponed…hefty tariffs on Canada and Mexico. He also intimated he’d apply import duties on the EU, and imposed a 10% levy on products from China.
This week, he announced a 25% impost on foreign aluminum and steel, which appears to impact Canadians the most (or the Chinese, to the extent they reputedly ship steel to Canada and Mexico for laundering to the U.S.).
More tariffs are reflexively threatened based on how countries behave.
Dresden and Detroit
What’s going on here? Is this more “Art of the Deal” 4D Chess?
Or are these tariffs unforced errors, revivals of ideas so imbecilic even most credentialed economists can see the stupidity?
This administration assumes (or wants us to believe) that other governments have been ripping us off. But China, Canada, and Mexico are mere scapegoats. The real enemy is within… mostly in Washington, DC, northern Virginia, and southern Manhattan.
Corporate boardrooms, in conjunction with their purchased politicians, the Fed, and Wall Street are the real source of America’s woes. These are the entities that hollowed Cleveland, St Louis, and Baltimore, and shipped American manufacturing overseas.
If we look at Dresden and Detroit in 1945, then take a glance at each today, we know something went terribly wrong. It started with corporate boondoggles like the Marshall Plan, but continued with Cold War escapades like the Korean “conflict” and a catalogue of coups.
But, as always, to connect the dots we must follow the dollars. And especially what backs them… or doesn’t.
Monetary Resets
During the late 19th century, the U.S. prospered under a genuine gold standard. This lasted till the advent of the Fed in 1913.
A Potemkin version emerged after the First World War. But gold exchange rates in Britain were unsustainable, prompting the Fed to print money to help prop up the pound. This amplified the Roaring ‘20s boom, which collapsed when the hot air inevitably left the balloon.
Under the post-war Bretton Woods system, the US dollar was tied to gold, with other currencies tethered to the dollar. But “Guns and Butter” became scissor blades that cut the ropes.
As deficits mounted during the Great Society and Vietnam War, U.S. gold reserves dwindled. Other countries… notably France… feared their portion wasn’t there. On August 15, 1971, Richard Nixon proved them right.
It wasn’t the first time the U.S. government defaulted. FDR did so on April 5, 1933, when he devalued the dollar by 60%, and confiscated gold from American citizens.
Now Nixon took it from the foreigners. The “gold window” was officially closed, converting the dollar into what Doug Casey calls a “floating abstraction”.
The same day, to coerce cooperation from other countries, Nixon imposed 10% tariffs on all “dutiable articles” entering the US. Almost a decade and a half later, tariffs were again a lever that compelled US trading partners to help weaken the dollar.
On each occasion, the imposition or prospect of tariffs preceded a monetary reset. Is that what Trump’s tariffs portend now? Or perhaps the process is already underway?
Bread Crumbs
Most of what follows is based on digging my friend Matt Smith has done. He didn’t need to delve too deep. The components of the plan are out in the open, proudly proclaimed by the people implementing them.
But Matt brought them to my attention, and I think he’s on to something. He asserts that “the biggest economic shift in fifty years is happening right now”.
His X feed and this podcast reveal in detail why he thinks so. In essence, it’s because Trump’s team is telling us it is.
After several weeks following the bread crumbs, Matt found them to be as much a radar as a reminder. They suggest where we’re going, and that we’ve been there before.
Donald Trump is known for shooting from the hip and flying by the seat of his pants. But because he’s known for that doesn’t mean that’s always what he’s doing. In this case, he appears to be following carefully choreographed footsteps along a well-worn path.
Smithsonian to the Louvre
In a paper published several months ago, Stephen Miran, Trump’s nominee as Chairman of the Council of Economic Advisors, noted that international monetary systems can change unilaterally or multi-laterally. The latter is more desirable, yet more difficult.
Tariffs can be a crowbar to pry compliance. Miran reminds us of Nixon’s in 1971, and the ones Reagan threatened in 1985. In his assessment, each prompted significant revisions in foreign exchange regimes. In both instances, US administrations convinced reluctant countries to help pull the dollar lower.
A few months after Nixon imposed his tariffs, the Smithsonian Agreement amended the dollar pegs under Bretton Woods. This devalued the dollar… but not enough. Markets kept driving it down. Within fifteen months, it was set adrift.
A decade later, after Volcker’s exorbitant interest rates of the early 80s, capital flowed into the US and the dollar regained strength against its rivals.
At the time, Japan was considered the commercial challenger China is perceived to be today. To suppress the yen, Deutsch mark, and other currencies, Congress threatened “protective” tariffs.
Not wanting a trade war, Ronald Reagan sought a deal. In 1985, at the Plaza Hotel in New York, he got one. The U.S. and its major trading partners agreed to push the dollar lower.
They did. For two years the dollar weakened. At the Louvre eighteen months later, the parties met again, and the decline was halted at mutually agreeable levels.
Like his predecessors, Trump wants a weaker dollar. He also wants it to remain the world reserve currency, and has intimated he’d take action against countries choosing other options.
Triffin Dilemma
Valéry Giscard d’Estaing once referred to the dollar’s exalted status as America’s “exorbitant privilege”. It allows the country to avoid balance of payments crises because it can purchase imports with its own currency (which its central bank can “print” at will).
US dollars are the medium of exchange for almost every country’s cross-border purchases. This creates an inherent demand for dollars that lowers borrowing costs for Americans, and allows them to buy from abroad without commensurate production at home. As such, they needn’t manufacture enough exports to pay for their imports.
So they haven’t.
The US economy has been financialized, addicted to debt, and sustained by “services”. Tho’ some goods are assembled in the states, most of what Americans buy is made elsewhere. This forces foreigners to recycle their piles of dollars into US debt, which has been America’s primary export the last five decades.
The “twin deficits” exemplify the “Triffin Dilemma” Miran describes in his paper. According to Belgian economist Robert Triffin, a reserve currency requires a current account deficit, by which it is recycled into Treasury bonds that become base money in foreign central banks.
As domestic manufacturing declines, global confidence in the currency begins to wane. Conversely, inadequate deficits deprive the world of currency, which strengthens the dollar and incentivizes corporations to move manufacturing offshore.
This is the dilemma Trump faces, and that his team will use drastic tactics to try to resolve.
