Although he is likely to win a second term, Donald Trump has already accomplished something that will stand as a benchmark of his future legacy. It was on Trump’s watch that for the first time since the fateful year of 1973 that the United States reclaimed its position as the number one producer of oil in the world. In the process Russia was knocked into second place and Saudi Arabia into third.
Beyond this, Trump’s opposition to crippling regulations at home and his penchant for using sanctions, tariffs and the threat of both to effectively force countries from Asia to Europe into purchasing US energy exports has made the US the undisputed king of the global energy trade. This fact was just acknowledged by Igor Sechin, the CEO of the Russian energy giant Rosneft. While Sechin agreed that America is now the king of black gold and is likely to be so for decades to come, the other side of this equation is about the actual gold that the US and even its rivals ought to be discussing with an intense urgency.
As geopolitical expert Andrew Kroybko stated, whilst predictions of America’s forthcoming decline have always been greatly exaggerated by certain pundits, America’s growing supremacy over international energy markets is going to forestall overall US decline in a major way. But whilst Asia is growing more prosperous and stands to unite this prosperity into a network of win-win relations via China’s Belt and Road initiative (BRI), when it comes to the energy hungry powers of Asia, the United States now has a major trump card insofar as the oil that countries like China, India, Korea and Japan want to buy is increasingly being sold via Washington.
This is either good news or bad news depending on one’s nationality, philosophy and most importantly one’s financial portfolio. But in the long term, this scenario could degenerate into a major lose-lose situation because a key side effect of American energy dominance will be the preservation of an unsustainable fiat dollar.
With the US set to receive added revenue from global energy sales to increasingly energy hungry Asian powers, this is the perfect time to pivot back to a classical gold standard in which the US dollar’s value is derived from its relationship to gold. Furthermore, if the US were to price its oil and liquefied natural gas in gold/gold backed dollars, it would have the effect of benignly forcing other major powers including China to pivot their own monetary policy towards a gold standard. This would be a long term win-win situation for most of the world.
Although neither the US nor China peg their currency to a metallic standard, unlike the US, China has exercised a comparatively conservative monetary policy which both avoids the pitfalls of a freely floating fiat currency whilst also offering the slight flexibility that comes from a managed float of the renminbi.
Ultimately though, the monetary stability that comes from a metallic standard will mean two things by the end of the 21st century. First of all, it will be the final piece of the puzzle in respect of China’s rise to the status of economic world leader. Secondly, it could represent the United States truly making itself great again by rejecting the fiat currency dept traps that fuel the military-industrial complex whilst destroying the country’s long term economic fortunes.
China has been quietly buying a great deal of gold on the global market and while this in no way indicates a desire in Beijing to pivot to a gold standard anytime soon, it does at minimum indicate the fact that China’s leadership is thinking of a long term reality in which gold will provide a crucial shelter during an economic rainy day (or season, or year or multiple years).
Turning back to the US, one must make it clear that if the US went back on the gold standard, the following positive developments could be achieved:
–internal price stability/low inflation
–low interest rates that do not unsustainably balloon the money supply
–a shift away from financial capitalism and real estate speculation and a pivot back to investments in productive industries including both large scale manufacturing as well as small and medium sized businesses
–a government that would be forced to live within its means (including the military -industrial complex which relies heavily on subsidies made possibly through an out of control money supply)
–better long term prospects for low and middle earning savers
–the ability of ordinary people to once again own rather than rent their own properties
–a shift away from speculation and a return to saving
–monetary policy removed as a tool of social engineering and geopolitical manipulation
In respect of international conditions, a return to gold would solve the primary grievance that Donald Trump claims to have vis-a-vis China and the best part is that it would solve that matter without the need to resort to punitive tariffs, sanctions or a trade embargo.
One of Donald Trump’s chief complaints is that Chinese goods are priced too competitively. Although this accusation stems from a misreading of China’s internal development model, when one talks about international trade, every country in the world that uses a fiat currency is by definition a currency manipulator. It is the radical differences in the values of fiat currencies world wide that allow for major price gaps in the value of international imports and exports between nations. Likewise, it is the radical shifts in the value of these fiat currencies that cause international trade to become a speculator’s paradise rather than simply the mainstay of producers and consumers in a free economy.
By contrast, if all nations were to price their goods based on a local currency that is worth a specific amount in gold, the international prices of goods would become immensely more stable. As such, the penultimate desirability of a product would be based primarily on its quality and on its real world price competitiveness. This contrasts with goods whose international prices can be easily manipulated due to unstable monetary systems.
To be sure, China’s crawling peg renminbi is less manipulated than the freely floating dollar but in reality, all currencies not tied to a commodity of universal value like gold are ultimately tools to be manipulated rather than a universal value that no one government can control.
At a time when the US is still the world’s largest economy in terms of GDP, if Washington asked the world to price its goods based on their value in terms of gold rather than in terms of a fiat dollar, the United States would be able to shape a future in which the global prices of both imports and exports would be far stabler, thus ending any accusations that cheap imports are the result of currency manipulation. The fact that the US was a major world exporter when on the classical gold standard likewise offers a clear template for how gold can result in win-win outcomes in respect of both imports and exports. With more oil and LNG revenue coming into the federal coffers in Washington, this would be the ideal time to begin the decade long pivot back to gold.
When it comes to countries that refuse to price their goods in gold, the US can level a fair and flat tariff on all such goods until such a time that an import partner is willing to price their goods in terms of gold rather than a fiat currency.
Inversely, if the US waits to begin a pivot to gold, it may well be China telling the US that it will only take payment for its exports in gold. If unprepared for such a day, this would leave the US at a severe and genuine disadvantage, quite unlike the imagined disadvantage that Trump believes exists today. Therefore, if China feels that the US is using its fiat dollar too menacingly due to the non-gold backed greenback’s foreseeable resuscitation powered by oil, China might be the one to eventually force the US back onto a gold standard sometime in the second half of this century. If China began pricing its exports relative to gold, the US would have no long term choice in the matter. Under such a scenario, countries building up their gold reserves from Russia to Turkey would likely join China in a drive to push back against a weaponized dollar.
If the opposite were the case and the US was to be the first to go back to a classical gold standard, China and the US would necessarily work collectively in a joint pivot to gold. Because China’ renminbi is still valued based on a crawling peg against the dollar, if the dollar reverts to a gold standard, it is almost certain that China would follow.
The best solution therefore would be for China and the US to dig their way out of their current trading dispute by agreeing to a medium term phased transition to a gold backed trading regime. By solving the monetary issue once and for all, open, free and crucially fair trade would exist on both sides in a way that no one could genuinely complain about unless they are simply opposed to free market systems.
China and the US could therefore work mutually to shift back to gold and once the two largest economies were to do this, the rest of the world would surely follow in due course.