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January 30, 2017 | ‘Gold Standard’ Needed to Fix Trade Imbalances!

Donald B. Swenson: Born January 24, 1943, Roseau, Minnesota. Graduated H.S. 1961, Moorhead High, Minnesota. Graduated College 1968, Moorhead State University, Minnesota. Designated member of Appraisal Institute (MAI), 1974. Employed with Western Life Insurance Company, 1968 – 71; Iowa Securities Company, 1971 – 73; American Appraisal Company, 1974 – 81. Part-time teacher/valuation consultant/bartender, 1979 – 2008 (taught workshops at Waukesha County Technical Institute, Wi. and Madison Area Technical College, Wi.). Retired 2008 (part time teacher/blogger), AZ. Self educated economist/philosopher/theologian:

Image result for america's trade deficit (in goods) since 1975

The Trump Doctrine wants to fix the trade imbalances which America runs with many of its trading counterparts (like China, Mexico, India, etc.). But this is nearly impossible without a return to a settlement mechanism like a gold standard or a gold exchange standard. Today, our fiat (cyber) standard allows the ‘dollar’ to serve as our balance of payments settlement unit. This unit has no anchor to anything fixed or stable. The floating ‘dollar’ standard allows trade imbalances due to the nature of the system.

America’s current annual trade deficit is some $737 billion (goods) and currently monthly exports are declining as monthly imports are rising. This imbalance is primarily caused by our corrupted cyber (floating) currency system where exchange rates fluctuate continually with our counterparts. The Trump Doctrine wants to create some balance in trade with countries which sell us more than they buy. But is this possible under our current corrupted cyber currency system?

I would suggest, NO. If our general global economy turns down substantially then we could witness some decline in our imports but our exports would likely decline even more (so relative imbalances would continue). If our economy continues to grow (as it is currently) this same imbalance is likely to continue due to automatic adjustments in currency exchange rates. The real problem with the Trump Doctrine is that settlement between our counterparts is unstable due to the SYSTEM (the floating cyber system).

The imposition of tariffs (say with China, Mexico, India, etc.) will reduce imports (to a degree) but it will also increase prices for our consumers (not good). Bilateral trade agreements are unlikely to solve any of these trade imbalances as our SYSTEM is the problem. What is needed to resolve these continuing trade imbalances is a GOLD standard or similar. Stable currency exchange rates with final settlement in gold might work (under a new global agreement). But a gold standard would also mean that countries must accumulate gold as a reserve. Who can do this?

A gold exchange standard (like the previous Bretton Woods Agreement) might also help to temporarily stabilize global exchange rates if our markets were similar to 1944-46. My sense is, however, that our international currency system is now so corrupted that ‘nothing’ will work at this time. The current non-system would need to collapse completely prior to implementing another international system. Today, our cyber (floating) exchange rates promote instability and beggar thy neighbor trade polices (due to the nature of our system).

What Mr. Trump and his team of advisers need to recognize is that a floating cyber currency system (as we now have) creates all these trade imbalances and unfair trade relationships. The SYSTEM is our problem and blaming China, Mexico, India or any other trading counterpart will not improve our immediate situation. America needs to focus on cleaning up our own financial house of cards (debt, deficits, and excesses) prior to attempting to change the other. This is the difficult message that needs to get to Mr. Trump!

My sense is that the Trump trade doctrine (as espoused during the recent election period) was logical given the serious imbalances we now witness…but the solution is not to impose tariffs and taxes on our innocent counterparts. The solution is a NEW SYSTEM for our planet (where cyber currencies are eliminated). The system is our problem and a NEW SYSTEM means that the old must first collapse. Under Capitalism this is called ‘Creative Destruction’. America should start the trend towards cleaning up her own house now so that this ‘example’ permeates to all our counterparts. What do you think? I am:

P.S. Kingdom Economics would suggest that a better alternative (after the collapse) is actually the elimination of all monies from the system…but this is a deep philosophical debate which must wait for another day!

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January 30th, 2017

Posted In: Kingdom Economics

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