Why Donald Trump's "Sound Money" Stance Scares The Mainstream

Tyler Durden's picture

Authored by Judy Shelton, originally posted Op-Ed via The Wall Street Journal,

The source of trade anxiety is a broken global monetary system that distorts price signals with sharp currency moves.

The surest way to become alienated from Donald Trump supporters is to invoke the word “global” with regard to trade or economic interests. Even if you embrace the Trump economic agenda for enhancing U.S. competitiveness by lowering taxes and easing regulation, even if you support an “America First” approach for tackling domestic shortcomings from education to infrastructure - there is still a negative stigma attached to proposing any kind of global economic initiative.

Yet by insisting that the U.S. Treasury label China a “currency manipulator” and by promoting trade that is both free and “fair,” Mr. Trump may be laying the groundwork for a significant breakthrough in international monetary relations - one that could ultimately validate the rationale for an open global marketplace and restore genuine free trade as a vital component of economic growth.

The notion that something good might come out of a Trump policy elicits guffaws in certain economic circles. And questioning whether today’s exchange-rate regime serves the cause of beneficial cross-border commerce is tantamount to advocating protectionism. Nevertheless, Mr. Trump’s emphasis on currency manipulation brings into focus the shortcomings of our present international monetary system—volatility, persistent imbalances, currency mismatches—which testify to its dysfunction. Indeed, today’s hodgepodge of exchange-rate mechanisms is routinely described as a “non-system.” Or, as former International Monetary Fund chief Jacques de Larosière termed it at a Vienna conference in February 2014, an “anti-system.”

If monetary scholars once diligently sought to explain the relative virtues of fixed-versus-flexible exchange rates on global economic performance, they have largely abdicated any responsibility for the escalating political backlash against trade that blames currency manipulation for lost business.

No serious economist would claim today that the “dirty float” intervention tactics practiced by numerous countries would be remotely acceptable within the freely flexible exchange-rate system envisaged by Nobel Laureate Milton Friedman. Nor would anyone suggest that any coherent mechanism exists comparable with the fixed-rate system anchored by a gold-convertible dollar that reigned in the decades following World War II.

Nobel Laureate Robert Mundell has consistently argued for the restoration of a system of formally maintained exchange rates to reduce uncertainty and promote growth. Yet the lack of willingness among the great majority of economists to recognize the imperative for global monetary reform to avoid a breakdown in global trade relations has left policy makers in the lurch. Faced with mounting demands to address currency manipulation through “strong and enforceable provisions”—i.e., tariffs—those who support free trade are being forced to consider the broader implications of a sluggish world economy that has become overly reliant on central banks.

Is it more egregious when governments deliberately intervene in foreign-exchange markets to manipulate currencies to gain an export advantage—or when central banks seek to accomplish the same thing through monetary policy?

The point is that today’s free-for-all approach to international monetary relations permits nations to pursue any exchange-rate policy they wish. Relative currency values are thus vulnerable not only to the manipulative tactics of government authorities, but also to the speculative maneuvering of foreign-exchange traders—the most active of which, in a market that averages $4.9 trillion in daily volume, are the world’s largest banks.

No wonder so many workers employed by U.S. companies that manufacture products requiring substantial capital investment—automobiles and tractors, computer and electronic equipment—have become disenchanted with the supposed long-term benefits of free trade. It is one thing to lose sales to a foreign competitor whose product delivers the best quality for the money; it’s another to lose sales as a consequence of an unforeseen exchange-rate slide that distorts the comparative prices of competing goods.

To brand trade skeptics as sore losers is to malign them unfairly. To resent being victimized by currency movements is not the same as being opposed to free trade, nor does it signal an eagerness to engage in protectionist retaliation. It’s simply an honest response to incongruity: We need to reconcile global monetary arrangements with global trade aspirations.

As former Federal Reserve Chairman Paul Volcker has observed:

“Trade flows are affected more by ten minutes of movement in the currency markets than by ten years of (even successful) negotiations.”

Mr. Trump’s forceful rhetoric may help put an end to the politically correct attitude so prevalent among economists that breezily dismisses what was once accepted as a truism: Stable exchange rates foster long-term prosperity by maximizing the productive use of economic resources and financial capital. Why continue to passively accept the negative economic consequences of global monetary disorder? Why permit legitimately earned profits from business operations and investments in foreign countries to be wiped out by unpredictable currency losses? Why hold global economic growth prospects hostage to antiquated exchange-rate arrangements?

It’s time to end the intellectual vacuum and focus on serious initiatives for global monetary reform. The goal is to maximize prosperity by harnessing the power of free-market signals across borders. Monetary clarity is the key to reconciling the principles of free trade with the promised benefits of an open global marketplace.

By focusing on currency manipulation as an unfair trade practice, Mr. Trump has not only identified the crux of the economic dilemma, he has also spotlighted the social and political tensions its consequences have fostered.

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Antifaschistische's picture

"it’s another to lose sales as a consequence of an unforeseen exchange-rate slide that distorts the comparative prices of competing goods."

So, is the author suggesting that a viable strategy for the US is to DEvalue the US Dollar to maintain "competitiveness"?

wow, how could we possibly shield ourselves when .gov openly pursues a currency deval agenda.

hxc's picture

The author probably just wants a fixed exchange rate system based on gold, or at least a system where printing slows to a trickle and we maintain far more stable exchange rates, forex etc.

FreezeThese's picture
FreezeThese (not verified) hxc Aug 11, 2016 8:26 PM

It's not going to happen ... no worries

Déjà view's picture

Fair trade coffee prepared in Made In China coffee appliance...WTF!

froze25's picture

Looks like to me the author is talking about offsetting foreign devaluation of currency with import tariffs. NOw we would need to  get  our printing press under control too. Good start. 

wildbad's picture

gummint intervention / manipulation by any other name will still stink.  the current system is a concatenation of fixes for fixes for fixes meant to pick winners and insure losers inlieu of real economic forces.

get the flock out of the way and use metal or land backed non-fed paper and let the austrians sit back and gloat

jefferson32's picture

Mark my words, the next crisis will be pinned on "a lack of coordination by central banks", "dog-eat-dog unilateral monetary policies", "isolationists", etc. This article (and many other similar ones) are setting the stage for such narrative. The solution? Why, a one-world monetary order of course.

scm's picture

Just how will thump fix the money without talking about ending the fed.

"Outsider" is a fucking joke.
Vote for a REAL outsider
A REAL anti-establishment vote would be to write in Ron Paul
Thump and Clinton are one in the same. NOTHING will change.

TuPhat's picture

The article basically says we need free trade that is completely under gov control.  Even trump does not really understand what stable money means.  I still have some hope for him though.

tricorn teacup's picture

If the values of 2 currencies are stable, whether by precious metal backing or sound disipline, the exchange rate should be similarly stable.  But attempting to fix an exchange rate without fixing the currencies to a common underlying factor is an invitation for disaster.

Oldwood's picture

Any change is a threat, especially changes that add transparency and make it harder to operate in stealth and delusion. It will be resisted with every power they have....even if it takes the world down with it.

Our dilemma is our complete dependence on this corruption, and our conundrum is that to eliminate the corruption will likely bring the entire system down, if for no other reason than those currently controlling will gladly sacrifice us all to save what they have built, and if provided with the inevitably of its demise, would probably bring it all down simply on principle...revenge. If they can't have it...no one can. Scorched earth.

Think....what would SOROS DO?

Lore's picture

Quite right. The root problem is the fact that the casino is privately owned, and it's a casino. Money needs to be a public utility. Reserve currencies need honest backing, quite different from the present debt-enslaving inflation-exporting protectionist racket.

What WOULDN'T Soros do? 

Mercuryquicksilver's picture

He wouldn't pay just one side.


Who do you think owns GoldMoney aka Bitgold?

Lore's picture

You're right to beware of controlled opposition.  Still, elites have certainly been known to leave hatches and pressure release valves for themselves and others who can ride on their coattails. 

marchare's picture

Every contract needs an equalization clause. Price is set on sale and equalized on payment, making both parties whole back to the date of sale. Is that too simple?

luckylongshot's picture

To assume that there has ever been free trade is naive. She probably believes in free markets too, maybe also in Santa Claus. In a world where according to Vitali, Glattfelder and Battiston(2011), one entity owns and controls 96.2% of all multinational corporations there is no chance of free markets, there is no chance of free trade and there is no chance of competition.

Unknown User's picture

There is absolutely no reason for the US government to borrow and pay interest on money which has value by government decreed. The government can issue money itself interest free as prescribed in the US Constitution Section 8 - Powers of Congress: “The Congress shall have Power ... To coin Money, regulate the Value thereof, and of foreign Coin

“The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity. The financing of all public enterprise, and the conduct of the treasury will become matters of practical administration. Money will cease to be master and will then become servant of humanity.” - Abraham Lincoln

tricorn teacup's picture

And the recognized government hitting control-P is better than a central bank doing the same how?

Oldwood's picture

The question would be...who profits? If government alone prints, is there any individual who profits from it? I think we know the answer relative to banks printing money.

war.on.bankers's picture

you must have missed the part of our money system where we pay interest to private bankers for the use of our own money. if the government printed the money there wouldnt be any interest being paid to a group of satanic cocksucking globalist banksters.

wisehiney's picture

I have a very healthy sense of right and wrong, but often a powerful expletive is the only way to make the point.

Fuck em Trump!

espirit's picture

Am pretty sure Trump's definition of 'unsound money' means inevitable nuclear conflict over finite resources.

Who wins after a 'First Strike'?

SomethingSomethingDarkSide's picture

Your psychologist and pharmacist

espirit's picture

Pretty sure from the downvotes, last night must been filled with Hitlary Lovers.

That was a Vote For Trump 2016 post, fuckin' dimwits. 

JRobby's picture

Always comes back to the big players doesn't it?


pitz's picture

The Trump Towers, the Trump 757, and the Trump logo are adorned in gold.

Might there be a hidden message?

redd_green's picture

what about da trump steaks?

therevolutionwas's picture

Was the "sound money" part in the video?...I didn't see it.  (and haven't seen sound money in the Trump campaign)

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) therevolutionwas Aug 11, 2016 8:16 PM

I hope Trump doesn't start talking about "Sound Money", I'd fear for his safety if he goes that route.  I want to be able to check his name in November, then he can drop the hammer.

jfb's picture

People believe what suits them, even such claims made out of thin air

InsaneAngloWarLord's picture

Only at ZH does the Donald have a sound money policy. He has the same policy as his golf buddy Bill Clinton.

Jerky Miester's picture

In the 1930s, Il Duce had poor saps convenced that Fascism was great for Italy.  We know how well that turned out.

No, I'm not a Trump fan and certainly not a Cankles fan neither but if Donald doen't control his mouth and stop saying stuipid shit, he will lose the election by a historic margin.  

Duc888's picture



Imagine for a moment "mark to market".  That scares the fucking shit out of Wallstreet.  Imagine running a bank where you actually have to be SOLVENT,  have to have hard assets "a basket of commodities" or PM's?   That scares the shit out of the Banksterz.  Imagine a monetary system where you can not "think up"  esoteric financial instruments, make them 'legal"  to peddle more debt.


The Horror...

        The Horror...

espirit's picture

Got Collateral?


tricorn teacup's picture

Looks to me like the problem in 2008 was overestimating the value of collateral in the form of real estate, and underestimating the default risk.

jomama's picture

How fucking naive do you have to be to believe that bullshit?

KuriousKat's picture

Trump seems to have had an effect  on the latest executive order or trying to steal thunder from him

 (d)  The functions of the President under section 915(e) of the Act are assigned to the U.S. Trade Representative, in consultation with the Secretary of State.

Sec. 2.  Engagement on Currency Exchange Rate and Economic Policies.  (a)  Prior to undertaking an enhanced analysis of a country pursuant to section 701(a)(2)(A)(ii) of the Act, the Secretary of the Treasury shall seek the views of the U.S. Trade Representative on changes in trade restrictions in that country.

(b)  In exercising the functions under section 701(b)(2)(A) of the Act, the Secretary of the Treasury shall consult with the Secretary of State in making any determination that commencing enhanced bilateral engagement with a country would cause serious harm to the national security of the United States.

SimpleJackBlack's picture
SimpleJackBlack (not verified) Aug 11, 2016 8:16 PM

Breaking news: the Cleveland Browns announced if Trump wins they are moving to Mexico.

mofreedom's picture

I would gladly sell the Cubs to China for $1 and they can have Chicago for free. But first, a wall around the once, great, grand and free city...i once knew ye!

Miss ya.

espirit's picture

Actually, I'd pay China a 'fiat buck' to take Chicago off our nations neck.

Bloodsucking cities.

SillySalesmanQuestion's picture

Only in Believeland.
A long suffering fan.

Publicus_Reanimated's picture

Anything to get into a bigger media market.  Why do you think Cleveland hasn't won a championship in 50 years?

RovingGrokster's picture

"Brown" people leaving if Trump wins?

jfb's picture

I don't know which one is the most impressive:

-Donald Trump's Sound Money stance

Bernie Sanders deep libertarian convictions

-The Obamacare success story

redd_green's picture

Oh the Obamacare success story, most definitely.   It cracks me up,to no end, that Clinton tries so hard to tell us that: things are so bad, she's going to come in and fix everything BUT things are going so well, she's going to build on "the successes of the Obama administration".  heh.  And people eat it up.    idiots.

wisehiney's picture


Directly overhead.

The meteor shower is rocking in a Trump Victory.

Yen Cross's picture

    Digesting the TRUTH can sometimes be hard to STOMACH.

Boris Badenov's picture

In Donald, I Trust.

case closed, fukkerz.