☕ Man on the Margin reacts to recent discussions about the dollar.
Inflation can occur under the guise of a perceived strong dollar if the dollar is weakening less than other currencies. Similarly, a dollar that is perceived to be weak relative to other currencies can actually be strengthening when compared against the reliable reference of gold. Only when measured against the monetary reference of gold can the market make real determinations of a currency’s value. Gold signals these monetary distortions.
Trump can get the dollar he wants. The market will react to a Trump statement that he wants a strong/stable dollar. Just stating that Trump desires a strong/stable dollar is not enough. Speculators will challenge the stated intention of a currency’s value. The Fed has to follow through by adjusting the supply of base money relative to demand to maintain a stable dollar.
Trump could issue an executive order today for a return to a dollar defined at a specific weight of gold. Nixon ended Bretton Woods overnight by abandoning the dollar link to gold at $35/oz. The Fed is composed of bureaucrats who serve at the discretion of government. If a President and Treasury Secretary want monetary policy conducted in a certain way, Fed members have to do so or resign. The Treasury cannot create or extinguish base money. Only the Fed can monetize debt and regulate the balance of dollar supply that determines its value.
☕ This afternoon this editorial was posted at the Wall Street Journal by James Freeman:
Whoever manages the White House needs to honor the President’s tax promises.
The point was to liberate America’s job creators. The Tax Foundation estimated the Trump tax plan would increase the size of the economy over 10 years by between 6.9% and 8.2% above its expected level under current policy. The organization also projected higher wages and two million more full-time jobs.
This doesn’t mean Mr. Trump proposed a perfect plan. There could be more efficient ways to boost growth. It also doesn’t mean that federal debt and deficits aren’t enormous challenges. But it does mean that the Trump campaign offered a plan that prioritized growth, which ultimately generates wealth to pay government’s bills while reducing the need for government services.
Growth remains the correct priority today. A surprisingly weak March jobs report has now been followed by Friday’s disappointing news on consumer retail spending. The economy cannot break out of Obama-style slow growth until Obama economic policy is repealed.
As Larry Kudlow and Brian Domitrovic have written, Presidents Kennedy and Reagan have shown the model that works: across-the-board cuts in marginal tax rates. This model will work again if a growth plan can ascend to the President’s desk.