Tariffs. How are you affected?

I was about to LIKE your post except for the last paragraph. BUT I know that is a common conception. (I agree with you on crypto.)

What people forget is that any form of currency maintains an abstract value. Regardless of whether it is backed by another commodity or not. That commodity in an indirect sense becomes the currency and it too has an abstract value. In other words, it is only worth what someone else will pay for it. To make the point to people that argue for a gold standard, I tell them to think about what would happen if we actually had this economic meltdown they talk about. One of their main goals would become securing food, water, and medicine, maybe clothing at some point. You could have all kinds of gold, and do you think someone else will want your gold? No. Gold will be worthless!

So, being an abstract value, obviously you want to maintain the value of your currency through credibility, political strength, and national ethics. That is the only way to authentically prop up its 'inherent' value and maintain it. How it compares to other currencies is then a matter of market values (supply and demand, etc.) around that inherent value. And of course, if you are the biggest player and have the largest currency in circulation, the world's Central Banks will be filled with your currency and it becomes the standard of trade. This is why China, which has tried for years to come up with an alternative reserve currency, cannot. There are dollars everywhere.

Back in the late '80's, after I had predicted the crash of the Tokyo market and the upcoming Japanese credit crisis, I was already planning to start my own investment company, and I wanted to know where my investment focus would be. I decided to do this by researching and writing a book. Originally it was for myself, but people kept urging me to publish it----I never finished it so that never happened. But much of the research was done at Shearson, and I loved to talk about it----including to one of the guys in our New York office who was our global strategist. I forget his name, but he was often on CNBC in the late 80's and 90's. Much of the research department didn't like him because, despite being very intelligent, he couldn't see the forest for the trees---so he would take everyone else's research and present it as his own. Sometimes I would spend hours on the phone with him talking about my book and my research. Years later I found many of my ideas in a book written by one of the directors of the investment firm, KKR. The author quoted this guy quite a bit, and attributed much of the ideas to him. The title was something like The Coming Economic Boom, or something like that. It was cool to see some of my ideas in print, but I also saw how stupid it was to share so freely with him. (As for my goals, my Japanese first wife stole much of the money I was going to invest in my investment company, the night after we incorporated in Manila, there was a coup attempt against the Aquino government, which provided me an excuse to shut it down, because I wanted to work for me, not my investors, and I no longer had the money. Then life got in the way as I tried to rebuild my capital, and so the book got set aside till later. Eventually I ended up back in the States, working in the stock market again, but the things I had predicted were already happening. And if I wanted to write the book I would have to update it with so much that happened, so I gave up on that.) BUT I DIGRESS.

The book was steeped in Schumpeterian economics. It was also influenced by such things as the Kondratiev Wave as I identified a similar roughly 60 year cycle in American wholesale inflation, when converting data to decennial data. I determined that this cycle relied on a primary coefficient of production in the US economy---first wood, then steam, then oil, and what I call today, Silicon. We left the era of oil in the early1990's as I recall---I haven't looked at the book for years (It is actually on floppy disks)---entering into the era of silicon. There was a second cycle that I identified that was connected to bull markets in the stock market, but actually represented peaks in corruption and business activity. This one is not as easy to objectively measure, but it follows a 2 decade pattern. In other words, every other decade sees a super bull market peak, which is accompanied by a crescendo of business activity and corruption. We are in that second decade now when it all peaks. (In fact, with the corruption happening in the 2010's, I thought maybe that cycle had changed-----but no-----it is still valid as, for example, Trump has used his second term to pocket $3.2 Billion so far! The overall corruption so far this decade is much worse than the 2010's)

The reason why I mention all this is because in researching this book, I gathered wholesale inflation data going back to the founding of our country (granted the earliest data used different measures and commodities, but...) then I converted it to a decennial moving average, i.e. a decade moving average. You could look at this and see a very clear picture of America's business, or boom and bust, cycle all the way back to its beginning. There were very large spikes in inflation, and periods of deflation. To experience deflation is far worse than inflation. We think, falling prices, that would be great! But the reality is pretty bad---for one thing, factories spend more money to make products than to sell them, as revenues drop below expenses. That is what a depression is all about.

The Federal Reserve was created with one purpose in mind----to prevent deflation. And when you look at this chart (which I still have somewhere. If anyone wants to see it I'll dig it out and post it) they did an incredible job. We had deflation in the Great Depression but that was it. And the FED also smoothed out the business cycle eliminating the inflationary spikes that we had in previous centuries. We all think that the stagflation of the early 80's was terrible, but you should see the spikes before the Fed was created. And don't forget---we had a credit crisis in 2008. A credit crisis is a depressionary event! There are only 3 cases in history of a credit crisis not becoming a depression. Japan was one of the cases in 1990, and they survived because the Japanese were so obsessed with saving money. But 36 years later, and they have still never fully recovered. Then there is the US in 2008. Not only did we avoid a depression, but we had a recovery that was, by economic standards, miraculous! (The other historical case was a European country that I always forget.)

So is the FED secretly controlled by a nefarious cabal of the evil rich? I've never seen real proof of this, so I can't say. But what the FED has done is amazing for the nation, and I can prove that. They are humans and they are operating on monetary theory so obviously they make mistakes and learn, but their track record of working to optimize the US economy, and the actual results, is amazing, and contributes to why the dollar is so respected as a global reserve currency. Not to mention that it is why US treasuries are the standard of risk-free.

This graph also shows an upward shift of the trend after the creation of the FED. This takes us back to the actual or classical definition of inflation--increase in the money supply. And this is what discussions of a fiat currency love to harp on---that our money supply is growing. But they fail to realize, or choose to ignore, that a growing economy requires growth. A growing population, a growing money supply, etc. They talk about the price of a Model T and how bad inflation is. The problem is, what were the salaries of the people making the Model T's and everyone else at that time, and the price of the raw materials, and all goods in the 20's? Think about the size of the US population in the 1920's and how it was only a small fraction of what it is today. If we still had the same money supply that we had then, most people would have no money at all. There wouldn't be enough money to go around!

Those who talk of fiat currencies love to provide historical cases, but in those cases, money was primarily used only by the privileged class and merchants. Most of the populations lived by barter and self subsistence. For example, stories about currency in ancient China affected only the very wealthy. Most peasants never even saw money. Even in later examples, where money was more integrated into daily business, the collapse of a currency had little to do with the peasants, who simply traded their own produce for goods. These examples have little relevance to modern economies.

Very few people talk about the real reason we went off the gold standard: it retards economic growth by limiting the size of the currency to the size of the commodity that backs it. In this way it actually takes part in creating recessions and depressions. As an economy tries to grow beyond the size of the money supply (or even if its population grows) the gold supply forces it back to the size of the gold backing by pulling the economy down. This is why we tried to add silver to the backing of the currency, before eliminating the gold standard. There is not enough gold and silver in the world in order to back the economy and population we have today.

Monetary policy dictates the size of the money supply---that is response to actual economic data. This is actually different than a fiat currency where the size is set by 'decree,' and is why independence of the FED is extremely vital to the US economy and the value of the Dollar. We certainly don't want a president to dictate policy because he wants to artificially raise the economy ahead of elections, or to appease the people or make him look strong. This is especially true when you have an actual moron for a president as we do now. How can we know that the FED is not dictating policy to meet the goals of a cabal of nefarious bankers set on world domination? Because every movement they make is literally in response to economic data and their projection of that data---right or wrong, it is data based and their interpretation of that data. Furthermore, all we have to do is look at a graph of decennial wholesale inflation to see exactly how well they have done this.

The FED does not determine the size of the money supply by decree (by fiat). But Trump wants to strengthen a weakening economy that is facing inflationary forces that he has created and aggravated, and that is weakening as a direct result of his actions and policies. He wants to lower interest rates that will directly raise inflationary pressures. He thinks this will stimulate job growth, and it could temporarily. Fascist dictators often promote short term growth before their policies decimate the economy. Trump has destroyed our export markets, is mass deporting essential workers (and a great source of tax revenues), enacting a brain drain and so forth. His actions to manipulate currency and interest rates would be a literal fiat or decree!

There is one thing we can agree on---there are evil wealthy people that are hijacking our economy over their own interests, taking advantage of the people of America. Trump is aiding them and working for them. He is selling the soul of America to them for his own selfish gains.