Will Trump decide to kill the US Dollar?
When I first started drafting an article about the deliberate demise of the US Dollar, it seemed too farfetched a scenario to become a reality and I shelved it. Then Trump’s first week in office happened. As stranger than fiction goes, reality ran its course and here I am picking up the pieces of what could be.
The writing on the wall
No, not the literal wall between the US/Mexican border we thought was a joke. I mean the figurative wall of protectionism of the Divided States of America. There are a couple of longterm themes at play here that made the rise and rise and election of Donald J. Trump possible. They can best be categorized as (a) they took our jobs and (b) they took our money.
a. They took our jobs. Who did?
- Globalization — the rise of information technology and trade-friendly attitudes spun an economic web of counter-dependency leveling the global playing field.
2. Urbanization — relatively speaking, urban got a lot more urban and rural a lot more rural. Economic centers of gravity are further concentrating to cities, the political and social-economic divide is amplified.
3. Automation — here come the robots. What started with the automation of manual labour driven by globalization’s need to optimize costs, evolved into the wider threat of AI. *Whispers* Ignore the real threat of AI for now.
b. They took our money. Who did?
- The rich did — destruction of the middle class. This video depicts the devastating wealth inequality in the US perfectly:
2. The government did. In 2008 George Bush had to address the nation directly on live television to calm down the markets and US citizens and announce a bail out plan. The term too big too fail was coined.
3. The Federal Reserve did. As a direct result of the financial crisis in 2008, quantitive easing reached unprecedented levels. The too-big-to-fail institutions were saved while the population carried the burden of diminishing purchasing power. It cultivated the global Occupy movement and sparked an anonymous genius to work on a big idea to replace Central Banks, banks and really the entire financial system altogether by distributing the power of money creation and control to the people.
With all these moving pieces on the global chessboard of geopolitics, a recurring theme surfaced: currency manipulation.
What is currency manipulation?
Simply put, currency manipulation means that country A artificially makes its currency less valuable compared to that of country B, so that companies of country A can sell more products to country B as consumers flock to the products with the lowest price. Similarly, capital flows to areas where the biggest profits are made, so foreign companies establish factories abroad to produce their products at the lowest possible cost to increase their margins and sell more products. This is where Trump raves on about China, even though technically they aren’t and capital flight numbers may be an indication that the Chinese themselves don’t see it that way either.
How is Trump dealing with currency related imbalances?
Trump’s proposed border tax to discourage manufacturers in the US to not move their operations to Mexico is a good example of a protective measure. Here the correction to this imbalance — wages being cheaper in Mexico — seemingly turned plans around when Ford axed their Mexico plant plan. The deeper motivation for Ford may actually be that the manufacturing cost in the US would be cheaper by taking labour and transportation out of the equation through automation and its geographically superior proximity to the customer. And thus the complexity of globalization reveals itself.
In search of normalization
We can see how corporations naturally move between jurisdictions and technology advancements to meet the market as in the case above. While executive ordering as many protective measures against natural imbalances, the imbalances that could derive from currency manipulation put fuel to Trump’s fire. And while the macroeconomic factors at play here may have little to do with the currency, it wasn’t unexpected to see Trump making a case for reinstating the Gold standard. Or did he? Here comes the caveat! He said it would be tough to bring it back because “we don’t have the gold. Other places have the gold.” If gold, then war. If not gold, then what? Look no further than who he surrounds himself with to see what may lie ahead.
A contrarian victory
While Silicon Valley was united in their disgust of Trump, there was one man who made a bold contrarian bet. On October 15th 2016 the New York Times reported Peter Thiel contributing $1.25 million to Tump’s super PAC.
The rise of Peter Thiel
Fast-forward to Wednesday the 14th of December. Trump is elected and the Silicon Valley titans are summoned to Trump Tower to discuss technology and jobs. Everyone shows up.
And lo and behold, Thiel’s return-on-contribution (ROC)— not to be mistaken with return-on-investment (ROI) — materialized.
Rooted in monetary disruption
Peter Thiel is a longtime libertarian turned Republican (in 2016 for obvious reasons) who co-founded Coinfinity, a cryptography and payments company that turned into Paypal, the multi-billion juggernaut that set out to make online money simple and easy. Sounds familiar? In 2013, through his investment firm Founders Fund, he invested in Bitpay, the globally leading Bitcoin payment processing company that also received investments from the likes of Richard Branson. Not coincidentally, both are big fans of Bitcoin as it represents the type of global citizenship and monetary freedom they strive for. Peter took this freethinking spirit one step further by donating $500,000 in initial seed capital to start The Seasteading Institute and hedging his US citizenship by becoming a citizen of New Zealand.
Thiel recently put Balaij Srinivasan, co-founder of Bitcoin company 21, up for consideration of the FDA, but it is hard to measure the influence of Peter Thiel to the administration. These are just small hints of something bigger that might be brewing, the plot thickens.
A this point in time there are bits and pieces of information that we can go by that hint at a possible move:
- Trump has made repeated statements about Chinese currency manipulation, showing his interest in solving this.
- Trump appoints Thiel as an advisor to the administration who has very strong ties to Bitcoin.
- Trump made a public statement that the gold standard should return, but that we can’t get the physical gold. This hints at a gold standard that is not gold and likely not physical.
- Trump has made moves to counter globalization, dismantling the US Dollar as global reserve currency is an extension of that strategy.
So will Trump kill the US Dollar? Will he introduce a cryptocurrency version of the US Dollar? Only one will allow him to move his own assets first before everyone else, making him even wealthier. Only one would allow him to hyper inflate the US Dollar to effectively eliminate foreign debt, over $1T owned by the Chinese. The consequences of such a move are hard to oversee and probably ridiculous. But since this is Trump, who knows.
Life imitates art
As the reality star takes office, his fixation and fascination of television stands tall. In fact, it stands taller than anything else. Media are driving Trump’s policy positions. Therefore, what better way to predict the future then to watch a clip of a television show that did exactly that?
The TV show in question, Mr Robot. In this show hackers simultaneously destroy all tape backups of the bank’s ledgers, effectively clearing everyone’s debt and credit. Imagine a world that is triggered by a financial crisis to see its citizens adopt Bitcoin while banks struggle to retain power. Chaos ensues while the Bitcoin price rises. Below’s video is a discussion between the CEO of the E Corp bank that requests the government to let it issue its own currency. How far are we from this becoming a reality? Or better yet, a version of this as reality is stranger than fiction. Let me know your thoughts in the comments, enjoy!