Bitcoin is Donald Trump's plan B if he fails to persuade the BRICS to stop their revolt against the dollar.
Economic war
Donald Trump made two strong announcements during his campaign. The threat of a punitive customs tax for countries that distance themselves from the dollar and the creation of a strategic reserve of bitcoins.
The Republicans seem to imagine that customs taxes will magically bring an industry out of the ground. The result will more likely be inflation coupled with an economic recession. Knowing that the United States already has big inflation problems.
They are also massively indebted to the rest of the world. This ability to take on debt is largely due to the fact that nations around the world place their trade surpluses in American debt. However, restricting trade through customs duties will also restrict the ease with which the United States can raise debt.
Donald Trump is playing a dangerous game, but his threats are the symptom of a very real problem: globalization has come at the cost of deindustrialization and enormous trade imbalances that must be resolved.
The initial bet was that we would manage to maintain a technological lead. Western engineers and scientists would innovate while workers in the rest of the world manufactured. A lost bet since China now graduates more engineers than the rest of the world combined.
It is true that China imports several hundred billion microprocessors each year and that the CEO of ASML estimates that it has 15 years ahead in the field. But even so, the slate is starting to sting and the backlash is fast approaching.
From barter to deficits
There could be no imbalances in the (probably mythical) era of international barter. The wine was handed over, the cotton received, and vice versa. However, an international trader did not necessarily find goods abroad that could be bartered. Hence the emergence of money at the same time as trade imbalances.
Under the gold standard, the deficit country ships gold in exchange for goods. Trade ceases when there is no more gold, which forces the deficit country to absorb its trade deficit, one way or another.
Today, the international monetary system is dominated by the dollar which offers the United States the privilege of paying for its imports with what is nothing more than an IOU. And this, let us emphasize it, because the surplus countries agree (with a knife to their throat) to place their reserves almost exclusively in American debt.
This money coming home artificially supports the dollar and allows the United States to import more than it exports. This is the famous exorbitant privilege: being able to display a chronic trade deficit without the greenback depreciating.
In short, a large part of Americans' standard of living depends on their ability to exchange Treasury bills (IOUs) for tangible goods.
The collapse of the Bretton Woods agreements
The dollar established itself as the international currency at the end of World War II, when the United States was the world's creditors. This is no longer true at all. The American public debt represents almost a third of the world public debt! This ease of getting into debt is reflected in the trade deficit and the deindustrialization of the country.
Perhaps things would have turned out differently if the American delegates had accepted John Maynard Keynes' solution at Bretton Woods (1944). But it didn't happen. Instead, it was decided to peg the dollar to gold at a fixed rate of $35 per ounce and make it the international central currency.
The currencies were therefore in theory linked to gold, but only through the dollar. Why not trade directly in gold? Because it is a poor means of payment, unlike bitcoin…
The current system was born from the inevitable collapse of the gold standard due to the temptation to print money to finance imports. The United States' trade deficit became the rule after the Vietnam War, which irritated France, which sent a French navy ship to New York in 1971 to repatriate gold.
Realizing that the United States did not have enough gold, Richard Nixon suspended dollar convertibility. His Treasury Secretary John Connely had this famous response to a revolted European delegation: “The dollar is our currency, but it’s your problem.”
Since then, the dollar has become a purely fiat currency (“fiat”), that is to say a currency supported solely by the credibility of the State which issues it. Europe should have abandoned the dollar, but it did not, for three reasons:
-The economic power of the United States (40% of world GDP in 1965) and the absence of a credible alternative.
-The petrodollar. From 1975, Washington forced the OPEC petromonarchies to sell their oil exclusively in dollars.
Freed from the constraints of the gold standard, America shamelessly went into debt. But all good things must come to an end…
Go to the second and final part of this paper HERE.
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