Trump’s role in the staggering rise of the world’s oldest currency

Sell the dollar, buy gold. Few investment strategies have worked better than this over the first year of Donald Trump’s second presidency, and it looks set to continue that way.

In the past year, the dollar has undergone its worst overall devaluation since the 1970s. At the same time, the price of gold has surged nearly 75pc to record highs.

No commodity acts better than gold as insurance against inflation, financial instability and geopolitical turmoil.

Call it “Trump Derangement Syndrome” if you like, but financial markets are increasingly betting on all three.

Almost everything the Trump White House does seems deliberately designed to undermine the dollar, last weekend’s renewed attack on the independence of the Federal Reserve being only the latest example.

None of it makes any sense, including the almost certainly hollow promise to cap credit card charges.

Price controls? Milton Friedman will be turning in his grave.

Read the rest here.

Gold Posts New Record

Gold currently trading at ~$3,566 /oz amidst expectations of the Fed cutting interest rates (whether by choice or under presidential coercion), and the risks of a weaker dollar and higher inflation. 

Update: Gold closed at $3,599 /oz. 

The Dangerous Mythology of Central Banks (and out of control debt)

...Trump has purged the top echelons of the US military, the CIA, the NSA, the FBI, the justice department and every agency that stands in his way. It would be out of character if he spared the Fed.

His war of words against Powell is in full flight: “Low IQ ... a very stupid person, actually … terrible … a major loser … Mr too late ... a total and complete moron.”

Needless to say, Trump’s determination to get his hands on the machinery of interest rates and bond purchases is an admission that his “big, beautiful bill” is pushing the limits of US debt sustainability.

The Congressional Budget Office (CBO) says the draft will add $3.3 trillion (£2.4 trillion) to deficits by 2034, mostly from rolling over the Trump 1.0 tax cuts that were never affordable in the first place.

The US is in a runaway debt compound trap. The budget deficit is 6.7pc of GDP at full employment. The next recession will push it into double digits.

Interest costs were 1.6pc of GDP in 2018, during those halcyon days of free global money. They are 3.2pc this year and rising fast. “The federal budget has become highly sensitive to interest rate dynamics,” said James Knightley, from ING.

The US is also about to breach the Niall Ferguson rule: that great powers go into terminal decline once interest costs exceed military spending as a share of GDP.

Net public debt was 54pc of GDP at the turn of the century. It is now 121pc, rising by two points a year even in good times, and heading for 140pc in short order.

Read the rest here.

See also...

Republican Bill Puts Nation on New, More Perilous Fiscal Path

Worth a read...

Facing a suddenly hostile US; Europe turns to Germany and Berlin steps up...

https://www.theguardian.com/commentisfree/2025/mar/21/europe-germany-leadership-vote-spending-defence   

https://www.nytimes.com/2025/03/21/world/europe/germany-us-ally-relationship-military.html?unlocked_article_code=1.5k4.xjNZ.QvZ7je-pFlJW&smid=url-share

https://www.politico.eu/article/germanys-friedrich-merz-radical-spending-election-berlin-green-energy-fund/

Meanwhile Russia continues its campaign of disruption...

https://apnews.com/article/russia-ukraine-war-europe-hybrid-campaign-d61887dd3ec6151adf354c5bd3e6273e

Moscow and Beijing rejoice at the imminent demise of Radio Free Europe and VOA...

https://www.politico.eu/article/moscow-beijing-rejoice-europe-voa-radio-free-china-disinformation/

Four conservative columnists discuss Trump's enduring popularity on the right...

https://www.nytimes.com/2025/03/21/opinion/trump-administration-polling.html?unlocked_article_code=1.5k4.fw_S._UmbInlTdDWd&smid=url-share

On the huge run-up in gold...

https://www.forbes.com/sites/steveforbes/2025/03/20/golds-3000-surge-why-the-fed-faces-an-existential-crisis/

https://www.kitco.com/news/article/2025-03-20/gold-rally-should-be-flashing-yellow-washington-international-investors

(I agree in part, but also think there is more to the story. Gold has always marched to the beat of its own drum. Geopolitical and US specific political tensions, and the out of control US debt are all contributing. Also there has been a voracious demand for gold coming from other parts of the world, notably China.)

Europe sees opportunity in Trump’s economic chaos...

https://www.politico.eu/article/eu-can-attract-those-who-seek-alternatives-to-the-u-s-dollar-lagarde-says/

The weird world of anti-vaxxers...

https://www.nbcnews.com/health/health-news/anti-vaccine-influencers-weaponized-measles-death-texas-rcna196900

Tesla owners are trading in their EVs at record levels...

https://www.cnbc.com/2025/03/20/tesla-owners-are-trading-in-their-evs-at-record-levels-edmunds-says.html

How Republicans Learned to Love High Prices...

https://www.cato.org/commentary/how-republicans-learned-love-high-prices

The Debt Delusion: Why Modern Monetary Theory Is a Luxury Belief

While Fed Chair Jerome Powell made the rounds on Capitol Hill this week, discussions about the Federal Reserve’s expectations for inflation have once again come to the forefront. Unsustainable government spending is raising inflationary pressures with potentially devastating consequences for the US economy. In this context, the belief that debt doesn’t matter, especially championed by proponents of Modern Monetary Theory (MMT), appears more detached from reality than ever.

This notion, prevalent on the political left, claims that a government that issues its own currency can never run out of money in the same way a household or business might. Advocates argue that such a government can always print more money to pay off its debts, thereby sidestepping any constraints imposed by traditional fiscal discipline. While this might sound appealing, it’s a classic example of what sociologists call a “luxury belief”—an idea that is primarily held by those insulated from its real-world consequences.

“We are a sovereign currency, we can print all the money we want”—former House Budget Committee Chair John Yarmuth (D‑KY) at a congressional hearing.

Luxury beliefs, as sociologist Rob Henderson describes, are ideas that confer status on the rich while often burdening the less fortunate. The concept has traditionally been associated with cultural and social norms, but it applies equally well to economic theories like MMT. Proponents of this “magic money” theory, often shielded by their own economic stability, pay too little heed to how elegant theories on paper can lead to catastrophic outcomes in the real world.

A key argument against MMT’s false promise is that printing money for the sake of financing government spending leads to inflation. When a government prints money to cover excessive spending, it increases the money supply without a corresponding increase in goods and services. This creates an imbalance between available resources and the money available to purchase them, with the result being inflation—an increase in the price level that erodes the purchasing power of money. For the wealthy, this might mean adjustments to their investment portfolios or higher prices on certain items. For the poor and working class, however, inflation can be devastating.

Read the rest here.

Ben Bernanke Takes Aim at Central Bank Forecasts

Central banks the world over failed to predict the surge in inflation that started three years ago. Now they’re trying to learn from their mistakes.

For the Bank of England, that meant commissioning former Federal Reserve Chairman Ben Bernanke to write a review of the U.K. monetary authority’s forecasting system. The implications of the findings, published Friday, could reverberate far beyond Britain.

To be fair to the BOE, it didn’t do particularly worse than others in failing to see that supply-chain problems, energy-price spikes, and geopolitical tensions would generate the worst bout of inflation in a generation. Bernanke, who guided the U.S. through the 2008-09 financial crisis and won the Nobel Prize in 2022 for his work on the impact of bank runs in markets, notes the shocks were difficult to forecast.

“The forecasting and policy challenges faced by the Bank of England in recent years were hardly unique,” said Bernanke, now a fellow at the Brookings Institution. “The Bank, like other central banks and policy institutions, will be working to draw the appropriate lessons from this experience.”

Read the rest here.

Inflation Hits 9%

Paging Mr. Volcker. Mr. Paul Volcker please pick up the white courtesy phone.

Financial Markets Take a Hit

April's southward drift has continued in May as all three major stock indices fell yesterday by more than 3%. The tech heavy NASDAQ was down by 5% following the Fed's decision to raise their fund rates by a half percentage. The Fed Rate remain below 1% with inflation officially clocking in at 8.5%. Bond yields continue to rise which means currently held bonds are losing value. The yield on the ten year US bond is now slightly over 3%. In 2020 the yield fell below .5%. Oil remains firmly over $100/barrel and metals have been sluggish amid expectations of further interest rate hikes. Bitcoin fell sharply and as of this post is trading under $36k. Broadly speaking Wall Street seems to be less than impressed by the Fed's actions to curb inflation and the expectation is that even if inflation peaks, it is likely to remain high in the near to intermediate term. Some observers have noted that according to the Taylor Rule, interest rates should be near 10%. But a move that high would almost certainly plunge the country into a severe recession.  It now appears that with the inflation genie out of its bottle, getting it back in is going to be both challenging and painful. 

Bank of England raises interest rates amid warnings of recession and 10% inflation

The government is facing calls to launch a fresh package of emergency financial support for households after the Bank of England warned Britain’s economy could plunge into recession before the end of the year.

As the nation went to the polls in the local elections, the Bank raised interest rates from 0.75% to 1% to tackle spiralling inflation made worse by Russia’s war in Ukraine. With a fresh jump in home energy bills expected in October, it forecast inflation would rise above 10% this year, the highest level since 1982.

The rate rise brings borrowing costs to levels unseen since the recession caused by the 2008 financial crisis, but the Bank’s monetary policy committee (MPC) said action was warranted despite the gathering economic storm clouds.

Andrew Bailey, the Bank’s governor, said there was a “narrow path” the central bank had to navigate between the dual risks of inflation and recession facing the British economy. He said the inflation shock had been made worse by the impact on supply chains from Covid lockdowns in China and the rise in energy costs since Vladimir Putin’s invasion.

Read the rest here. 

Jim Grant on bonds, interest rates and inflation

Inflation: Team transitory is getting nervous

All year the Federal Reserve’s message on inflation has been consistent: This year’s surge is transitory, and inflation will soon return close to the central bank’s 2% target.

Yet look more closely, and it is clear officials are turning less sanguine—and that explains growing eagerness to start raising interest rates.

Last September, long before the supply bottlenecks emerged, the median forecast by Fed officials was for core inflation (which excludes food and energy) in 2022 of 1.8%. Every few months since then they have nudged that up, and in the forecasts released Wednesday they see core inflation next year at 2.3%.

While current-year forecasts get pushed around a lot by temporary factors such as a jump in oil prices, the next-year forecast reflects where inflation is expected to settle once temporary factors recede. The message from the Fed’s latest projections is that “transitory” is lasting an awfully long time. Indeed, next year’s projected 2.3% is the highest next-year core inflation forecast since projections were first published in 2007, according to Derek Tang of Monetary Policy Analytics.

This might explain why the Fed is accelerating plans to raise interest rates. The Fed is now buying $120 billion a month in bonds and wants that to fall to zero before it starts to raise rates. On Wednesday, the Fed signaled it would likely start tapering those bond purchases in November, which means the process would be over by mid-2022, clearing the way for a rate increase. Half of Fed officials think rates will start rising by late next year. Just last March, a majority of officials didn’t see that happening until 2024.

What changed? It isn’t because the economic outlook is stronger. In fact, officials now see slower growth and higher unemployment than they did in March. Chairman Jerome Powell explained that some officials simply wanted more confidence the expected recovery would materialize. But inflation risks clearly play a part.

Read the rest here.

Gundlach: We're running our economy 'like we're not interested in maintaining global reserve currency status'

Billionaire bond investor Jeffrey Gundlach, the founder and CEO of $137 billion DoubleLine Capital, says his number one conviction over several years is that the U.S. dollar will decline as a consequence of current economic policies, resulting in the U.S. losing its sole reserve currency status.

"My number one conviction looking forward a number of years — I'm not talking about the next few months at all, I'm talking about several years — is that the dollar is going to go down," Gundlach told Yahoo Finance Live in an exclusive interview on Monday afternoon.

It's Gundlach's view that the "places to be in the long-term" are emerging markets and "non-U.S entities." While Gundlach has already rotated into European equities, the investor expects to "aggressively rotate into emerging markets," but notes it's "too early for that right now."

"So the dollar is going down is another reason why ultimately — we touched on gold — I think ultimately gold is going to go a lot higher, but it's really in hibernation right now," he added.

The 61-year-old "Bond King" later highlighted that the United States' status of the global reserve currency is in jeopardy.

"[The] U.S. has enjoyed the status of sole reserve currency globally for decades, and it's an incredible benefit," Gundlach said.

Read the rest here.

Deutsche Bank warns rising inflation could become a serious and long term problem

Inflation may look like a problem that will go away, but is more likely to persist and lead to a crisis in the years ahead, according to a warning from Deutsche Bank economists.

In a forecast that is well outside the consensus from policymakers and Wall Street, Deutsche issued a dire warning that focusing on stimulus while dismissing inflation fears will prove to be a mistake if not in the near term then in 2023 and beyond.

The analysis especially points the finger at the Federal Reserve and its new framework in which it will tolerate higher inflation for the sake of a full and inclusive recovery. The firm contends that the Fed’s intention not to tighten policy until inflation shows a sustained rise will have dire impacts.

“The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act,” Deutsche’s chief economist, David Folkerts-Landau, and others wrote. “In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets.”

As part of its approach to inflation, the Fed won’t raise interest rates or curtail its asset purchase program until it sees “substantial further progress” toward its inclusive goals. Multiple central bank officials have said they are not near those objectives.

In the meantime, indicators such as the consumer price and personal consumption expenditures price indices are well above the Fed’s 2% inflation goal. Policymakers say the current rise in inflation is temporary and will abate once supply disruptions and base effects from the early months of the coronavirus pandemic crisis wear off.

The Deutsche team disagrees, saying that aggressive stimulus and fundamental economic changes will present inflation ahead that the Fed will be ill-prepared to address.

Read the rest here.

As Deficits and Money Printing Increase, So Do Fears of Inflation

The US Federal Reserve and Treasury are repeating one of the most disturbing episodes of the 1940s and risk stoking a destructive inflationary boom, a leading monetary watchdog has warned.

The Centre for Financial Stability (CFS) in New York says US money supply data is flashing a red alert and that excess reserves in the banking sector threaten to set off an “explosion of lending” as the recovery accelerates. The Fed is riding a tiger by the tail and may have great difficulty extricating itself from a torrid monetary experiment that is reaching its limits.

The CFS said its "divisia" measure of the broad M4 money supply rose 24pc in March from a year earlier, and narrow its M1 variant rose 36.9pc. “Those monetary growth rates are potentially alarming,” said Professor William Barnett, the institution’s director.

Barnett said de facto collusion between the Fed and the Treasury is much like the 1940s, when the Fed served as a fiscal agent for Democratic administrations and mopped up the vast bond issuance needed to pay for the Second World War and its aftermath. Inflation reached 17pc by mid-1947 and creditors were gradually expropriated in what amounted to a stealth default stretched over several years.

The US output gap has already closed and President Biden’s $6 trillion fiscal plan is expected to push economic growth above its pre-pandemic trajectory by next year. Five-year "breakevens" measuring inflation expectations have jumped to 2.71pc, the highest since the pre-Lehman boom. Yet the Fed is continuing to buy $120bn of bonds each month.

The situation is fundamentally different from waves of QE after the global financial crisis. Stimulus at that stage was needed to offset a contraction of the money supply as banks slashed lending and sought to beef up their capital ratios to meet tougher Basel rules. Today’s QE is monetisation of fiscal deficits and is leading to a surge in bank reserves. This money will catch fire if monetary velocity returns to normal as the economy recovers. 

The Bank for International Settlements - the venerable club of global central bankers in Basel - also fired a shot across the bows on Thursday, warning that it would be a grave error for policymakers to let rip on monetary growth in the hope that social inequalities could be cured with inflationary stimulus. 

The poor tend to suffer most when the consumer prices suddenly start to rise. Agustin Carstens, the managing director of the BIS, said: “We should not forget the long-lasting scars of uncontrolled inflation on inequality. History abounds with episodes of high and runaway inflation that increased poverty and inequality via sharp reductions in real wages.

Read the rest here.

Ambrose Evans-Pritchard: The Fed has lost control of bond markets

Wild moves in the $21 trillion US Treasury market have become disorderly. Shockwaves are pulsating through the international financial system and threaten to snuff out Europe’s economic recovery before it has even begun.

Central bankers have long been fretting over what might happen if incipient inflation and gargantuan debt issuance starts to set off an exodus from global bond markets. They had their first real taste late on Thursday. The cost of borrowing rocketed. 

The US Federal Reserve in particular must navigate a narrow strait between the opposite perils of Scylla and Charybdis: damned if it does nothing, and allows the turmoil to continue; but equally damned it capitulates again, opts for easy stimulus to suppress yields, and falls even further behind the curve (in the eyes of bond vigilantes). 

As matters now stand, the Fed has lost control over US monetary policy. Investors are betting that the overhang of excess M3 money created since Covid began will combine with the Biden Administration’s war economy stimulus  - 13pc of GDP, including the pre-Christmas package - to lift the economy rapidly out of its long deflationary malaise.

Rightly or wrongly they are pulling forward an inflationary implication. Futures markets have priced in a full rate rise in 2022 and two more rises in 2023. This is self-fulfilling and will soon start rippling through financial contracts unless corrected.

Put another way, bond traders are dictating policy. They are tightening long before the Fed is ready or thinks that the coast is clear. So much for the charming idea of “running the economy hot”.

Nobody was spared on Thursday after investors shunned what was supposed to be a routine auction of seven-year US Treasury bonds, but instead sparked the worst bid-cover ratio on record (2.04) and a violent intraday spike of 30 basis points. 

The spillover smashed into the vast Japanese bond market, where 10-year yields blew through the upper band of the Bank of Japan’s yield control regime.

Australia’s Reserve Bank had to intervene with emergency QE to hit its yield target. Junk bonds fell out of bed, giving up almost all the gains since vaccination euphoria began last year. 

Equities have stopped rising in lockstep with bond yields for the first since the pandemic began. The Nasdaq bloodbath on Thursday was a sight to behold.

Ark Invest, the momentum ETF, is down 18pc over the past two days and is fast becoming a systemic threat in its own right, epicentre of a nexus of leverage. Saxo Bank warned that the “Tesla-Bitcoin-Ark risk cluster” could set off a toxic feedback loop that sucks other interlinked tech stocks into a downward vortex.

Read the rest here.

Roger Bootle: Long dormant inflation may be about to make a comeback

The chairman of Capital Economics, and a staunch Keynesian, believes the world may be about to see a resurgence of inflation which has been relatively tame for decades. Mr. Bootle argues that pent up demand for goods and services, coupled with unusually large household reserves of cash, thanks to Covid restrictions on the normal habits of human society and government stimulus along with hyper aggressive monetary policy (QE), could be setting the stage for an inflationary spike. 

Unfortunately it is behind a paywall. But for those with a subscription I recommend the article. Some of the comments are also quite good. 

Luke Gromen discusses macroeconomic trends

Metal, Money and the Measurable Value of Gold

Buried in an otherwise mind-numbingly boring regulatory filing released recently was a seemingly innocuous line item that most people would not give a second thought. Sometime in the second quarter, Berkshire Hathaway invested a comparatively tiny 0.3% of their total portfolio into just a single new company. No big deal, right?

But it wasn’t just any company. After spending decades as perhaps the most respected and widely-cited critic of gold as an investment, Warren Buffett bought 21 million shares of Barrick Gold — one of the largest gold mining companies in the world. It was so out of character that the financial world immediately did a huge double-take. The headline from Bloomberg pretty much speaks for itself:

Berkshire Makes a Bet on Gold Market That Buffett Once Mocked

As one might expect, investors on both extremes of the gold-appreciating spectrum are furiously debating what this all means. Buffett’s closest gold-averse followers are circling the wagons and dealing with a lot of cognitive dissonance, while gold bugs are enjoying dishing out some playful jabs after years of being on the receiving end. Lost in the middle is a vast sea of normal investors watching the news and searching for actionable information.

This article is for that last group just wanting to know the truth about gold and what it can (and can’t) do for their own portfolios.

For some reason gold often becomes a strangely emotionally-charged topic, and frankly both the gold lovers and haters spread lots of objectively false and misleading information in support of their preferred positions. Unfortunately those flawed arguments are sticky, and gold is so commonly misunderstood that even smart, educated, and otherwise level-headed investors have no idea what they’re talking about. So in honor of the shiny metal again making headlines, I thought I’d consolidate some of the most common questions about gold to help sort the truth from the fiction.

Read the rest here.

Report: The Federal Reserve to adopt multi-year pro-inflation policy

In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.

Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.

To achieve that goal, officials would pledge not to raise interest rates until both the inflation and employment targets are hit. With inflation now closer to 1% and the jobless rate higher than it’s been since the Great Depression, the likelihood is that the Fed could need years to hit its targets.

The policy initiatives could be announced as soon as September. Addressing the issue last week, Fed Chairman Jerome Powell said only that a year-long examination of policy communication and implementation would be wrapped “in the near future.” The culmination of that process, which included public meetings and extensive discussions among Fed officials, is expected to be announced at or around the Federal Open Market Committee’s meeting.

Read the rest here.

Meanwhile gold hit a new record high today, closing up more than 2% at $2036/oz.

Ray Dalio: The Changing Value of Money

This is neither light reading nor short so I am not going to do more than link it for those interested in history, economics and monetary policy.

Read it here.

My own take is that long term Dalio's points are solid. But in the near term I am not worried about inflation and currency debasement. All evidence suggests we are in the early stages of what could turn into the first real deflationary depression in the last hundred years. But yes, long term the astronomical levels of debt coupled with unrestrained money printing is going to become a problem.