EDITOR: | September 8th, 2015 | 10 Comments

Trump and the Goldbugs – Clutching at Straws

| September 08, 2015 | 10 Comments
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Many moons ago I headed a thinktank, in fact it was THE thinktank for Supply-side Economics, and it was buried deep in the heart of New Jersey. This organization had as its guru in residence one Jude Wanniski and used to style itself as having invented/guided/inspired the Reagan Administration’s tax cut policies which were one of the most visible manifestations of Supplyside Economics. This school of thought is not given much airtime these days, but it was really just an Americanisation of the Austrian School of Economics with a few added bells & whistles (and ad libbing). One of its chief tenets was a desire to return to the gold standard though this did not feature anywhere prominent in Reaganomic discourse.

faucet

I was led to think about this work experience (which was bittersweet indeed) in recent weeks for it was ten years since Hurricane Katrina, a rather cataclysmic event that coincided with the demise of Jude Wanniski. Further prompt to these thoughts was the rising “star” of Donald Trump, a character representing one of the more bizarre mainstream candidacies for the US presidency in living memory. Indeed, while Reagan was an actor turned politician (a rarer commodity), Trump is a “businessman” turned wannabe politician (theoretically a more conventional segue from one activity to the other). Indeed in this he most resembles Herbert Hoover, though fans of Hoover would reel in horror. We might add that Herbert Hoover was a geologist who had much to do with developing the Zinc mining industry in Australia, amongst other things, while The Donald’s interaction with precious metals is largely linked to the global demand for gold faucets.

So I pondered what Jude Wanniski might have thought of the Trump campaign. Ever one to live in hope that a post-Reagan candidate would pick up the sword of Supplyside to march into battle he might initially have been thrilled. He had adopted Steve Forbes in 1996 as a standard-bearer but that had gone nowhere. If the Sage of Parsippany found it tough to micromanage Steve Forbes, then steering Donald Trump towards orthodoxy would be like directing the marabunda, the great Brazilian army of leaf-eating ants. One is reminded of the Mother Superior’s plea of despair in Sound of Music, “How do you solve a problem like Maria?”, just replace Maria with Donald, and the problem multiplies by an order of magnitude. He is a veritable economic and policy “Shower Scene form Pyscho”. Thus far though he has not had to do much more to glean support than fire off wild and wooly soundbites on immigration, women and anything else vaguely in the firing line. Economics has been, putting it politely, a sub-theme.

Scoundrels Ahoy

It is said that patriotism is the last refuge of the scoundrel, but Dr Johnson had clearly not meet the goldbugs. The chatter in these circles is now that The Donald may be the Knight in Shining Suit for whom that they have long sought. He combines in one candidate the two things they most cling to… a character with no regard for running up debt whatsoever and yet at the same time a discourse on returning to the gold standard to counteract monetary debasement. As a headline in the National Review Online put it “Donald Trump Loves Gold, as a Matter of Home Decor and Monetary Policy” and then went on to quote him saying ““There is something very nice, about the concept of having a “solid” country filled with money backed by bullion”. Simultaneously he combines the malaise and the cure.

Politicians before have moved their lips in service to the concept of a gold standard and then wimped out when a partner of Goldman lands at the Treasury and he, and the head of the Fed, hit the White House to straighten out such erroneous thinking. We wonder though whether Goldman were pushing an aluminum standard when they owned all the warehouses in the world to store the stuff.. That we shall never know..

But back to the gold faucets.. I mean the gold standard.. while the gold bugs may be destructively testing their adult diapers with enthusiasm at the prospect, they fail to grasp that having yet another candidate who is a few sandwiches short of a picnic espousing their beloved credo actually casts it further into the outer darkness only inhabited by flat-earthers, birthers and the Palin family. Could one imagine Friedrich Hayek and Ludwig von Mises sharing a stage with The Donald to give credence to his economic policies? Would they even be allowed in, representing as they do “foreign elements”?

The broader public do not share the goldbugs affinity for the gold standard and indeed would probably prefer a more updated version of the old political saw, “a chicken in every pot” manifested as “a gold faucet in every bathroom”. Those with more bathrooms get more gold faucets! A gold standard, in theory does not need any more gold to be mined (it would just result in less proliferation of paper money) while a gold faucet in every bathroom would indeed create a phenomenal boom in demand for the output of gold miners and send the price of gold soaring (sounds inflationary to me, but what do I know!?).

Conclusion

Frankly in putting their faith in Donald Trump, the goldbugs are clutching at straws. It seems that every Presidential round since the dawn of time has to have one candidate that catches the imagination of the goldbugs and then fizzles and burns leaving mainstream thinking dominating the conversation. Indeed William Jennings Bryant in the 1880s spoke of the Cross of Gold, which is certainly more evocative that Trump’s plumbing fixtures. This phenomenon of pseudo gold hysteria is very much a US thing because I cannot think of any country where this appears in the campaign dialectic. It’s somewhat ironic though considering that it’s now over 40 years since the US left the gold standard. We could go all misty eyed over those decades before the final surrender in the Nixon years, but one might also recall that the concept of enough gold “backing” the currency was as illusory as the asset backing of certain casinos and resorts that shall go unnamed.

Isn’t it novel that no-one says “cobalt must have a savior” or that “zinc will soar if such and such is elected president”? If gold needs a Messiah (and we are not persuaded it does) then he (she?) will not come disguised with a frizzy comb-over. Messiahs should be made of sterner stuff..


Christopher Ecclestone

Editor:

Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>


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Comments

  • Jack Lifton

    Chris,

    I had a conversation this morning, entirely coincidentally, with a geologist friend who, among other memorable sayings,is the person who first introduced me to the sad truth that “a mine is a hole in the ground that is filled with money by those of questionable judgement.” As it happens we were commiserating on the question of “what happened to the price of platinum?” This led us to the question “why doesn’t anyone give a s..t about gold anymore?”
    The sad truth is that even in the last holdout countries that love gold such as Saudi Arabia; its immediate neighbors; and the neighboring states in the Indian Ocean the metal of the moment is lead preferably encased in copper. Americans who used to recite with glazed eyes that gold was a “store of value” seem to now prefer stores of hamburger or something known as “succulent shrimp” as much as they prefer gold. I recall well that the television business show moderator Paul Kangas used to intone the prayer “A flight to quality” each time he spoke of buying bonds instead of common stocks during a “downturn.” The “store of value” was never far from being intoned once the “flight to quality” had begun.
    The last time a gold coin was legal tender in the USA was 1933. Alas we today only have Henry Kissinger and you only H.M. the Queen who were old enough in 1933 to have watched as an Eagle or a Sovereign changed hands for a [very big] knish or a Yorkshire Pudding. Most of us, even the older timers such as me, look upon gold as a curiosity of sorts that the Chinese believe brings good luck and the Indians use to value a bride.
    Our currency of use is our electronically recorded bank balance and/or the card that represents it. I haven’t seen a thousand dollar bill in 35 years, and I only once saw a five hundred dollar bill.
    As far as my choice of those individuals, 69 years old or more, who still dye their hair so as to believe they achieve a youthful appearance I prefer Rachel Welch; Sophia Loren; and even Robert Redford to that other entertainer/celebrity who walks with a slouch and a scowl and says he is always on the lookout for a deal.
    As for artificial standards of value how about the truth that flows from the 69 year old woman who dyes her hair a “gold color” and tells us that she never sent or received anything marked by intelligence. That parsing of her words is certainly truth and worthy of a gold standard.
    As to platinum it is at least the nicest way to describe true color of the hair of each and every person named in this comment.

    Jack

    September 8, 2015 - 3:35 PM

  • NGS

    The 1912 gold quarter eagle on my ring is, to my knowledge, still legal tender in the US at face value. I believe this is also the case for the new gold bullion coins issued by the US Mint.

    Get with the times, Jack! Gold is back.

    U.S. Code › Title 31 › Subtitle IV › Chapter 51 › Subchapter I › § 5103
    31 U.S. Code § 5103 – Legal tender
    Current through Pub. L. 114-38. (See Public Laws for the current Congress.)
    US Code
    United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.
    https://www.law.cornell.edu/uscode/text/31/5103

    Authorized by the Bullion Coin Act of 1985, American Eagle Gold Bullion Coins quickly became one of the world’s leading gold bullion investment coins. Produced from gold mined in the United States, American Eagles are imprinted with their gold content and legal tender “face” value.
    http://www.usmint.gov/mint_programs/american_eagles/?Action=american_eagle_gold

    September 8, 2015 - 6:33 PM

  • Jeff Thompson

    Ah yes, I well remember the Paul Kangas commentary on NBR, as well as Susie Gharib and the other pre-CNBC hosts and reporters. Nothing against CNBC, but I miss the PBS version of the program. PBS slowly eroding away (Sesame Street, anyone?). And just where has Jim Lehrer been? But I digress.
    As the basis for the monetary system has moved from gold/silver, then to paper, and now to nothing more than electric charges on memory chips (inherently no different than the other electric charges on the same memory chips that stand for other non-monetary data that are partitioned or interpreted differently, but are fundamentally the same, sitting microns away), we can only hope that it won’t someday go one step further into the realm of intangibility and be based on some variant of “Bitcoin” or one of the other digital currencies. Sure they are supposed to be “uninflatable”, a common failing of the paper system, but then Newtonian mechanics was also for a time considered to be a fully deterministic system until a bright mathematician eventually found the tiny holes in the framework and restructured the mathematical underpinnings of the universe. It would only be a matter of time for a future bright mathematician to do the same with any new monetary system basis that is thought to be static and unmanipulatable while the world around it turns.
    Thanks for the very interesting article, Chris.
    Jeff Thompson

    September 8, 2015 - 9:56 PM

  • Jack Lifton

    NGS,

    You are right, but I note that US Coins have ALWAYS been marked with their government decreed value as legal tender. The first “precious metal” coinage of the new American government in 1792 [the silver legendarily from George Washington’s serving dishes] was marked in units of the “dollar” by which name the US had decided to value the coin, and so the pennies and half pennies (of 1793) and the 1792 half dismes (yes that’s the correct 1792 spelling of “dime”) and so on were marked 1/100, 1/200, and “half disme.” and so on.
    All coins issued by the US Mint at the order of the US Treasury are “legal tender” no matter when they were issued. BUT ONLY FOR F A C E (i.e. stated [on the coin] value!!
    Thus anyone dumb enough or holding to a principal may “surrender” a legal tender US gold coin to a bank for its stated face value in currency of the United States [“surrender to a bank because it is illegal for Americans to hold coined gold for use in ordinary transactions, and the bank is obligated to return coins it receives to the Treasury].
    Thus your 1912 1/4 Eagle [one eighth of an ounce of gold by statute], which in uncirculated condition trades among collectors for many hundreds of dollars in paper currency will bring you two paper dollars [or one two-dollar note]and two copper-niobium discs marked as “quarter dollars” if “surrendered in trade [to a bank].
    Hardly anyone alive now can remember paper “gold notes,” which were paper currency redeemable at the US Treasury for “specie,” [coined precious metal]. Like gold coins those notes are now only collector items.
    I was once in the home of the man who inherited the A&P fortune [readers please ask your grandparents what A&P was]. It was an 8 story townhouse in NYC with a ballroom on the top floor. In a bathroom into which I walked the toilet roll fixture was plated with gold. I’m going to bet that Donald Trump has the same kind of decoration.

    Jack

    September 9, 2015 - 8:43 AM

  • hackenzac

    Business and personal elimination wise, Trump may be gold but politically, he’s at best a flash in the plan and he will never, ever become president. Still, I do enjoy seeing the upending of dominant and entrenched paradigms and it looks as if he’ll maybe get the GOP nomination making for an epic general election. Trump as a populist is crazy talk especially up against someone with some authentic fraction of populist credibility such as Clinton or against somebody with a great deal of it such as Sanders who is really the one to watch as the true upstart. “Community organizers” understand the real capital that wins elections. Trump is a showman and marketing genius and politics likes to think that it is above such things but it isn’t. The Trump brand upending the GOP brand is quite hilarious. I’m sure that he has very nice bathroom fixtures but he’ll never be showering at the Trump-Whitehouse. Never.

    September 9, 2015 - 9:25 AM

  • Jeff Thompson

    Jack’s comments triggered me to remember several years ago coming across a good article written on gold and silver certificates, linked below, that give a nice outline of the history of the United States’ transitional phase away from a metal-based monetary basis, with a very thorough catalog of images of the various certificates that were in circulation over the years. Just for fun reading.
    Jeff
    https://en.wikipedia.org/wiki/Gold_certificate
    https://en.wikipedia.org/wiki/Silver_certificate_(United_States)

    September 9, 2015 - 7:49 PM

  • FranSix

    Like a set of brass taps in a gaudy New Jersey home, or your aunt with the wart?

    September 12, 2015 - 8:12 AM

  • Alan Reynolds

    Polyconomics wasn’t created as a think tank, but as a for-profit consulting firm with mostly institutional investor clients. In the 1980s I was Chief Economist and Wanniski focused more on politics and related policies.
    He famously blamed the Smoot-Hawley tariff for starting global trade wars, with related stock market collapse and “fire sale” pricing (deflation). On trade, Donald Trump is like Smoot and Hawley combined, so that alone would have earned him Jude’s wrath. We worked on reducing tax rates and regulations in Mexico, putting out a report “Mexico 2000.” He would not have liked Trump’s habit of demonizing Mexico and Mexicans. In short, he would not have liked Trump.

    September 14, 2015 - 10:05 AM

  • Christopher Ecclestone

    Good to see another Polyconomics alumni still standing…most have scattered to the four winds..

    I agree on the consulting firm… but most thinktanks “think” with their pocketbooks anyway and are really just consultants in disguise.

    I agree he would have been horrified by the anti-Mexican rhetoric (though to call it rhetoric is me doing it too much justice…). But he would have been intrigued to have a candidate airing the gold standard.. that was always a fatal attraction in less than ideal candidatures…

    and Smoot-Hawley… memory lane.. I haven’t heard those two sweet words together since 2003…

    September 14, 2015 - 10:49 AM

  • Paul Bond

    I worked at Polyconomics from 1996-2000, in a very junior role. I was also wondering what Jude would think of Trump. Just looked at the infamous Memo on the Margin archive and found only passing references to Trump. But I think the above is right; he would not have liked the Trump that’s currently running for President. At all.

    June 1, 2016 - 6:33 PM

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