The Infuriating Reason the U.S. Treasury Secretary Wants You to Have a Weak Dollar

Just like President Trump and Rep. Ocasio Cortez, U.S. Treasury Secretary Steven Mnuchin wants Washington D.C. and New York City to keep making your dollar weaker so they can spend more money they don’t have on all their bright ideas and favors for all their friends.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters, adding that the currency’s short term value is “not a concern of ours at all.”

Donald Trump has actually been saying he supports a weak dollar.

But who’s a weak dollar really good for?

It’s good for people who owe huge debts because they can pay back the money they owe in the same dollar amount, but with weaker, less valuable dollars.

It’s in fact a massive subsidy for those who owe the world’s most extravagant debts, most conspicuously the U.S. Treasury, with an absolutely cosmic $22 trillion national debt, a line of credit that dwarves all others in planetary history.

This is a way for the government to appropriate even more than it already does in taxes from the truly astonishing number of people who aren’t paying attention.

The many who don’t understand the money system so much of their lives depend on, or even how the basic economics of supply and demand work.

It’s also a policy of slow drip, but constant and never ending, wealth redistribution from people who save money to people who borrow money.

This quite perniciously misaligns all kinds of economic incentives that would arise naturally in the absence of these artificial interventions by the financial central planning bureau that governs what is essentially America’s socialized money.

Don’t Fall For The Trade Deficit / Jobs Growth Lines

Trump and his Goldman Sachs Treasury Secretary Mnuchin claim a weak dollar benefits the American economy, asserting that when the dollar is strong, American exports fall and imports rise, so foreigners get more business and Americans lose business.

But in this scenario American businesses and consumers also get more capital and goods, or the same amount of capital goods at the expense of fewer dollars, so more money is left over to spend on something else or save. Either way this makes us all richer.

The trade warriors call this a “trade deficit,” but it’s a capital surplus.

They say a “trade deficit” hurts American job growth.

But countries with trade deficits can have low unemployment numbers, and countries with “trade surpluses” can still suffer from high unemployment.

So the actual empirics completely contradict the defunct mercantilist economic theories that Donald Trump and Steven Mnuchin are cribbing from the 16th century.

The Inside Out World of Weak Dollar Economics

The total face value of U.S. Treasury securities held by the Federal Reserve.
Source: Federal Reserve Bank of St. Louis

Secretary of the Treasury Steven Mnuchin (the real life version of Wesley Mouch from Ayn Rand’s bestselling dystopian romantic novel Atlas Shrugged) likes a weak dollar for obvious reasons, and they’re not to keep unemployment low or exports high.

The United States Treasury he commands is quite conspicuously on the hook for the longest line of credit in all of human history. The U.S. national debt is $22 trillion.

And it has the highest national debt to GDP ratio in the world. You don’t even want to know what the outlays are for its structural outstanding obligations.

Most U.S. dollars in existence at this point are computer database entries, not paper notes (indeed 92% of fiat is electronic), so you can tell the next digital currency skeptic you talk to that they already use it.

The Federal Reserve’s weak dollar monetary expansion is a constant, rolling bailout of the federal government for its debts, which it repays with ever weaker dollars.

A weak dollar steals from people the moment they’re paid until they get rid of the cash for something, anything else that the Federal Reserve can’t instantly create more of.

The results are strange and unfortunate.

40% of Americans don’t even have the extra cash to cover a $400 emergency expense.

Most of us are unaware of how the choices we make on a daily basis are not only a matter of our individual preferences, but deeply affected by macroeconomic realities.

Even people who’ve never learned about the determinants of supply and demand, and their constant economic equilibrium seeking processes- rush out to Black Friday specials each year, and don’t buy produce when it’s out of season.

In an economy with cash that is always depreciating, if you don’t use it you lose it.

Households and businesses intuit this even if they know nothing about monetary policy and central banking. So there is a mad rush to spend and borrow.

Every month with any money leftover after paying for necessities and operating expenses, economic actors are incentivized by a weak dollar policy to blow that money on anything else rather than let it erode in your checking account.

This is a root cause of the perverse incentives that created the 20th Century consumer-driven economy and the fallout from its many attendant economic, social, and personal ills.

When the value of your money is constantly evaporating it’s stupid to save money.

Responding to the economic incentives of a weak dollar, a staggering 40% of Americans don’t have the cash to cover a single unexpected $400 expense.

When you can lock in today’s fixed dollar amount for a loan and pay that amount back, but with weaker dollars later, it makes more sense to go into debt.

That’s why:

  • The average U.S. household with at least one credit card was carrying an average credit card balance of nearly $7,000 in December 2018.
  • The average U.S. household with any debt at all owes a bank an average of $135,7683 toward mortgages, student loans, credit cards, and other debts.
  • And the total amount of all credit card balances in the U.S. at the end of 2018 was $420.22 billion. (Source: Nerd Wallet 2018 Annual U.S. Household Debt Survey)

The Exciting Reason There Are Already So Many Well Capitalized, Strong Cryptos

With the advent of Bitcoin and a flourishing new market of alternative, free market, cryptocurrencies, it is apparent that the U.S. political and finance establishment’s weak dollar policy has also been sowing the seeds of its own destruction.

It is infuriating to see so many smart, hardworking people living in the wealthiest, most productive nation in the history of the world crushed under so much debt and living their lives in fear and stress.

But the infuriating reason the U.S. Treasury secretary wants you to have a weak dollar is also the exciting reason there are so many well capitalized and very strong cryptos.

That mad dash to unload cash for something that doesn’t depreciate as a matter of official policy does extend to equities markets as well as it does to overpriced college tuitions, Margarittaville margarita makers, and other such financial indiscretions.

This is an example of Gresham’s Law which states that “Bad money drives out the good.” Which is why when President Trump says a weak dollar is not causing inflation he’s wrong.

Just look at the U.S. equities bubble over the last decade since the Federal Reserve began three rounds of quantitative easing, pumping radically unprecedented amounts of new money into the economy in a very short period of time starting with QE1 in 2008.

The Dow Jones index more than trebled in nominal value even though the earnings of the 30 giant companies tracked by the index haven’t grown nearly so dramatically, so from a financial standpoint their real value didn’t.

Currently the Dow’s average P/E (price to earnings) ratio is higher than 67% of past bull markets. Meanwhile the Buffett Indicator- the total market cap of all U.S. stocks divided by the latest GDP figures- is currently at an all time high.

If you disagree with this analysis, then going by a more strictly technical definition of inflation in its conventional usage, U.S. inflation hit a six year high last year.

In accordance with Gresham’s law, these weak inflationary dollars (bad money) are chasing after strong deflationary cryptocurrencies (good money) like bitcoin.

The reason U.S. President Donald Trump and Treasury Secretary Steven Mnuchin want you to have a weak dollar is to make it easier for politicians in Washington to steal more.

They could get away with that for a century while the Federal Reserve enjoyed an aggressively defended monopoly on currency in the United States.

But now that the Internet and cryptography are here, the Federal Reserve will have to compete with disruptive currencies that cater to the market with value propositions, instead of dominating and taking advantage of it through political control.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.