Section 2.10: Remonetizing the Treasury’s Gold
The presumptive Republican made some news, announcing “I think that, in my case, I made a lot of money. I was very successful,” Trump said at a press conference Thursday at his Mar-a-Lago club in Palm Beach. “And I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”
There is no question Trump is familiar with high interest rates and possible negative cash flow produced. Josh Wingrove and Nancy Cook write for Bloomberg, “Trump has frequently expressed frustration that the executive branch doesn’t have more sway over interest rates. On Thursday he criticized Federal Reserve Chair Jerome Powell for being a ‘little bit too early and a little bit too late’ in moving interest rates.”
In a piece published in mises.org I outline a way Trump could do just such a thing which was outlined by financial analyst Luke Gromen in his conversation with Forex Analytics Dale Pincerts. Pincert worries that Trump (or Harris) would use an Executive branch to devalue the US dollar overnite. He asked Gromen if there is such a mechanism, which was the thrust of my piece, which I reproduce below.
Groman matter-of-factly pointed to Section 2.10 of the Financial Accounting Manual of the Federal Reserve Banks and said the President could tell the Treasury Secretary to tell the chairman of the Federal Reserve to remonetize gold.
Indeed, the first paragraph of Section 2.10 reads,
The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the U.S. Department of the Treasury (Treasury). At any time, Treasury may reacquire the gold certificates by demonetizing the gold.
Gromen is well respected in mainstream financial circles, speaking often on financial networks. He told Mr. Pinkert that the Fed had 260 million ounces of gold and if the dollar were revalued vis-à-vis gold, a la FDR in 1933 or Nixon in 1971, unilaterally to, say, $20,000 an ounce by government edict, for every $4,000 increase in gold $1 trillion would be created. So, in the case of Gromen’s hypothetical $20,000 revaluation, five trillion would be created to go in the Treasury’s General Account (TGA) “free and clear” as he says. The Treasury could then retire $5 trillion of debt and Uncle Sam’s debt-to-GDP ratio would drop from 122% to 70%.
Gromen called this a “Nixonian Shock” that possibly a Trump Administration would implement in the first half of 2025. Once the debt was reduced by $5 trillion the Federal government could then ramp up its debt level again. Dollar weaker, debt level lower. It’s a win-win. Except, of course, this would be very inflationary. But so is the U.S. financing its debt with short-term T-Bills. Gromen makes the point that countries which finance deficits with short-term debt, because no one will buy their long bonds, are known as “banana republics.” This is the current path of the U.S..
Bloomberg’s interview with Trump lays plans for his monetary policy
Trump has thoughts on interest-rate policy, at least in the near term. The Fed, he warns, should abstain from cutting rates before the November election and giving the economy, and Biden, a boost. Wall Street fully expects two interest-rate cuts before the end of the year, including one, crucially, before the election. “It’s something that they know they shouldn’t be doing,” he says…..
More money doesn't mean more price inflation in Trump’s mind. Less oil does. “Trump has been endlessly critical of Biden’s stewardship of the economy. But he sees, in the anger generated by high prices and interest rates, an opportunity to woo voters who typically don’t support Republicans, such as Black and Hispanic men. Trump says he’ll bring down prices by opening up the US to more oil and gas drilling. “We have more liquid gold than anybody,” he says…..
As far as lower wages versus higher prices, Trump told Bloomberg,“The Black people are going to be decimated by the millions of people that are coming into the country,” he says. “They’re already feeling it. Their wages have gone way down. Their jobs are being taken by the migrants coming in illegally into the country.”.....
If reelected, Trump said last Thursday he’d try to exert direct power over monetary policy.
“I feel the president should have at least a say in there. I feel that strongly,” Trump said toward the end of his press conference.
Trump often makes decisions with his gut. Talking about Jay Powell’s decisions, “He’s tending to be a little bit late on things. He gets a little bit too early and a little bit too late,” Trump said. “I believe it’s really a gut feeling.” Speaking to the Washington Post when he was President, Trump said, “My gut tells me more sometimes, than anybody else’s brain can ever tell me.”
CNN’s David Goldman recently wrote “Sometimes, a central bank is forced to make unpopular decisions — and when politics play a role, as they have recently in Turkey, for example — inflation can surge out of control or economies can tank.”
Maybe it’s far-fetched to think Trump would remonatize gold. But then again who could have imagined LBJ confiscating and then revaluing the yellow metal or Nixon cutting the last thread to gold?
