Asks Glint’s editor, Gary Mead.
When Franklin Delano Roosevelt was inaugurated as President of the US in 1933 he said “this nation is asking for action and action now.” Joe Biden, now the country’s 46th President, bears many similarities with FDR; like Biden, FDR was a Democrat. For the Financial Times, Biden has a staid image which seems awry with his taste for “radical deeds.”[1] Appropriately for today’s left-leaning FT, the article claiming this carried a photo which managed to frame a halo around Biden’s head. For many people, Biden is welcomed (and praised) because he represents a decisive break with the style and personality of his predecessor — Biden is as far from Donald Trump as can be imagined.
Like FDR, Biden can be expected to turn on and leave running the spigot of government-created money. When FDR was elected the US government debt was $22 billion, a sum that seems almost trivial today. By the time he died in April 1945, and the Second World War was almost over, US government debt had mushroomed to more than $258 billion.[2] FDR’s New Deal laid the groundwork for what the US has today in terms of a welfare state; the New Deal took some 40% of America’s 1929 economic output.[3]
Today the US national debt is almost $28 trillion, or more than $84,000 per citizen.[4] According to one calculation you have to go back to 1957, to another Republican President, Dwight Eisenhower, to find the last time the US government showed a surplus.[5] The view of the International Monetary Fund (IMF) — among others — is that with interest rates so low and inflation apparently dead it would be irresponsible not to borrow more to try to cushion the blows of the pandemic.[6] It’s worth remembering that the interest the US pays on that debt is currently almost $400 billion a year.[7] It doesn’t take a mathematical genius to work out that a doubling of the US Federal Reserve prime rate from its current 0.25% — not that there is any immediate likelihood of that — would push up the cost of debt servicing considerably.[8]
Most recent US Presidents have got used to splashing the cash. Covid-19 provides the perfect excuse to lavish gifts on voters. President Biden has got plenty of expensive ideas — doubling the federal minimum wage from $7.25 to $15 an hour, and a package of $1.9 trillion on a new “rescue” plan (following on from $3 trillion passed at the start of the pandemic and $900 billion agreed by the US Congress last month). Echoing FDR Biden has said: ““A crisis of deep human suffering is in plain sight. There’s no time to waste. We have to act and we have to act now.”[9] The $1.9 trillion will be entirely financed by new borrowing and would include cheques of $1,400 for most Americans. This handout is a bit like carpet-bombing a city to destroy a block — badly targeted populism. It might be justified if there was a demand shock — i.e. where people do not want to spend. But the problem with the US economy is a supply shock — people can’t spend while restaurants, movie theaters are closed and vacations are a no-no. The current US economic downturn is highly unusual — many people have lost their jobs but people are getting unprecedented government support. It’s no surprise that personal savings’ rates are almost twice what they usually are in ‘normal’ times.[10]
Janet Yellen, Biden’s nominee for Treasury Secretary, has backed Biden’s big spender plans. She told the Senate finance committee who will approve her appointment that “with interest rates at historic lows, the smartest thing we can do is act big…In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”[11] John Maynard Keynes famously pointed out in 1923 as a contribution to the debate over whether or not Britain should return to the gold standard that “in the long run we are all dead.”[12]
Since FDR’s time, 1933, the US dollar has lost 92% of its purchasing power.[13] If a unit of something becomes more common it tends to lose its value. The quantity of US dollar bills has increased every year since 1933. Credit expansion was to some extent limited by the convertibility of dollars into gold; until 1971, when that convertibility was ended and the dollar became hinged to nothing. If we want a form of money that will maintain its value then we must have money that cannot be created at will. That’s what we at Glint — and the developers of cryptocurrencies have realised.
Gold and the Democrats
The 1934 Gold Reserve Act, based on Executive Order 6102, banned “the hoarding” [an inflammatory word chosen, one suspects, as a crowd-pleaser] of gold coin, gold bullion, and gold certificates within the continental United States”.[14] Under this Act everyone — businesses, banks, and individuals — was required to hand over their gold to the Federal Reserve in exchange for $20.67 per troy ounce. The Act also changed the nominal price of gold from $20.67 to $35 per troy ounce. Trading and possession of gold value at more than $100 became a criminal offence. It was the end of gold as a currency and its transformation into a commodity.
Besides nationalising gold ownership, 1934 gave a good lesson in how far one can trust politicians’ words. As a presidential candidate Roosevelt had rubbished his predecessor Herbert Hoover’s warning that the US was close to going off gold as “a libel on the credit of the United States.” Roosevelt said: “no responsible government would have sold to the country securities payable in gold if it knew that the promise — yes, the covenant-embodied in these securities was as dubious as the President of the United States claims it was.” Under President Kennedy US citizens were prohibited from holding gold not just within the US but anywhere in the world, a prohibition not lifted until the end of 1974.
It may seem callous, but recent events surrounding the handover at the White House — the supposed attempted insurrection, the grudging words from Trump, the bitterness, the mass pardonings of disgraced former associates of Trump — are all nothing more than the epiphenoma of the end of the presidency of Trump. Biden will face enormous problems establishing himself as a President for all America, given the 70 million who voted for Trump. And his biggest challenge will be to try to halt the inexorable decline of the dollar towards commodity — i.e. commonplace — status. Glint is reversing the erroneous — and possibly calamitous decision of successive US governments; we are turning gold from a commodity back into a currency that can be used simply and fairly.
[1] https://www.ft.com/content/65f7dabb-78ec-47bf-b460-b7b0b8c3fed7
[2]https://www.treasurydirect.gov/kids/history/history_ww2.htm#:~:text=1932%20%2D%20Franklin%20Delano%20Roosevelt%20(FDR,U.S.%20debt%20reached%20%2422%20billion.
[4] https://www.usdebtclock.org/
[5] https://www.thebalance.com/us-debt-by-president-by-dollar-and-percent-3306296
[6] https://www.ft.com/content/74cdb0f1-02ed-408f-ad19-6a6c7408d637
[7] https://www.thebalance.com/interest-on-the-national-debt-4119024
[8] https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx
[9] https://www.ft.com/content/05e07e0d-1f2a-45da-bafb-367f4100c26a
[10] https://economics21.org/household-savings-rise-amid-covid-recession
[11] https://www.ft.com/content/72ca778e-4486-45fe-a990-74551dc95a8f
[12] https://delong.typepad.com/keynes-1923-a-tract-on-monetary-reform.pdf
