This blog attempts to monitor events to watch for any signs of potential major monetary system change that could impact the average person directly in their daily lives. With the election of Donald Trump, we are seeing a lot of changed rhetoric about how the US should conduct it's finances. Only time will tell us how much will actually change and how dramatic any change will be.
The question here is will the basic fiat US dollar debt based monetary system be radically changed? All kinds of speculation is out there suggesting radical change will take place during the next four years. Much of the speculation centers around the idea that perhaps the US will return to some form of a gold standard. President Trump (who loves branding and slogans) has often stated his term will usher in a "new golden age" for both the US and world. Is this a cryptic hint from Trump that the US will return to a gold standard?
We'll see what happens. But for now I am going to take Trump and his new Treasury Secretary (Scott Bessent) at their word. They appear to be laying out a general outline for a plan that may very well include the use of US gold, but not any kind of return to an actual gold standard. If there is any plan to return to an actual gold standard, it is well hidden because neither Trump or Bessent have talked about any such thing. In a recent interview, even gold advocate Judy Shelton does not suggest a return to a gold standard is in the works. Instead, she proposes that in 2026 the US offer a relatively small (compared to total US debt) amount of long term gold backed US bonds. The bonds would give the holder the right to redeem them at maturity either for fiat US dollars or a fixed amount of actual physical gold. This of course means that she thinks fiat US dollars will still be here a long time into the future.
This proposal does offer us a glimpse though into how Trump and Bessent might really plan to use US gold reserves (and any other US assets that might be part of a new US sovereign wealth fund). Think of gold more as an asset to be used as collateral for borrowing money than as a currency. The Judy Shelton proposal follows that line of thinking. No one is using actual gold as a currency for transactions under her proposal. Instead, gold is used to add credibility to US fiat dollar debt instruments. The idea being that markets perceive gold as rock solid collateral for money loaned out. Rock solid collateral gets a more favorable interest rate in the credit markets.
So, perhaps Trump and Bessent are planning to use this same concept on a grander scale. Recently we have Trump signing an Executive Order to establish a US sovereign wealth fund. This recap of the executive order directly says the following (bold is mine):
ENSURING LONG-TERM ECONOMIC COMPETITIVENESS AND FISCAL SUSTAINABILITY:
The creation of a sovereign wealth fund for the United States will help maximize the stewardship of our national wealth.
- Sovereign wealth funds exist around the world as mechanisms to amplify the financial return to a nation’s assets and leverage those returns for strategic benefit and goals.
- The United States can leverage such returns to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish long-term economic security, and promote U.S. economic and strategic leadership internationally.
- The United States already holds a vast sum of highly valued assets that can be invested through a sovereign wealth fund for greater long-term wealth generation.
- The Federal government directly holds $5.7 trillion in assets. Indirectly, including through natural resource reserves, the Federal government holds a far larger sum of asset value.
Yesterday Trump states the US will do some kind of audit to insure US gold reserves are accurate. Secretary Bessent stated recently he is excited that the US will be able to "monetize" it's assets for the benefit of the general public. He later clarified that this did not mean the US has plans to revalue it's gold reserves as has been speculated in some media outlets.
So, what is the plan? Obviously, there is some kind of plan in mind to utilize existing US assets and we know one of the biggest assets the US claims to own is 260 million ounces of gold. This recent article appearing in Zero Hedge is the best guess I have seen as to what they may have in mind. It suggests a plan to use gold as high quality collateral in the credit markets and of course suggests that the higher the gold price, the more collateral is available.
While recent comments by Secretary Bessent imply there is no near term plan to revalue US gold, I would not rule out the idea that over the next couple of years as the new US sovereign wealth fund is rolled out, he would not mind seeing the gold price revalue itself higher whether it is put into a wealth fund or not.
This really applies to any asset the US owns (including it's seized Bitcoin for example) that might go into a sovereign wealth fund or be used as collateral to get more favorable interest rates on US debt issuances.
If this is the plan, I would not view this as the kind of major monetary system reform we watch for here. It would be a new creative approach to extending the life span of the existing fiat US dollar based debt system. It would just be using gold and other assets to assure credit markets they can keep loaning the US money and at more favorable interest rates.
We have said here for a long time that the biggest thing that keeps the present monetary system going is public trust in it. So, if this is the Trump/Bessent plan, it appears to be designed more to keep that public trust going in the present system than to actually make major fundamental changes to the basic monetary system. We'll continue to monitor it here and see what actually happens.
