Triffin’s Dilemma and The Correlation of the Ending The Gold Standard – February 23, 2023,
In order to properly interpret the modern FINANCIAL world, you should first be able to comprehend the concepts behind the MODERN fiat monetary system. Often ignored about economist Robert Triffin was that when Triffin’s Dilemma or the Triffin paradox was first observed and debated, the United States was on a GOLD STANDARD.
The gold standard, in a nutshell, is SUPPOSED to put limits on government spending. In a free market, the market will put a cap on private spending and consumption; anyone who comprehends why free markets work also can comprehend that Government is merely a HINDERNCE to productivity. Now, I’m not arguing that some of what the government does is not helpful to the markets, but most of what government does actually make productivity LESS efficient; this even includes the MEDIUM of exchange.
Why most socialists hate capitalists revolves around PERCEIVED winners and perceived losers. Socialism revolves around CONTROLLING the narrative; media or news carriers typically tell a story that fits the narrative they’re trying to promote, and with capitalism, the only real narrative is TOMORROW is another day and a new adventure.
Socialists or lovers of BIG government want a narrative-based existence that brings them perceived comfort and stability, and it’s for this reason that most economists often seek out what they imagine as an economic system that will adhere to the demands of the general population. Once you comprehend that there was a DEMAND for an elastic money supply that grow the size of the government, you start to get a clearer understanding of Triffin’s Dilemma is no longer relevant in the modern economy.
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
The Nixon shock
One of the reasons Nixon got away with ending the Gold Standard was that there was a DEMAND to end it. The Gold Standard was basically doomed after Franklin Delano Roosevelt’s(FDR) New Deal(s). The U.S basically became a socialist nation back then; similar to countries like Switzerland and Singapore, the U.S brand of socialism does have a lot of free market components to it; HOWEVER, the U.S Federal government, now does a lot of things you’d expect a SOCIALIST nation would do.
All of this SOCIAL spending in the United States exists because the U.S. ended the Gold Standard, thereby making Triffin’s Dilemma a relic of the past. The balance of trade deficits doesn’t matter as much in the modern economy. What matters most in modern economies are THE COSTS of doing business for as long as the U.S. holds the world’s reserve currency; it must now accept providing LIQUIDITY to entities and individuals who have PROVEN themselves in the marketplace.
In most countries around the world, their government DO NOT want the responsibility of being the world’s reserve currency; why? Because most governments CAN NOT pay for their social spending honestly. A few decades back, I don’t remember the date exactly central bankers started floating the idea of INFLATION TARGETING, meaning that they wanted to have UNNOTICABLE inflation, almost like billing the frog lukewarm.
Triffin’s Dilemma
If the United States stopped running balance of payments deficits, the international community would lose its largest source of additions to reserves. The resulting shortage of liquidity could pull the world economy into a contractionary spiral, leading to instability.
Now, if you comprehend how the modern monetary system functions, you understand why central banks took on this posture; the unfortunate reality is that most people do not understand economics, so when some imagine that the government has found the secret to a forever booming economy the individuals who do not understand economics or finances, began demanding the government does MORE.
I dated this post because, in modern times, the idiots want the government to PHASE OUT FOSSIL FUELS because the idiot voters and idiot politicians imagine that the GOVERNMENT, not the free markets, created all of the wealth. Robert T. Kiyosaki taught millions of people about the IMPORTANCE of financial education, but you see, most people on the planet never read Rich Dad Poor Dad, and if these individuals weren’t taught financial education or Austrian Economics at home, it’s likely that these individuals will be susceptible to propaganda.
So, for many who do not know that the MARKET decided that fiat money should be based on the ENERGY markets have a hard time comprehending why consumer price inflation is running rampant in 2023. Now, when you’re talking about the U.S. running deficits, that’s not the real problem; the real problem is that the unlimited money allows for the unlimited growth of government.
When does government stop growing, you ask? The way I see it is that the government stops growing when the VOTING PUBLIC comprehends that consumer prices are rising because of the cost of running their government. Even though I’m making this dilemma appear simple, the truth is that POLITICAL DEMOCRACY as structured today is not compatible with free market capitalism.
Central banking is and fiat money is more aligned with MARXISM, which is why the Chinese Communist Party(CCP), as an example, has risen to power. If the world was on a gold standard, the CCP would be bankrupt in a week, and the U.S. wanting to hold onto its position as the world’s reserve currency, allows China to PAY FOR its BIG GOVERNMENT by devaluing its LOCAL currency and simultaneously hoarding U.S. dollars.
Japan engaged in a very similar form of economics and finances, and although Japan destroyed a generation of Japanes people, Japan also managed to hold onto to its MANUFACTURING base (means of production). The Japanese Federal government also maintains a lot of power. Once you understand the BURDEN of being a world reserve currency, you quickly see why most governments secretly don’t want this fiat system to end.
How this current fiat system ends, is anyone best guess, but this is why I like cryptocurrencies, not so much that they’ll replace the modern fiat system, but it does show people that the MARKET or private sector money will ALWAYS be superior to government money. When people talk about Central Bank digital currencies, I tink they forget that when money is 100% corrupted, black markets arise, and if money can be created DIGITALLY to the point that 1 Bitcoin now costs a person $25,000 imagine what will happen if governments are brazen enough to attempt to centralize the money supply to their benefit?
Like it or not, PHYSIcal cash is still decentralized, U.S. dollars are still recognized all over the world, to the point that Iran demanded payment from former President Barack Obama in CASH. As everyone knows, when Obama paid the Iranian regime in cash, ISIS went on a murdering rampage, anyone who wanted to know, knew that CASH sent from America financed ISIS.
Humans want liquidity and decentralization, af the powers that be try to control every aspect of their lives, a black market will arise. There’s even a black market in North Korea. Although rare, people do attempt to escape North Korea, and there only means of escape is the black market. The problem with centralization is that the “bosses” have to make enough people happy to make it worth their while to protect the regime.
If the U.S. lost its currency reserve status today, the unfortunate reality for the Chinese Communist Party is that NOBODY, including the Chinese people, wants the Chinese renminbi. Because everyone knows that the Chinese government manipulates the value of its currency, this is why I say that Triffin’s Dilemma is irrelevant today.
What’s most important in the modern economy are GOVERNMENT REGULATIONS. I personally thought Donald trump was an IDIOT for going after Jerome Powell for raising interest rates. Who cares if the cost of money is more expensive? The private banks are in the MONEY business; let them figure that out themselves; the U.S. government wants more productive people FEEDING THE BEAST, so I thought Trump would have been smart enough to know that cutting regulations would lead to an ECONOMIC BOOM even if interest rates went up.
But apparently, most people, including some billionaires, do not understand how the modern economy works. The problem the modern world has is that POLITICANS and the idiots who vote for them have ZERO economic or financial education. In my opinion, it’s the stupidity of the voting public that will lead to economic and financial ruin.
Interesting times ahead!