America and the World’s Dilemma

Robert Triffin was right in 1960, and his paradox may not be solvable. [The Rude Awakening] May 12, 2023 [WEBSITE]( | [UNSUBSCRIBE]( America and the World’s Dilemma - Robert Triffin was a Belgian-American economist who first described a dilemma. - That dilemma involved a national currency used as the world’s reserve currency. - How do you balance long-term international goals with short-term domestic policy? [Huge Announcement For Paradigm Press Readers]( If you’ve got a moment to spare, take a moment and watch [this brand-new video]( right away… It’s only been online for a few short hours, but it’s already beginning to cause a stir here at our Baltimore headquarters – our phones have been ringing nonstop since releasing this video. Now, I can’t say whether or not you were one of the people who called in about this – but if you do anything today, I recommend you take a quick moment and watch this new video now. It could have a dramatic impact on your finances in 2023 and beyond. [Click here now for access.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Dear Reader, Happy Friday was a gloomy, cloudy Asti. I don’t mind the cloud cover, as we can use the rain to refill the entire Po Valley. And it reminds me of London anyway. Before I get to the rest, I just want to remind you to sign up for the Jekyll Island livestream if you haven’t. I don’t mean to be a pest, but Jim Rickards and Danielle DiMartino Booth are giving us two full hours of coverage, totally free of charge, for you and all your friends. [Click here to join.]( Like most Friday pieces, today’s is supposed to be light. This, I hope, eases you into the weekend. But the Triffin Dilemma is also essential to the current economics puzzle. And it’ll make you sound super bright at dinner parties. So there’s no need to memorize any of this. In fact, I’d just bookmark it so you can come back to it whenever you want. In this edition of the Rude, we will cover the Triffin Dilemma, what it is, how it affects us today, and its possible solutions. Who was Robert Triffin? Robert Triffin was a Belgian-American economist known for analyzing the problems with using national currencies (like the U.S. dollar) as international reserve currencies. He was born in Belgium on October 5, 1911, and died on February 26, 1993. Triffin earned his Ph.D. in Economics from Harvard in 1938. He worked for the Federal Reserve System and the International Monetary Fund before becoming a professor of economics at Yale, where he taught from 1951 to 1977. Triffin is best known for his “Dilemma” or “Paradox.” It describes the conflict between short-term domestic and long-term international economic objectives for countries with global reserve currencies. He presented this idea to the U.S. Congress in 1960. Triffin was also instrumental in creating the European Monetary System and proposed the creation of what is now the European Currency Unit (ECU), a precursor to the euro. What was the Triffin Dilemma? The Triffin Dilemma is an economic concept describing the problems that arise when a national currency also serves as an international reserve currency. The "dilemma" or conflict comes from the different economic objectives a country must try to balance when its currency is used as a global reserve currency. On the one hand, the global economic community demands an ample supply of reserve currency for international trade and financial transactions. This means the country issuing the reserve currency (the US, in today’s case) would need to run large trade deficits, essentially supplying the world with its money. Sound familiar so far? On the other hand, maintaining the value and stability of the currency is also important. If the country runs large and consistent trade deficits, it may lead to a lack of confidence in the currency's value. In the long run, this could lead to a currency crisis. Again, this is all too familiar. And it also runs right up against the debt ceiling crisis in the news today. The U.S. must balance the global demand for dollars (which necessitates running trade deficits) with the need to maintain the value and stability of the dollar. This is the essence of the Triffin Dilemma. It’s worth noting China doesn’t suffer from this as the yuan isn’t a reserve currency yet. What’s the “Impossible Trinity?” The Triffin Dilemma indeed involves a kind of "impossible trinity," but it's not the same as the one commonly referred to in macroeconomics. In the context of the Triffin Dilemma, the "impossible trinity" can be thought of as: - Maintaining a fixed exchange rate: A country with a global reserve currency might want to keep a fixed exchange rate to provide stability and certainty for international trade and finance. (Note: in regular macroeconomics, this point is a stable exchange rate rather than a fixed one.) - Free capital movement: In a globalized world, capital is often desired to move freely across borders. This can facilitate investment and economic growth. - An independent monetary policy: A country may use monetary policy to manage its domestic economy by setting interest rates to control inflation or stimulate growth. However, according to the Triffin Dilemma, a country whose currency is the global reserve currency can't achieve all three of these goals simultaneously. If it wants to maintain a fixed exchange rate and free capital movement, it can't also have an independent monetary policy. The need to provide liquidity to the rest of the world (by running a current account deficit) would conflict with its domestic monetary policy goals. If it wants free capital movement and an independent monetary policy, it can't maintain a fixed exchange rate. Changes in interest rates would lead to capital flows that affect the exchange rate. And if it wants a fixed exchange rate and an independent monetary policy, it can't have free capital movement. Capital controls would be needed to maintain the fixed exchange rate in the face of changes in interest rates. This is the essence of the Triffin Dilemma, highlighting the challenges countries face when their currency is used as the global reserve currency. Again, the Chinese are in no rush to get into this mess. [Are you prepared for the next phase of Biden’s America?]( It all started with [Executive Order #14066 passed by President Biden.]( Millions of middle-class Americans are already at risk… and they don’t even know it… Biden’s policies have set us up for an unprecedented summer ahead. [Are you prepared for Biden’s biggest blunder to date?]( Because thanks to the dems' latest scam I believe we are headed for trouble in the coming days. You need to learn how to prepare for the looming Biden Blackouts set to spread across the country. [C]( here right now]( pay very close attention.]( [Click Here To Learn More]( What are the Possible Solutions? There are several potential solutions that economists and policymakers have proposed over the years: - Multiple Reserve Currencies: The burden currently falls solely on the U.S. dollar would be distributed. For instance, the euro, yen, and yuan could play more prominent roles. This is the likeliest scenario. - Supranational Currency: As a regional currency, the euro is a mess. Just imagine a global one! - Central Bank Digital Currencies (CBDCs): Biden Bucks? Heaven forfend! - Gold Standard: I would love it, but the Fed and other mainstream economists would never allow it. - Policy Coordination: Sooner or later, this would break down, as it always does. - Managed Floating Exchange Rates: It’ll break one day like it always does. Each of these potential solutions comes with its challenges and trade-offs. Speaking of the euro, Triffin’s ideas greatly impacted the project. The Formation of the Euro While he wasn't directly involved in forming the euro (which happened several years after his death), Triffin’s ideas and proposals greatly influenced the process. Triffin was a strong advocate for European integration, and he believed that a common European currency would be a crucial step toward this goal. In the 1960s and 1970s, he proposed the creation of a European reserve currency, which he called the "Europa," and a European Central Bank. His idea was for European countries to pool their gold and dollar reserves to back this new currency. This new currency would then serve as a common reserve currency for the European Economic Community, reducing Europe's dependence on the U.S. dollar and helping to stabilize the global financial system. Although Triffin’s specific proposal wasn't adopted, his ideas significantly influenced the discussions around monetary integration in Europe. The European Currency Unit (ECU), a basket of the currencies of the European Community member states, was introduced in 1979, and it served as a precursor to the euro. The euro was eventually launched in 1999, and the European Central Bank, which Triffin had proposed, was established to manage it. Of course, whether the euro sees out the decade is anyone’s guess. Wrap Up Robert Triffin was an influential and insightful economist whose “dilemma” vexes world economic policy to this day… and daily! Now you know more about it and why U.S. debt keeps piling up. Our current monetary system makes it almost impossible for U.S. debts to shrink. Do our young congressmen and women know anything about Robert Triffin? I wouldn’t bet a dollar on it. Have a wonderful and restful weekend! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… When Four Gold Pens Changed the World [Sean Ring] SEAN RING Dear Reader, Good morning from a sunny Asti! One of the reasons I love listening to, and reading, Byron King’s history lessons is his unerring ability to transport us back in time. We can feel the lesson as we’re being taught. Next week, Byron and I will join our Paradigm Press colleagues, Jim Rickards, and Danielle DiMartino Booth, for an excursion to Jekyll Island, the scene of the crime. What crime was that? The formation of the Federal Reserve. Byron’s piece today focuses on the actual day, three years later when Woodrow Wilson signed what would become the Federal Reserve Act of 1913 into law. Of course, later, Wilson would lead America into World War I, despite his campaign promises. It’s difficult to assess which was the more significant mistake. But without fear of contradiction, we can say the Fed vexes us daily. Read to the bottom so you know how to attend our special Jekyll Island Livestream at zero cost. And I’ll see you a bit later in the Morning Reckoning, where I write a New America requires some Old Hickory. For now, I’ll leave you with Byron, so you can feel the slippery slope from gold down to elastic money. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Byron King] BYRON KING “I’ll do the deed first,” said the President of the United States, Woodrow Wilson. “And then I’ll have something to say.” President Wilson signs the Federal Reserve Act. Painting in 1923 by Wilburg G. Kurtz; courtesy of Woodrow Wilson Presidential Library and Federal Reserve Bank of St. Louis. With a gold pen in hand, Wilson signed his first name, “Woodrow.” He set that pen down and picked up another gold pen, with which he wrote the first part of his last name, “Wil.” And then, with a third gold pen, he repeated the procedure to finish his last name, “son.” “I’m using a series of pens,” said Wilson in a lighthearted tone, nodding towards the writing implements now arranged side by side on the mahogany desk. “Yes,” said Senator Hamilton Lewis of Illinois. “Just as the bill came forth in installments,” another spirited comment that elicited laughter from the observers assembled in the Old Executive Office Building, adjacent to the White House. And indeed, as gatherings of important people go in Washington, D.C., this was quite a crowd. Onlookers to Wilson affixing his signature included numerous cabinet officers: the Secretaries of the Navy and War, as well as the Interior, Agriculture, Commerce, and Labor. The Postmaster General was there, too. And Speaker of the House Champ Clark, along with Representative Carter Glass, Chairman of the House Committee on Banking and Currency, and Senator Robert Owen, head of the Senate Committee on Banking and Commerce. When the Act of Congress was signed, Senator William Chilton of West Virginia stepped forward with another imprint of the same document. He handed the papers to Wilson, along with a fourth gold pen, and asked for a copy with the President’s signature, a request to which the nation’s Chief Magistrate smilingly obliged. And so it was that on Tuesday evening, December 23, 1913, President Woodrow Wilson signed the Federal Reserve into being. He used four gold pens, symbolic not just of the law at the time, but of the very idea of money, from ancient days to the present. Front page of New York Times, December 24, 1913, announcing “Currency Bill.” [Biden’s Plan to Confiscate Your Cash?]( On March 9, President Biden quietly signed Executive Order 14067. This Order could pave the way for Democrats holding onto power in 2024. In fact, they could control America indefinitely. A former advisor to the CIA and Pentagon believes this order could allow for legal government surveillance of all US citizens; total control over your bank accounts and purchases; and the ability to silence all dissenting voices for good. To protect your freedom and your wealth, [see his dark warning now](. [Click Here To Learn More]( The Reaction to the Act In its next-day edition of December 24, 1913, the New York Times called the law Wilson had signed a “Currency Bill,” intended to bring “Friendly Aid to Business.” On the same day, in Boston, the [Christian Science Monitor]( led its story with a simple declaration that “The Glass-Owen currency bill is now law.” Per the Science Monitor, this was the “Dawn of a New Day.” And further, “President Wilson Says It Will Give Merchants System of Free Credits First Time in 50 Years.” In the middle of the country, the [Omaha Daily Bee]( headlined its edition of December 24 that the bill set up a system of “Free, Elastic, Uncontrolled Currency at Disposal of Business Men.” Got Gold? Still, with or without this new law, the legal money of the United States was based on solid, mined-from-the-ground gold per the Gold Standard Act of 1900. This law, signed by President William McKinley, formalized the longstanding use of gold as the basis for U.S. currency, fixing the value of one dollar as equal to 25.8 grains of 90% pure gold. (And what was this “grain,” you might wonder? It’s part of a system of weight and measurement with historical roots in the Bronze Age when people calculated value based on the weight of, literally, a grain of wheat or barley. In more modern times, a grain is defined as a mass of 64.79891 milligrams.) By the late 1800s and early 1900s in the U.S., a $20-gold piece was made of 90% gold and 10% copper, the latter metal used to increase the hardness of the alloy. In total, it weighed 33.436 grams (note: one ounce is 31.1 grams), giving a final tally of .9675 ounces of gold in every such coin of the realm. U.S. 1908 Saint Gaudens gold $20 “double eagle,” Note: no motto/In God We Trust And as the U.S. monetary system stood, this is how things were established on Christmas Eve, 1913, when President Wilson used four gold pens to sign a new law to create a central bank for the U.S., and to help U.S. business better function in a world still working on a classical gold standard. Now, not quite 110 years later and in no small measure due to long-term efforts of the Federal Reserve, that old $20 American gold coin is worth nearly $2,000 just for the precious metal, let alone the scarcity premium and markup for whatever value may come with numismatic rarity. In other words, do the math here: over the past century and one decade, the value of a dollar has declined by 99% if you use gold as the basis for comparison. Looking ahead, where do things go? Well, we could discuss it all day. Join Our Cost-Free Livestream! But instead of that, let me invite you to a livestream broadcast on May 17, 2023, Wednesday afternoon, at 1:00 pm Eastern Time from Jekyll Island, Georgia. It’s no charge to you, and you can [sign up for free here](. Then and there, on May 17 at 1:00 Eastern Time, two of the finest economic analysts in the country, Jim Rickards and Danielle DiMartino Booth, will discuss the origins and function of the Federal Reserve, its history, and its current moves that shape the economy of not just the U.S. but the entire world. Again, you can [sign up for free here](. And why broadcast from Jekyll Island, you might ask? Because Jekyll Island is Ground Zero for the modern American monetary system. [It’s where a small group of bankers met in November 1910]( to hammer out details of a plan that evolved into the Act of Congress that President Wilson signed on December 23, 1913. In the context of American history, Jekyll Island was a critical point, truly a fulcrum of events. In particular, that Jekyll Island meeting was when and where the monied interests of a newly industrialized country looked back at a series of economic crises and panics that marked the story of the nation. They reviewed serial breakdowns of commerce in 1812, 1818, 1825, 1837, 1847, 1857, 1873, 1884, 1890, 1893, 1903, 1907, and even the year of the meeting, 1910. And they were determined to do something to remedy the economic flaws of the evolving American system. According to the Jekyll Islanders, every crisis or panic was rooted in a signal deficiency of U.S. commerce, namely, insufficient money in circulation at critical moments in time. That is, every so often, not enough silver and gold in the pockets of the people and the accounts of business interests. The remedy, thought the economic planners, was an “elastic” American currency in which the money supply could expand or retract depending on business conditions. Distill it all down to the basics, and this led to the idea of a “central bank,” one that would manage the currency supply. At root, this was behind the creation of the Federal Reserve. Looking back with the benefit of a century’s hindsight, it’s fair to ponder whether or not the Federal Reserve was a successful idea or an abysmal monetary, political, and even social and cultural failure. Begin with a charitable view that no institution is entirely good or bad. And then the question arises as to whether the Federal Reserve has provided more benefit to America and its people than it may have caused harm. These are profound ideas, and they’ll be the subject of discussion by Jim Rickards and Danielle DiMartino Booth on Wednesday, May 17, 2023, at 1:00 pm, Eastern time. And you can [sign up for free here](. Jim and Danielle will look back, look at the present, and most importantly, look ahead to the future, to the U.S. and global economy that is fast evolving. The context will be through the lens of the Federal Reserve, an idea hatched at Jekyll Island and signed into law a few years later by President Wilson and those four gold pens. I hope to see you on the viewer list and watching live from Jekyll Island at one of the most important talks of the year. [Please sign up for free here](. That’s all for now. Thank you for subscribing and reading. Best wishes, [Byron King] Byron W. King ‘Secrets of Jekyll Island’ A LIVESTREAM Broadcast with Jim Rickards & Danielle DiMartino Booth [Jekyll Island] On Wednesday May 17th at 1pm EDT you can watch live, exclusively through your access link from the comfort of your own home, as two of the world’s foremost thought leaders deliver world class economic insight. [Click Here Now to Reserve Your Seat]( Clicking the button above automatically registers you for ‘Secrets of Jekyll Island’ but does not obligate you in any way to attend the event. By reserving your spot, you will receive event updates. We will not share your email address with anyone. And you can opt out at any time. [Privacy Policy](. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting Rude Awakening.](