Last week U.S. treasury secretary Steve Mnuchin actually admitted what most precious metals holders have known for a long time. In particular, he actually stated that at least in the short-term, he feels a weaker dollar is good for the U.S.
Apparently the days of at least pretending to adhere to a strong dollar policy are over. Of course those who have been watching the Federal Reserve and all of its credit creation over the past few years have been well aware. Yet to hear the treasury secretary of the world’s reserve currency openly acknowledge that he thinks a weaker dollar is a good thing is simply stunning.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos, according to Bloomberg, adding that the currency’s short term value is “not a concern of ours at all.”
“Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency,” he said.
In his comment about the weaker dollar being good, what Mnuchin is referencing is the long-held Keynesian myth that destroying the currency is a great event economically. This is based on the idea that a weaker currency makes exports more affordable to foreigners. Of which that last part is actually true.
Yet what Mnuchin and the other advocates of the weak dollar policy often exclude is how all of the goods being imported become more expensive. So while the weaker dollar might be beneficial for those exporting goods abroad, it’s far less good for everybody else who has to deal with the consequences of all of the inflation.
Of course there is also another way of being able to clearly see that this is a flawed ideology. Because if the weak dollar is good, does that mean that a weaker dollar is better, and a worthless dollar is the best? Essentially the weak dollar theory asserts that all that’s required for ultimate prosperity is a complete destruction of the currency. Which is of course as ridiculous as it sounds.
What’s interesting is that you don’t even have to take my word for this, because Mnuchin contradicts his own idea when he then goes on to state how the strength of the dollar is a reflection of the strength of the economy.
So which is it?
Obviously we know the answer. And certainly it’s hardly the first time a government official has passed along Keynesian ideology in order to justify printing more money. Yet it is still stunning that Mnuchin would openly make these comments, with the debt spiraling out of control faster than ever, while the dollar is sinking like a stone.
Keep in mind that in a recent report citing discussion within the Chinese government about whether to reduce its holding of U.S. treasuries, the Chinese reportedly said their decision would be based on the financial and political actions of the United States. Now the treasury secretary is openly admitting that he’s in favor of inflating away the debt. Which makes it hard to imagine that China or any other creditor is going to be in a rush to go out and scoop up more U.S. government bonds.
So while the government, central banks, and paper contract selling can distort the markets in the short to medium term, Steve Mnuchin just made it abundantly clear which way this is ultimately headed. And if this late in the game he’s indicating that the plan is just to continue printing into oblivion, then the long-term case for gold and silver remains stronger than ever.