This Is The Secret Weapon Trump Can Use To Take On The Fed

Key Concepts

• Gold-linked bonds
• Federal Reserve (The Fed) overhaul
• Dollar integrity
• Inflation protection
• Sound money
• Zero-coupon bond
• Treasury Inflation-Protected Securities (TIPS)
• Manipulation of interest rates
• Intrinsic value of gold

Main Argument: Gold-Linked Bonds as a Check on the Federal Reserve

Steve Forbes argues that the U.S. Treasury should issue government bonds linked to gold as a mechanism to hold the Federal Reserve accountable and maintain the dollar's integrity. He believes this would provide a daily metric to assess whether Washington is undermining the dollar's value.

The Mechanics of Gold-Linked Bonds

1. Issuance: The Treasury would issue zero-coupon bonds with a maturity of, for example, 5 years.
2. Investor Choice at Maturity: At maturity, the investor has the option to receive the principal back in dollars or in a specific amount of gold.
3. Example: A $1 million 5-year gold bond could be redeemed for cash or approximately 28,000 ounces of gold at maturity.
4. Gold Reserve: Washington would allocate a portion of its 261 million ounces of gold to cover potential liabilities.
5. Daily Metric: The price of these gold bonds would serve as a daily barometer of Washington's financial health. A weak dollar would result in Uncle Sam losing gold, which would be easily visible to the public.

Judy Shelton's "Good as Gold"

Forbes references Judy Shelton's book, "Good as Gold: How to Unleash the Power of Sound Money," as a model for how gold-linked bonds could function. Shelton advocates for ruling out central banks manipulating the cost of capital to stimulate or restrict economic activity.

Gold as a Store of Value

Forbes emphasizes gold's intrinsic value and its historical role as a stable store of value. He states that gold retains its value better than anything else on Earth and has done so for thousands of years. He likens gold to the North Star for navigation, a fixed point of reference. Fluctuations in the dollar price of gold primarily reflect changes in the dollar's value, not the value of gold itself.

Inflation Protection and Comparison to TIPS

Forbes notes that investors are currently seeking protection against inflation, as evidenced by the $2.6 trillion invested in Treasury Inflation-Protected Securities (TIPS). While TIPS offer inflation protection, gold bonds would provide an alternative and potentially more transparent mechanism.

Attacking the Fed's Philosophy

Forbes criticizes the Federal Reserve's belief that prosperity causes inflation. He argues that the Fed fails to distinguish between price increases caused by natural disasters, lockdowns, or government policies and true inflation resulting from a devaluation of the dollar. He asserts that the Fed's manipulation of interest rates is a form of "socialist style thinking" that needs to be challenged.

Money as a Measure of Value

Forbes draws an analogy between money and other units of measurement, such as clocks, rulers, and scales. He argues that markets function best with fixed weights and measures. The Fed should focus solely on maintaining the value of the dollar and avoid manipulating economic activity through interest rate adjustments. He points out the absurdity of a 3-month Treasury bill yielding around 4.3% when a market rate would likely be half that.

Conclusion

Gold bonds would serve as a check on the Federal Reserve's actions and highlight the extent to which the Fed has deviated from its true mission of maintaining the dollar's value. By providing a transparent and easily understood metric, gold-linked bonds could help restore sound money principles and promote greater accountability in monetary policy.