Trump and Mnuchin Throw More Fuel On Dollar Bonfire

Written by Chris Marcus for the Miles Franklin blog.

If I have children one day, I wonder if they’ll believe me when I tell them about the events that are currently going on in the financial markets.

Do you think they’ll believe me when I tell them that right as the dollar was more on the ropes than ever, that the U.S. government’s response was to start a trade war against its largest creditor?

Will they believe me when I tell them that this happened just months after reports surfaced that the Chinese were thinking about walking away from the debt auction?

Surely they won’t believe that after the White House responded by starting a trade war, that the next plan was to start accusing China of being a currency manipulator again.

Because I like to think that if I have children, that instead of allowing them to learn Keynesian economics, I’m far more likely to let them watch this muppet explanation of things like quantitative easing.

And I imagine they’d be somewhat baffled that the president and treasury secretary would even suggest accusing China of being the currency manipulator in the face of the past decade of Federal Reserve monetary policy.

Hopefully CNBC’s website will still be up so that my future kids can read the following article for themselves. Which mentioned that:

President Donald Trump wants to make sure China doesn’t start manipulating its currency again, Treasury Secretary Steven Mnuchin said Tuesday.

In a tweet Monday, the president accused Russia and China of “playing the currency devaluation game,” even though a Treasury report said the countries were not manipulating.

“It was a warning shot at China and Russia about devaluation. China has devalued their currency in the past,” Mnuchin said in an interview on CNBC’s “Squawk Box.” “They’ve used a lot of their reserves to actually support the currency. The president wants to make sure they don’t change their plans, and he’s watching it.”

On the other hand, what I expect many in future generations will find much easier to believe is how China responded. Because according to a new report by SGH Macro Advisors:

From what we understand, the Chinese government has halted its purchases of US Treasuries. Despite the direct encouragement, according to Chinese sources, by US Treasury Secretary Steve Mnuchin for China to “stay put,” Beijing has apparently discontinued purchases of US Treasuries “for the past few weeks.”

As always, I like to preface comments like this by saying that I didn’t hear this personally from the Chinese government. So I can’t say for certain that this report is accurate and that this is exactly what their decision makers are thinking. Although on the other hand, it’s certainly logical enough that they would be thinking something along these lines. And if this report is indeed accurate, despite how clearly it could be seen in advance, it’s still truly stunning.

Time will tell if China is ultimately impressed with Mnuchin’s advice to “stay put”, even as the White House continues to do the exact opposite. But so far there have been no signs of backing down, and the incentive for the Chinese to leave their treasuries behind and enjoy the benefits of their massive precious metals buying spree continues to grow.

Remember the golden rule that he who has the gold makes the rules, and then decide for yourself which side of this currency and trade war is likely to come out ahead. Many of the events going on in the markets are almost unfathomable. Yet they are there for anyone to see, and taking action by trading dollars for metal continues to put you on the same side of the trade as the smart money.

–Chris Marcus

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