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Category: Featured

Soapbox: Trust – a precious commodity

The US Congress says that the motto "in God we trust" must appear on all America's banknotes and coins. Trust is a precious commodity. Sadly there is...

30 September 2021

Gary Mead

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The US Congress says that the motto “in God we trust” must appear on all America’s banknotes and coins. Trust is a precious commodity. Sadly there is precious little of it in today’s US. Cracks are even starting to appear within the senior ranks of the President’s Democratic Party; distrust is spreading. Maybe all political life is like this.

The Democratic Senator, Elizabeth Warren, who briefly was considered the front-runner for nomination as the party’s presidential candidate in 2020, has denounced the chair of the US Federal Reserve, Jerome Powell, as a “dangerous man”. Warren’s words are a bit like breaking wind in front of the Queen; just not done.

Powell is ‘dangerous’ in Warren’s opinion not because of his supremely relaxed view of where inflation may be headed – he is sticking to the mantra that the high inflation level is ‘transitory’ – but because his actions are making it too easy for big banks to take on big risks.

Maybe President Biden will succeed in getting his nominee for the Office of the Comptroller of the Currency (OCC) accepted by Congress. The OCC is an obscure but hugely powerful independent bureau within the US Treasury which regulates and supervises all domestic and foreign banks operating in the US. She is the Kazakh-born, Saule Omarova, a Cornell academic who specializes in the regulation of financial institutions.

Omarova published a paper this year titled The People’s Ledger: How to Democratize Money and Finance the Economy. This ‘People’s Ledger’ is partly an expansion of the Central Bank Digital Currency (CBDC) debate: “The Article’s goal is not to repackage familiar prescriptions but to expand the boundaries – and to sharpen the focus – of the currently fragmented public debate on what “democratizing finance” means in today’s complex world. Doing so is especially urgent in light of the ongoing digitization of finance, which includes rapid proliferation of privately-issued digital money and privately-run digital payments systems. Notwithstanding their rhetoric of democratization, these technologies threaten to undermine the fundamental balance of the sovereign public’s and private actors’ relative powers and roles in the financial system”. Omarova’s ambition is to end banking as we know it, and centralise it under the authority of the Fed, and in the process kill off cryptocurrencies.

Warren meanwhile, used the Archegos Capital debacle from April this year as a stick to beat Powell with, although it’s far from clear that, as the law stood, Powell could have done anything to prevent that costly collapse.

Warren, who made her name as a professor of bankruptcy law and came more forcefully to public prominence during the 2008 financial crash, is one of the leading figures on the left wing of the Democratic Party. She came up with the idea for and established the Consumer Financial Protection Bureau under President Barack Obama.

She told a Senate banking committee that she will oppose Powell’s re-nomination (his term at the Fed ends in February 2022), adding that “I came to Washington after the 2008 crash to make sure that nothing like that would ever happen again. Your record gives me grave concern”. I am sure that Omarova would sympathise with that.

That the American public – the world even – can have trust in the Fed, America’s central bank and its chair and governors is critical. Fiat money, the Dollars and Cents created by the Fed, is entirely built on trust. The erosion of trust in fiat money is one major explanation of the explosion of cryptocurrencies; people are seeking a form of investment and/or money that they can trust not to lose value.

Fed resignations

That’s why the resignation this week of two senior Fed officials, Robert Kaplan and Eric Rosengren, respectively the presidents of the Dallas and Boston branches of the Fed, is not just embarrassing but highly damaging to trust. They owned and traded shares in companies and real estate investment trusts last year, when the Fed gave enormous boosts to all kinds of markets by making money and the borrowing of money cheap.

The definition of insider trading is the trading of a stock to one’s own advantage through having access to confidential information. Even if Kaplan and Rosengren are not thought to be guilty of insider trading, they certainly benefitted from the strong general rise in stock prices – the S&P 500 gained more than 16% last year, while the Nasdaq composite soared by more than 43%. Powell said that the appearance of a conflict of interest is “obviously unacceptable”. According to Daniel Taylor, a professor at the Wharton School, the business school of the University of Pennsylvania, “most Americans today believe the stock market is rigged, and they’re right”.

President Biden is believed to trust Jerome Powell, but many in his party don’t. Jerome Powell, a Republican, has already gained the Treasury Secretary, Janet Yellen’s backing for another stint as chair of the Fed. Will Biden stick to his guns, or knuckle under to the more “progressive” members of his party? In saying she doesn’t trust Jerome Powell, Warren knew that she has the backing of many influential members of the Democratic Party.

In 2022 the Democrats, with their slim grasp on government, will face mid-term elections. Biden will be aware that Bill Clinton in 1993-4 and Barack Obama in 2009-10 saw that precious commodity, trust, ebb away from them in their own mid-term contests. President Biden has clearly decided that his best chance of success is to make a much bigger splash.

He proposes more than $5 trillion (£3.71 trillion) in new spending initiatives over the next decade, far more than Clinton or Obama ever offered, to be partially paid for by tax increases on corporations and affluent families. On cultural and social issues, Democrats are pursuing a much bigger agenda under Biden than either Clinton or Obama. Biden is endorsing measures related to an array of liberal priorities, including election reform; police accountability; citizenship for young undocumented immigrants; statehood for Washington, D.C.; LGBTQ rights; and gun control.

This is a big and risky agenda for a president whose approval ratings are less than 50% , who has only a tiny majority in the House of Representatives and a Senate split 50-50, and with an economy that’s yet to get back on track after the Covid-19 pandemic.

Trust in gold

Trust is a precious commodity. But it’s not something we can use as money. The world is emerging from a health crisis and may be entering a financial crisis. The hints of that crisis are coming thick and fast – China’s Evergrande mammoth debt problems, debt ceiling kerfuffles in the US, nervousness in stock markets as the Fed might/might not slow/stop its quantitative easing – there are too many to mention.

Fortunately, there is something one can trust and use as money, of course that is gold, trusted for millennia and as relevant today as it was two thousand years ago. At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power. We strongly believe that gold is the fairest and most reliable currency on the planet, but we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

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