Memo To Trump—This Is The Best Weapon In Your Arsenal To Take On The Intransigent Fed: Steve Forbes

Steve Forbes urges President Trump to issue U.S. bonds in gold in order to bypass the Federal Reserve as it refuses to cut rates.

Transcript

00:00Here's one way President Trump can fight the Fed.

00:07Hello, I'm Steve Forbes, and this is What's Ahead, where you get the insights you need to

00:12better navigate these turbulent times. There's a weapon that the Trump administration should

00:18unleash to begin a huge, much-needed overhaul of the Federal Reserve. The Treasury should issue

00:25government bonds linked to gold. These securities would provide a simple, everyday metric as to

00:32whether Washington is undermining the dollar's integrity or maintaining its value. Noted economist

00:38Judy Shelton in her seminal book, Good as Gold, How to Unleash the Power of Sound Money, provides one

00:44model on how this would work. Washington would sell a zero-coupon bond with a maturity of, say,

00:51five years. Here is the profoundly positive kicker. At maturity, the investor gets to make a choice.

00:59Get the principal back in dollars or with gold. For example, you buy a five-year gold bond for a

01:06million dollars. At maturity, the bond would permit you to get cash or a specific amount of gold.

01:13In this case, probably around 28,000 ounces. If Washington and the Federal Reserve misbehave,

01:19as they have in recent past, you might collect gold worth $1.5 million. Washington would set aside a

01:28certain amount of its 261 million ounces of gold that it currently holds to cover its potential

01:34liabilities. The beauty part is that people every day could see if Washington is messing around with

01:41the dollar's value. A weak dollar would mean Uncle Sam would lose gold. Instinctively, most people

01:48wouldn't like that at all. They would know this portends trouble. The price of these gold bonds

01:54would be a great barometer of the financial health of Washington. For a variety of reasons,

02:00gold keeps its intrinsic value better than anything else on Earth and has for thousands of years.

02:06It is to stable value, as the North Star is to navigation. It's a fixture. When you see the

02:13dollar price of gold fluctuate, that mainly reflects changes in the value of the dollar,

02:19not the yellow metal. These days, investors hunger for protection against inflation.

02:25That's why they have bought some $2.6 trillion of Treasury Inflation Protected Securities,

02:31so-called TIPS, even though the nominal interest rate is low compared to regular Treasury bonds.

02:37Gold bonds would also become a weapon against the very destructive philosophy that guides the

02:42Federal Reserve, the belief that prosperity causes inflation. The Fed fears that a vibrant economy

02:49will send prices higher. The central bank doesn't distinguish between expenses going up because of

02:55natural disasters, pandemic lockdowns, or government policies like sales taxes and regulations,

03:02and the classic inflation that comes when you reduce the value of the dollar. Judy Shelton rightly makes

03:09the point that we need to rule out central banks manipulating the cost of capital to stimulate or

03:15restrict economic activity. This socialist-style thinking needs to be attacked. Money measures value

03:22the way a clock measures time. A ruler measures length, and a scale measures weight. We all know that

03:29markets work best with fixed weights and measures. The Fed should focus only on maintaining the value of the

03:35dollar. It shouldn't keep trying to manipulate economic activity. It shouldn't manipulate interest rates.

03:42It's an absurdity today that a three-month Treasury bill yields around 4.3 percent. A market rate would

03:49likely be half that. Gold bonds would help highlight how misbegotten the Fed has become with its true

03:56mission. I'm Steve Forbes. Thanks for listening. Do send in your comments and suggestions,

04:01and look forward to being with you soon again.