Trump Trumps Us All
There's a lot of mystical, teary-eyed attachment, especially among my fellow libertarians, to the idea of a hard backing such as gold for the dollar. The reality is simple supply and demand. People need dollars to pay their taxes. There is effectively no substitute. Mortgages and other financial instruments in the U.S. are also tied to the dollar and there is no sign that somehow bitcoin or any other replacement - including gold - is immediately available, or that the feds or their banking system will accept anything but dollars in payment of loans, taxes and mortgages.
And, yes, any fiat currency such as the dollar is subject to manipulation, as recently happened. However, the manipulation is limited by the market. So long as you have to have dollars for life-critical needs - e.g., not being arrested or "seized" - the dollar will not - cannot - go to zero, and even a ludicrously bad set of national policies can only impact the surplus dollars value by a limited amount. Once we've sucked up the excess dollars from the bubble, bidding the $ price down and thus causing inflation, the situation is self-stabilizing. Supply and demand rules and the place where the supply and demand curves cross is where the price of dollars will stabilize or oscillate around.
On the other hand, within those parameters, the value - purchasing power - of the dollar is subject to outside forces, including such as the Fed, where conscious discrete decisions over whether the money supply is too tight, etc., are issued after much hand wringing and denial, as no one really knows what the impact of policies will actually entail, only that both domestic and foreign stake-holders will react or not, sometimes in catastrophic chaotic bubbles, or, as has been the case for the past decade, with simply holding on to funds as relative deflation beats most other possible investments.
Comes the Trump...
Trump, the ultimate dealsman is now in possession of the tools for the most outrageous insider trading the world has yet seen. Consider the national debt compared to the GNP. They are almost equal. Now, among our creditors are the Chinese, with at least $1.5trillion languishing in their banks - perhaps double that. If they try to divest their $, allegedly in a bid to replace the $ with the yuan, then that in and of itself will trigger an inflation that will eat their hard-won savings. Spending reduces the value of whatever is being spent.
Are they happy? That debt is to the U.S. as North Korea is to the Chinese, a way of exerting control for the benefit of the insiders - one that separates them from risk. As is covered extensively in Sun Tse's "Art of War," it's generally better to foist risk off onto a third party. So, the crazier the N. Koreans act out, the more leverage they have, and China is willing to carry them economically as an Ace in the hole.
But, meanwhile, it looks like Trump may have read the "Art of War" himself, despite his put-on as a buffoon. Trump should probably also bring in a Chinese advisor to explain the "36 Strategies." And, maybe, even "Thick Face, Black Heart," the Chinese answer to "The Prince." I would also advise Trump to pay attention to Peter Navarro, his China expert - professor at UCI and popular author specializing in China policy: https://en.wikipedia.org/wiki/Peter_Navarro
And consider bringing in Sidney Rittenberg to advise on the China business side, where he is recognized as a guru by both American and Chinese players: https://en.wikipedia.org/wiki/Sidney_Rittenberg
The interesting question then is just how Trump is going to deal with this classic insider trading scenario. The Trump deal vs. that Chinese $ reserve. Bon Voyage. It may get hectic.
The comment function is non functional again - so here's my reply to the first comment
Thanks for your comment. However, all that matters is supply and demand. It's really quite simple. Taxes alone could suffice as backing for the currency, but we also have mortgages and other debts. Would you not pay your taxes - just or unjust - if it meant losing your house?