Posted originally on Feb 3, 2025 by Martin Armstrong 

Another aspect of Trump’s tariffs that he and his advisers fail to understand is clearly related to his concepts of how the world economy functions, which were seriously forged in the Middle Ages. I do not say this out being a Trump hater. My job is to be unbiased and call shots as they are fired purely from an economic and historical perspective.

The dollar’s reserve status has nothing to do with the old world of thinking about backing, fiat, and gold. All currency is fiat, which means the government has decreed its value. From the earliest days of coinage, when it was invented in Lydia, the government established weight and fitness, and when war took place with Persia, the first debasement took place. That was still fiat, even though the coinage was gold and silver.

The next financial capital of the world after Persia became Athens, Greece. There was the Peloponnesian War, where Sparta defeated them in 404 BC. Once again, we can see the cost of war, and they ran out of silver and issued emergency coinage, bronze that was silver plated.

In 1963, President Kennedy issued an executive order to take silver out of the coinage. We, too, issued what became known as clad coinage. Again, a copper core was used, but nickel was placed on both sides to retain the appearance of a white metal like silver. This was the same response to inflation from the Vietnam War and the endless Neocon expenditures to dominate the world.

In the aftermath of World War II, the two countries that rose to the top of the economic food chain were Japan and Germany. They did so without gold; the true power was the productivity of the people. Russia is the wealthiest country in the world from a natural resource perspective. They had the largest gold reserve in history in 1917. Someone hid them so the Communists would not get them, and to this day, they have never been found. Russia had even issued platinum coinage during the 19th century. Yet, despite the resources, Communism suppressed human nature, and that destroyed the productivity of its people, preventing Russia from becoming the financial capital of the world simply because it has the most tangible assets.

What made the dollar the reserve currency was NOT gold – it was our productivity and freedom of the people to invent what they might. That was displayed with Nixon’s famous Kitchen Debate of 1959 with Kruschev. Nixon showed that the American living standard was the best in the world because of the freedom of the people to invent rather than be restrained by government and directed by the government, as took place even in Europe postwar.

The core behind the dollar reserve status has NOTHING to do with fiat nonsense since all currencies are fiat. The people and their productive capacity are the true backing of the currency, precisely as was the case with ancient Rome. India was a significant trading partner with ancient Rome. There was a trade deficit with India since that is where all the spices came from and there was the importation of dyes and silk from China. Chinese records demonstrate that under the Roman Emperor Marcus Aurelius (161-1980AD), he had even sent an ambassador to China for trade negotiations.

While in Northern India, there was the Kishan Empire issued its own coinage in gold, in the south, they struck gold coinage for over 200 years, imitating Roman coinage. Why? Because of the trade with Rome, the economic dominance of Rome made it the reserve currency, so the gold carried a premium when issued by Rome.

Even before Rome, we see imitations of the coinage of Alexander the Great. These were “imitations” rather than counterfeits because they were struck in silver with generally the same weight. We find imitations of Alexander’s coinage in Eastern Europe right into Switzerland.  Once again, this demonstrates that for centuries, a currency’s value carried a premium if it were the dominant economy that others traded with. All the old theories on money are out the window that were based on the people of the Middle Ages when coinage was merely exchanged on pure metal content because Europe was divided and there was no dominant economic power.

This has been misleading ever since the days of Sir Thomas Gresham when debasement took place and currency values declined solely because the exchange rates were entirely confined to the metal content.

It was Napoleon who first created the idea of a single currency. Like Alexander the Great, as he conquered regions, he revised their monetary system by standardizing the weights. Thus, we see that the economic system of Napoleon was all based on the metal content.

The world saw the advantage of a quasi-single currency despite the varying names. They were all established on the standardization of metal weight. The Latin Monetary Union eventually collapsed because the coinage union excluded several forms of monetary issues that were left unregulated and became a loophole when in financial crisis. Italy, Greece, and the Pontifical State all faced financial imbalances linked to the wars of national unification. To cover the costs, as has always been the case since the birth of coinage in the 6th century BC, they all used increased amounts of unregulated forms of monetary issue. This included the issue of banknotes inconvertible in gold and silver, as well as of copper coinage.

The United States $5 gold coin weighed 8.359 grams at 90% pure, so it was overvalued in the Latin Monetary Union. They prepared a pattern of a $4 Stella to join the union. But it was never issued, and the LMU collapsed.

Trump has been anti-BRICS, seeing that as a threat to the reserve state of the dollar yet overlooking the entire reason BRICS has even come about. BRICS was set in motion because our Neocons wanted to destroy the Russian economy so they could invade and conquer Russia – a lifelong dream. Removing Russia from SWIFT sent a red flag to the entire world –

DO AS THE USA COMMANDS, OR YOU, TOO, WILL BE BARRED FROM THE WORLD ECONOMY!

You had the Biden Administration threatening even China to remove them from SWIFT if they helped Russia. They only saw their military power and the quest to conquer Russia while being ignorant of how the world economy functions. China immediately set up its CIPS system – the alternative to SWIFT. The Neocons divided the world economy and this set in motion the beginning of the end of the dollar as the reserve currency, which will evolve over time for post-2032.

What makes the dollar the reserve currency today? Like Rome, we remain the dominant economic power. Germany and Japan rose from the ashes by selling goods to American consumers. This is what Trump DOES NOT understand. Imposing 25% tariffs, thinking he will Make America Great Again by forcing manufacturers to return to the United States, will not just send the rest of the world into economic decline; it will remove the very foundation as to why the US greenback became the reserve currency because everyone could sell to Americans and as such they had to deal in dollars.

Companies left because, thanks to the Supreme Court during the progressive era, rules that the income tax applied to worldwide income. No other country was taxed in that manner. Companies that were competitive worldwide had to leave. If we allocate global trade according to the flag the company flies, the USA had virtually a trade surplus because American companies have always been far more competitive and innovative than foreign competition.

Trump’s ideas, even cryptocurrencies, are all based on antiquated theories that expired long ago. Trump’s advisers have decided to impose drastic tariffs, thinking this will somehow Make America Great Again, but they are just wrong. It will shrink the US economy and send the rest of the world into recession. In the end, America will decline, which is all part of our computer’s forecast for 2032.

Sorry Donald – We are headed into a recession, and unemployment will rise into 2026 – not decline!