AI Parrots, Crypto Tokens, Gold & Financial Repression
- 1 day ago
- 6 min read
August 25, 2025 | It is only half way through the first year of the Trump presidency, but the special role of the dollar is ending ahead of schedule. The Treasury’s already ample borrowing is about to increase dramatically, giving foreign investors many more reasons to invest in assets other than dollars. Yet US equity and debt markets continue to absorb all of the available cash in the global markets even as the Fed continues to slowly shrink its balance sheet.
US equity valuations are at record highs and bank lending to nonbank funds and entities is also surging. We took a lot of alpha off the table in front of the Jackson Hole media fest last week, in part because we still don’t think there is a majority for interest rate cuts on the FOMC. Fed Chairman Jerome Powell could vote with the Republicans governors and still lose the vote. And Powell will laugh in the event.
Margin credit in the US reached a new peak last week, FINRA reports. As of the second quarter of 2025, total margin loans in the United States reached a record high of $1.008 trillion vs just $850 billion in April. Our question: Why isn't margin debt even higher given the scale of the bubble?
Source: FINRA
Americans are trading crypto tokens and talking to themselves via the electronic parrot known as “artificial intelligence” or AI. Indeed, the entire US financial complex has been converted into a large game and AI sits atop the great pile. Since games are not securities, hucksters can say whatever they like about future performance of tokens. As the US seemingly heads to a climatic market blow off, the rest of the world is migrating back to gold as the chief reserve asset.
At the core of the economic debate in Jackson Hole, hopefully, is why the dollar remains so strong given the libertine behavior of the national Congress and the equally erratic behavior of the US Treasury and central bank.
White House Council of Economic Advisers Chair Stephen Miran argues correctly that the dollar's status as the international reserve currency makes it overvalued, forcing the U.S. to run current-account deficits and hindering U.S. manufacturing.
Miran's proposed solution to the strong dollar involves "outside-the-box" policy options, such as the "Mar-a-Lago Accord," aimed at lowering the dollar's value to make the dollar more competitive by selling US gold stocks. Miran’s point about the inflated dollar is very valid, but demand for dollars is not just about trade. And no, we sell paper to devalue the currency, not gold Stephen.
In addition to current account deficits, the US also now tolerates higher inflation. Why? The combination of huge public deficits and equally large foreign investment flows. It is the financial use of the currency drives the dollar’s chronic overvaluation. Given the federal debt, Miran and his master Donald Trump should be glad of the strong dollar.
The way that we ought to deal with this real problem of a bloated dollar, as we discuss with author Jim Rickards in Inflated: Money, Debt and the American Dream, involves letting go of the reserve status of the dollar. The US should aggressively buy gold and sell fiat dollars. Turn the logic of former Texas Governor and Treasury Secretary John Connally to a new purpose.
In 1971, for the younger members of the audience, Treasury Secretary Connally famously remarked how the US dollar was "our currency, but your problem," referring to how the US dollar was managed primarily for the US' interests despite it being the currency primarily used in global trade and finance. Not much has changed in 50 years except the size of the dollar market.
Gold won the battle for reserve asset preeminence in 1969, when the Treasury withdrew from the London Gold Pool. Final surrender came in 1971, when President Richard Nixon closed the gold window to other countries. After Nixon’s capitulation, Paul Volcker and other US officials tried to shift the world's monetary system away from gold altogether, but ultimately failed with the reemergence of gold in Asia and Russia.
Jim Rickards notes that Americans “no longer know what money is” and have replaced “money with moneyness.” He then describes why Americans may lose the privilege of issuing the global reserve currency sooner than many think possible:
“Money’s value springs from trust, and trust itself depends on some institution—a central bank, a rule of law, a gold hoard, an AI algorithm—to sustain it. When institutions break down, and trust is lost, the value of money is lost as well, only to await the rise of new institutions and new forms of money so the cycle begins again.”
It needs to be said that FDR did not need to seize gold in 1933 for economic reasons, it was all about the socialist politics of the time. From 1913 onward, the Fed's ability to grow liquidity was never constrained by gold. President Trump’s embrace of crypto sponsors and deficit spending is more of the same political self interest at work a century later.
In the wonderfully sarcastic book, “The New Dealers,” published anonymously in 1934 by Simon & Schuster, the “Unofficial Observer” described the FDR devaluation and repudiation of gold:
“On the one hand, you have the good old traditional way of doing business, which required the entire population of the country to ‘walk home’ at twenty-year intervals in the name of God and the Gold Standard. On the other hand, you have the new technique of the financial sheik who claims that you can use buttons instead of money. The old school claims that buttons belong in button-holes, the new school asks what is the Gold Standard between friends. The times are on the side of the new school, for the financing of a revolution—even an unconscious one—takes a lot of money, and a lot of buttons.”
The progression from the antediluvian word of gold as money, to various forms of fiat paper tokens issued by nation states and protected by legal tender laws, to the brave new work of crypto tokens and “stable coins” pegged to fiat currencies, illustrates the rise of financial repression in the modern age. And the value of gold remains a function of the yield available on paper. The chart below shows the portion of bank gross interest revenue that goes to equity rather than deposits and other debt. During COVID, the index was over 90%.
Source: FDIC/WGA LLC
Some Americans believe that artificial intelligence creates actual understanding instead of an electronic parrot. Others believe that crypto tokens represent value instead of a ponzi scheme. And you cannot tell fully entitled Americans that they are mistaken. Meanwhile, today the Trump Administration is hurtling forward with a fiscal agenda that will see the public debt grow by $3-4 trillion in calendar 2025.
Under President Donald Trump, Americans face a return to the financial repression seen during the zero interest rates of 2019-2021 and hyperinflation caused by uncontrolled federal spending. Even as Americans dive down the crypto rabbit hole, around the world gold is being increasingly substituted for dollars as a reserve asset. As more and more nations around the world sell dollars and buy gold, the American confusion about the nature of money and many other things will come more sharply into focus.
Top Posts
Silver Surges? Waller Wants Lower Reserves & Tighter Policy
Should the Federal Reserve Pay Interest on Bank Reserves?
The Cost to Housing of Donald Trump
The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.