Is Tax "Reform" Good for the US Dollar? How About Gold?

Let's investigate what happened after the last 3 major tax reforms. Another "reform" is on deck.

I picked up this idea from Holger Zschaepitz, @Schuldensuehner, who made the following Tweet, posting a chart from Bloomberg.

In the following chart, I add a key piece of legislation that someone inadvertently overlooked.

Tax Reform vs US Dollar 1986-Present

Key Dates

US Dollar Synopsis

  • Following the 1986 legislation, the dollar fell about 22% over the next six years.
  • Following the 2001 legislation and continuing with the 2003 legislation, the dollar fell about 37% over the next seven years.

What's Next?

The Senate version of the bill is likely to add over $1 trillion to the deficit, while not even cutting taxes beyond 2027.

A bill that adds so much to the deficit is not US dollar supportive, to say the least.

However, one cannot view these things in isolation. How the dollar reacts also depends on events in the Eurozone, China, and Japan, as well as Fed interest rate policy.

Global Currency Debasement

Global currency debasement is underway.

Things may be even crazier elsewhere, so a decline in the dollar is not guaranteed.

A Driver for Gold

Sooner or later, competitive currency debasement will matter.

Gold is likely to be the primary beneficiary.

I wish I could tell you when this matters in a major way.

Gold vs. Faith in Central Banks

Amazing Non-Reform Act of 2017

I have a suggestion for the name of the pending legislation: The Amazing Non-Reform Tax Act of 2017.

For further discussion of the "non-reform", please consider Tax Bill Analysis: Spend Your Extra $100 Wisely.

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Mike "Mish" Shedlock

Comments
No. 1-15
AWC
AWC

Au, the New TINA? Beginning to think so after days of research on where to go with a new IRA conversion. Not much out there that makes any sense anymore, other than real money.

Tezza
Tezza

More likely better for crypto currencies.

Blacklisted
Blacklisted

The dollar decline in the 2000's was primarily due to the birth of the euro, which was hatched in the 1985 Plaza Accord, that sought to manipulate the dollar lower, which it did, and caused the exodus of capital that caused the 87' crash. The coming rise is the dollar will be driven by instability in Europe and Japan, and rising rates and lower corporate taxes will only add fuel to the dollar bubble, which will be the cause of the next and biggest financial crisis. Everything is connected, just as sure as political intervention will exaggerate the problem, and blame will be pinned on foreign boogymen and evil businesses.

Gold will rise with the dollar, stocks, Bitcoin, and other safe havens.

shamrock
shamrock

What about economic growth from tax reform? George W. Bush cut taxes twice and GDP averaged 1.79% growth in his 8 years. Obama raised taxes significantly on the high earners and growth averaged 1.87% for his 8 years.

doraemon
doraemon

Bitcoin's rise in 2017 was driven first by Chinese needing a way to get money out as capital controls tighten; then by South Koreans (a major gambling nation and a way to funnel proceeds from a red hot stock market which has risen over 30% in spite of the North Korean crisis - each time North Korea fired a missile, Kospi rose to new record (I wouldnt exactly call that a rational reaction - certainly there was no need to panic but to keep buying to new record highs is another matter) and now by Venezuelans, Africans and soon the jolly come lately Europeans waking up to the game;