JoNova

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Central banks drive booms and busts, and force everyone to be a high risk speculator

It doesn’t have to be this way. The most important price in our economy is set by a bunch of bureaucrats. They are unelected and unaccountable. But your day to day life is affected by their decisions, as well as your ability to buy a house or for your retirement savings to maintain their value. Some people are wiped out by a mere phrase in a memo. There is a deep Soviet style management program at the centre of all Western economies. It’s time we talked about that ogre.

Maurice Newman, former chair of the Australian Stock Exchange (ASX), writes in The Australian about the defining invisible issue which is rarely discussed — our currencies, our central banks:

Vladimir Lenin advocated: “The best way to destroy the capitalist system is to debauch the currency.” True or not, we seem hellbent on finding out.

Dark times are coming:

The BIS has rung the alarms. We are warned that the world’s most reckless monetary experiment, which has taken interest rates to the lowest in recorded history, is failing. Central bankers remain silent, not knowing how or when to end what they began, while the political class simply looks on, impotent and mired in its own economic mistakes.

This leaves only the market’s invisible and heavy hand to make the required adjustments. What follows will be indiscriminate, unpredictable, socially far-reaching and, politically ugly.

Central banks drive the economy at breakneck speed

Central banks keep interest rates artificially low. This pumps up a sick economy, by effectively “printing” money. (Technically, it makes money cheap to borrow into existence creating bank “credit”). This is a gold plated Christmas present for high risk speculators, but it’s taken from people who work for their money.  It’s like toxoplasmosis for savers — their savings are silently eaten away by inflation as borrowers outspend them with money they did not earn. Savers have to adopt high risk behaviours to stay afloat and keep their purchasing power from sinking in a river of money.

Easy money generates cycles of boom and bust that wipe out life savings. No one can do hourly work for 40 years, then live off the pitiful interest paid on the money saved. Instead everyone has to “invest” and speculate whether they like it or not. And thus do local councilors get eaten by Goldman Sachs traders for breakfast. What kind of culture do we want? Easy credit favours aggressive takeovers, and hostile, predatory market behaviour. Central banks control so many aspects of our lifestyle, yet we can’t vote them out.

More bad debt can’t fix a problem created with bad debt

We’re up to the third round of bubbles. The addiction to easy credit has reached the end stage when each injection is almost impotent. Printing money doesn’t create euphoria, or even growth, it just puts off judgement day.

“…thanks to the co-ordinated actions of the world’s central banks we’re heading for an economic and financial disaster, probably worse than the last…”

“Incredibly, for the third time in 15 years, we’re back in a financial bubble searching for a pin. “

Mises should be a household name, an economic hero, but his theories, so prescient, don’t benefit power hungry politicians, nor bureaucrats, nor bankers:

Austrian economist Ludwig von Mises was one of the few to predict the 1930s Depression. In The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money, he wrote, “The depression is the necessary process of readjusting the structure of business activities to the real state of the market data … The depression is the first step on the return to normal conditions, the beginning of recovery and the foundation of real prosperity based on solid production of goods and not on the sands of credit expansion … If one does not terminate the expansionist policy in time by a return to balanced budgets, by abstaining from government borrowing and, by letting the market determine the height of interest rates, one chooses the German way of 1923.”

We need a free market in money. Interest rates should be set by lenders according to risk, and they should not be “guaranteed” by taxpayers.

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98 comments to Central banks drive booms and busts, and force everyone to be a high risk speculator

  • #

    Ah, but have we run out of other people’s money yet? The Left would think not.

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    • #

      That’s the point — through silent inflation the government/bureaucrats/banks don’t need to take other people’s money, they can quietly shave off your purchasing power in open view. Most people don’t realize they’ve been robbed.

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      • #

        I wonder; if the western world becomes like Venezuela, will we reach equilibrium and the clock will be reset?

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        • #
          Ted O'Brien.

          Why only the Western World?

          I hadn’t seen Lenin’s quote before. “The best way to destroy the capitalist system is to debauch the currency.” Had I seen it 30 years ago I could have hung it around Hawke and Keating’s necks.

          The Hawke government deregulated the banks and promoted wild abuse of that deregulation. The only purpose I could see was destruction of the capitalist system. They thought they had it in 1987, but were outsmarted.

          They also debauched our currency with their “dirty float” of our exchange rate. The float was necessary and overdue, but it was coupled with usurious interest rates which heavily inflated the exchange rate. This had the dual effect of depressing the price of imported goods and increasing costs for local producers. Lower prices for imports were a key factor for hiding inflation in Australia, particularly as we saw quite astonishing improvements in efficiency of production in countries other than Australia. That “Dirty Float” has been in place for the whole of the time since, as interest rates in Australia have been maintained higher than in the countries we trade with.

          That quote also gives us the background for the first major economic policy announcement by the first Rudd government, the monstrous lie: “The Howard government has let the inflation genie to of the bottle.” This was a complete fabrication. So the message had to be that the new government intended to engage in inflationary policy and make us believe that it was the old government’s fault.

          Tumultuous events since have kept the inflation at bay till today, but I still back Maurice Newman’s judgement of the situation.

          You are on the trail, bemused. It is ALP policy to reset the clock. And it won’t be pretty.

          40

  • #
    Robbo

    Since when are bankers associated with the left? Federal reserve bank of USA is a private outfit. Or are you complaining about corporate socialism – privatize profits and socialize losses?

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    • #

      Large private corporations often lean left — It suits them to donate, network and curry favours with powerful influential politicians. Then friendly big-gov can write lots of rules and subclauses that favour supporters, lock out competition, and generally keep the big-Fish big.

      It’s a lot easier than out-competing everyone in a truly free market isn’t it?

      Forget the old days where the left stood for workers and the right for business owners. It ain’t like that…

      361

      • #
        richard ilfeld

        The functions of cronyism, or rent seeking, or socialism, or any statist authoritarian philosophy are much the same. Relative scarcity cause, in economics, a hierarchy of needs to be filled. The ‘Market’ sets the ‘Price’ by finding the equilibrium point on the supply/demand curve. The government intrudes, using the inherant police power of the state to divert resources to itself and it’s favored few, at the expense of society at large. Various lies are invented as levers of power to obfuscate the truth; belief must trump reality or the deception fails: “we pretend to work, they pretend to pay us”, “distorting our energy economy will save the planet”, or others. The dead giveaway tell that governing is about power rather that principle is that those few who actually see history realize that political movements often achieve, or preach, philosophies 180 degrees from their actions.

        Thus in the US the Democrats are the party of civil rights, the Republicans the racists, grown from the Republican party of Lincoln and the Democratic ‘solid south’ of segregation forever. The Republicans then became the party of the rich, until the Democrats were, while the Democrats were the party for free trade, until the Republicans were, until neither were.

        There are millions of concerned and caring people in the world. They care about, and work towards various causes. The art of politics seems to be about harnessing this energy in the simple, unadorned-by-principle pursuit of power. The single most common characteristic of the powerful is swearing fealty to the common man while privately expressing contempt. Do the phrases fellow traveler or useful idiot come to mind?

        I live on a coastline. Each weekend, committed, caring, socially responsible people spend hours cleaning up the coast, planting sea grass, and generally trying to make the world a better place. Those who lead them meanwhile, capture the energy and donations and perpetrate huge social destruction like that being caused by the energy problems in SA right now. One of the great mysteries of life is how these good and caring people can continue their micro good and be oblivious to the macro harm.

        I’m not even sure that most politicians start out as venal, tho some certainly do. Same with businessmen, i’d guess.

        The evidence, to me, across time and space, suggest the only remedy that avoid tumultuous reboots of society, is limited government. Size and power of institutions alone, and the destruction as institutional judgement is substituted fro market judgement is the culture killer.

        Business that is earned tends to work out, that which is compelled, not so much.

        160

      • #
        Truthseeker

        It is about power structures; bureaucratic power structures, corporate power structures, political power structures, etc. Power structures are bad. The bigger they are the worst they are. It does not really matter how they are created, if they are not accountable they always make things better for the few and worse for the many. The political left vilify corporations because they are a competing power structure, not because of any principle of helping “workers”. The corporation power structures tend to use the political right to fight the political left because they are a competing power structure, not because of any principle of helping “entrepreneurs”.

        All power structures need to be broken down. None of the them make things better for the vast majority of people in our society.

        10

      • #
        Ted O'Brien.

        Since when are bankers associated with the left? Answer, whenever the left have money.

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      • #

        Large corporations lean Left because they are more interested in control and controlling (markets) than in anything else. Left and right as political denominations are in my view meaningless. There are only two groups of people: those who want control and those who want less or no control. Once one makes this distinction it is far easier to weed through the current clouds and mirrors of contemporary decision making.

        00

  • #
    stan stendera

    Interesting to see you branch out into politics and economics Jo. I can recommend a simple way those who are worried about this can protect themselves from the possibly coming financial meltdown. Buy silver, preferably one ounce coins issued by government. The USA, Canada, Austria and others issue such coins. I don’t know of Australia or New Zealand mint such coins, but if they do they would certainly be useful. The reason for this is simple: In the event of spiraling inflation those government issued coins would retain their value in a barter environment when paper (fiat) money becomes essentially valueless. Gold is also good, but it’s too expensive for small investors. If we see the meltdown it will almost certainly be inflation. Don’t say it can’t happen; read the history of the twentieth century or, indeed, present news about what’s happening in Venezuela and Brazil and other countries. On a whim I recently bought a one ounce silver eagle for twenty three dollars (USA). I gave the dealer twenty three essentially valueless pieces of paper for One ounce of real value silver. Central Bank policy worldwide is based on bolstering the governments in power at the time. This goes across parties in the USA. It is a bubble and they all burst eventually.

    ps: Jo in entering economics and politics you are entering my wheelhouse. Beware!!!

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    • #
      stan stendera

      By the way I am NOT a gold bug. What I advocate above is simple prudence. I AM NOT saying put all you assets in gold or silver, just a portion of said assets. The article is correct that the central banks are driving us ordinary humans into riskier investments. I am rarely willing to give investment advice, but I make an exception here because of my esteem for Jo and her online community. Make of my thoughts what you will.

      90

      • #

        PS: It’s our wheelhouse too. :- ) Sorry if I forgot to explain. GoldNerds
        I’m not a gold bug either, but David and I set up GoldNerds before I started this blog. There are probably only a few people who know as much about ASX gold miners as David Evans. He speaks at international conferences. We were watching the gold sector when Gordon Brown sold out the UK.

        I’ve been writing on this sporadically all along, as the mood takes me. See previous posts on:
        Money, and Fiat Currencies.
        We are all Austrians now.
        Two dismal Sciences (Climate and Money)

        It was this background of Comex trading that helped me figure out and explain the role of the financial sharks in this debate and the way carbon trading was just another corrupt fiat currency. Feb 2009. One of my earliest articles.

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        • #
          stan stendera

          Very, very interesting. You and David are probably the most interesting people in the world. If you don’t know that reference you should google it. There’s a string of commercials by Dos XX beer featuring “the most interesting man in the world”.

          20

      • #
        Analitik

        By the way I am NOT a gold bug

        With the way the central banks are pushing down interest rates and still implementing quantitative easing in a desperate, last pitched attempt to “stimulate growth”, it is almost worth contemplating leveraging for a holding of gold. The devaluation of currency along with negligible interest payments could make the gold appreciate faster than the debt.

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      • #

        I too have been stuffing silver away in dribs and drabs for a while now too – not gold for the reasons you suggest, and also I tend to view gold as the metal of governments, silver of banks and people. Also there’s that whole issue with instances of gold being seized by government under anti-hoarding laws – young ‘uns today can’t comprehend that in the US it was illegal to own gold for many years.

        I also wrote up a screed of info <a href="http://photoweasel.diaryland.com/Money2.html&quot; here about how the banks own all the money in Australia. It includes a rather frightening graph of the created money (debt) V actual printed money in Oz. What alerted me was discovering Oz has supposedly an 8 trillion dollar economy that’s backed by 32 billion in printed currency, which in turn is backed by a mere 320 million in gold.

        I have an incorrect link at the top of the money rant which should link to this page which should give a little perspective on how little currency is in play in our farce of an economy. I found this quite frightening.. but at the same time it pointed to silver in a collapsing economy as one of the few things that could retain ‘value’.

        I also have found talking to people who identify as socialists (left wing) that few comprehend money or how it works, nor do they understand the dangers of debt. Often they think debt can be something that can be made to just go away, written off or avoided if things go silly. In some cases it can, but rarely for us little folk on the ground floor – and the damage debt can do to a society seems incomprehensible. Trying to explain the ‘i’ll be alright’ attitude is flawed is difficult too. We all need each other, we’re all in this together – the wealthy man who says he’s self made ignores the system that taught him language and how to count, the doctor who vaccinated him, the man who keeps the sewers clear and the water pumping, the guy who built his Ferarri and the one who keeps it tuned and the vast road infrastructure. This always confuses me, that it’s more often the left wing folk who think only of how debt could impact them, and it’s the right wingers who seem more able to see how one pillar falling can damage the whole edifice.

        10

  • #
    RobK

    It seems to me the climate ruse is a useful cover for a global scale pump and dump. It’s the only talent some of these clowns have. Worst of all most of the actors will come out the otherside at least on their feet, if not fully floating on top of the heap. Not so for the punters in the street.

    71

  • #
    tom0mason

    The central bank is effectively taking money borrowed from the money markets against the country’s net worth, and wagering it on those money markets.
    And what is the wager?
    That the money market will act rationally.

    Due diligence?

    80

    • #
      Ted O'Brien.

      Act rationally on what basis? My observation tells me that too few scholars know up from down.

      00

  • #
    Graeme No.3

    After every boom comes a bust. The depression brings deflation (and misery) but eventually there is recovery. In the 1930′s Keynes advocated deficit spending by the Government to boost the economy. He realised that it would cause inflation and that it should only last a few years, and would then have to be followed by years of Government paying off debt. He reasoned that with the Government share of the GST at 15-20% a 2% inflation in money supply would result in a 8% boost (the multiplier). The problem has been that for years Governments have overspent, and grown and grown in size, all the time thinking that deficit spending is safe and a way of postponing depressions for ever. With Governments now being 45-55% of the GST the inflationary effect might be greater than any economic boost (Stagflation).
    So now we have a depression and they are just printing money and nothing is happening – except risky speculation. The only ways out are hyperinflation (disastrous) or default (disastrous). Our clue might be Germany in the 1940′s where the currency was valueless and the economy moribund. Erhardt generated the Economic Miracle by offering a stable value currency and slashing government regulation, rates, taxes etc. and the economy boomed – until his successors reverted to more controls and directions and taxes and charges e.g. expensive renewables and here we are.
    The good ship Australia is heading for the reef with a captain urging more speed and the third rate officers all cheering. Good luck if you are around in about 5 years and I hope you have some means of flotation.

    70

  • #
    el gordo

    The greenback has stabilized and the yuan is sitting comfortably back in the field.

    “However, we don’t think there’ll be a sharp depreciation of the yuan because the US Federal Reserve is unlikely to raise rates within this year, keeping a lid on the US dollar in the second half,” JPMorgan Asset Management’s global market strategist Ben Luk said on Monday.

    “We expect the yuan to depreciate mildly to 6.8 against the US dollar at the end of 2016, following a basket of currencies.”

    China Daily

    20

  • #
    ianl8888

    This is a topic I find extremely scary, even more so than the piecemeal destruction of our power grid (built at great cost of treasure and blood in the 19th and 20th centuries). China is heading for a big bust and both the President and Premier of China are at 180 loggerheads with each other.

    We have the RBA edging closer and closer to negative interest rates … that’ll teach us to save !

    We have the US and the EU in enormous debt and printing money to pay the interest. The US will shortly have a President with no clue (either of them); the EU is traversing up its’ own fundamental.

    We have the very recent example of the EU expropriating normal people’s superannuation savings in Cyprus to support its’ central bank after catastrophic speculation by said bank with no reference to the people whose money it stole to save itself. This dropped like a stone from the attention of the MSM.

    Very scary. It makes me a little incoherent.

    130

    • #
      KinkyKeith

      Yes.

      What happened in Cyprus was a scummy act and really no different from bank_government behaviour in the GFC.

      Many lost decades of hard won savings and nobody went to goal.

      KK.

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    • #
      stan stendera

      Cyprus should be a shot across the bow of every thinking person in the world. I’ll bet the citizens of Cyprus wish they had had part of their money in gold and silver. Few know but the democrats briefly proposed seizing part of the citizen’s 401Ks in the USA. The topic was quickly buried, but it shows eloquently how the leftist mind works.

      30

    • #
      Graeme No.3

      ianl8888:

      One of the problems for Cyprus was that the two major banks invested in Greek bonds – “safe as houses”. With the crunch they became worthless and hence the tiny economy of Cyprus was wide open for the European Central Bank etc. to try theft and set a precedent for the next crisis. It is much what they are pressuring the Italian Government to do with their bank crisis.

      30

  • #
    Lewis P Buckingham

    I am glad that this topic has been raised.
    I could not understand why the coalition went so early in the polls.
    The economy was being pump primed with heavy deficit budgets, Spring was coming.
    Why go to the people when they are depressed by cold weather and declining day length?
    On the top, why go for a double dissolution?
    The only rational answer, presuming the decision was considered, was that economic conditions in Spring were predicted to become worse.
    As for the Senate, the presumed planned Coalition result was that the Greens would lose out to the ALP as Palmer declined and the Coalition gained at his expense, or something like that.
    The net result would be that the ALP would not actually gain any more Senate seats.
    The crossbenchers may be more inclined to discuss issues.
    An article in today’s Australian gives some clues.
    http://www.theaustralian.com.au/business/economics/great-fall-of-china-on-cards-say-economists/news-story/da18f3cd6034fddb65e141e8b9925fa8

    ‘outstanding loans now stand at a record high of more than 200% of GDP’.
    ‘the buildup of unproductive loans has already accelerated past the US 2007 subprime bubble numbers’
    This will mean that all those Chinese who put 20% deposits on land and houses here, two years ago may not be able to get money from their share market to pay off the contracts.
    Anecdotally some put $10 on units.
    The Chinese Governmental intervention to pump prime and to buy more minerals will peter out.
    The reduction of the Reserve bank interest rate has not led to a fall in home loan lending rates from the Big Banks.
    Nor have credit card rates fallen.
    Our problem may be a run on the Aussie $ triggered by a fall in exports and a balance of payment crisis.
    If this were to occur then the housing prices will fall as interest rates rise, leading to a shakeout in real estate.
    The only answer for the aged is to continue working, earning current value dollars.
    Superannuation is flatlining at present, or at least my fund is.
    Note that the funds quoted as winners are growing after a previous decline.
    There is no point in putting money into super, except for a notional tax break, which with reduced income may be marginal and one off.
    The ongoing risk then remains of the Super actually declining in value.
    If the politicians want to change super, there should be a nexus between their funds and ours.
    So if the Prime Minister has put too much into his super,this should be disallowed and have tax paid at 30% once his income reaches the threshold applied to other taxpayers.
    The banks give low interest on IBD’s which is fully taxed.
    In the USA the first so much[? $US2000] need not be declared.
    I am not sure that electing Reserve bank staff will fix anything.
    Advocating better energy policy, without any subsidy to renewables, driving the economy, would be a step in the right direction.
    We all have to work harder and smarter to give real value to our clients.
    We expect that of our leaders.

    60

    • #
      el gordo

      ‘The Chinese Governmental intervention to pump prime and to buy more minerals will peter out.’

      At the moment the government seems to be shoring up with newly printed money.

      ‘While growth was a shade better than expected in the second quarter, Capital Economics analysts noted that activity was largely driven by government stimulus rather than the private sector.’

      CNBC

      There are plans to sack 20 percent of the steel workers in the near future, which indicates they won’t be needing Australia’s iron ore.

      50

      • #
        toorightmate

        CNBC has also told us repeatedly that China is easing up on the use of coal.
        CNBC has been 100% wrong on that one, and I strongly believe that CNBC will be 100% wrong about China reducing it’s steel output.
        A lot of the world’s iron ore gets “turned off” before Australian iron ore gets turned of if things were to deteriorate.

        30

        • #
          el gordo

          China has been easing off coal for at least a year, but has come back into the market recently for top grade coal from Oz while closing down their own mines. As you know they intend laying off 1.8 million steel and coal workers.

          ‘The nation’s coal production may decline 9 percent this year, offsetting a demand drop of 3.4 percent, Citigroup Inc. said in a research note Monday. Thermal coal prices at the Australian port of Newcastle, an Asian benchmark, may jump as much as 50 percent if rainfall caused by La Nina is heavier than expected, further tightening the market, it said.’

          Bloomberg

          10

      • #
        ianl8888

        At the moment the government seems to be shoring up with newly printed money

        President Xi is a “China for Chinese” man. This means State-owned and run enterprises, funded by centralised printing of money.

        Premier Li is a “free market” man, at least as close as one may be in China. This means allowing some lateral movement in China’s entepreneurial class, of which there are hundreds of millions.

        One or the other will crash and burn. I suspect that will be Li.

        20

        • #
          el gordo

          The Party reckons its time.

          “In a major policy shift, the central government appears willing to close and liquidate struggling enterprises in the steel, mining, building materials, and shipbuilding industries,” S&P analyst Christopher Lee wrote in a report Monday. “We believe this stance will exacerbate the problems of companies in these cyclical and capital-intensive sectors, which are facing sluggish demand amid slowing investment growth.”

          Bloomberg

          00

          • #
            Analitik

            In other words, they’ve run out of hard currency to prop up their bubble and are joining the rest of us in the economic toilet.

            Reality bites.

            20

            • #
              el gordo

              Its a bubble which is slowly deflating, but they have an international infrastructure plan to create new markets in Africa and South America. The State run businesses can easily move offshore.

              In this environment QE is manageable, we are talking about empire building in far flung places where the yuan is king.

              10

    • #
      el gordo

      Reverse Repos

      ‘The central bank on Thursday pumped more money into the market for the fourth-consecutive day.

      ‘The People’s Bank of China (PBOC) put 30 billion yuan ($4.49 billion) into seven-day reverse repos, a process by which central banks purchase securities from banks with an agreement to sell them back in the future.’

      China Daily

      40

  • #
    el gordo

    ‘This will mean that all those Chinese who put 20% deposits on land and houses here…’

    At least they have a foothold in the market and will sink or swim with the rest of us, its also true that the Australian born feel poorly done by. There is a lot of talk about inter generational theft, but that’s all nonsense.

    30

    • #
      KinkyKeith

      Right on the money there Gordo.

      Chronic media play on how hard it is for “the younger generation” to save to buy a house with the token young person standing in a large group at an auction in the Sydney CBD or similar upmarket site.

      No mention of other factors which might have slowed the savings program.

      Just manipulation to guide them on how to vote at the next election so as to make their dreams come true.

      KK

      30

      • #
        el gordo

        ‘No mention of other factors which might have slowed the savings program.’

        Easy credit was a major factor, but there is little doubt that Chinese immigrants have distorted the housing market.

        Over the past decade there has been a lot of capital moving from emptynester baby boomers to their young families, which is not necessarily a bad thing.

        10

  • #
    Analitik

    I’m very tempted to cut and paste my post from the China thread – let’s just say the bust is almost upon us.
    When an investment oriented bank like Deustche Bank are warning of a big, imminent meltdown, it’s close and will be big – really close, really big.

    http://www.businessinsider.com.au/deutsche-bank-analysts-say-junk-bonds-will-start-a-default-cycle-in-2017-2016-4?r=UK&IR=T

    And this source say Deustche Bank will be amongst the defaulters (not surprising given its exposure to the rubbish that poses as modern investment grade financial products)
    http://www.silverdoctors.com/gold/gold-news/jim-willie-if-deutsche-bank-goes-under-it-will-be-lehman-times-five/

    50

    • #
      Analitik

      Ah heck, might as well repost

      =============================================

      I’ve recommended this book before as it illustrates the danger inherent in government interventionist policies for maintaining growth in the face of market reality.

      Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System by Kevin Dowd & Martin Hutchinson

      Dodgy, risky investments abound along with highly leveraged positions since the easy money makes borrowing cheap.

      We are still in the bubble that resulted in the 2008 GFC because the governments and central banks doubled down with policies like “quantitative easing” and now that China’s is firmly in the bubble, there is no wealth reserve to rescue the global economy (and we have no longer have a surplus to cushion our economy).

      Quantitive Easing just “kicks the can down the road” – it defers the bubble bursting at the cost of further inflating the bubble, making the inevitable burst and following deflation far greater. Sovereign debt has exploded with the issue of money under the guise of quantitative easing as governments buy the worthless, rubbish investment products that originated in the subprime housing bubble in order not to devalue the holdings of the “too big to fail” institutions (which issued this çrap and thus took the initial profits) and those left holding the bag when the reality of the GFC hit home. This money has then fed the development of further investment rubbish which is of no proper value.

      The complex, artificially concoted “investment” products like tranched 2nd order (or higher) derivatives and credit default swaps mean risk cannot be measured. Add this to the fact that almost all institutions continue to hold these on their books as major portions of their portfolios means no one can properly value their asset base.

      Mike loves to post up “scare” stories from zerohedge on the energy market borrowings which are one of the consequences of the loose monetary policies but these are the tip of the debt overhang iceberg that they have promoted. His theory that gold is being propped up by central banks in the same manner as the artificial investment products via quantitive easing is bizarre to say the least.

      I firmly believe that the “growth” in renewables is another byproduct of loose monetary policies as everyone seeks returns from the subsidies (which is another conduit for throwing money into the economies) that are on offer as another economic “growth” spur (re The Third Way).

      The global economy will crash when proper revaluation becomes unescapable, along with writeoffs huge holdings (multiples of global GDP) of inherently valueless assets like CDO’s and CDS’s. And it will hurt – the growing bubble caused by policies to forestall it just makes it worse. I am sorely tempted to sell all my investments and take a position in gold.

      Or maybe we could form a mutual fund to take a position in a hedge fund to short the whole mess (like the proposed the “Cool Futures” fund).

      50

      • #
        stan stendera

        I haven’t figured out a way to do it yet, but an effective short referring to some of your points is Telsa. Telsa is going to collapse in very short order. I’m watching it like a hawk so I can buy options or short the stock at the appropriate time. Telsa makes electric cars as its only product, is subsidy dependent, and just recently is buying Sun Edison itself a bankruptcy candidate. It is also highly dependent on Elon Musk’s personal charm. Does anyone here see any redeeming facts in that embarrassing litany.

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        • #
          Analitik

          I LOVE Tesla. It is the most blatant scam I have ever seen and the supporters refuse to recognise the clearly frawdulent behaviour of Elon Musk. The circular financing of Tesla, SpaceX and SolarCity is a house of cards propped up by government subidies and outright stupidity of investors.

          The latest “Master Plan #2″ announcement was absurd.

          SeekingAlpha has some great articles outlining all the shenanigans. And I have also been trying to figure out out to short it. I posted the following there in a comment.

          The Musk Prayer
          ===============
          Our saviour who sleeps in Freemont
          Elon be thy name
          On conference calls
          Thy tell us tales
          of profits that are non-GAAP
          Tweet us this day our daily hype
          and forgive us our bearishness
          as we forgive those who short sell thy stock
          And lead us not into profitability
          but delivers cars still faulty
          For Tesla is the future
          of the auto and for energy
          until Goldman Sachs sells out
          Then Chapter Seven

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    John F. Hultquist

    E. M. Smith at “Musings from the Chiefio” has a bunch of posts under the heading:
    Economics – Trading – and Money (317)

    One recent one is:
    The Present Global Liquidity Trap
    Posted on 29 February 2016

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    Roy Hogue

    I see that no one likes central banks — including me.

    These days it’s popular in some circles to talk about going back to the gold standard. But that’s no solution. Here’s one argument that supports me. This may not even be the best argument. But after hearing all the hot air spent on why central banks are something terrible I have come to agree with this argument. Personally — and in spite of Thomas Jefferson, Rand Paul or anyone else — I think they have a useful purpose. So far, so good, right? But no, not even close.

    Our question since central banks first appeared has been, how do we reform our monetary systems so there’s no incentive to manipulate them? Remove the incentive and the abuse stops. And we never seem to get there.

    How do we stop this highway robbery? We know how it goes wrong. We can watch it happening. I can easily find people who can tell me those details. But where are those who can tell me how it can be fixed? They don’t appear to exist. :-(

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    • #
      Roy Hogue

      I have no idea whether that Atlantic link will stay constant or not. But it’s only to make an argument for keeping central banks. My real problem is that we don’t ever seem to be able to fix the problems associated with them.

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        Although former Federal Reserve Chairman Alan Greenspan said the UK referendum to leave the EU was a “terrible mistake” that led to a “terrible outcome in all respects,” he now expects “Brexit” will cause an inevitable return to the “gold standard.”

        … after Britain voted for Brexit, Greenspan warns that the burden on the remaining top northern nations of Germany, France and the Dutch to subsidize the southern “toxic liability” of Greece and other “PIIGS” (Portugal, Ireland, Italy, Greece, and Scotland) is about to balloon.

        Fearing devastating stagflation, Greenspan recommends the world abandon almost a century of monetary manipulation and return to the safety of metal-backed currencies:

        “Now if we went back on the gold standard and we adhered to the actual structure of the gold standard as it exists let’s say, prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the U.S., and that was a golden period of the gold standard.”

        http://www.breitbart.com/california/2016/07/11/fed-former-chair-greenspan-brexit-paves-way-gold-standard/

        Greenspan was for the gold standard long ago, then when he was Fed Chairman he wasn’t, now he is again. All rather curious. His talk of one coming again is very significant. Unexpected.

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        • #
          Gordon

          But who owns all the gold now?
          The rich!

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        • #
          Roy Hogue

          On a gold standard I doubt that there would be enough existing gold to back every single dollar or equivalent monetary unit in circulation. So what will Mr. Greenspan do then? Who gets the short end of the stick?

          If I’m wrong I’ll pay attention to a different argument. So I’m honest in this belief.

          I admit that there are some compelling things about a gold standard but on such a standard I wonder if the money supply could grow even fast enough to keep up with population growth. There is a real need for credit which can’t be met with a fixed standard like gold.

          So what to do? I don’t have an answer. But I no longer think enough of Alan Greenspan to give him the time of day. Let’s remember that it was he who suggested taking food and other necessities out of the cost of living index here in the U.S. so that the government could say the cost of living has not risen very fast, something anyone who buys groceries can tell is a farce. It was totally dishonest, a manipulation to make a lie become truthful and supported by the numbers. Remind you of anything else?

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          • #
            ianl8888

            Who gets the short end of the stick?

            You don’t really need to ask, do you Roy ?

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            Analitik

            Roy, I totally disagree with your linked article. It is based on the classic Keynesian philosophy of market intervention and is the exact reason we are in this current mess

            On a gold standard I doubt that there would be enough existing gold to back every single dollar or equivalent monetary unit in circulation

            And therein lies the problem of fiat money. It can be debased without any simple indication that value (purchasing power) has been reduced. Quantitative easing has done this to all Western currencies – Japan started it back in the 90′s and the rest followed in 2008.

            A commodity standard is desperately needed. With so much money around, the simple fact is that gold should be much more expensive than it is.

            if the money supply could grow even fast enough to keep up with population growth

            It would be interesting to see if gold production significantly lags population growth. For poor countries, that certainly is the case but then a monetary shortage indicates the lowering of average wealth through simple dilution. You may argue that technological advances and resource discoveries increase inherent wealth – in that case, the price of gold would fall and things become cheaper. We are used to people getting more money (pay rises, bonuses for CPI) but what if your money was simply worth more as things advance?

            Credit can still be issued under fractional reserve banking with a gold based currency. The risk of each loan would then be carefully assessed against the return as the bank would lose something of redeemable value in the case of a default. Responsible lending would then result in responsible investment in developing things of real worth.

            I think they (central bank) have a useful purpose

            There is a strong case that the moral hazard of an entity that is ultimately controlled by politics being in charge of the monetary supply. A gold (or other commodity) based currency system would allow a return to private bank issued money. This would naturally limit the amount of money issued to a sensible multiple of the banks holdings. Then add a hard cap on deposit insurance to further drive the point home that the banks must be responsible else a run becomes a real possibility. Bankers must return to being conservative and risk averse.

            Please read Dowd and Hutchinson if you can get hold of it

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            Rereke Whakaaro

            I wonder if the money supply could grow even fast enough to keep up with population growth

            That quotation implies that the population growth rate will be a constant. I am not sure about that. An equally valid position is that population growth will stabilise or even decline.

            It will especially decline, if people do not have enough to eat. If the parents cannot do sufficient work in a day, to earn sufficient food for them and their family, for a day, then the children are the first to suffer. Babies and small children are always the first casualties when food becomes unavailable, be it because of famine, or cost. It is the way that nature balances supply and demand.

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          • #

            On a gold standard I doubt that there would be enough existing gold to back every single dollar or equivalent monetary unit in circulation

            Ahem, Roy, why? It doesn’t matter how many tons there (170,000 or something) — it’s just a question of a higher number in the gold price. I didn’t realize there was an upper limit?

            Forbes According to a report released by the Federal Reserve last week, the M2 money supply is about $10.5 trillion. The amount of gold held by the United States government is approximately 260 million ounces. Doing the math, that translates to north of $40,000 per ounce.

            Open Markets
            David Hargreaves, a widely watched mining consultant, has actually calculated a figure at $40,000 per ounce, based on world GDP figures (roughly 100 trillion).

            I’m not saying that $40k is real or likely, only that it doesn’t break any laws. Though it would break some banks…

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            • #
              Roy Hogue

              Though it would break some banks…

              And along with those banks, how many people would it break?

              I knew this would be controversial when I said it and it certainly is. The real problem to me is that our money, whether worth no more than the ink and paper it took to print it or it’s backed by $40k/ounce gold, is that it only has real value if people have enough confidence in it to believe it has that face value printed on it and they can use it to get what they need that someone else produces. When your refrigerator is empty nothing else counts, does it?

              And by the way, who, right now, would buy gold at $40k/ounce? I’ve dumped all but a little of mine. And since when has gold or anything else been unable to be manipulated?

              To me we’ve deceived ourselves into believing the central banks are the problem when it’s our own dishonesty and willingness to cheat that has gotten us every time. Jo, can you honestly say to me that the practice of making bad loans to homebuyers who had no real ability to qualify for those loans using realistic risk assessments would not have happened if we had a gold standard? It was all done for political reasons and it’s still going on today in spite of the collapse and the lesson we should have learned from it. What do you think HARP (Home Affordable Refinance Program) is all about. They will keep screwing us until we stop them, gold standard or Federal Reserve Bank will make no difference.

              Call me cynical, call me ignorant of economics, call me what you will. But I’ve lived through it and have two eyes with which I can see and what I see wasn’t caused or even enabled by the lack of a gold standard. It was caused by politicians who didn’t care a damn about the carnage they unleashed. They couldn’t even look far enough ahead to think about adverse consequences. They would have found a way, no matter the obstacles. The problem is a human one, not monetary.

              Call me angry too, by the way. I resisted giving in to my anger when it came to presidential candidates and relegated Trump to where I thought he should, and still think he should be, unsuitable, his kids notwithstanding. But now that he’s the guy I have no choice but to vote for, I’m desperately hoping he appoints very good advisors around him. I doubt that we’ll return to the gold standard. But a return to an honesty standard would be real nice to see. Then we might not be having this debate in the first place.

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              • #
                KinkyKeith

                Hi Roy

                I think that most Australians are unaware of the differences between us and the USA when you analyse the real estate set up.

                The difference is why the US market crashed in a way that didn’t happen here.

                As you know, forced lending to people who could not possibly manage repayments was due to President Clinton if I recall correctly.

                Here in Australia we may have “bad loans” but they cannot,in any way, be compared to those which brought the US market down.

                I like the comment that was made earlier by someone that the only thing that can save us is the truth.

                KK

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              • #
                Roy Hogue

                KK,

                You are correct. It was started by then president Bill Clinton.

                You are also correct implying that I don’t have a good handle on the differences between Australia and America, any more than the reverse situation you mentioned. And I suspect I would either need to devote a lot of time to research or live there for a while — maybe both — to get that. And neither is a possibility anymore.

                The truth!? I could cynically quote Pontius Pilate as he answered Jesus claim to have come into the world to testify to the truth and then went on to condemn him to death even though he found him innocent of any crime, just because it was politically expedient for him and for his neck if there had been an uprising of the Jews that displeased his boss in Rome.

                What is truth?

                And there, I did quote him. I’ve never been able to figure out what that question means. And we’re no closer to solving our problems than before I did it.

                Interesting to contemplate, no? Sometimes there are too many versions of the truth, especially in politics and monetary policy.

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  • #
    Sean

    What get me about monetary policy is the history of rate interventions and the consequences of such. Consider that Japan went the low rate route in the 90′s and it subsequently led to the “lost decade” of economic growth that has now extended to 25 years where the GDP growth rate is less than 0.5%. They also have a very high debt to GDP ratio.
    I look at low central bank interest rates as a shot of narcotic than numbs an economic shock. It might be appropriate for a few months but that’s it. The pain killer keeps telling the head that everything is fine as government and corporate elites see higher stock values and higher taxes from earnings. But get past the head and you find the body has structural problems festering and growing worse. The low rates mean that investors can buy houses at premium prices and rent them for substantially more than the mortgage but it leaves the regular working people priced out of investing in an appreciating asset. The low rates also means its cheaper to buy an upstart competitor rather than compete and make better products for less money. It also means fewer jobs. It is likely responsible for greater income inequality and lost hope for those at the margins.
    But have you seen even one politician arguing for ending low interest rates? Of course not, it would make their job harder and infuriate the political donors they rely on for funding elections. And those deficits they ran up would suddenly eat up every bit of discretionary spending since each 1 percent of interest translates into $190 billion payment on a $19 trillion deficit.
    So long as the head is not feeling the pain and the body does not completely fall apart, I don’t expect to see any move to rationalize interest rates any time soon. Japan has shown it’s much easier to treat symptoms than fix the root cause of the problem.

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    • #
      tom0mason

      Central Bank are part of the State and is a problem, maybe ‘the State’ is really the problem.

      The problem of the state as explored by Dr. Robert Higgs, and distributed by the Mises Institute, is here (50Mb MP3 file, running time 55 minutes) shines some light on what has(is) gone(going) wrong with modern Western democracies, and maybe a signpost to where we are going.

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    Gordon

    VERY interesting article. I have posted a link to the Canadian web site COMER. The news media was told to keep quite. There are a few you tube videos. Very interesting reading. The public is the problem in today’s society. They do not care about anything,besides pokeman,texting etc.

    http://www.comer.org/

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    Gordon

    Ok here are more links to the the economic scam in Canada. The movie in the first link has the prime minister, Paul Martin, trying to explain where money comes from. He was at one time the minister of finance! Try not to laugh, but he can’t.
    Jo if you don’t feel that these links are appropriate just delete.

    http://www.ohcanadamovie.com/

    http://qualicuminstitute.ca/federal-debt/

    http://www.davemanuel.com/canada-debt-clock.php

    http://www.facebook.com/photo.php?fbid=10152079388006386&set=pb.660216385.-2207520000.1402635225.&type=3&src=https%

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  • #
    Global Cooling

    Exploiting elites have a huge impact on the economic success of nations. Think about the differences between North and South Korea. http://whynationsfail.com/summary/

    In the worst case political and economical elites work together to keep competition out. People have no hope. Innovations fade. No-one rebuilds broken infrastructure.

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    Gordon

    Here is another link to a very interesting article. It makes for interesting reading and does make sense. There may be more to the economic problems then bad policy, maybe tech does have something to do with it.

    http://atom.singularity2050.com/5-characteristics-of-the-atom.html

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  • #
    John Robertson

    Yup, Kleptocracy is lovely.
    The IMF has successfully collected interest on money that never existed, at the expense of impoverished developing nations for years.
    Now that wealth has been stolen, the new marks are us.
    Of course it is gonna crash.
    Trade depends on trust.
    Kleptocracy relies on deceit.
    And parasites are seldom clever enough to sustain their host.

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    • #
      ianl8888

      And parasites are seldom clever enough to sustain their host

      Yes, of course, but that is not comforting.

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  • #
    pattoh

    These scheming Global Elitists did not get their Global Government through a Global Quasi Currency in Carbon Credits ( where they get to manipulate/rule /rape national economies by setting carbon exchange rates). The whole Climate environment gig just did not have the legs.

    Since Bretton Woods, the Base Unit of valuing national currencies has been the US$. Nixon’s move to suspend Gold redemption effectively made the whole global economic/money system Fiat Debt Based.

    CFR directed moves in US/Global oil/energy diplomacy placed the oil conglomerates & their bankers at the center of global economic activity.

    We in the west have “snapped to attention ” & marched off to do their bidding & protect & consolidate their hegemony.

    The scariest scenario in the short term may be in civil unrest ( orchestrated ) being used to suspend the US Constitution. How can the $US remain as the basis for exchange when it’s economy is in limbo?

    With all the T Notes in EuroDollars, PetroDollars, China & Japan constituting a MASSIVE part of the US monetary base; what will the measured value of the $US & thereby exchange be when the panic starts? How can international trade continue?

    So the prospect of Global Government by Global Currency continues.

    Who really controls the UN, World Bank & IMF? What & whose real physical Gold(?) could be used to back a Keynsian Bancor or Whatever?

    How long before any global currency will be debauched & Fiat Fractional Gold/ Gold leasing could be started by the Global Elite , continuing to playing poker with the world’s people & resources as chips?

    In a post Brexit world, if Donald really is what he says he is ( & not a Trojan Horse) & survives, the awakening of mankind may just continue.

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    • #
      delcon2

      Trump is the”Reason”that the “Elites”are panicking.They have no control over him,and try as they may,he continues to”Grow”
      If he wins”POTUS”the “Elites”know the game is up.The “Gravy Train”maybe about to”Crash and Burn”

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    stan stendera

    A note on the gold standard: I selfishly don’t want a gold standard. I like the present system(?) because it opens profit opportunities for moi.

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    Shadeburst

    There’s just one thing wrong with the claim that low interest rates are eating away at our life savings. Very few invest their retirement capital in cash. Most of us invest in funds of one sort or another. Those funds hold a small percentage of their assets on call. The rest they invest in equities and commercial property. High interest rates are not good for equities and they can kill commercial properties. Low interest rates work to your advantage as an investor in a fund. This extended period of low interest rates may have increased your retirement savings by a hundred per cent or more. Just look around and see what has happened to the Dow, the Footsie, NASDAQ. You have shared in that boom. Like a previous commenter, I’m sorry to see you diving into a field outside your area of expertise. This can only harm your credibility.

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    • #

      Shadeburst, you support my point exactly — see the headline — because of low interest rates people are out of guaranteed cash accounts and investing in higher risk shares. It might all feel fine now, but some people lost their retirement entirely when the GFC hit, and should another round of GFC come, funds will repeat that, or worse.

      If inflation is running at 4 – 8 % (using the old original measures to calculate CPI instead of adjusted ones) your fund would need to be making 9 – 14% pa to be keeping you just 5% ahead.

      Low interest rates feel like they help when the market is at all time record highs.

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    • #
      Analitik

      The rest they invest in equities and commercial property

      And guess what much of those equities are?

      Loose monetary policies and low interest rates have meant low “growth” in value and yields for traditional investment grade equities (blue chip companies and their bonds + treasury bonds). High return equities have been sold to funds as they seek to cover their outgoing payments to investors. These modern equities are the unvaluable, securitised artificial junk that I mentioned in previous comments and position are often leveraged to increase the return. All this add up to huge, incalculable risk that the average fund investor has zero notion of.

      It is your own lack of knowledge that is being exposed, not Jo’s

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    • #
      KinkyKeith

      By a hundred percent or more?

      During the GFC the US and Australian share and property markets were remarkable in how they recovered.

      They almost seemed to be mirror images.

      Certainly the ASX and DOW Both fell badly but
      Only the US market seemed to recover.

      With property the Australian markets were essentially unscathed while in the US property was a wipe out.

      Why?

      We have NOT shared in that boom and we tend not to trust government very much anymore.

      KK

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  • #
    Egor TheOne

    Central Bankers = Criminals in suits, globalist racketeers.

    Central Banks = Criminal Headquarters

    What ever they preach, believe and do the opposite!

    Any surprised that they are CAGW True B’lvers (publicly)?

    No surprise that they are big government, EU and UN advocates.

    You could see all of the slimers ooze out pro the resistance to Brexit including the CONmander in Chief, El Presidente O’Bummer.

    Vote One ‘the Donald’, Vote ‘Hitlery for Jail’!

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  • #

    Gold, like all commodities, is subject to large swings of price with economic cycles. While it can’t inflate to nothing like paper currencies, it does have strong irrational swings (from near $250 to near $2000 / oz in my memory, not counting the $35 and $45 before freeing the $US from the gold “standard”)

    I can’t say if the inflation problem is worse than the volatility problem, but both are real problems with metal and paper currencies.

    I’ve proposed a currency based on a basket of currencies, prices set at daily fix, including both metals and softs along with ag. As they oftem move in opposition, the volatility ought to be reduced.

    Think of a $Bucket being fixed at the average of a ton of coal, steel, beef, oil, wheat, and corn, with a 1/10 ounce of gold and pound of silver, and 8 minumum wage hours of work. Then divide by some constant that gets the result close to $1 to start.

    Yeah, the daily fix would be a pain, but nobody can screw with the currency by trying to corner the basis market (Hunt bros. and silver) or timing sales (USSR and gold about 1970 vs US Gold Standard) or confiscating the gold (USA Roosevelt the most recent of many).

    Yeah, the fix is bit circular as the currency depends on the commodity price in the currency, but other currencies would tend to prevent gaming that.

    Any basket of big things would work, and it tends to lock out inflation as commodity price rises raise the currency value… arbitrage would prevent too much divergence. Currency too valued then sell the underlaying for currency…dropping the divergence. Currency dropping in value, buy the underlaying raising their prices…

    At any rate, I think a basket works better than one volitile metal.

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    • #
      Analitik

      Fiat money is that basket. And that basket is now a case.

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      • #

        Fiat currency has no basket nor any commodity base at all. Just print a note with One Zynkley on it and require taxes and contracts use it. (“legal tender” laws).

        What I’m suggesting is that widely traded goods be used as the value base. Paper exchangeable for the goods at any time. Specific goods in specific quantities (unlike fiat currencies where the stuff and quantity vary with each trade and day, baseless).

        Then the Zinkley has a specific real value.

        Make it a 10 lb sack of potatoes for all I care. It will always buy 10 lbs of potatoes. I just think a basket of several commodities dampens the effects of single commodity volatility.

        If the Zinkley buys 100 lbs potatoes, one ton steel, and one bbl of oil, it will require arbitrage between those markets, but arbitrage is known to work very well. So potato blight might push up the value contributed by the potatoes, but drop the oil part due to lower demand from potato shippers…

        Similarly, fx demand to buy more steel might try to drive the price of steel up, but that would cause the exchange rate to rise as the Zinkley steel component increases, and reduce fx demand for potatoes and oil. (until competition and shipping cost again adjust to the price pressures).

        The more, and more fundamental, things in the price basket, the more stable the currency.

        You can think of it as a commodity based inflation index that IS the value base of the currency, and that can be cashed in for those real commodities. Like “the gold window” or silver certificates, but with a mix of goods, not just one metal.

        I could see oil, wheat, copper, and steel as a simple and effective mix. All internationally traded and with competitive set prices.

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        • #
          Analitik

          The problem with the index basket is choosing items that do not get consumed (potatoes get turned into chips and eaten) or go bad (rats get in and eat your bushel) and cannot be easily produced purely for the sake of adding “money” to the system (harvest them spuds). The availability of gold is relatively inflexible.

          I would argue that the historic periods with high volatility in the price of gold is an indicator of when economies are due for (or going though) a correction.

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  • #

    make that “basket of commodities”…

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    ScotstsmaninUtah

    boom and bust

    on this I agree with you Jo !

    but I would like to add that Goverments and local administrations wishing to reduce their interest rates on the loans that they have commited to (inorder to get releceted) have contributed to much of our current woes.

    The Banking industry operates well within the law. It is not ther fault.

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  • #
    stan stendera

    Extremely interesting thread with many interesting links. You outdo yourself again JoNova. Bravo!! +1776 for the blog in general. I am astonished at the quality of this blog and in wonderment at the accomplishments of its proprietors. And their three joyous children to boot. What a wonder bar internet we dwell in.


    [Thanks Stan. There are a lot of us skeptics of government science who are also skeptics of government currency... - Jo]

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    Jimmy

    The notion that inflation is running at 4-8% is absurd. Anyone who follows shadowstats is no better than the peak oil nuts from a few years ago.

    In reality, bond yields worldwide are very low. 10-yr yields are almost 0% in Germany and Japan, and just 1.6% in the US. Commodity prices have crashed.

    The belief that inflation is at 4-8%, because of ‘Shadowstats’, is just as imaginary as the peak oil crisis and global warming.

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    • #

      Keep trying with the ad homs…

      Even the crazies at the The Australian Fin Review doubt official inflation figures.

      Top economists say the ABS waits too long to change the items and base weightings it uses to measure the rate of in­flation in the economy – a key that helps decide interest rates, wages and some social security benefits. Items that are increasingly irrelevant to Australian life such as ­answering machines, CDs, DVD rentals and camera film are still in the official published ­“basket” of goods the ABS looks at every three months to calculate the closely watched Consumer Price Index. The last comprehensive review of the list was in 2011 and is not due for another review until 2017…

      But “the fixed basket” changes according to a subjective set of guidelines. Reminds me of thermometer adjustments…

      Consumer Price Index Has Been Reconfigured Since Early-1980s So As to Understate Inflation versus Common Experience

      • CPI no longer measures the cost of maintaining a constant standard of living.
      • CPI no longer measures full inflation for out-of-pocket expenditures.
      • With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc.
      • Politicians look to expand further the concept of artificially-suppressed cost-of-living adjustments in current budget-deficit negotiations, through the use of the Chained-CPI (see Special C-CPI Supplement at end of this document).
      • Use of the CPI to adjust retirement benefits, private income or to set investment goals impairs the ability of retirees, income earners and investors to stay ahead of inflation.
      • Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP.

      http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement

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        Jimmy

        I see that you have no explanation for why even long-term bond yields are at extremely low levels for all major developed economies. Japan and Germany are near zero, and the US is 1.6%.

        Plus, all commodity prices have crashed. Oil, gold, everything.

        Shadowstats has been debunked numerous times. I hope you realize that 4-8% annual inflation (say, 6% on average) means a doubling in just 12 years.

        Items that are increasingly irrelevant to Australian life such as ­answering machines, CDs, DVD rentals and camera film are still in the official published

        If those items vanished through technological replacements, that is deflation.

        Sorry, but there is just no high inflation. Too many stats that are unriggable (bond yields across multiple nations and commodity prices) signal very low inflation or even deflation.

        I see from your bio that you are not an economist.

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        • #

          I see from your reasoning you still think ad hom arguments mean something?

          Every site that’s worth reading has been “debunked numerous times”. So?

          I didn’t bother explaining bond yields, because The CPI doesn’t include bonds, and it’s obvious everyone who fears a crash or downturn in stocks wants a safe alternative. That they are desperate enough to accept negative interest rates for the first time in history says it’s about fear and safety.

          Gold isn’t a commodity and it’s rising.

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            Jimmy

            Just because someone points out the flaws in your points, you call it ad hom. It is valid to point out that you are not an economist, which explains your incomplete understanding of these topics. That is not ‘ad hom’…

            At any rate, you cannot provide any quantitative basis for your belief that inflation is rising 4-8%/year (which, again, means a doubling in 12 years which clearly has not happened).

            Gold is far below its highs of a few years ago (and gold is classified as a commodity in finance terms, btw). That it is rising now is meaningless, when it has net fallen from the high point. You ignored the fact that oil and natgas have also crashed, proving that there is no inflation. You also seem to be unaware that very low long-term bond yields are an expectation of future inflation.

            Gee, what is a stronger piece of evidence, international bond yields combined with commodity prices? Or ‘shadowstats’?

            Inflation is just not there. Neither is global warming or peak oil, btw..

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              No Jimmy, an ad hom is when you discuss someone’s qualifications, which you keep doing. Qualifications are not an argument, just a fallacy. Since I’m quoting Maurice Newman, who as former Chair of the ASX etc, is quite possibly more qualified than you (who ever you are). Hence your point fails by your own reasoning… From the AFR link “top economists” agree with me that the CPI is not accurate. Arguing by qualifications only shows how badly someone reasons.

              The only thing that matters is quantitative data — so here are 4 Trillion quantitative reasons to believe inflation is eating away at our financial system — here’s FRED Money Base graph since 1918. The original definition of inflation is a growth in money supply.

              You are assessing inflation via narrow old outdated means. The wave of money is not in commodity prices, it’s in equities and other assets, like land prices in Australia. The DOW is at a record high, the long term PEs are very high. A dollar doesn’t buy as much company stock, bond, dividend or in Oz, house, office or farm now as it used to. While bond yields are low, bond prices are high “inflated”.

              As for gold, your world might start in 2012, but I’ve got a longer view. Gold has risen by 500% since 2000. Tell me again how it shows there is no inflation?

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                Jimmy

                Gold has risen by 500% since 2000.

                You choose a point convenient to your narrative (indicating that your world began in 2000). One can similarly use your chart to point out that Gold has only risen 130% since 1980. That is only 2.3% a year.

                Plus there is oil, etc. which also indicates low inflation.

                But the biggest measure is Bond Yields. If 10-year yields across so many countries are extremely low, that proves that long-term inflation expectations are very low.

                The DOW is at a record high,

                I thought you would at least know that the S&P500 is the real metric, and the DOW is for people who don’t understand the markets. But if you say that the S&P500 is very high, that is not inflation. It is driven by technology companies, that contribute to inflation. There is such a thing as real earnings growth, ahead of inflation, you know. The forward P/Es are high, but that has nothing to do with inflation (in fact refutes it, because if inflation were high, then a higher forward P/E could be supported).

                Again, you won’t find any actual economist who thinks ‘Shadowstats’ has any credibility. A serious economist would not indulge such misconceptions at all.

                Arguing by qualifications only shows how badly someone reasons.

                Quite the opposite. I would not knock you for not being an economist if you had a demonstrable grasp of the basics. But you clearly do not, hence it is valid to point out that you are not an economist, and hence make mistakes that a economist would not make.

                A belief that inflation is rising so quickly is highly, highly analogous to those who believe that ‘climate change’ and ‘global warming’ are just a couple years away. When it does not show up, double down on presenting increasingly weak points.

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                Spot the cherry-picker. You brought up gold, and you picked the two spikes while I provided a graph of 45 years of data. Obviously all numbers depend on the starting date — I showed how silly the 2012 pick was. In the long run there is a rising trend which shows your claim that gold is “crashing” is wrong in every other time period. How about some honesty Jim?

                You asked for quantitative evidence — I supplied it — you ignored the Money Base and the long term rising price of gold. Instead you repeated the ad hom fallacy and your previous failed points. Got nothing? S&P? So what, still looks like a bubble. But will you admit it?

                Not even coherent here: Technology companies contribute to inflation? Forward guesstimates of Google and Amazon don’t undo all the rounds of QE, the money is sloshing through the system.

                As for bond yields, the reason yields are down is that prices for bonds are up. (Could be a different form of inflation? — people aren’t buying bonds for their yields). I’ve already explained (and you ignored) that people are going to bonds through fear, see Deutsche Bank Collapse Looms, Italian Bank Crisis Threatens to Topple Renzi Government. Etc Etc Etc.

                These are not normal times. You are using the old indicators. I’m running out of time to repeat things to a commenter without even basic courtesy of acknowledging his errors, or my responses to his questions.

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      [warning commentary only]

      These conversations are fascinating. Basically one sees arguments going to and fro which are formed by their proponents’ underlying reasons for investing and (probably) being peronally invested in the success of their chosen method. Neither the anonymous commentator or Jo is really saying what is the purpose of their investment.

      Is it retirement? Say you put AUD$1000 into a boog standard bank account in 1980 that more or less kept pace with inflation. Putting aside the difficulties with nailing comparisons (e.g the million dollar supercomputer of 1980 is now a $200 smartphone) here is a simple calculation from measuringworth.com

      Current data is only available till 2015. In 2015, the relative worth of $1,000.00 from 1980 is:

      $4,100.00
      using the consumer price index

      $4,040.00
      using the GDP deflator

      $7,460.00
      using the per capita GDP

      $12,000.00
      using the share of GDP

      $5,480.00
      using the Average Weekly Earnings

      $4,870.00
      using the National Minimum (Award) Wage

      so if $1000 is worth 4-10,000 when placed in a mediocre investment fund if you cashed it in in 2015 to buy yourself a retirement of luxury. If you retired in $2000 you’d get $2-5000. How did gold and bonds stack up?

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    Steve of Cornubia

    Regarding China’s putative appetite for ‘foreign’ coal and minerals while winding down exploitation of its own, thus preserving what she has, this might turn out to be a prescient decision should WW3 break out, for instance beginning with a dispute over the South China Sea.

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    Jimmy

    [Snip repeat]

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