US Money Supply – December 2010

January 19, 2011 · Posted in Monetary Economics · 7 Comments

The true money supply in December 2010 has grown to $2,345 billion, the annual growth rate has gone up to 5%.

Government Power, Gold, Fiat Money, and the U.S. Constitution

December 26, 2010 · Posted in Government, Monetary Economics · Comment

When we repeat again and again, like a broken record, that pieces of paper with words on them, that is Constitutions, Bills of Rights, Amendments, and the like, have no power to sustainably constrain aggressive gangs, such as governments, then we do that for a reason.

When we say that if such revered and supposedly binding scripture can’t even do the trick, that then surely it is even more deranged to fall prey to the illusion that rather non-binding check marks in polling booths will do the job, then we do that because we have sound syllogistic reasoning to back it up and on top of that have observed centuries of historical evidence.

Those who scoff at such propositions are free to do so. They can mistakenly call the ideas nihilistic, defeatist, and cynical. But in doing such things, they are unfortunately missing something: That is, that such accusations are not arguments against the logical and empirical truth-content of the propositions made; that they are emotional knee jerk reactions that arise out of childhood scar tissue and a deliberate disregard for knowledge in fields where that knowledge hurts them. If they have counter-evidence, then by all means, present it!

When we propose Voluntaryism, then it is out of a deep desire for meaningful change and the conviction that we can no longer afford repeating the same mistakes over and over again, expecting different results; the definition, by the way, of insanity.

And a better case couldn’t have been made in the lab of human society than that of the formation of the United States: A small central government, granting significant rights to states and localities, limited in its powers to tax and imprison, constrained by a Constitution whose spirit and words expressly and virtually unmistakably limit the potential for arbitrariness on the part of those in power, a Bill of Rights that grants to every citizen the due process of law before depriving him of his freedoms and property as punishment for crimes, a clear separation of Executive, Legislative, and Judiciary, all imbued with the Enlightenment spirit of the time, highly secular, and highly in favor of the protection of every individual’s equal rights to Life, Liberty, and Property.

Granted, the American Republic from the outset denied certain rights to certain minorities, but so did the rest of the world! The fact doesn’t change that in comparison there hasn’t been a better example for the deliberate establishment of a limited, constrained, republican form of government, born out of reason, and not passed down through traditions of hegemonic power structures.

Seriously, those who believe that it is possible to have a sustainable limited form of government could not ask for a more ideal example to go ahead and make their case!

The case of Gold, Money, and the U.S Constitution is yet another prime example of how all such Constitutions, Articles, Bills of Rights present nothing but a minor roadblock in the way of bureaucrats’ never ceasing quest for oppression, abuse, and aggression.

It clearly lays out how the spirit and the original intent of such well meaning documents can be turned upside down completely and 100%, giving the abusers the great and far reaching benefit of depredations under the appearance of due process and legitimacy – a far more destructive and longer lasting form of tyranny than outright brute force.

Attorney Eugene C. Holloway lays out the case in 4 parts. I will just provide a quick summary and noteworthy references, but the whole thing is well worth a read.

PART 1 – THE CONSTITUTIONALITY OF PAPER MONEY

The basic case for the unconstitutionality of fiat money in the US arises out of Article 1, Section 8, clause 5, which states that Congress shall have the power …

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

When the Constitution was drafted to replace the Articles of Confederation, some people wanted to include a power that used to be granted as per the Articles, and add “to emit bills of credit” as an enumerated power of Congress.

Bills of credit are essentially paper money bills that, however, grant the holder the right to redeem them for gold or silver money at a future date. They are in that sense fiat money “light”.

So one can argue that if even such a highly constrained form of paper money was struck out upon drafting the US Constitution, then surely it should be clear that an outright fiat money regime was most definitely not desired by the majority of the founders whose experience of the depredations caused by the Continental Dollar was all to vivid at the time.

The Delegate Luther Martin’s statement, albeit for the wrong reasons, provides a stellar case to support the notion that it is fiat money that makes large scale war and murder possible in the first place, of course imbued with all the typical, juicy and fear-mongering language of a true early-day neocon:

(…) a motion was made to strike out the words “to emit bills of credit.” Against the motion we urged, that it would be improper to deprive the Congress of that power; that it would be a novelty unprecedented to establish a government which should not have such authority; that it was impossible to look forward into futurity so far as to decide that events might not happen that should render the exercise of such a power absolutely necessary; and that we doubted whether, if a war should take place, it would be possible for this country to defend itself without having recourse to paper credit, in which case there would be a necessity of becoming a prey to our enemies (…)

In conjunction with the 10th Amendment it should be clear that, as per the Constitution, the U.S. Congress should not be allowed to print or delegate the printing of fiat money:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

And as we all know, bureaucrats will always stick with passion and consistency to the application of laws that are passed to constrain their own power, right? Well …

PART 2 — THE LEGAL TENDER LAWS

This part documents the three big legal tender cases and the Supreme Court’s step by step perversion of the obvious intent of the US Constitution:

Treasury Secretary Salmon P. Chase, proponent of a national currency, but opposed to making it legal tender, was by his own admission forced by the exigencies of the Civil War to accept the 1862 program of New York Congressman Eldridge G. Spaulding and the House Ways and Mean Committee to issue the federal government’s first legal tender notes and suspend the right to redeem the notes in specie. The scheme worked insofar as it succeeded as a means of financing the war without crushing the fragile Northern economy with excessive direct taxes. In the second Legal Tender cases Justice Bradley explained in salutary terms how the device works as an “imperceptible tax” to finance war by invisibly spreading the financial pain:

Particularly eye-opening to me was the ease with which such legal tender laws could be enforced with minimal effort:

Some scoff at the statement that the legal tender laws are coercive. The answer to those skeptics appears in Andrew Dickson White’s monograph Fiat Money Inflation in France. In 1793, failure to accept the French paper money was made punishable by death and the punishment was actually imposed as demonstrated by the lists of those condemned to the guillotine. In contrast to the Draconian measures taken after the French revolution, the import of the U.S. legal tender laws has been merely to allow private and public debtors to legally discharge their debts by payment of legal tender currency. But this form of interference by the state in private transactions to appropriate the wealth of creditors is coercive nevertheless; and the French experience illustrates the direction that any kind of state coercion can take once the state’s authority to act is established.

The following statement from the Attorney General and the subsequent note by the author illustrate the maddening logic used to literally turn the US Constitution upside down:

[Opposing] counsel quotes from the debates in the Federal Convention of 1787 to show that members of that body were opposed to making paper a legal tender. The very quotations prove that the members considered that the power to emit bills of credit involved the power to make them a legal tender, and hence they struck out of the draft of the Constitution the power to emit bills. But it is no uncommon experience that the words of a constitution or statute are found, in their fairest interpretation, to import more than their authors distinctly designed. It is not given to man, when framing a constitution, to foresee all the cases to which the conferred powers will properly extend. And in this very matter, notwithstanding that the power to emit bills of credit was struck out, this court has held that the power exists; and why, then, does it not exist with all that in 1787 was supposed the belong to it? [Note the logic here: The Constitutional Convention struck the authority to emit bills of credit because they were opposed to paper money as a legal tender, but inasmuch as the authority to emit bills of credit has now been recognized, legal tender ought to come along as well because the founders felt that they went hand in glove!]

PART 3 – CONFISCATION AND THE GOLD CLAUSE

Even knowing that it actually happened, it still is almost unthinkable that the United States government would nationalize the personal assets of its citizens, give paper in exchange at 60% of the value of the assets – and book a profit. The public begrudgingly recognizes that the government can take private property as long as the taking is accomplished by due process (such as an eminent domain proceeding) and the owner receives just compensation. However, we expect those cases to be relatively isolated and infrequent. In 1933, the U.S. government devalued the dollar by 40% in less than eight months, but not before it ordered a docile population to exchange their gold for paper and banned gold ownership and transactions in gold to keep citizens from escaping the devaluation. The combined actions operated as a confiscation of the property of every citizen, all at once, with no compensation.

The constitutional validation of these actions followed a similar pattern to the validation of the legal tender laws: (1) unchallenged legislative precedent falling into accepted custom, (2) incremental changes in constitutional interpretations over a period of time and (3) the precipitation of a major crisis that the government chose to address by assuming theretofore unexercised and unauthorized power.

It was now finally time to see if plain and outright Orwellian measures would bode well with the American public, WW1 was a welcome guinea pig:

During the First World War Congress passed a number of war measures, including the 1917 Trading With the Enemy Act, that were designed to marshal the economy to support the war effort. The laws gave much power to the executive branch and were generally acknowledged to be authorized under the constitutional war powers. As originally enacted, Section 5(b) of the Trading With the Enemy Act, 40 Stat. 411, provided:

That the President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, export or earmarkings of gold or silver coin or bullion or currency, transfers of credit in any form (other than credits relating solely to transactions to be executed wholly within the United States), and transfers of evidences of indebtedness or of the ownership of property between the United States and any foreign country, whether enemy, ally of enemy or otherwise, or between residents of one or more foreign countries, by any person within the United States; and he may require any such person engaged in any such transaction to furnish, under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody or control of such person, either before or after such transaction is completed.

As if that wasn’t enough, this law was amended shortly thereafter to read:

During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold, or silver coin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thereof; and the President may require any person engaged in any transaction referred to in this subdivision to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody of or control of such person, either before or after such transaction is completed. Whoever willfully violates any of the provisions of this subdivision or of any license, order, rule or regulation thereunder, shall, upon conviction, be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. As used in this subdivision the term ‘person’ means an individual, partnership, association, or corporation. [Emphasis added.]

Thus, what was solely a wartime measure that many believed had expired was converted into a statute granting war time powers to the President in times of “national emergency,” a term which was not defined in the law (and which, if such an emergency existed in 1933, itself had been precipitated by government mismanagement). This law identified a new “enemy” – domestic “hoarders” who would be subject to imprisonment for violating any rule laid down by the President at any future time during a period of national emergency declared by him based on undefined criteria. Professor Henry Mark Holzer’s monograph “How Americans Lost Their Right To Own Gold And Became Criminals in the Process” catalogues the events of 1933, and more; and it should be read as an adjunct to this article, which despite its appearances is a relatively superficial treatment of the subject.

All hail the mighty Fuerer!!

PART 4 – SEARCHING FOR AMERICA — A COMMENTARY

As many political libertarians, they get this kind of stuff so right in the analysis, and so wrong in the very final conclusions, when they still think that somehow it is possible to establish a “good” government.

Thus Holloways final statements here are brilliant up to the point where he urges to not abandon that ideal. This is, in my humble opinion, but a minor blemish on an otherwise excellent treatise:

[T]he complaints against the gold standard were, and are in actuality, complaints against the unyielding discipline of objective value. The goal of stable prices is inherently inconsistent with a standard that allows gold to circulate as money. If the money supply is inelastic, as it likely would be in the case of gold, normal improvements in technology and productivity naturally ought to cause prices to decline. Businesses have proven throughout history to have a remarkable ability to adapt individually to market conditions (or to go out of business). If they knew that there would be no inflation to negate the natural decline in prices, sooner or later they would figure out how to adjust their business processes to adapt for declining prices – for example, by using strategic product pricing techniques. Surely we must have learned by now that there are grave risks associated with a fiat money system and that the market’s call to be relieved of its function and obligation to deal with objective value is no justification for the government to saddle its citizens with that risk.

Runs on banks arose when depositors were worried about the safety of their deposits. Come now, that cannot be the fault of the monetary system. The banks either had the gold or they did not. But, it is said, they lent the money to finance farms and businesses and mortgages. OK, they must have lent too much and did not keep adequate reserves or failed to arrange privately to be covered by other banks or insurance companies. Anyway, even if depositors gave express or tacit permission for the banks to lend out their money, if a bank promises to redeem bank notes in gold on demand, the bank ought to be managed to be able to do that. To avoid subjecting the bankers to punishment for mismanagement and to avoid causing depositors to have a healthy skepticism about bank trustworthiness, the Federal Reserve System was chartered to insulate the banks from the market’s preference for trustworthiness and to give the depositors a sense of security by government fiat. The Fed was created to bail out irresponsible banks and foster price stability by the expansion of money and credit – a most dangerous game, one that has been played with almost universal failure ever since the first coin was debased.

Instead of allowing the market to fix the problem of declining prices and irresponsible banks, the new System in 1913 allowed the problem to be assumed by the Fed. But in spreading the risk over the entire system and theoretically lowering it, the government created a broader risk, a risk that was national in its scope rather than isolated to individual banks and businesses. When the Fed realized that its expansion of credit in the 1920’s had created a stock market bubble without raising prices, it was faced with a paralyzing dilemma: it could not keep a deflation of the stock market bubble from spilling over into the general economy. The Fed found that it had no precise control over what sectors of the economy would be impacted first by a credit contraction and no way to engineer a deflation so that it did not permeate the economy. Bubbles usually appear at the fountainhead of inflation and then begin to permeate the economy. Bursting the bubble cannot be accomplished surgically – at least no one has figured it out yet, as the internet bubble illustrates. The Fed, despite nine decades of experience, has yet to devise a way to exercise better long term control over the money supply than the gold standard accomlished. I suspect that it is this obvious fact that Mr. Greenspan was referring to in his remarks on December 19.

War and other crises provide pretexts for increases in government power. Once it is acquired, rarely does the assumption of that power completely relent when the crisis subsides. The departure from the discipline of gold money in 1862 with the greenback and in 1933 with gold prohibition was attended by crises that added measurably – by step-functions – to the U.S. government’s control over the economy and its ability to confiscate the fruits of the individual’s labor through inflation. In both cases, there were later repeals, but the repeals represented two steps forward and one step back. The 1879 Resumption Act did not eliminate the legal tender laws, which remain in effect today. Likewise the restoration of gold ownership rights in 1974 and the legalization of gold clauses in 1977 did not resurrect the gold standard or put gold coins back into circulation as money.

We do not know how the government will respond to the upcoming financial difficulties that appear inevitable. But the history of gold money in the U.S. and the increased sophistication and technology available to the government indicate that one may find it difficult to escape the solutions that are handed down. It will not be enough to understand the benefits that the discipline of gold creates for long-term political and economic stability if the vast majority of citizens do not appreciate the political value of a gold standard. It will not be enough to buy gold while it is legal and hide it before the next prohibition occurs. Where, other than the black market, will it be useful? It will not be enough to hope that confiscatory laws and regulations will not be enforced. As will be demonstrated in a later article, the 1933-1974 regulations were enforced. It will not be enough to draft new gold clauses in an attempt to predict what loopholes might be overlooked in the next law. The loopholes eventually will be closed both by the legislature and in the courts. And it will not be acceptable, for me at least, to leave my home in a vain attempt to find a place where I can have greater social, political and economic freedom. I doubt that there is such a place; and even if there were, why should I allow myself to be driven from my home? Some of us have now lived long enough to know that despite Lord Keynes’ famous comment, when the long run has run its course, we will still be here; and even if we are not, our children certainly will be. So the long run is important.

Many of us do not care to evade the law or become exiles or fugitives. We prefer to live and remain in a country where our daily affairs can be conducted freely, in private or in the open, without any concern that, some day, those charged with our protection will turn on us, confiscate our meager savings and forbid us from engaging in prudent and honest trade with our fellow citizens. That is the country that Thomas Jefferson and James Madison thought they had created. I like the idea of living in their country. It is the America that I want to leave to my children and I will continue to search for it.

It is becoming increasingly apparent that the fiat system is entering an unstable, perhaps uncontrollable, phase at precisely the time when a major crisis is brewing. Government budgetary and fiscal policies promoting guns and butter and lower taxes, and monetary policies designed to fight deflation, “stimulate the economy” and monetize historically high mountains of debt are classic signals that the worst fears of the founders are being realized on a scale that they could not have imagined. The accumulation of government power over the individual in such an environment will be, and is, accelerating. Privacy is almost a thing of the past and the movement of assets will join the transfer of money as a carefully regulated activity.

The general population today, unlike the citizenry in 1862 and 1933, has no understanding of monetary economics. Moreover, huge portions of the population (including large and small business enterprises) are in one form or another feeding at the trough of government largesse with absolutely no regard for or understanding of the source of the government’s revenues or how a nation’s wealth is created and what is required to sustain it. They see government money as a kind of natural resource. It is an easy trap to fall into. Just the other night I listened to President Bush commit a substantial sum to fight AIDS in Africa and caught myself saying, “Finally, we are going do something to fight that awful epidemic,” without the least thought about where the money will come from. But if we do not think about where the money comes from, except to oppose direct taxes that affect us, we are digging our own financial graves.

Many people apparently believe, vaguely, that their financial well being is somehow threatened by those seeking lower taxes and less government. (If they are feeding at the trough, perhaps they are right.) And they make no connection whatsoever between monetary policy and their financial security. This wholesale ignorance facilitates, with no serious main stream criticism, the appropriation of wealth from one citizen through inflation and taxes and the redistribution of it to others in the form of government benefits, contracts and programs. I am reminded of the Roman Emperors who taxed the people and then tossed out bread and gold during parades and pageants to curry the favor of the masses. The system will not change until we improve the understanding of the citizens whose votes influence policy.

A libertarian society protected from, and by, a limited government may have been an ideal that the founders sought; but it has never been achieved. Even so, that fact, and the fact that the contrary direction appears to have been generally taken, does not mean that the ideal should be abandoned. If you understand the economic risks posed by the fiduciary (”trust me”) monetary standard and the moral dimensions of its inevitable consequences, you should attempt at a minimum to educate the people around you about the history, the respectability and the security that can be found in the gold standard and encourage them to pass the word. Changing popular understanding begins in your neighborhood, in your business circles and in your associations. It is a daunting undertaking, but it most certainly will not be accomplished if those who understand its importance shrink from the task or retreat into cynicism.

In The Regulation Game, a treatise on government’s regulation of enterprise, authors Bruce M. Owen and Ronald Braeutigam questioned the wisdom of using government power to achieve economic security and justice rather than allowing the market to work. They concluded, “We do not know the answers to these questions. Nevertheless, we are reminded of Edward Gibbon’s comment on the fall of Athenian democracy: ‘In the end they valued security more than they valued freedom, and they lost both.’”

Tags: fiat money, gold, money

Money, Credit, Inflation, and Deflation

December 24, 2010 · Posted in Monetary Economics · Comment

Tags: credit, deflation, inflation, money

Arguments for Quantitative Easing?

November 21, 2010 · Posted in Monetary Economics · Comment

For the sake of grasping the futility of spending time sifting through politicians’ arguments, I want to point out a prime example.

This is Ben Bernanke on Quantitative Easing:

“The best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in a context of price stability in the United States,”

OK, so this of course means absolutely nothing to any mortal person. Nor is it supposed to. It’s yet another innocuous, dumb, and boring front to pure and simple theft.

On November 4th, after announcing QE2, Bernanke certainly wasted no time to declare victory:

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

OK, as you know I would argue that it is simply ridiculous so consider a coerced cheapening of interest rates when people are sick and tired of debt anyway, and a simultaneous increase in the cost of purchasing shares in companies’ profits a success by any means. Furthermore it is even more ridiculous to look at month to month movements to proclaim success or failure of any policy, while disregarding the long term effects that always inevitably ensue!

But let’s forget about that for a second. Let’s measure the immediately proclaimed success by Bernanke’s own standards. Surely if he says that all those measures moved into a desirable direction over the course of a month or so, it would most certainly be undesirable if they moved in the other direction by even more, right??

“Stock prices rose … “

What has happened since Nov 4th with stocks?

“… long-term interest rates fell …”

What has happened to long term rates since Nov 4th?

“… Lower corporate bond rates will encourage investment …”

OK, so now that all these figures have blown up right in Bernanke’s bearded face, he’s surely going to step up to the plate and admit failure immediately, right?

Just kidding … I’m just posting this as one example as to why you should not spend a second listening to bureaucrats’ arguments that are designed to defend their own policies.

Tags: ben bernanke, federal reserve bank, quantitative easing

Inflation & Money Supply in China

November 18, 2010 · Posted in Global Economics, Monetary Economics · Comment

As China’s economy overheats, inflation is the talk of the town these days:

In China, everyone is talking about inflation. Prices for food, raw materials and other commodities are rising, and that’s making people skittish.

Officially, prices grew at a 4.4 percent annual rate in October, the biggest jump in more than two years. But it’s striking how many people you meet in Beijing who say official statistics lowball the true inflation rate.

One economist I spoke with says inflation is probably running at twice the government’s estimate. A business executive I met says the same. He factors significant future inflation into any investment his firm makes these days.

And on the street it seems to be the same story. “I tend to agree with the housewives,” who are skeptical of the official inflation numbers, says economist Yu Yongding.

So why does China’s actual inflation rate matter? If forecasts are correct and China’s inflation rate levels out next year, then it’s full steam ahead for China’s economy. Factories will keep churning out goods. The building and investment boom will probably continue without pause.

But if China’s inflation rate climbs to 6 or 8 percent or higher, then the situation changes significantly. China’s central bank would continue to raise interest rates. The government might step into to control prices for grain or other commodities. It would probably be forced to rein all that money flowing out of the banking system that’s fueling China’s boom. Lenders would pull back.

And if all that happens, then the China miracle goes on hiatus, at least for a while. And the world will notice.

Some more data on Chinese money supply may help put things into context.

The Chinese money supply figure that is closest to my True Money Supply in the US is M1 as reported by the People’s Bank of China:

The money supply in China has easily tripled over the past 6 years.

And here is a comparison between the money supply growth rates in the US and China:

Money supply and credit supply have both been exploding in China, while money supply in the US has rather stagnated or at least grown a lot slower alongside contracting credit.

This is the main reason why I don’t think that the Yuan will remain strong against the US dollar for very long, and it is also why I don’t think the Chinese bubble can continue for much longer, but then … bubble often times last a lot longer than you’d expect.

The only way how the Yuan can maybe remain strong against the US$ for a sustained period of time, in my view, is if the PBC tries to cheapen the Dollar by selling reserves against Yuan, which in turn would exert an upward pressure toward exports from the US into China while having the adverse effect on Chinese exports, and thus hurt China’s politically powerful export lobby.

However, such a policy, too, would find its natural boundaries in the amount of Dollar reserves accumulated by the PBC.

Tags: china, money supply

World Bank Chairman Proposing The Gold Standard?

November 9, 2010 · Posted in Monetary Economics · 2 Comments

World Bank Calling for a Gold Standard?? OMG!!

OK, here is what he said:

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values,[...]

A genuine gold standard at the very least means that every dollar you own can be exchanged at any bank against a fixed amount of gold.

So no, what the chairman suggested is not even remotely a gold standard.

The level of misunderstanding and lack of curiosity in the news media about the philosophical and effectual arguments behind the gold standard are, as always, absolutely fascinating.

Economic La La Land

Just for entertainment value, have a look at this piece by Berkeley’s Brad De Long.

It is a reasonable and empirically completely verifiable proposition that gold is treated by investors around the globe as a money substitute and that its moves over the past decades perfectly explain this hypothesis, with lots and lots of intelligent and successful blogging and investment literature to back it up. DeLong’s well thought out response to this notion:

They do not. They simply do not. That is not true. Markets are using gold as a speculative asset and a hedge. They are not using it is a medium of exchange, a unit of account, or a safe store of nominal value.

“They simply do not! No, no no!!!” because … Brad DeLong says so, that’s right! Wow … just WOW!!!

The certainty with which such completely clue- and careless academic ass-clowns unleash their obligatory shit-storm of bigoted, boring, and mindless tirades about the dangers of gold, sound money & deflation is, as always, absolutely unsurprising.

When you have no concept for the value of freedom and its true historical context and benefits, of course it’s not going to make any sense to you that people invest in gold, of course you are going to use every opportunity to talk it down with anger and irritation.

Voluntaryism and Money

A voluntaryist’s view on money is, as always, pretty darn simple: Don’t initiate aggression against peaceful individuals. It so happens that gold emerged as the best money in a competitive, free, and global money market, as I explained the history of money before:

With division of labor spreading, different goods would be used as money, such as tea, coffee, beans, salt, or cattle. There are numerous accounts of the usage of these goods as money in history. However, there are goods that are better and goods that are worse than others for usage as a medium of exchange. A medium of exchange needs to fulfill criteria such as durability, divisibility, homogeneity, measurability, sufficient but limited availability and broad acceptance. The metals gold and silver emerged as goods that best fulfilled these criteria when used on the market.

Are we asking that people be forced to use gold as currency? No! We are asking that people be allowed to choose, of their own accord, unbridled by threats of aggression, how to best produce and sell media of exchange on the market as demanded by consumers.

We reject capital gains taxes on popular currency commodities such as gold, we reject legal tender laws, a counterfeiting monopoly, and the entire massive and aggressive superstructure that enforces this currency regime, namely the government.

The Reuters article above is just another display of severely sociopathic mental retardation played out on a global stage by bureaucrats and politicians who simply won’t fathom the idea that maybe they should just get their sleazy fingers out of the money business and let people live their own lives. Hah! Unthinkable!!

Tags: gold standard, world bank

Quantitative Easing – “Easing” the Theft of Large “Quantities” Over Time

November 4, 2010 · Posted in Monetary Economics · Comment

Quantitative Easing: The creation of fiat money (money whose use is enforced and competition with is prevented by the government’s police power) in order to purchase assets from a group holding or creating those assets, allowing their sale at a premium price over individuals’ voluntary preference on the market, and granting access to newly created money and its spending before others get their hands on it, thus transferring wealth to those receiving it earlier/earliest (banks and government) from those receiving it later/latest (wage earners) who pay for it in the form of prices that are higher than they would have been, had QE not occurred.

In this particular case the asset being offered is of course government debt, that is, a piece of paper issued by a group with lots of guns, that promises the person buying it future income at interest, funded from money that will be taken from other people at the threat of imprisonment or asset seizure (which is where the guns can be helpful at times).

“Quantitative Easing” is in that sense a pretty descriptive term since it makes it “easier” for the government to pillage the public to the tune of large “quantities” over time.

In the current environment it shall be duly noted that QE2 may actually be not very different from QE1 in that all that happens is that bank reserves are created at the Fed in exchange for government debt previously held by banks which will boost Treasury holdings at the Fed to more profitable levels, while the banks will be sitting on more excess reserves without any additional lending activity resulting from it, simple because the entire economy is sick and tired of debt!

Forcing government debt onto people is not really a new policy but rather a project that has been ongoing in the US at least since the establishment of the Federal Reserve Bank, with occasional boosts such as this one. The objective being of course to make the issuance of debt as easy and cheap as possible for the bureaucrats in power by keeping the interest to be paid lower than the market rates for as long as possible, until the interest payments on the public debt inevitably start eating up all other potential expenses at a point when it will be way to late to do anything about it.

Some people might wonder why bureaucrats seem to not give a damn about deficits ( it’s shocking news I know ;) ), well here’s one of the reasons: when you subsidize something, you’ll get more of it … pretty much inevitable, especially if those who incur the debt will never be held liable or accountable when it comes to paying it back.

See below a comparison of QE in different countries, just to get an idea of where we’re headed:

Currently the holdings of assets at the central bank in the US are at around 16% of GDP. This new round of QE will probably add another 4% ($600 billion) until the middle of next year.

(The obvious fact that people are sick and tired of debt and that the entire exercise will not in any way spur lending or borrowing activity in the long run (probably not even in the short run), except for within government, need not concern those in power since that is not their objective anyway.

Nor does it matter whether or not it creates inflation or whether we should fear a deflation, were QE to not occur. None of these questions address the root of the matter.

All this talk is so fundamentally deceptive and deranged that it is hard to watch it with a straight face. It sure makes for some pointless and “fun” discussions for pundits and politicians on the evening news, and it sure serves as a neat little distraction from discussing inconvenient truths, but please don’t for a second take that nonsense serious.)

And finally, when the Fed then acts surprised that that approach also hasn’t helped reduce unemployment or affect any other positive change in any way, it will make chief clown Paul Krugman (whose subtle analysis is of course “not enough, duuude”) happy and introduce QE3, QE4, and so on and so forth, making sure that there will be no meaningful recovery whatsoever.

This of course brings us back to what I wrote in comparison to Japan almost a year and a half ago:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

In short: QE 2 is just another small piece in that puzzle called “more of the same”.

Tags: federal reserve bank, quantitative easing

Global Warming – “The greatest and most successful pseudoscientific fraud I have seen in my long life”

October 20, 2010 · Posted in Environment, Monetary Economics · Comment

I have written before about the global warming propaganda machine:

The Global Warming Religion

The Global Warming Hoax Exposed

Now Hal Lewis’s damning letter of resignation from the American Physical Society as been published. It will without a doubt be remembered as an important moment in science history:

From: Hal Lewis, University of California, Santa Barbara

To: Curtis G. Callan, Jr., Princeton University, President of the American Physical Society

6 October 2010

Dear Curt:

When I first joined the American Physical Society sixty-seven years ago it was much smaller, much gentler, and as yet uncorrupted by the money flood (a threat against which Dwight Eisenhower warned a half-century ago). Indeed, the choice of physics as a profession was then a guarantor of a life of poverty and abstinence—it was World War II that changed all that. The prospect of worldly gain drove few physicists. As recently as thirty-five years ago, when I chaired the first APS study of a contentious social/scientific issue, The Reactor Safety Study, though there were zealots aplenty on the outside there was no hint of inordinate pressure on us as physicists. We were therefore able to produce what I believe was and is an honest appraisal of the situation at that time. We were further enabled by the presence of an oversight committee consisting of Pief Panofsky, Vicki Weisskopf, and Hans Bethe, all towering physicists beyond reproach. I was proud of what we did in a charged atmosphere. In the end the oversight committee, in its report to the APS President, noted the complete independence in which we did the job, and predicted that the report would be attacked from both sides. What greater tribute could there be?

How different it is now. The giants no longer walk the earth, and the money flood has become the raison d’être of much physics research, the vital sustenance of much more, and it provides the support for untold numbers of professional jobs. For reasons that will soon become clear my former pride at being an APS Fellow all these years has been turned into shame, and I am forced, with no pleasure at all, to offer you my resignation from the Society.

It is of course, the global warming scam, with the (literally) trillions of dollars driving it, that has corrupted so many scientists, and has carried APS before it like a rogue wave. It is the greatest and most successful pseudoscientific fraud I have seen in my long life as a physicist. Anyone who has the faintest doubt that this is so should force himself to read the ClimateGate documents, which lay it bare. (Montford’s book organizes the facts very well.) I don’t believe that any real physicist, nay scientist, can read that stuff without revulsion. I would almost make that revulsion a definition of the word scientist.

So what has the APS, as an organization, done in the face of this challenge? It has accepted the corruption as the norm, and gone along with it. For example:

1. About a year ago a few of us sent an e-mail on the subject to a fraction of the membership. APS ignored the issues, but the then President immediately launched a hostile investigation of where we got the e-mail addresses. In its better days, APS used to encourage discussion of important issues, and indeed the Constitution cites that as its principal purpose. No more. Everything that has been done in the last year has been designed to silence debate

2. The appallingly tendentious APS statement on Climate Change was apparently written in a hurry by a few people over lunch, and is certainly not representative of the talents of APS members as I have long known them. So a few of us petitioned the Council to reconsider it. One of the outstanding marks of (in)distinction in the Statement was the poison word incontrovertible, which describes few items in physics, certainly not this one. In response APS appointed a secret committee that never met, never troubled to speak to any skeptics, yet endorsed the Statement in its entirety. (They did admit that the tone was a bit strong, but amazingly kept the poison word incontrovertible to describe the evidence, a position supported by no one.) In the end, the Council kept the original statement, word for word, but approved a far longer “explanatory” screed, admitting that there were uncertainties, but brushing them aside to give blanket approval to the original. The original Statement, which still stands as the APS position, also contains what I consider pompous and asinine advice to all world governments, as if the APS were master of the universe. It is not, and I am embarrassed that our leaders seem to think it is. This is not fun and games, these are serious matters involving vast fractions of our national substance, and the reputation of the Society as a scientific society is at stake.

3. In the interim the ClimateGate scandal broke into the news, and the machinations of the principal alarmists were revealed to the world. It was a fraud on a scale I have never seen, and I lack the words to describe its enormity. Effect on the APS position: none. None at all. This is not science; other forces are at work.

4. So a few of us tried to bring science into the act (that is, after all, the alleged and historic purpose of APS), and collected the necessary 200+ signatures to bring to the Council a proposal for a Topical Group on Climate Science, thinking that open discussion of the scientific issues, in the best tradition of physics, would be beneficial to all, and also a contribution to the nation. I might note that it was not easy to collect the signatures, since you denied us the use of the APS membership list. We conformed in every way with the requirements of the APS Constitution, and described in great detail what we had in mind—simply to bring the subject into the open.

5. To our amazement, Constitution be damned, you declined to accept our petition, but instead used your own control of the mailing list to run a poll on the members’ interest in a TG on Climate and the Environment. You did ask the members if they would sign a petition to form a TG on your yet-to-be-defined subject, but provided no petition, and got lots of affirmative responses. (If you had asked about sex you would have gotten more expressions of interest.) There was of course no such petition or proposal, and you have now dropped the Environment part, so the whole matter is moot. (Any lawyer will tell you that you cannot collect signatures on a vague petition, and then fill in whatever you like.) The entire purpose of this exercise was to avoid your constitutional responsibility to take our petition to the Council.

6. As of now you have formed still another secret and stacked committee to organize your own TG, simply ignoring our lawful petition.

APS management has gamed the problem from the beginning, to suppress serious conversation about the merits of the climate change claims. Do you wonder that I have lost confidence in the organization?

I do feel the need to add one note, and this is conjecture, since it is always risky to discuss other people’s motives. This scheming at APS HQ is so bizarre that there cannot be a simple explanation for it. Some have held that the physicists of today are not as smart as they used to be, but I don’t think that is an issue. I think it is the money, exactly what Eisenhower warned about a half-century ago. There are indeed trillions of dollars involved, to say nothing of the fame and glory (and frequent trips to exotic islands) that go with being a member of the club. Your own Physics Department (of which you are chairman) would lose millions a year if the global warming bubble burst. When Penn State absolved Mike Mann of wrongdoing, and the University of East Anglia did the same for Phil Jones, they cannot have been unaware of the financial penalty for doing otherwise. As the old saying goes, you don’t have to be a weatherman to know which way the wind is blowing. Since I am no philosopher, I’m not going to explore at just which point enlightened self-interest crosses the line into corruption, but a careful reading of the ClimateGate releases makes it clear that this is not an academic question.

I want no part of it, so please accept my resignation. APS no longer represents me, but I hope we are still friends.

Hal

Harold Lewis is Emeritus Professor of Physics, University of California, Santa Barbara, former Chairman; Former member Defense Science Board, chmn of Technology panel; Chairman DSB study on Nuclear Winter; Former member Advisory Committee on Reactor Safeguards; Former member, President’s Nuclear Safety Oversight Committee; Chairman APS study on Nuclear Reactor Safety Chairman Risk Assessment Review Group; Co-founder and former Chairman of JASON; Former member USAF Scientific Advisory Board; Served in US Navy in WW II; books: Technological Risk (about, surprise, technological risk) and Why Flip a Coin (about decision making)

Tags: global warming, global warming hoax

True Money Supply – July 2010

August 12, 2010 · Posted in Monetary Economics · Comment

The true money supply in July has dropped again slightly from $2,213 to $2,200 billion:

The annual growth rate remains below 2% at currently 1.82%:

Historically, the true money supply is a helpful indicator in predicting recessions and booms. A sustained growth rate below 3% tends to portend recessions, while one above 3% tends to result in speculative booms of one or the other kind.

In hindsight over the past 3 years, it looks like the true money supply has once again been a good guide in predicting mid term trends, in particular the recession of 2008 and the reflation of 2009 which has now obviously come to an end.

But fluctuations in the money supply don’t change the fact that deflation is here and has been here for a while, and it’s not going away anytime soon.

Tags: money supply, true money supply

China to Float Yuan More Freely – Roubini Predicts: Yuan Appreciation Against Dollar Unlikely – I Say: Yuan Has Already Begun Depreciating

June 19, 2010 · Posted in Monetary Economics · Comment

Reuters writes China forex move could thwart U.S. hopes – Roubini:

China’s decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street’s most closely followed economists, said on Saturday.

China said on Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.

“This is the first significant signal in years of a change in Chinese currency policy,” Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.

But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan — also known as the renminbi — and the base date for that basket, he said in an e-mail.

“Since they have not changed the previous range for the band — plus or minus 0.5 percent — most likely on Monday China will allow the renminbi vs U.S. dollar to move,” said Roubini.

The yuan has risen sharply in recent months against the euro, which sank over Europe’s debt problems, so a stronger yuan could not be taken for granted, he said.

If the euro were to continue to depreciate, “the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome,” Roubini said.

His comments echoed those of an adviser to China’s central bank on Saturday.

Li Daokui, an academic adviser to the monetary policy committee of the People’s Bank of China, told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency.

Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.

“Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese.”

For more on this see my own predictions on this particular matter.

July 2009 – China Pegging Yuan to Dollar Again?

The stabilization of the Dollar against the Yuan has almost coincided the reversal of the Dollar’s fall against other major currencies. It thus appears as if, since mid 2008, the Yuan/Dollar peg has been reinstated and continues to be in place as these lines are written. What is also noteworthy is that the US current account deficit has been declining sharply since then.

A first look at the above chart leads one to believe that Chinese and US authorities aimed at putting an end to the fall of the Dollar, and thus intervened accordingly. However, another possibility which I would like to propose is that the Dollar had fundamentally and truly begun to stabilize at the level of RMB 6.83 at that point and was actually in for a major revaluation upwards. Thus the current intervention by Chinese authorities could actually be aiming at a stabilization of its own currency at a higher level than the market would mandate.

Some points fundamentally support the thesis that the dollar should gain in value against the major currencies:

- Global deleveraging is driving investors from other currencies back to the Dollar
- Deflation hitting the US first, and other countries only later
- Imports into the US are falling rapidly
- Significant domestic spending sprees by the Chinese government

All this may indicate that if the Chinese government were to let the Yuan float freely at some point, it may actually drop significantly against the US Dollar. Such an event could possibly be the ignition for a significant Dollar rally in the years to come.

The Reuters article is also in line with something I pointed out recently:

An interesting side effect of the Dollar rally is what’s happening to Chinese exports. Since its currency is pegged to the US Dollar, the Yuan is strengthening against the Euro which is hurting the powerful Chinese export lobbyists.
…
Bottom line: The supposed Yuan devaluation everyone seems to be expecting, were the Yuan to be freely floated, is simply not gonna happen!

Luckily, such predictions are testable. Let’s see how we are doing so far. Let’s observe the direction the Dollar has begun to take against the Yuan: