At the risk of sounding like a broken record we'd like to say a bit more about economists' tendency to get their monetary history wrong; in particular, the common myths about the gold standard. If there's one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don't excuse the errors many economists commit in their eagerness to find fault with that "barbarous relic." The point, in other words, isn't to make a pitch for gold. It's to make a pitch for something - anything - that's better than our present, lousy money.
Asset price inflation, a disease whose source always lies in monetary disorder, is not a new affliction. It was virtually inevitable that the present wild experimentation by the Federal Reserve - joined by the Bank of Japan and ECB - would produce a severe outbreak. And indications from the markets are that the disease is in a late phase, though still short of the final deadly stage characterized by pervasive falls in asset markets, sometimes financial panic, and the onset of recession.
For 6 ½ long years, we have been bombarded with the mythology known as “the U.S. economic recovery” by the mainstream media.
Too much of the commentary about the Greek crisis has focused on whether or not Greece should drop the euro and not enough on the structural problems arising out of decades of socialism. Meanwhile, the Greek government has borrowed more money than the Greek people can possibly repay, and debased money will not make this fact disappear. On the contrary, more easy money will cause even more harm. The best thing that Europe and Greece can do for itself right now is to confront some of the economic fallacies that have long driven the debate over Greece, the euro, austerity, and debt.
We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…
For as long as the present economic system lumbers along, Keynesians will control the levers of power and influence. But when at last the system goes down in a heap, and central banks cannot restore the system, there will be a quest for answers. When you live by the Federal Reserve, you die by the Federal Reserve.
There is a myth prevalent today that the gold price always falls when interest rates rise. The logic is that when interest rates rise it is more expensive to hold gold, which just sits there not earning anything. And since markets discount future expectations, gold will even fall when a rise in interest rates is expected. With the Fed's Open Market Committee debating the timing of an interest rate rise to take place possibly in September, it is therefore no surprise to market commentators that the gold price continues its bear market. Only the myth is just that: a myth denied by empirical evidence.
Many investors still view gold as a safe-haven investment, but there remains much confusion regarding the extent to which the gold market is vulnerable to manipulation through short-term rigged market trades, and long-arm central bank interventions. First, much of the gold that is being sold as shares, in certificates, or for physical hoarding in dubious "vaults" just isn't there. Second, paper gold can be printed into infinity just like regular currency. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them.Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market. There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.
How A Pork Bellies Trader And Milton Friedman Created "The Greatest Trading Casino In World History"Submitted by Tyler Durden on 07/21/2015 15:30 -0500
"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."
When Warren Buffet put $5 billion in Berkshire Hathaway funds into Goldman Sachs the week after Lehman failed, amidst total turmoil and panic, it appeared from the outside a high risk bet. Buffet had long tried to portray himself as a folksy engine of traditional stability, investing only in things he could understand, so jumping into a wholesale run of chained liabilities may have seemed more than slightly out of character. We have no particular issue with Buffet making those investments, only the pretense of intentional mysticism that surrounds them. The reason the criticism of crony-capitalism sticks is because this was not Buffet's first intervention to "save" a famed institution on Wall Street. If Buffet's convention is to stick with "things you know" then he has been right there through the whole of the full-scale wholesale/eurodollar revolution.
Markets are beginning to signal that policy makers are losing control. Many second-order-effects of the unprecedented and experimental global actions taken since the 2008 crisis are beginning to manifest. There are always causes and effects that develop; but they do so at different speeds. Many actions in recent years have prioritized 'benefits today' over 'consequences tomorrow'. 'Tomorrow' is approaching ever more quickly. There is no 'free lunch'.
The Export-Import Bank died last night when its charter expired. After 81 years, what is commonly known as Boeing’s Bank is headed toward Washington’s trash bin. When Congress returns it could revive Ex-Im, which primarily subsidizes big business exports. But a proper burial for what Barack Obama once called “corporate welfare” would save Americans money, reduce economic injustice, and promote economic growth. Ex-Im’s closure is a very rare victory for the good guys in Washington. Crony capitalism is running rampant in America, undermining confidence in a market economy.
The Greek case offers quite a relevant view into the world of 21st century monetary alchemy, because that is what it really amounts to. What is left, however, is the worst of all cases; no recovery, no lending and now just more financial imbalance piled onto the same negative pressures and imbalances that never really went away. What is amazing is how short the attention of “investors” may be, and how they allow themselves to think monetary complexity passes for proficiency or even expertise despite all and continued observation otherwise.
The serial bubbles of the 2000’s are nothing more than what was wrought of the 1920’s, in general. The monetary character of both is not coincidence, as the failures that bookend each of these ages induces the transformation: from monetary to fiscal and back to monetary again. That looks like progress and accountability, but in each it only leads to more extreme measures (relative to the last) to still achieve what Robert Owen and Karl Marx conceived more than a century and a half ago. That leads us to 2015 and what is certainly the ragged end of the eurodollar standard. The third socialist age was undone by August 2007, but that did not stop its proprietors of “eurodollar socialism” under the name “investor capitalism” from trying to rebuild and restore it to full capacity. The groundwork has already been laid, and it is exactly what you would expect given the history since 1907. There are no widespread details about a return to capitalism and sound money practices, only how to overcome the third installation of that timeless barrier thrown down in the collapse of each of the asset bubbles so far – value.
Despite the sputtering economy, despite report after report that indicates that global economies are slowing down, despite the historic amount of money printing that has done little to nothing to fix these issues, there are those out there who believe that the solution to all our problems is more of the same. More money printing.