Category Archives: Currencies

Are Recessions Inevitable? by Ron Paul

With an honest monetary system in which no government had a role, recessions either might not happen at all, or would be much less severe than recessions are now. From Ron Paul at ronpaulinstitute.org:

Stocks fell last week following news that the yield curve on Treasury notes had inverted. This means that a short-term Treasury note was paying higher interest rates than long-term Treasury note. An inverted yield curve is widely seen as a sign of an impending recession.

Some economic commentators reacted to the inverted yield curve by parroting the Keynesian propaganda that recessions are an inevitable feature of a free-market economy, whose negative effects can only be mitigated by the Federal Reserve. Like much of the conventional economic wisdom, the idea that recessions are caused by the free market and cured by the Federal Reserve is the exact opposite of the truth.

Interest rates are the price of money. Like all prices, they should be set by the market in order to accurately convey information about economic conditions. When the Federal Reserve lowers interest rates, it distorts those signals. This leads investors and businesses to misjudge the true state of the economy, resulting in misallocations of resources. These misallocations can create an economic boom. However, since the boom is rooted in misperceptions of the true state of the economy, it cannot last. Eventually the Federal Reserve-created bubble bursts, resulting in a recession.

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House of Cards, by the Zman

All we’ve done since the financial crisis of 2008-2009 is build an even larger skyscraper of cards. From the Zman at theburningplatform.com:

One of the things that was revealed in the 2008 mortgage crisis was the fragility of the global financial system. The system that was born of the Louvre Accords was supposed to be robust and resilient, unlike the previous arrangements. The masters of finance would be able to keep a steady hand on the tiller, guiding the world economy through each storm, rather than have a free-for-all ever time there was a little turmoil. Up until 2008, everyone knew something like the mortgage crisis was impossible.

A credit based financial system was supposed to get around the problem of currency devaluation to solve political problems. That’s been a problem since the advent of coinage. When the state gets in trouble, the easiest ways to solve it is to spend money on the public. Whether it was debasing the coinage or printing paper money, the solution to spending money that did not exist was the create it. That always created new and bigger problems for the society down the line.

One way of looking at the mortgage crisis is as a form of currency devaluation. The global financial system is based in credit. That’s the base unit of value. Government debt and to a slightly lesser degree, corporate debt, is the foundation of the global financial system. Government issues debt, which increases the supply of money in the system, as that debt is used as collateral in the system. Central banks can buy and sell debt to control the supply of money in the system.

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Why Gold Is the Best Money, by Doug Casey

The logical case for gold as the basis for monetary systems is solid. From Doug Casey at caseyresearch.com:

Chris’ note: Chris Reilly here, managing editor for Casey Daily Dispatch.

As you know, gold is on the rise. It’s up 15% over the last two months… and recently hit $1,500 an ounce for the first time since April 2013.

Hopefully, you’ve added some to your portfolio… before this boom really takes off. We see big things coming… and that’s why today, we’re sharing one of the most important essays on gold we’ve ever published.

It comes from our founder, Doug Casey, who explains the key reasons why gold is the best money. As Doug says, you’ll want to burn them into your memory…


By Doug Casey, founder, Casey Research

It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.

Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.

By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.

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Trump’s Fed Bashing is a Self-Inflicted Wound, by Tom Luongo

President Trump blames the Fed for things like a too-strong currency when it’s his policies that are responsible. From Tom Luongo at tomluongo.me:

Donald Trump is an economic ignoramus. I say this all the time.

I keep hoping I’m wrong, but every time he opens his mouth he confirms my worst impression of him.

Trump isn’t dumb, he’s very smart. But, like so many smart people, including myself and FOMC members, he’s over-confident in applying that which he’s been mis-educated about.

Trump is surrounded by monetarists, like Larry Kudlow. Kudlow still believes the Phillips Curve has validity for pity’s sake. Behind the curve doesn’t begin to describe the situation in the White House.

And yet that’s what they think of the Fed.

The Fed is staffed by Keynesians, or more accurately Samuelsonians. All of them have truly bonkers ideas about how markets actually work in the real world versus how they do in their textbooks.

Trump is likely the only one of them with any real world experience. And even he, as a real estate developer, only understands things from his tiny perspective.

In his latest round of anti-Fed tweets Trump lit off a litany of economic bromides as to why the Fed is the problem. And, so help me, Donald Trump is so out of touch with reality that I have been reduced to defending the Fed against him.

Trump is right that the dollar is strengthening. But he’s dead wrong about why.

On the one hand he wants a weaker currency but then he lauds, in the same Tweet thread, to the high heavens that money is “pouring into the U.S by the tens of billions” because of safety, security and interest rates.

And worse, that that money pouring is money China isn’t getting. And then, after destroying mutually beneficial trade with China he’s going to spend more of our grandkids’ money (because that’s what record budget deficits are) bailing out farmers whose businesses he ruined.

The stupid, it burns.

He invites capital investment into the U.S through a massive corporate and middle class tax cut and then doesn’t expect the dollar to strengthen? The Fed isn’t the cause of this dynamic.

Sure, the Fed could have held off on raising interest rates but that would only have changed the slope of the capital inflow curve, not the direction.

Germany is collapsing, Hurricane Don. The money has to go somewhere, you know, like water.

Trump seems to think the Fed is all-powerful, that all it has to do is snap its fingers, lower interest rates and all will be well again. No. The Fed is a slave to market forces just like everyone else.

And market forces, set in motion by Trump himself, through his responding reflexively with tariff increases and demonization of China.

Trump seems to think the Fed saved the world alone in 2008. He forgets that global ZIRP was only possible because the Chinese economy had the capacity to take the money printed and put it to work.

Without that capacity, as David Stockman pointed out cogently in his book Peak Trump and my interview with him, there would have not been the last decade of muddle through here in the West and explosive growth of China.

So, Trump blaming the Fed for a rising dollar is silly. What’s causing the rising dollar is the very instability he’s creating with his ‘tariff the world/sanction the world’ policy to force change.

The Fed needed to raise rates and force some sanity on the world. It needed to start rewarding savers to rebuild the pool of real savings within the U.S. economy, gutted to rebuild the banks on Wall St. who are now staring at an abyss of red ink from the oil boom and bust Trump thinks will Make America Great Again.

Russia and Iran have something to say about that.

IMO, they didn’t go far enough. If Trump’s goal is a different trade dynamic, a stronger dollar is the path to doing that. The Fed was helping him get what he wants. But because he’s, frankly, a spoiled Baby Boomer he wants it all and he wants it now.

What’s even sadder about this is that not only is Trump getting me to defend the Fed he’s getting me to agree with the shitlibs who say he doesn’t have the temperament to be President. *reaches for The Road to Serfdom*

He clearly doesn’t.

That doesn’t mean I pine for Hillary Clinton in the Oval Office. This is not an “If Not A, then B” situation. Just because Trump is not fit to be President doesn’t mean Hillary was either.

Like everyone else, I’m just trying to make the best of a bad situation rapidly deteriorating. Trump’s inability to grasp the basics of capital flows and the inadequacies of government accounting is yet another catalyst for a global meltdown that the U.S. will be the last one to feel the worst effects of, because the Fed’s ZIRP policy blew the biggest bubble of all time, denominated in, you guessed it, dollars.

There’s more than $50 trillion in dollar-denominated debt out there trading at already historically-low interest rates. What in the actual fuck does Trump think another 25 basis points is going to do?

Cure Cancer? Or get him re-elected so he can terrorize the world with his victimhood mentality he still clings to from when he was a Democrat.

The Fed can’t reverse the capital flowing into the U.S.. Trump started that the right way, he cut taxes and continues to cut regulations while changing the face of the judiciary.

But like the malignant narcissist that he is he refuses to take responsibility for doing so. His inflexibility will doom his presidency but he won’t see that until it’s too late.

So the blame game goes on. When he’s blaming the media and the increasingly bizarre behavior of Democrats trying to oust him from power, he’s spot on. When he tries to make sense of the interface between politics and markets he’s lost in a wilderness of mirrors.

I have only one word of advice at this point.

Duck.

 

We’re All Currency Manipulators Now, by David Stockman

With universal fiat currencies backed by nothing, every government is a currency manipulator, including the US government. From David Stockman at lewrockwell.com:

Call it the monetary theater of the absurd. After all, here is what a determined currency manipulator did between September 2002 and July 2008.

To wit, it pumped about $200 billion of new dollar liabilities into the world financial system, thereby expanding the Fed’s balance sheet by 26%. Clearly, global traders and US trading partners didn’t welcome that flood of freshly minted fiat currency because during the same period, the traded-weighted dollar exchange rate plunged by 25%.

Moreover, there can be little doubt that the severe slump in the US dollar shown below was deliberate. During much of that period, the Fed conducted an aggressive campaign to slash interest rates, goose domestic growth and perk-up the inflation rate. The last objective in particular was the brain child of newly appointed Fedhead Ben Bernanke, who falsely warned Greenspan & Co. about the dangers of an imminent “deflation” that never remotely happened.

Needless to say, the impolite word for a policy of suppressing domestic interest rates and goosing inflation is trashing your own currency. All things being equal, foreigners will lighten their dollar holdings and trade the dollar down when authorities promise to reduce its purchasing power and to push yields lower relative to alternatives abroad.

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Things Fall Apart, by Michael Krieger

It is SLL’s contention that things have been falling apart for many years. From Michael Krieger at libertyblitzkrieg.com:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

– Charles Dickens, A Tale of Two Cities

You’re not losing your mind, everybody else is. Things are crazy and getting crazier. Something must be done. Somebody, please do something.

If paying attention to global events overwhelms and results in a combined sense of dread, concern and bewilderment, you’re not alone. It’s not simply because humans have more access to more information than ever before that you feel this way, there does appear to be a quickening in the pace of the unfolding of humanity’s latest chapter. Things are genuinely falling apart, but things are always falling apart. Likewise, things are always being built and created. Governments come and governments go, as do global empires and monetary systems. Everything is dying and being born all at once, constantly and forever. This will not change.

That said, there are periods in history when the entire paradigm you’ve been accustomed to living under changes rather abruptly and for good. A change of this nature alters the entire game on a global basis and happens perhaps once in a lifetime. The last such shift happened during World War 2 and we’re living in the next one. How big of a change this will represent in the context of human history remains unknown, but we know it’s big. Really, really big.

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Forget Iran, Maximum Pressure Has Shifted to China, by Tom Luongo

Is the Trump administration forgetting its pressure campaign on Iran to intensify one on China? From Tom Luongo at tomluongo.me:

In the past week the pressure on China by the U.S. has escalated daily. Since the trade delegation came back from China with lunch barely digested the Trump Administration has gone into over drive on demonizing China here at home.

From finally declaring China a currency manipulator after years of threats on Monday the latest is now a planted story in Axios that Vice-President Mike Pence bringing forth a list of Chinese officials to sanction for Human Rights violations under the Global Magnitsky Act.

This is based on a lie, of course. A lie helped along by Bob Fu, the head of ChinaAid, an NGO working, nominally, to alleviate the horrors of the Chinese government. Or, at least, that’s what you’re supposed to believe.

Vice President Mike Pence has signaled that the Trump administration is open to using the Global Magnitsky Act to sanction top officials in Xinjiang, China, where more than 1 million Uighur Muslims are being held in internment camps, according to a Chinese religious freedom advocate who met with Pence at the White House Monday.

Notice how Axios still states this as fact, that the Chinese are running 1 million people in concentration camps, even though the story was quickly debunked as the rogue statement by U.N. committee member, Gay MacDougall, who claimed this 1 million number was real.

It’s not true, because if it was someone credible would have confirmed it. But it’s a lie that has been breathlessly repeated for the past year to create the illusion of reality so that now Pence can pile on to further inflame the ‘China is evil’ story to hapless Trump supporters giddy at their chosen savior’s tough stance on China.

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