Tag Archives: Gold

Debt-Based Money Corrodes Society, by Brian Maher

Phony money doesn’t just debauch economies, it debauches morals and the culture. From Brian Maher at dailyreckoning.com:

We open today’s reckoning with a hypothesis:

The current monetary system debauches the culture.

Long-suffering readers are familiar with our… diminished regard for paper money.

Paper money — or digital money nowadays — is the great bogeyman of the boom/bust cycle. It inflates bubbles of every model and make.

Meanwhile, paper money fuels big government… as oxygen fuels fire.

But paper money’s effects on the culture?

“It has a very important impact on our culture,” writes economist Jorg Guido Hulsmann.

Under “natural money” like gold Hulsmann explains, prices tend to fall over time.

So natural money encourages the virtues of saving… thrift… deferred gratification. It sets the mind to the future:

In a free economy with a natural monetary system, there is a strong incentive to save money… Investments in savings accounts or other relatively safe investments also play a certain role, but cash hoarding is paramount.

Before the 20th century, explains Hulsmann, debt was a cultural taboo… a big scarlet “D.”

Credit for households was virtually unknown, he says. And only the poorest households resorted to debt-financed consumption.

Ah, but then the 20th century came along with its wars… its social movements… and its cranks…

Gold is a famously uncooperative agent of change.

It resists social uplift, in the same way an old man resists a new pair of shoes.

It turns away from the sound of trumpets.

“You go over there,” gold says. “I’m staying here.”

“The trouble with gold is that it turns its back on world improvers, empire builders and do-gooders,” wrote Bill Bonner and our leader Addison Wiggin in Empire of Debt.

“The nice thing about gold is that it is so unresponsive,” they continued. “It neither laughs nor applauds.”

And that’s why it couldn’t last…

Only a debt-backed system of paper money could finance the great wars, the social improvements and the fevered dreams of the 20th century.

To continue reading: Debt-Based Money Corrodes Society

Advertisements

Why Debt Is Not Money, by Doug Casey

Doug Casey makes the same case SLL made in “Real Money.” From Casey at caseyresearch.com:

Gold’s main use, contrary to the belief of some, isn’t in jewelry or dentistry—although those uses are important. Its main use has almost always been as money. But gold’s ancillary uses are growing in importance because, given its physical characteristics, it’s a high-tech metal. It’s one of the most resistant to chemical reaction, one of the most ductile, the most malleable of all the elements, and it’s an exceptional electrical conductor.

There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don’t even carry serial numbers. That makes it truly untraceable. At current prices, it’s more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.

Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China, and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World). But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, their governments and central banks are accumulating it as well.

To continue reading: Why Debt Is Not Money

 

Real Money and Why You Need it Now (Part 2), by Bill Bonner

The concluding half of Bill Bonner’s analysis of real money (gold), From Bonner and bonnerandpartners.com:

What troubles my sleep is what is not in the textbooks.

Central banks are in the process of making trillions in government debt disappear. Governments borrow money that doesn’t exist. The debt is bought up by the central bank, which creates money for that purpose. The interest paid to the central bank on the debt is paid back to the U.S. Treasury (that’s the deal between the Fed and the U.S. government).

Then, when the bond matures, the “normal” thing would be for the borrower – the U.S. government – to repay the loan. This repayment money would have to come out of the economy and into the Fed’s vaults, thus reducing the amount of money in circulation and triggering an economic slump.

The federal government would have to run a surplus in order to actually be a net payer of debt rather than a net borrower. That’s not going to happen. Instead, it borrows more – to repay the old loan – and adds further fuel to hot asset markets. The debt is never settled… it goes on forever… eternally unpaid, forgotten in the bank’s vaults. It is as if it had disappeared completely.

The debt may disappear. But the credit – the money put into the economy to create the debt – lives on. It spends its days chasing asset prices. Stocks, bonds, real estate, art – all go up. Bread and automobiles remain more or less where they were. Who complains?

Keynesian economists Larry Summers of Harvard and Paul Krugman of Princeton practically drool when they think of it… a paradise where governments can redistribute wealth and undertake huge capital investment projects – roads, hospitals, bridges, harbors – at no cost. The feds get to borrow money, hire people, and spend on pet projects. Then, as if by magic, the debt vanishes. What could be better?

To continue reading: Real Money and Why You Need it Now (Part 2)

Real Money and Why You Need It Now (Part 1), by Bill Bonner

Gold is “Real Money,” and Bill Bonner explains why. From Bonner at bonnerandpartners.com:

Many years ago, before the invention of modern money or capitalism, people still had wealth – although limited. And they still had ways of keeping track of it. The principle of “fair trade” seems to be in our DNA.

If you give something to your neighbor, you don’t expect him to hit you over the head. You expect him to give you something back. And if you give him a whole cow and he gives you half of a rabbit, some instinct tells you it isn’t “fair.”

Small communities could keep track of who owed what to whom. But as civilization evolved, a new kind of money was needed.

In a group of related people in an isolated valley, you could remember that your cousin should give you something roughly equal in value to the wild pig you gave him… and that you should offer your son or daughter to the family from which you had gotten your wife… and so on.

But as the group grew bigger, people needed a way to settle transactions without having to trust the people they were doing business with or remember who owed what to whom.

When Aristotle described “money” he had our modern money in mind – something that is not wealth but acts as a placeholder for wealth. It is information; it tells you how much real wealth you can command.

For the last 5,000 years, the best money has been gold (and to a lesser extent, silver). Gold is very useful as money. With it, you can do business with complete strangers. It can be used to stand in for almost any amount of wealth. Later, paper money – representing units of gold or silver – made commerce even easier. Without this modern money, an advanced economy wouldn’t be possible.

To continue reading: Real Money and Why You Need It Now (Part 1)

 

 

He Said That? 7/20/16

From President Richard Nixon, Address to the Nation Outlining a New Economic Policy: “The Challenge of Peace,” August 15, 1971, “temporarily” suspending the convertibility of dollars for gold:

***

The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.

In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy–and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators.

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action–which is very technical–what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

Now, this action will not win us any friends among the international money traders. But our primary concern is with the American workers, and with fair competition around the world.

To our friends abroad, including the many responsible members of the international banking community who are dedicated to stability and the flow of trade, I give this assurance: The United States has always been, and will continue to be, a forward-looking and trustworthy trading partner. In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators.

Temporary has so far been almost 45 years, and fiat currencies prevail around the world.

The Day They Killed the Dollar, by Bill Bonner

President Richard Nixon’s abandonment of dollar convertibility for gold in August 1971 was probably the least understood and most important thing he did while in office. From Bill Bonner at acting-man.com:

Hell With Air-Conditioning

LAS VEGAS – It was 113 degrees outside when we rolled through Baker, California, a few days ago. We drove along in comfort, but our sympathies turned to the poor pilgrims who made their way to California in covered wagons. How they must have suffered!

 

Our suffering didn’t begin until we checked into the Planet Hollywood Hotel in Las Vegas. What a horrible place. You stand in line for half an hour to get your room key – even after you’ve checked in online. Then if you leave your key in your room, you stand in line for another half an hour to get another one.

The music blares; the lights flash; the slot machines beckon. The décor is garish and ugly. The food is hit or miss. The staff are helpful only insofar as they can tell you which line to stand in. It is like Hell with air-conditioning. But we didn’t come to complain; we came to learn.

“Go back and read President Nixon’s speech from 1971,” urged old friend Adrian Day, whom we met while standing in line in the hotel lobby (the nice thing about the hotel is that you have plenty of time to talk to friends, if you happen to be standing in the same line at the same time).

“But it’s taken us into such a strange world. No one knows what to make of it,” he continued. What to make of it is our subject for today – and for most other days. So, we continue our exploratory surgery on the modern money system. But the body is so alien, so Frankenstein-like, it is hard to make out what is going on.

Paying to Lend

The strangeness of today’s financial world is illustrated most emphatically by negative interest rates. As colleague Chris Lowe reported this week to members of our global research service Inner Circle, $12 trillion of sovereign debt now trades on subzero yields.

Distribution of negative yielding sovereign bonds by country – Japan has the by far biggest pile of those

ALL Swiss government debt now carries on a negative yield. And Japanese government bonds trade on negative yields out a half-century. Meanwhile, the German government just issued its first bond with a negative yield.

It’s the first time ever that investors have accepted a negative yield on the first issue of a bond. Typically, yields fall into negative territory as bonds get traded back and forth… and prices (which move in the opposite direction to yields) get bid up.

To continue reading: The Day They Killed the Dollar

He Said That? 7/11/16

From Ludwig von Mises (1881–1973), Austrian economist, philosopher, author and classical liberal, Human Action (1949):

If one takes pleasure in calling the gold standard a “barbarous relic,” one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.