Why Does Fiat Seemingly Work?

Fiat is a perversion of value, it may act as a medium of exchange but it is conceived in deceit, backed by violence and reliant on the apathy, ignorance and insouciance of the slave population. There are no surviving long term fiat currencies that hold or behave as a store of value, they all have a 100% mortality rate in the long term but gold and silver on the other hand…as Mark Twain said: ‘It is easier to fool someone than convince them that they have been fooled’.

To clarify Gresham’s Law below that ‘bad money’ drives ‘good money’ out. By looking to the work of Carl Menger on hoarding and marketability, one can achieve a greater understanding of the errors in Gresham’s Law and by definition, bad and good are dualisms and bad money is not money! Courtesy of Peter Tenebrarum @ Acting Man:

Introducing Money

Imagine three men living on a small island. Toni is mining the local salt mine, and apart from him there are Pete the fisherman and Tom the apple grower and their families. They have a barter trading system set up: Toni exchanges his salt for Pete’s fishes and Tom’s apples, who in turn exchange fishes and apples between each other.

One day Pete says: “I have an idea. Instead of fish, I will from now on give you pieces of papyrus with numbers marked on them”. Papyrus grows in great quantities nearby, but has so far not been of practical use to any of the islanders. Pete continues: “One papyrus mark will represent 1 fish or 5 apples or 2 bags of salt (equivalent to current barter exchange rates). This will make it easier for us to trade among ourselves. We won’t have to lug fishes, apples and salt around all the time. Instead, we can simply present the pieces of papyrus to each other for exchange on demand.”

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John Law at a young age – the world’s first Keynesian economist

Painting by Casimir Balthazar

In short, Pete wants to modernize their little island economy by introducing money – and he already has one of those new papyrus notes with him, which he is eager to trade for salt. However, the others would immediately realize that there is a problem: the papyrus per se is not of any value, since none of them have found a use for it as yet. If they were all to agree on using the papyrus as a medium of exchange, its value would rest on a promise alone – Pete’s promise that any papyrus he issues will actually be “backed” by fish, which would make Toni and Tom willing to accept it in exchange for salt and apples. Continue reading

Gold and Philosophy

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Courtesy of David van der Linden @ New Austrian.org:

A recent article one came across presented an interesting analogy. It was stated that “unconscious thought is like fluid gold, streaming down the side of a mountain towards a deep chasm”[1]. Placing moulds along the mountain saves the gold from flowing into the chasm, just as increasing one’s vocabulary allows one to capture thought and express ideas. The conclusion of the analogist was that the study of philosophy is of value, since one learns to explicate unconscious thoughts, just as capturing gold on the side of the mountain allows one to capture value.

The analogy as it stands is of limited use. Rather than to view gold merely as an object of value, one might learn more by heeding the unparalleled marketability of coined gold. To state that simply capturing gold is a useful endeavour seems to be an objectification. Gold is not valuable in and of itself, rather it is valued by individuals. Capturing gold in moulds does not directly imply one is capturing value, unless one first assumes gold is a valuable substance in and of itself. The minting of gold into coin on the other hand, is useful since one increases the marketability of the substance. To return to the analogy, one can say that broadening one’s vocabulary -the goal of which is to be able to explicate thought- may increase the marketability (or exchangeability) of one’s ideas. Thoughts and ideas are not valuable of themselves, yet it is useful to increase the exchangeability of the same so as to be able to debate, discuss and develop them. Continue reading

Why The “1%” Hates The Gold Standard

Courtesy of  Zerohedge: By now everybody knows that the primary consequence, one which we originally predicted back in 2009 – and many have since agreed – was completely intended, of the past 6 years of unprecedented monetary policy has been to push wealth inequality to record levels, not just in the US but across the world. What may not be so clear is precisely when this period of unprecedented wealth disparity started. The answer, as the following handy chart from NPR shows, is that long before QE, the wealth gap for the 1% really started in the early 1980s, courtesy of none other than Greenspan’s “great moderation.”

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More importantly, and what is certainly not known, is that between 1930 and 1970, it was only the “bottom 90%” that saw their incomes rise, as can be seen on the next chart.

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This is how the NPR qualified this dramatic variance in wealth gaps, the first of which benefited most Americans, especially the middle-class, and which ended with a thud in the early 1970s, and the second which was unleashed in the early 1980s:

In the first phase, known as the great compression, inequality fell. Incomes rose for people in the bottom 90 percent of the income distribution, as the postwar boom led to high demand for workers with low and moderate skills. Continue reading

Economic Aspects of the Pension Problem – Part 2

Appears Sixty Years Later

Part Two: Productivity Theory of Interest Revisited

Antal E. Fekete

In Part One I discussed the clear and present danger to pension rights: deflation as manifested by the interest rates structure that has been falling for thirty years, while most observers think that the real danger is inflation. In this second part I carry out a deeper analysis of the pension problem, looking at the marginal productivity of labor and capital and its relevance to the theory of interest.

Courtesy of Professor Fekete @ Professor Fekete.com:

Higher marginal productivity: boon or bane?

There is a lot of loose talk about productivity. Paul Krugman is expecting miracles to start happening after an increase in a mythical productivity, provided that government spending is increased to the level matching or exceeding that during World War II.

However, as Mises pointed out, productivity is a vacuous concept unless its meaning is fixed, such as that of marginal productivity of labor. Then, and only then, can one state the pension problem. According to Mises, the only means to increase permanently the wages and benefits payable to workers is to increase the per capita quota of capital invested in the methods of production, thereby raising the marginal productivity of labor. (See References, Planning for Freedom, p 6.) This is certainly true so far as it goes. It is also true that, if we project this observation to the world at large, then we can conclude that in order to have a progressive world economy and receding poverty, global capital accumulation must accelerate relative to increase in population. The greater the quantity and the better the quality of tools, the greater will be the output of the marginal worker, that is, the greater will be the marginal productivity of labor.

In reading Mises one may get the impression that an increase in marginal productivity is always beneficial to society ― as indeed it would have been under the conditions he envisaged. However, in the case of a monetary system that admits both large swings and prolonged slides in interest rates, this is no longer true. If the matter were simply increasing marginal productivity, monetary policy would be a valid means of “turning the stone into bread”. All it would take is central bank action to keep raising the rate of interest indefinitely. This would force the marginal producer whose capital produces at the marginal rate of productivity to fold tent. His marginal equipment and plants would be idled. His workers producing, as they are, at the marginal rate of productivity of labor would be laid off. Marginal productivity would increase. Indeed, the marginal productivity of both capital and labor automatically rises as a consequence of a rise in the rate of interest. However, in this case the rise in productivity, far from being a boon, is a bane to society, as it makes output and employment shrink. The trick is precisely to make marginal productivity rise along with rising output and employment.

Gold standard: a safeguard against deflation

Continue reading

ISIS Unveils Its New Gold-Backed Currency To Remove Itself From “The Oppressors’ Money System”

Just waiting to be put on a no-fly list and classed as a non-violent extremist but there’s no mention of bills of exchange…there is hope, though bare in mind that the ISIS psyop is doing well. I wonder who is buying their oil and thus funding the ‘terrorists’. Courtesy of ZeroHedge:

It appears the rumors are true. Islamic State is set to become the only ‘state’ to back its currency with gold (silver and copper) as it unveils the new coins that will be used in an attempt to solidify its makeshift caliphate. ISIS says the new currency will take the group out of “the oppressors’ money system.”

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As Zaid Benjamin notes, ISIS releases details of its new currancy with golden 1 & 5 dinar, silver 1, 5, 10 dirham and copper 10 & 20 fils

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* * * Continue reading

Putin Stockpiles Gold as Russia Prepares for Economic War

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Courtesy of Andrew Critchlow @ The Telegraph:

Russia has taken advantage of lower gold prices to pack the vaults of its central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West.

The latest research from the World Gold Council reveals that the Kremlin snapped up 55 tonnes of the precious metal – far more than any other nation – in the three months to the end of September as prices began to weaken.

Vladimir Putin’s government is understood to be hoarding vast quantities of gold, having tripled stocks to around 1,150 tonnes in the last decade. These reserves could provide the Kremlin with vital firepower to try and offset the sharp declines in the rouble.

Russia’s currency has come under intense pressure since US and European sanctions and falling oil prices started to hurt the economy. Revenues from the sale of oil and gas account for about 45pc of the Russian government’s budget receipts.
The biggest buyers of gold after Russia are other countries from the Commonwealth of Independent States, led by Kazakhstan and Azerbaijan.
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In total, central banks around the world bought 93 tonnes of the precious metal in the third quarter, marking it the 15th consecutive quarter of net purchases. In its report, the World Gold Council said this was down to a combination of geopolitical tensions and attempts by countries to diversify their reserves away from the US dollar.

By the end of the year, central banks will have acquired up to 500 tonnes of gold during the latest buying spell, according to Alistair Hewitt, head of market intelligence at the World Gold Council.

“Central banks have been consistently adding to their gold holdings since 2009,” Mr Hewitt told the Telegraph. In the case of Russia, Mr Hewitt said that the recent increases in its gold holdings could be a sign of greater geopolitical risk that has arisen since it seized Crimea sparking a dispute with Ukraine and the West. Continue reading

Russell Napier Declares November 16, 2014 The Day Money Dies

Courtesy of Russell Napier @ ERIC:

It is with regret and sadness we announce the death of money on November 16th 2014 in Brisbane, Australia

‘A mark, a yen, a buck, or a pound
A buck or a pound
A buck or a pound
Is all that makes the world go ’round;
That clinking, clanking sound
Can make the world go ’round.’

“Money” from Cabaret by Kander & Ebb

In the musical Cabaret, Sally Bowles and the Emcee sing about money from the perspective of those witnessing its collapse in value in real terms in the great German hyperinflation of 1923.

Less than a decade later, and a continent away, a young lawyer from Youngstown, Ohio noted on July 25th 1932 how money’s value could also fall in nominal terms:

“A considerable traffic has grown up in Youngstown in purchase and sale at a discount of Pass-Books on the Dollar Bank, City Trust and Home Savings Banks. Prices vary from 60% to 70% cash. All of these banks are now open but are not paying out funds.”
The Great Depression – A Diary: Benjamin Roth (first published 2009)

In Youngstown the bank deposit, an asset previously referred to as “money”, had fallen by up to 40% relative to the value of cash. The G20 announcement in Brisbane on November 16th will formalize a “bail in” for large-scale depositors raising the spectre that their deposits are, as many were in 1932, worth less than banknotes. It will be very clear that the value of bank deposits can fall in nominal terms.

On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a “bank run.”

Each country will introduce its own legislation to effect the ‘ bail-in’ agreed by the G20 this coming weekend. The consultation document from the UK’s Treasury lists the following bank creditors who will rank ABOVE depositors in a ‘failing’ financial institution: Continue reading

ECON 101 – LECTURE 2

GOLD STANDARD UNIVERSITY

Summer Semester, 2002

Monetary Economics 101: The Real Bills Doctrine of Adam Smith

Lecture 2

DON’T FIX THE PRICE OF GOLD!

July 8, 2002

– Let the Gold Eagle Coin Soar without the Heavy Baggage of Dollar Debt –
– Don’t Let the Banks Sabotage the New Gold Coin Standard – – The World without Banks –

Courtesy of Antal E Fekete @ Professor Fekete.com:

I extend a hearty welcome to my audience at the first university course offered in the 21st century on the gold standard, made possible by Gold-Eagle University, an educational website to offer you knowledge put under taboo by mainstream/establishment universities. Taking this course will not get you a degree, but it may get you something more precious: a better understanding of the world, its past, present, and future.

In last week’s inaugural lecture I offered a blueprint for a new gold coin standard the features of which can be summed up as follows:

(1) Open the Mint to free and unlimited coinage of gold. The one-ounce Gold Eagle coin should be adopted as a monetary unit minted for the account of anyone tendering the right amount and purity of gold, free of charge.

(2) To get the grass-root circulation of gold coins going, labor organizations (including those of pensioners and retired people) ought to be involved through their Credit Unions offering gold-coin deposit facilities. Banks must be excluded.

(3) Short-term credit to move goods from the producer to the consumer should be provided by the bill market, rather than by the banks, on the pattern of the pre-1914 way to finance world trade with gold.

(4) Long-term credit to the economy should be provided by the gold-bond market. The primary demand for gold bonds comes from financial institutions offering gold life insurance and gold annuity policies to the people. The primary supply is from the government and firms that want to operate on the basis of gold capital. Gold bonds must have a sinking fund protection. Issuers of gold bonds must see the revenues with which to retire the liability.

Parallel Monetary Standard

The first remark on this blueprint which, as far as I am aware, is new and radically different from any other that has been offered so far, is that it expressly avoids fixing the price of gold. At least for a transitional period that may last for several years, the paper dollar and the Eagle gold coins would circulate side-by side at a floating exchange rate. In other words, there would be a parallel monetary standard and the paper dollar would be free to compete with the Gold Eagle. The market should in the end decide which of the two deserved to survive. This is a major departure from historical precedents, which have all involved the stabilization of the paper currency in terms of gold. The question arises: why should we have such a complicated blueprint when a simpler one, fixing the gold price, could accomplish the same objective? Continue reading