Author Archives: Keith Weiner

 

Is Everything Just Fine?

Hyperinflation is commonly defined as rapidly rising prices which get out of control. For example, the Wikipedia entry begins, “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency …”

 

weimarplay

Playing with money – what a joy!

Photo via educationforum.co.uk

 

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Silver Market Change Report 

The prices of the metals dropped further this shortened week (Friday was a holiday in the US, as the Fourth of July, Independence Day, occurred on Saturday). The S&P 500 index also fell this week, as did crude oil.

 

Good-Delivery-Bar_Ag_3D_800_01Good delivery silver bar

 

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June 26 Silver Flash Crash: A Forensic Analysis

On Friday morning, at around midnight (Arizona time), the price of silver had a little crash.

 

 $_32Photo credit: doomu

 

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A Flawed View

I have to admit that I derive some pleasure in taking on hoary old myths. For example, some economists assert that the interest rate you see on the Treasury bond is not real. You see, it’s only nominal. To calculate the real rate, they say you must adjust the nominal rate by inflation.

Real Interest Rate = Nominal Interest – Inflation

It seems to make sense. Suppose you have enough cash to feed your family for 2,000 days. Then the general price level increases by 15%. You still have the same dollars, but now you can only buy groceries for 1,700 days. You’ve been robbed, some of your purchasing power stolen. Therefore you want to earn enough interest to overcome this loss. This view is flawed.

 

interest-rate-manImage via stealthflation.org

 

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Upstream Theft

The stories are all over the Internet. Governments are forcing us into a cashless society. Supposedly the pretext is terrorism, and the real reason is to take more control. No doubt more power appeals to politicians, and banning cash seems like the next step after mandatory reporting of cash transactions. However, I think there is a more serious driver than simple power lust.

A more compelling case is that cash banning is the logical follow up to bail-ins. Most people think a bail-in is when banks steal your deposit. So it seems to make sense that governments want to force people to keep their cash in the bank. Then they are easy meat for the next bail-in.

 

33309digital_cash_large

 

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Making Waves

Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.

 

Fed_ReserveNewspapers report on the adoption of the Federal Reserve Act. It was erroneously held that it was going to be “a constructive Act to aid business”. Ominously, even more such acts were promised.

 

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Erroneous Assumptions

“The top 25 hedge fund managers made more than all the kindergarten teachers in the country,” declared President Obama in a discussion of poverty at Georgetown University. Calling them “society’s lottery winners,” he proposed to hike their taxes.

Predictably, battle lines have been formed between two polarized sides. One side—let’s call them the Gauche for convenience’s sake—is unhappy with the pay disparity. CBS News, in an almost neutral tone, asks, “Which group provides more value to America?” The reader is supposed to somehow answer that question, presumably in favor of teachers. Gawker goes much farther, calling hedge fund managers the biggest gangsters of all. It asserts, “It is, as the myth goes, capitalism at its most pure …”

 

the-us-federal-reserve-board-buildingThe imposing HQ of the US Federal Reserve. Central banks are socialist central planning institutions, and are subject to the constraints the socialist calculation problem imposes on all planners. An economy with a central bank is no longer a free market economy – it is at best a hampered market economy.

Photo credit: Susan Candelario

 

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A Failing System

Our monetary system is failing, but explaining that isn’t easy. The most popular argument is that the dollar has falling purchasing power and rising inflation. The problem with this argument is that consumer prices aren’t skyrocketing now. So, of course, people remain skeptical.

Meanwhile, yields across all markets are falling worldwide. This causes the income generated from assets to fall. I wrote about this serious problem last time, introducing the concept of yield purchasing power—which is how much you can buy with the interest on your savings.

 

money-falling-july-10-brekaout

 

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Catch-22

I attended a panel discussion yesterday on the problems start-ups have in raising capital caused by securities regulation. Start-ups have to hire a lawyer before they raise the first dollar of capital. It’s a real catch-22.

Entrepreneurs are often surprised to find that raising capital means selling securities. They cannot legally sell securities to just anyone. They are restricted to Accredited Investors (basically people with high income or high net worth). Most young entrepreneurs don’t have a rolodex full of such investors. There are other restrictions, for example, they can’t hire someone to help them raise capital unless he has a license to sell securities.

 

catch22-1680-1050-wallpaper

Image credit: Simon & Schuster

 

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The Tip of the Iceberg

The dollar is always losing value. To measure the decline, people turn to the Consumer Price Index (CPI), or various alternative measures such as Shadow Stats or Billion Prices Project. They measure a basket of goods, and we can see how it changes every year.

However, companies are constantly cutting costs. If we see nominal – i.e. dollar – prices rising, it’s despite this relentless increase in efficiency.

 

small-dollarPhoto credit: Hirkophoto

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
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