Author Archives: Keith Weiner

 

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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Not Loud and Clear Enough for the Governor

This isn’t yet another in a long series of articles lamenting the Federal Reserve, power, politicians, corruption, and the hopelessness of fighting the status quo. What’s the marginal utility of the Nth plus one article reiterating these points? Nearly zero. No, this article is about something else.

It’s about you.

What would you do, if you were governor, and a fringe issue turned into a bill came to your desk? To all appearances, there is little popular support. The benefits, if any, seem far removed from the practical business of governing. Few people even cared.

What’s that, you say? Gold isn’t like that? There are many people who want gold, the benefits are important, and what could be more practical than honest money? I can’t hear you. I CAN’T HEAR YOU!

Neither could Governor Ducey.

Do you value honest money? Do you understand how and why the regime of the paper dollar is hurting us? If you care, please consider calling your legislators in Arizona or wherever you are. Please consider donating to the Gold Standard Institute. We can do a lot with a little, but we can’t change the monetary system without your support.

 

indian-head-gold-eagle-with-motto

$10 in gold, “Indian Head” , 1914. At the time the dollar was still strictly defined by its metallic weight

 

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Euthanasia of the Rentiers

Ben Bernanke presided over the Federal Reserve for two terms, from 2006 through 2014. A year and half into his first term, he began driving the Federal Funds Rate down. By the end of his frantic interest episode, this key overnight lending benchmark had been crushed. It hit bottom, and it hasn’t sprung back in over 6 years since.

Everyone is harmed by zero interest policy. Who suffers the most is open to debate, but one obvious candidate is the retiree who lives on a fixed income. These are people who worked and saved their whole lives, and now they depend on interest to buy groceries and heat their homes. For them, zero interest is like breathing air without oxygen. They suffer a slow death by suffocation.

In writing about this class of people, economist John Maynard Keynes used a term he intended to be pejorative—the rentier. In Keynes’ view, those who invest capital to earn a yield are parasites. In The General Theory of Employment, Interest, and Money, he asserted that the rentier is a “functionless investor” (i.e., gets paid for doing nothing). Keynes called for “the euthanasia of the rentier” by government suppression of the interest rate.

Recently, former Federal Reserve Chairman Ben Bernanke has begun blogging at the Brookings Institution. He wrote that legislators said he was “throwing seniors under the bus.” He reassures us that he “was concerned about those seniors as well.”

That is a neat little example of context-switching. These unnamed legislators did not ask Chairman Bernanke how he felt as he was throwing senior citizens under the bus. His feelings are not the issue. The issue is whether zero interest does, in fact, throw seniors and other rentiers under the bus. Bernanke can’t deny that, and he doesn’t try.

Instead, he offers this, “But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do.” Got that? We have to keep interest low, so seniors can earn more interest.

 

BEN BERNANKE-AP_0Ben Bernanke, the man with feelings for seniors. As he points out here, he knows at least two of them personally.

Photo credit: Alex Brandon / AP Photo

 

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Putting the Hurt on Labor

Interest rates have been falling for over three decades. Conventional economics has two things to say about this. One, inflation expectations are falling. Monetarists believe that the interest rate is set based on bond traders’ predictions of future price increases. Two, if employment and GDP are weak, then the central bank should increase the money supply. By increasing the money supply, it will cause rising prices, and somehow that causes workers to get hired. Federal Reserve Chair Janet Yellen wrote a paper defending this absurd claim (which I criticized).

 

danger

 

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The Concept of Money

I wrote what I thought was a fairly simple article for Forbes on Tuesday. I noticed that some people really got it, and they were very excited. However, others were skeptical or asking questions that went into the weeds. The former tells me that I said something important, but the latter says that I said it in a way that not everyone could relate to.

I started with the observation that many people argue (vehemently) that money should be defined as the medium of exchange. In the US, the dollar is used to purchase everything. Therefore the dollar circulates as the medium of exchange. Therefore the dollar is money. Q.E.D. The catch is that the dollar only circulates because the government forces it to circulate, and forces gold not to. This means that the very concept of money is under the control of the government.

Ayn Rand noted that force is not essentially about a physical push, or a bullet hitting flesh. She said, “Force and mind are opposites…” She added, “To force a man to drop his own mind and to accept your will as a substitute, with a gun in place of a syllogism, with terror in place of proof, and death as the final argument—is to attempt to exist in defiance of reality.”

 

aynrandAyn Rand: no friend of government coercion

Photo credit: Henry Talbot

 

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Approaches to Gold Price Forecasting

It’s the start of a new year. The question on everyone’s mind is whither the prices of gold and silver? This Brief presents our answer (and the full Monetary Metals Outlook 2015 report gives our reasoning).

 

chart-1-gold

One approach to the question of price is to draw a line, extrapolating the past trend into the future. Here is the graph for gold – by Monetary Metals – click to enlarge.

 

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The Swiss Franc Will Collapse

 

I have worked to keep this piece readable, and as brief as possible. My grave diagnosis demands the evidence and reasoning to support it. One cannot explain the collapse of this currency with the conventional view. “They will print money to infinity,” may be popular but it’s not accurate. The coming destruction has nothing to do with the quantity of money. It is a story of what happens when interest rates fall into a black hole.

 

swiss tattered flag

 

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Decades of Falling Rates

The old joke is, “(with a Russian accent) In America, you correct newspaper, but in Soviet Union, newspaper corrects you.” Switzerland is now experiencing the bond market equivalent. In America, the government pays you to borrow but in Switzerland you pay the government. All Swiss bonds have a negative yield out to 9 years. Negative means you pay them to lend them your money. The 10-year Swiss government bond has effectively zero yield. For comparison, the 10-year US Treasury is 1.8%.

Here is a graph of the Swiss yield curve.

 

chart-1-Swiss Yield CurveSwiss yield curve – bond yields to maturity are now negative out to 9 years – click to enlarge.

 

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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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