Central Banks

     

 

 

President Nixon’s Decision to Abandon the Gold Standard

Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.”  Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.

 

NIXONNixon points out where numerous evil speculators were suspected to be hiding. No, wait… actually, Nixon points to the black hole that has swallowed countless lives and a great deal of treasure under his and his predecessor’s watch – ultimately leading to the US default on the Bretton Woods gold exchange standard.

Photo credit: Richard Nixon Presidential Library

 

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Alarmed Experts

A fall in the US velocity of money M2 to 1.44 in June from 1.51 in June last year and 2.2 in May 1997 has alarmed many experts. Note that the June figure is the lowest since January 1959.

 

slow,slow,slowMoney velocity is widely considered “too slow”. But what does the formula really tell us?

 

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Lies and Distortions

Despite trillions of paper currency units poured into the world economies since the start of the financial crisis, there has been no recovery, in fact, all legitimate indicators have shown worsening conditions except, of course, for the pocketbooks of the politically – connected financial elites.

 

1-GDP per decadeA comparison of average annual GDP growth in different time periods since 1949. The last bar shows Q2 2016, the one before it the time period 2009 – 2016. In this time period, the by far biggest fiscal and monetary stimulus of the entire post WW2 era was applied. Obviously, it hasn’t worked as advertised. Growth wasn’t so weak in spite of, but because of these policies (keep in mind that “measuring” aggregate growth in an inflationary system is even more flawed than it would otherwise be).

 

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Insanity Rules

Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn’t matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.

 

Perfect-InvestmentThe perfect investment for modern times: interest-free risk!

Illuustration by Howard McWilliam

 

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Corrupt and Unsustainable

James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters… evil maniacs… and events that couldn’t possibly be true (catch up here and here).

 

The CongressHe turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years. “Grotesque”, he whispered, in a raspy voice. “Grotesque… grotesque…” He turned back to look at me. “Grotesque”, he repeated. It seemed a perfectly reasonable thing to say, all things considered. [from Marb Storek’s famous autobiography, “Euthanasia of the Mind”]

 

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Confidence Gets a Boost

OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks.

 

stock-market-cartoons-3Canny investors at work (an old, but good one…)

Cartoon via Pension Pulse

 

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Mark Carney, Wrecking Ball

For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame).

 

Mark Carney starts work as Bank of England governor in Dave Simonds cartoonThis is how Mark Carney is seen by the press. A few decades ago no-one would have thought that the drab bureaucrats inhabiting central banks would ever get this much attention, and yet, here we are. It’s like living in a really bad B-movie.

Cartoon via theguardian.com

 

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City of the Dead

PARIS – “We’ve never seen Paris so dead,” said the bookstore clerk. “The tourists don’t come because they think it is dangerous. And the locals have left for the month of August. There’s no one left. It feels kind of eerie.” You can see how dead the city is by looking at this photo:

 

P1090667Empty street in Paris…

Photo credit: fmh

 

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Meet the Scapegoats

Last week, an Irish court sentenced three prominent banksters for their roles in the 2008 financial crisis.  Judge Martin Nolan, who pronounced judgment, said that the bansksters had committed “a very serious crime.”  He continued:

 

“The public is entitled to rely on the probity of blue chip firms. If we can’t rely on the probity of these banks we lose all hope or trust in institutions.”*

 

bankstersMeet the scapegoats! Three Irish bankers sent to jail: former finance director at the failed Anglo Irish Bank, Willie McAteer (42 months); former Irish Life and Permanent Bank Chief Executive Denis Casey (33 months); and former head of capital markets at the Anglo Irish Bank, John Bowe (24 months). This may very well be a case of going to jail for stupidity. They were doing the bidding of regulators, in the erroneous belief that they wouldn’t throw them under the bus when push came to shove. The three had engaged in a scheme of pushing money around in circular fashion in order to make Anglo Irish Bank look healthier than it was. However, as the defense noted: they reacted to the what Irish regulators told them at the time, who demanded that “Irish banks support one another as the financial crisis worsened, in a program called the green jersey agenda.”  As former Irish central bank governor John Hurley said in testimony, “The ECB told Ireland to stand with its failing banks”. Former Taoiseach Brian Cowen in turn said: “Ireland was bounced into the bailout by Hurley’s friends in the ECB, which was ‘at all times pushing’ us into an international rescue program.”  We would note: not a single regulator, central bank bureaucrat or politician was ever even remotely in danger of getting jail time!

 

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A Fragile System

 

Ronald StoeferleRonald Stoeferle, managing partner and investment manager at Incrementum AG, and probably best known to our readers as  co-author of the “In Gold We Trust” report, the most widely read gold report in the world

Photo credit: Elke Mayr / WB

 

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Duped and Distorted

DUBLIN – When you start thinking about what money is and how it works, you face isolation, shunning, and possible incarceration. The subject is so slippery – like a bead of mercury on a granite countertop – you become frustrated… and then… maniacal.

 

maniac-4What thinking about money can do to you

Illustration by Jhonen Vasquez

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Time the Taskmaster

DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs.

 

12109143_10153644062379417_1863326510450484797_nTempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell entrepreneurs how large the  pool of available savings is, and whether consumers have become more or less future-oriented. The issuance of additional money from thin air can neither alter the size of the pool of real savings, nor can it alter actual consumer time preferences. But it can and does temporarily suppress interest rates and distort relative prices. This falsifies economic calculation and promotes the malinvestment of capital – which in turn sets the boom-bust cycle into motion.

Photo credit: fmh

 

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