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Gold is the spectre haunting our monetary system

April 22, 2016

Gold is the spectre haunting our monetary system

Close-up of bars of pure gold bullion
A scramble for gold has begun as central banks bet against US dollar inflation  CREDIT:ALAMY

 

For a century, elites have worked to eliminate monetary gold, both physically and ideologically.

This began in 1914, with the UK’s entry into the First World War. The Bank of England wanted to suspend convertibility of bank notes into gold. Keynes counselled wisely that the bank should not do so. Gold was finite, but credit elastic.

By staying on gold, the UK could maintain its credit, and finance the war effort. This transpired. The House of Morgan organised massive credits for the UK, and none for Germany. This finance was crucial, and sustained the UK until the US abandoned neutrality and tipped the military balance against Germany.

Despite formal convertibility of sterling to gold, the Bank of England successfully discouraged actual conversion.

Gold sovereigns were withdrawn from circulation and turned into 400-ounce bars. This form of bullion limited gold ownership to the wealthy, and confined gold’s presence to vaults. A similar disappearance of gold as a circulating currency occurred in the US.

Gold graph
The price of gold has jumped in recent years CREDIT: LONDON METAL EXCHANGE

In 1933, US President Franklin Roosevelt issued an executive order making ownership of gold a crime. FDR relied on the Trading with the Enemy Act of 1917 as statutory authority for this edict. Since the US was not at war in 1933, the enemy was presumably the American people.

In 1971, US President Richard Nixon ended convertibility of US dollars into gold by trading partners of the US. Closing the gold window was said by Nixon to be temporary. Forty-five years later the window is still closed.

…click on the above link to read the rest of the article…

Sell The Bonds, Sell The Stocks, Sell The House —–Dread The Fed!

December 18, 2015

Sell The Bonds, Sell The Stocks, Sell The House —–Dread The Fed!

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothecated world embedded in the Fed’s tinker toy model of the US economy.

Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy.

But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead.

In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind. That alone should give investors pause—-especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”.

Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue—-its proof that Yellen is the ultimate Keynesian catechumen.

This stupendously naïve old school marm still believes the received Keynesian scriptures as penned by the 1960s-era apostles James(Tobin), John (Galbraith), Paul (Samuelson) and Walter (Heller).

But c’mon.Those ancient texts have no relevance to the debt-saturated, state-dominated, hideously over-capacitated global economy of 2015. They just convey a stupid little paint-by-the-numbers simulacrum of what a purportedly closed domestic economy looked like even back then.

That is, before Richard Nixon had finally destroyed Bretton Woods and turned over the Fed’s printing presses to power aggrandizing PhDs; and before Mr. Deng had thrown out Mao’s little red book in favor of a central bank based credit Ponzi.

…click on the above link to read the rest of the article…

The Clock Is Ticking On The U.S. Dollar As World’s Reserve Currency

September 22, 2015

The Clock Is Ticking On The U.S. Dollar As World’s Reserve Currency

The View From Hubbert’s Peak

In 1971, the American President put an end to a 2,500 year trend; the Wall Street Journal called it “Nixon’s Worst Weekend.” Considering the old boy had some really bad ones, this must have been something special. In August of that year (on Friday the 13th) it was decided that the U.S. would no longer pay out gold for its paper dollars. OPEC Ministers took note, and in September they met, deciding it would be necessary to collect more paper dollars, if possible, since gold was no longer on offer and oil was the only asset they had to sell.

It would take another two years for those decisions to matter (during the October 1973 embargo in the wake of another Arab-Israeli war). The Oil Embargo marked the end of ‘free’ energy, and kicked off a massive rise in the price of oil because the U.S., the world’s swing producer since Colonel Drake’s Pennsylvania strike in 1859, had finally reached peak production at around 10 million barrels per day in 1970. This moment is the original Hubbert’s Peak, the beginning of decline for the U.S. oil industry, at least until recently. The surge in U.S. production since 2010 has stalled out around 9.5 mb/d and, due to the Saudi decision to give the American tight oil producers ‘a good sweating,’ that rate has begun to fall in the last few months.

It is certainly possible that U.S. production will surpass the 1970 peak, but with low prices it is hard to say when that will be; it is also hard to say how long that will last as tight oil wells have a devilishly high rate of decline. It is worth noting, as Arthur Berman has recently done in his fine article, that even the best producers are losing money now, and lots more are being lost by those who are not the best. Making it up on volume is a dog that does not hunt for $45.

 

…click on the above link to read the rest of the article…

Bob Woodward Compares Clinton Emails To Nixon Tapes, Warns “Answers Won’t Be Pretty”

August 17, 2015

Bob Woodward Compares Clinton Emails To Nixon Tapes, Warns “Answers Won’t Be Pretty”

“Follow the trail here,” veteran Washington Post journalist Bob Woodward told MSNBC, as he compared Hillary Clinton’s private email account to the Nixon tapes. As The Hill reports, Woodward concluded that the fight over Clinton’s emails wouldn’t end soon: “This has to go on a long, long time…and the answers are probably not going to be pretty.”

As The Hill reports,

Woodward as a younger reporter helped break the Watergate scandal that eventually led to President Richard Nixon’s resignation.He noted the tapes Nixon kept documenting conversations in the Oval Office were eventually turned over.

Clinton, now a Democratic presidential candidate, turned over her server last week to the Justice Department amid a federal probe after questions about her private email haunted her on the campaign trail for months.

“You’ve got a massive amount of data. It, in a way, reminds me of the Nixon tapes: thousands of hours of secretly recorded conversations that Nixon thought were exclusively his,” Woodward said.

“Follow the trail here,” Woodward said on MSNBC’s “Morning Joe,” noting that emails erased from Clinton’s private server when she led the State Department were either sent or received by someone else, too.

And Woodward oiminously conludes,

“This has to go on a long, long time,” Woodward said Monday, “and the answers are probably not going to be pretty.”
 

 

“If It Looks Like A Duck” – The Man In The Moon: Part 2

June 3, 2015

“If It Looks Like A Duck” – The Man In The Moon: Part 2

In part 2 of the “Man in the Moon” series we look at Paul Volcker’s roundtrip – monetary policies and their impacts from 1971 through the Great Leveraging to today. Part 1 can be found here.

If it Looks Like a Duck…

Prior to 1971, all global currencies were valued based on a fixed exchange rate system, commonly referred to as “Bretton Woods”. Each currency was directly linked to the US dollar’s fixed exchange rate to gold.

Bretton Woods effectively died in August 1971 (officially 1973) when the U.S. Treasury ceased exchanging dollars for gold in what became known as “The Nixon Shock”. Overnight, global money and credit became un-tethered to anything scarce. (The Man in the Moon is concerned only with understanding the value of money, not gold’s status as an economic, financial and political lightning rod.)

What followed from 1973 to 1982 in the West was a period of significant inflation coincident with economic stagnation (i.e., “stagflation”), a state of dis-equilibrium with which most global economists were unfamiliar. 1970s stagflation is now commonly blamed on two Middle East wars, in 1973 and 1979, which led the Organization of Oil Producing Exporters (OPEC) to embargo crude oil and drive its price higher. It is thought the embargo created higher prices coincident with an economic slowdown because consumption dropped without a commensurate and offsetting downward adjustment in oil prices.

Such macroeconomic analysis begins with the vagaries of geopolitics – the wars. Less blame is placed on what was then the new threat of a dramatically increasing stock of global currency – currency the OPEC cartel would have to accept in exchange for their relatively finite oil.

…click on the above link to read the rest of the article…

The “Deep State” Is Now in Charge

March 30, 2015

The “Deep State” Is Now in Charge

The Most Important Change

But when he is disposed of foreign enemies by conquest or treaty, and there is nothing to fear from them, then he is always stirring up some war or other, in order that the people may require a leader.

– Plato on tyrants, The Republic

This is the last in our series on how America’s money, economy and government have changed since the collapse of the Bretton Woods agreement and the end of gold-backed money.

Today, we keep the focus on government… and what it has become. The period is hardly coincidental: On August 15, 1971, President Nixon hammered the last nail in the coffin of honest money.

It was not the only reason for the profound changes that followed. There was also the opening up of Communist China to capitalism, the fall of the Soviet Union and the rise of the Internet, to name just a few. But the new credit-based money system was the least obvious change… and probably the most important.

 

Caution: “Deep State” at Work

The credit-based dollar brought about a new economy. It changed the way people thought and the way their government operated. Now, deep pools of money determine which candidates are presented to voters.

And there is a new branch of government: the “Deep State.” It is not mentioned in the Constitution. And it operates above and beyond the visible process of democratic government.

 

…click on the above link to read the rest of the article…

 

We Now Live in a “Pimpocracy”

March 29, 2015

We Now Live in a “Pimpocracy”

Shabby Immensity

Today, we continue mouth wide open … staggered by the shabby immensity of it … a tear forming in the corner of our eye.

Yes, we are looking at how the US economy, money and government have changed since President Nixon ended the gold-backed monetary system in 1971. It is not pretty.

We already know about the money. Since 1971, it’s been a credit-based, not a gold-based, system. The pre-1971 economy had three key characteristics:

1) It was healthy – Industry made things and sold them at a profit

2) It was fair – Financial progress was fairly evenly distributed.

3) It was solvent – The US was a creditor, not a debtor, nation.

 

cartoon_bushPimp_stockmarketHooker_472x373

Cartoon by David Horsey

 

 

baldwinPI_fig2Change in global share of manufacturing output, selected countries (via Vox EU)

 

Platitudes and Hypocrisies

Americans still say they believe in free markets, democracy and financial rectitude. But only as platitudes and hypocrisies. America’s industries have largely been shipped over to China and other lower-cost producers in the emerging world.

That didn’t “just happen.” The Fed’s EZ money financed it. American consumers borrowed to spend more than they could afford. Walmart met their desires (if not their needs) with “Everyday Low Prices,” courtesy of low-paid Chinese workers.

…click on the above link to read the rest of the article…

 

 

 

Financial Kamikazes At Work——Why The End is Kind of Nigh

March 17, 2015

Financial Kamikazes At Work——Why The End is Kind of Nigh

All Good Things Must End

Today, I’m going to tell you about the end of the world. Not the end of the world exactly. But the end of the fiat money system President Nixon gave birth to in 1971… when he cut the dollar loose from gold.

And it may feel like the end of the world, because of the social chaos it will provoke. What follows is taken from a speech I gave at Doug Casey’s La Estancia de Cafayate …

Drowning in Credit

I’ve been predicting the end of the world – at least the end of the post-1971 monetary world – for a long time. I hope I’m wrong about it. But sooner or later, I’ll be right. In the meantime, I’m like a surgeon who has just botched an operation. He sees the patient stiff on the table and wonders if he should go back to the textbooks. Maybe the anklebone is not connected to the shin bone after all.

But the textbooks are hopeless. They’re written by modern economists. And they believe an economy is mechanistic, not humanistic. These folks have fixes for every problem and wrenches in both hands. They also run our central banks. And they think they know what is going on… and what they’re going to do about it.

…click on the above link to read the rest of the article…

 

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