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Krugman and the Goldbugs

Krugman and the Goldbugs

The announcement that President Trump would nominate Judy Shelton, a long-time advocate of the gold standard, for a seat on the Federal Reserve’s Board of Governors got Paul Krugman thinking: why do some economic commentators become goldbugs?

Krugman offers a rather cynical view. It is difficult “to build a successful career as a mainstream economist,” he writes.

Parroting orthodox views definitely won’t do it; you have to be technically proficient, and to have a really good career you must be seen as making important new contributions — innovative ways to think about economic issues and/or innovative ways to bring data to bear on those issues. And the truth is that not many people can pull this off: it requires a combination of deep knowledge of previous research and the ability to think differently. 

So what’s an aspiring if not so smart or creative economist to do?

“Heterodoxy,” Krugman writes, “can itself be a careerist move.”

Everyone loves the idea of brave, independent thinkers whose brilliant insights are rejected by a hidebound establishment, only to be vindicated in the end. And such people do exist, in economics as in other fields.… But the sad truth is that the great majority of people who reject mainstream economics do so because they don’t understand it; and a fair number of these people don’t understand it because their salary depends on their not understanding it.

In other words, Krugman suggests most gold standard advocates are either ignorant or disingenuous — and, in some cases, both.

According to Krugman, “events of the past dozen years have only reinforced that consensus” view that “a return to the gold standard would be a bad idea.” 

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

Weekly Commentary: “Hot Money” Watch

Weekly Commentary: “Hot Money” Watch

In the People’s Bank of China’s (PBOC) Monday daily currency value “fixing,” the yuan/renminbi was set 0.33% weaker (vs. dollar) at 6.9225. Market reaction was immediate and intense. The Chinese currency quickly traded to 7.03 and then ended Monday’s disorderly session at an 11-year low 7.0602 (largest daily decline since August ’15). While still within the PBOC’s 2% trading band, it was a 1.56% decline for the day (offshore renminbi down 1.73%). A weaker-than-expected fix coupled with the lack of PBOC intervention (as the renminbi blew through the key 7.0 level) rattled already skittish global markets.  

Safe haven assets were bought aggressively. Gold surged $23, or 1.6%, Monday to $1,441, the high going back to 2013 (trading to all-time highs in Indian rupees, British pounds, Australian dollars and Canadian dollar). The Swiss franc gained 0.9%, and the Japanese yen increased 0.6%. Treasury yields sank a notable 14 bps to 1.71%, the low going back to October 2016. Intraday Monday, 10-year yields traded as much as 32 bps below three-month T-bills, “the most extreme yield-curve inversion” since 2007 (from Bloomberg). German bund yields declined another two bps to a then record low negative 0.52% (ending the week at negative 0.58%). Swiss 10-year yields fell two bps to negative 0.88% (ending the week at negative 0.98%). Australian yields dropped below 1.0% for the first time.  

It’s worth noting the Japanese yen traded Monday at the strongest level versus the dollar since the January 3rd market dislocation (that set the stage for the Powell’s January 4th “U-turn). “Risk off” saw EM currencies under liquidation – with the more vulnerable under notable selling pressure. The Brazilian real dropped 2.2%, the Colombian peso 2.1%, the Argentine peso 1.8%, the Indian rupee 1.6% and the South Korean won 1.4%. Crude fell 1.7% in Monday trading. Hong Kong’s China Financials Index dropped 2.5%, with the index down 4.4% for the week to the lowest level since January. European bank stocks dropped 4.1%, trading to the low since July 2016.

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

Could The U.S Be Gearing Up To a Return to the Gold Standard?

Could The U.S Be Gearing Up To a Return to the Gold Standard?

There may be readers who weren’t even born when the U.S. still had a gold-backed dollar. Since the gold standard was abolished in 1971, the value of the dollar has decreased annually by 3.96 percent. You would need over $600 today to purchase the same goods you purchased for $100 in 1973. Still, a dollar is a dollar, right? No, it is not. It is just a piece of paper.

Is there a chance the U.S. could return to the gold standard and provide real value to the U.S. currency? Judy Shelton and Christopher Waller are President Trump’s pick for Federal Reserve governors. As it happens, Ms. Shelton is a believer in the gold standard and a critic of current Federal Reserve policies. She believes that the Fed has become unnecessarily involved in trade policies instead of adhering to its function of regulating the monetary system. Returning to the gold standard is not a popular idea these days when economists support the limitless printing for currency, high debt, and inflation. 

Ms. Shelton would have been considered mainstream 35 years ago. Today, she is thought of as unorthodox. In 2018, she wrote in an article published by the conservative thinktank, Cato Institute, “If the appeal of cryptocurrencies is their capacity to provide a common currency, and to maintain a uniform value for every issued unit, we need only consult historical experience to ascertain that these same qualities were achieved through the classical international gold standard.”  

She also authored a book, Fixing the Dollar Now. In it, she advocates for linking the dollar to a benchmark of value, preferably gold. More than four decades ago, the currency of all major countries, such a Britain, Japan, France, Russia, and others were linked to gold. In 1933, the dollar was linked to $35 worth of gold. In 2019, the value of the dollar is less than one-thirtieth of that. 

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

Russia Urges “Independence” From “Imposed World Order” Of US Financial System

Russia Urges “Independence” From “Imposed World Order” Of US Financial System

Following Russia signalling last week, its willingness to join the controversial payments channel Instex – designed to circumvent both SWIFT as well as US sanctions banning trade with Iran – new statements from Russian Deputy Foreign Minister Sergei Ryabkov called on the international community to free itself from a purely US-controlled international financial system and US dollar dominance. 

“We must protect ourselves from political abuses made with the help of the US dollar and the American banking system,” he said while addressing a ministerial meeting of the Non-Aligned Movement held in Venezuela, according to TASS. “We must turn our dependence in this sphere into independence,” he added.

“Let us be multipolar in the spheres of finance and currency,” he said.

Image via Newsmax

The senior diplomat was specifically addressing US-led sanctions and the tightening economic noose, including a near total oil export blockade, on the Maduro government in Caracas. 

The comments also come after early this year the Maduro regime was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England, according to a January Bloomberg report. The Bank of England’s (BoE) decision to deny Maduro officials’ withdrawal request was a the height of US coup efforts targeting Maduro.

Specifically top US officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, had lobbied their UK counterparts to help cut off the regime from its overseas assets, as we reported at the time. Washington has further lobbied other international institutions, and especially its Latin American allies, to seize Venezuelan assets and essentially hold them for control of Juan Guaido’s opposition government in exile. 

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

We’ve Arrived At The End Of The Road

We’ve Arrived At The End Of The Road

Decades of central bank intervention have left us with an unavoidable insolvency crisis

When Richard Nixon closed the gold window in August 1971, fully severing the US dollar from its gold standard, the Federal Reserve and other world central banks found themselves liberated. No longer was their ability to provide liquidity constrained by the physical limitations of the gold supply.

The Fed started intervening more and more during times of slowing growth to goose the economy back to vigor. Cheered and further egged on by politicians happy for easy solutions and desperate to avoid having to make tough calls, central banks have been increasingly willing to provide liquidity in good times and bad.

Akin to removing the limit on a teenager’s credit card, with access to so much cheap money, the US went on a debt bender. One that has lasted for nearly half a century:

FRED chart Total Us Debt Outstanding

Here we stand today with the national debt at over $22 trillion, total US debt outstanding of $70 trillion (shown in the above chart), and unfunded national liabilities of over $200 trillion. And we add to this every year with an annual deficit now exceeding $1 trillion.

This gigantic accretion of debt will never be repaid. And as the pile grows higher, the burden of servicing it — even at today’s historically low interest rates — is placing an increasingly heavy drag on economic growth.

To date, the central banks have gotten away with their easy money policies because they could. The day of reckoning could always be pushed further out via a fresh round of liquidity. But, as Brien Lundin says in the video below, the reckoning is “no longer simply inevitable, it is imminent. We are reaching the End of the Road.”

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

Greyerz – The Road To $18,160 Gold And The Wisdom Of Jesse Livermore

Greyerz – The Road To $18,160 Gold And The Wisdom Of Jesse Livermore

Greyerz – The Road To $18,160 Gold And The Wisdom Of Jesse Livermore

As the world edges closer to the next crisis, today the man who has become legendary for his predictions on QE and historic moves in currencies spoke with King World News about $18,160 gold and the wisdom of Jesse Livermore.

The Wisdom Of Jesse Livermore
Lemmings have a herd mentality.  But following the crowd, can have grave consequences like falling off a cliff and drowning in the ocean. Many investors have the same instinct. They follow the crowd and buy or sell when other people do. This probably won’t end in the same disaster as for the lemmings, but following the crowd virtually never leads to a successful long term investment performance. 

The biggest investment profits are normally made by investing long term. But the key is to buy when an investment is undervalued and unloved. That reduces the risk substantially and thus the potential return.

Extremely important when investing is to be patient and wait for the right opportunity. As Jesse Livermore said: 

“It was never my thinking that made the big money for me, it was my sitting.”

I have probably been following the gold market for longer than most people still being active today. When gold went from $35 in 1971, to $850 in 1980, I owned only a little physical gold. I also owned some Australian mining stocks since the bank where I worked in Geneva was advised at the time by Adolf Lundin. Adolf was a legendary Swedish resource investor who lived in Geneva. Sadly, he died too early in 2006, but his sons have continued to expand the Lundin Group to one of the most successful businesses in the resource sector in the world. 

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

Gold Will Rise Even If The Fed Doesn’t Cut Interest Rates

Gold Will Rise Even If The Fed Doesn’t Cut Interest Rates

gold to go up regardless of fed

There has been much speculation lately on the Federal Reserve and its ongoing tightening policy. If you were to only read mainstream economic news you would think the Fed had already reversed course and “capitulated”, but this is not the case. The Fed continues to hold interest rates at their neutral rate of inflation while also moving forward with asset dumps from their balance sheet. Nothing has changed since December/January when the Fed first made minor changes to its public statements hinting at “accommodation”.

By leaving such wording completely ambiguous and refraining from any specifics, the central bank has allowed the media and the investment world to assume that the phrase changes can mean whatever they want the changes to mean. In other words, the Fed has bamboozled the mainstream into projecting their own fantasy outcome. Meaning, they believe that the outcome they desperately want (near zero interest rates and QE4) is the outcome they are going to get. Not only that, but they also think they are going to get it all very soon.

In the alternative economic media, I have noticed that there is also a presumption that the Fed will revert back to stimulus measures at any given moment. In fact, I have heard predictions of Fed rate cuts every month for at least the past seven months. And, each time the Fed doesn’t cut rates, the same analysts argue that “this time was close and next month is certain.”

To be fair, many analysts are basing their assumptions partly on the current financial reality. They are aware of factors that the average person is mostly oblivious to. Even now in the wake of swift declines in almost every sector of the economy there are still economists and portions of the public arguing that we are in the midst of an economic renaissance.

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

Somebody’ Finally Cares About Gold

Somebody’ Finally Cares About Gold

Grant Williams pithily summed up the situation that has been plaguing gold since 2013: Nobody Cares.

Yes, it’s highly likely that the price has been suppressed. But not enough buyers cared to fight the bullion bank/central bank cartel or make life difficult enough for the politicians — and thus, the regulators — to change things.

So gold languished. For years.

But last August, gold quietly entered a bull market after breaking above $1200.

As the price began rising (for both fundamental & technical reasons), we’ve been tracking its progress closely.  We do so on a daily basis via Peak Prosperity’s Precious Metals Daily Commentary updates (outstandingly authored by user davefairtex), as key developments happened via our premium reports (like this prediction), and via expert interviews such as our recent in-depth discussions with TFMetals and Incrementum’s Ronni Stoeferle.

As we entered 2019, the increasingly dovish/desperate policy retracements of the central banks — which now appear will NEVER normalize their balance sheets — have boosted the bull run.

Lower real interest rates are gold price-positive. And not only are real rates falling right now, there’s alreadycurrently $12 trillion in negative *nominal* debt trading worldwide right now:

Negative-yielding debt hits new record (Bloomberg)

And based on this week’s further dovish announcements from both the Fed and the ECB, we can expect more $trillions to be added to that pile soon.

On Tuesday, Mario Draghi apparently went rogue on his fellow policymakers and launched into a swan song version of his all-time hit “Whatever it takes”. The next day, Jerome Powell at the Fed confirmed his willingness to ease and let the market know he stands ready to cut rates multiple times over the next year.

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

Ronni Stoeferle: In Gold We Trust

Ronni Stoeferle: In Gold We Trust

Why we may soon see prices of $1,500-1,600/oz

Fresh from releasing his exhaustive 340-page annual report titled In Gold We Trust, Ronald Stoerferle joins us to summarize his forecast for the yellow metal.

Stoerferle, an author of several books on Austrian economics and head of strategy and portfolio management at Incrementum AG, concludes that gold is poised to move explosively higher. He sees a new bull market beginning for the precious metal — one likely to quickly build momentum as the impending recession arrives and the world’s central banks revert to extreme easing policy measures.

We are all part of huge monetary experiments being conducted around the world. Right now, trust in the U.S. economy and in the Federal Reserve is still pretty high. We’re seeing the mantra of “deficits don’t matter” at the moment. And everybody thinks that the U.S. dollar is “the least dirty shirt”.

But this trust is crumbling. Recession clouds are getting darker and from my point of view there is no doubt that the Federal Reserve and the other major central banks will step in with very, very aggressive measures.This is actually what we’re seeing at the moment, with very sophisticated papers coming out from the Federal Reserve mentioning that negative rates would be quite favorable and have positive effects, along with comments from Donald Trump that the Fed should cut rates by 1% and do more QE. And other representatives are proposing that additional measures such as controlling the yield curve should be considered.

So from my point of view, we will see that the monetary policy u-turn that began in December will continue. That’s why gold has reacted so positively of late. We’re in the central bank zero interest rate trap — and there is no way out. Gold is a good hedge in this kind of environment.

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

Gold Makes Its Grievances Heard

Gold Makes Its Grievances Heard

gold-dollar-trap

Gold is getting its revenge. Try as he might Mr. Tariff Man can’t dominate all the headlines all the time. Everyone once in a while something more important than the Trump Man-Baby Show should take center stage.

Gold has moved more than $50 in just under three trading sessions, blowing past near term resistance and, more importantly, reminding everyone just how quickly the reserve asset of the world economy can call bullshit on the proclamations and machinations of the morons who think they run the world.

You always know when you’re reaching the end of a bear market. 

Last week I tweeted out:

I think we’re reaching Peak Gold Bearishness. If the dollar is an attractive safe-haven asset, which it isn’t, just a necessary evil after a decade of ZIRP, then of course this will weigh on gold. That doesn’t mean demand isn’t there.https://seekingalpha.com/news/3467311-gold-longer-attractive-complacent-market-says-wells-fargo-analyst#email_link …25:22 PM – May 28, 2019Twitter Ads info and privacyGold no longer attractive in complacent market, says Wells Fargo analystGold prices no longer look attractive based on the way the metal has reacted to recent economic events, says Wells Fargo’s John LaForge, noting that gold’s complacent reaction to market volatility isseekingalpha.com

When an analyst at Wells is looking at the day-to-day ticker of gold looking for silly and binary safe haven arguments to warn people off of gold, I know we’re nearly there. 

This isn’t a complacent market. In fact, as I’ve pointed out in the past, it’s an incredibly volatile one. 

You don’t have to be a whiz with numbers, or worse a quant working for a central bank, to see the differences here. 

And the reason for this massive increase in volatility across all asset classes is Trump’s insistence on tariffs being the cure all for what ails America’s trade ‘imbalances.’

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

From Gold To Nothing: How 1971 Changed Everything In The Economy

From Gold To Nothing: How 1971 Changed Everything In The Economy

The monetary system is a major component of the whole economic system. Despite that, today we take it for granted and don’t even ask ourselves how it works and if it is the best solution available or the correct way to manage things.

Even though it appears to be stable, history shows that monetary systems changed periodically in the last century (20–30 years on average).

The main difference between our current monetary system and previous monetary system is that today it is entirely based on FIAT Currency, in contrast to older monetary systems that were backed by gold.

That means that what we call money is a government-issued currency that has zero intrinsic value and is not backed by anything.

From 1971, this kind of system allows central banks to literally control the economy and opened a new chapter in the world monetary system.

In this article, I am going to briefly explain why 1971 changed everythingand what are potential consequences of such a decision.

Since 1971 the world runs on FIAT currencies that are not gold-backed in any way. This changes everything.

Before digging into it, we have to review some history.

The Bretton Woods System and It’s Collapse

Towards the end of the World War II, peace was a real concern and it was clear that the world needed a new monetary system able to support the economy.

In fact, one of the major reason that led to World War II was the failure in dealing with economic problems after World War I.

Why It Was Needed And How It Worked

The Bretton Woods agreement was signed at a conference between allied nations in 1944.

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

Central banks are buying gold at the fastest pace in six years

Central banks are buying gold at the fastest pace in six years

Earlier this month the World Gold Council published its quarterly report– and it shows that central banks and foreign governments from around the world are buying up gold at their fastest pace in six years.

This is pretty big news, and it says a LOT about the future of the dollar.

Remember, central banks and foreign governments hold literally TRILLIONS of dollars of reserves… and traditionally they do this by buying US government debt.

It sounds strange, but to big institutions, banks, etc., US government debt is equivalent to cash. They use it as a form of money.

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More importantly, they hold US dollars because that’s the global standard: the US dollar has been the world’s primary international reserve currency for seventy five years.

So US debt is extremely liquid. In fact, the $22 trillion US debt market is the biggest and most liquid market in the world.

But foreign governments have started breaking with the tradition of buying treasuries.

As the World Gold Council’s report showed us, foreign governments and central banks have been buying a LOT more gold than in previous years.

Net gold purchases in Q1/2019 among foreign governments and central banks was nearly 70% greater than Q1/2018… and the highest rate of first quarter purchases in six years.

The Chinese in particular, have been stockpiling gold faster than ever, while at the same time, Chinese ownership of US treasuries as a percentage of total holdings has been gradually declining over the past years.

And it’s not just China.

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

Golden Straws In The Wind

Golden Straws In The Wind 

Life in the world of gold bullion is full of mysteries. Each mystery is like a straw in the wind, which individually means little, but tempting us to speculate there’s a greater meaning behind it all. Yes, there is a far greater game in play, taking Kipling’s aphorism to a higher level.

One of those straws is Russia’s continuing accumulation of gold reserves. Financial pundits tell us that this is to avoid being beholden to the US dollar, and undoubtedly there is truth in it. But why gold? Here, the pundits are silent. There is an answer, and that is Russia understands in principal the virtues of sound money relative to possession of another country’s paper promises. Hence, they sell dollars and buy gold.

But Russia is now going a step further. Izvestia reported the Russian Finance Ministry is considering abolition of VAT on private purchases of gold bullion.[i] We read that this could generate private Russian annual demand of between fifty and a hundred tonnes. More importantly, it paves the way for gold to circulate in Russia as money.

We should put ourselves in Russia’s shoes to find out why this may be important. Russia is the largest exporter of energy, including gas, pushing Saudi Arabia into second place. This means she is also the largest acquirer of fiat currency for energy. That’s fine if you like fiat currencies, but if you suspect them, then you either turn them into physical assets, such as infrastructure and military hardware, or gold. Russia does both.

Then there is China. China has started announcing monthly additions to her gold reserves. China is up to her neck in dollars, and the relatively minor monthly additions to her reserves really make little difference. However, the link between the gold exchanges in Moscow and Shanghai strongly suggest Russia and China are coordinating gold dealing activities.

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

Your Move, Gold Critics: Please Explain What Money Is

Your Move, Gold Critics: Please Explain What Money Is

Owners of Bitcoin have endured a wild ride in recent years. While the coin could fetch $900 when 2017 began, one year later its value briefly moved above $20,000. At present, one Bitcoin exchanges for roughly $5,000.

The coin’s substantial volatility ably explains why, at least for now, it’s not seen as a worthy substitute for the dollar. It more realistically exhibits the floating dollar’s worst qualities, many times over.

Indeed, imagine entering into a transaction in which payment would be made in the cryptocurrency. I’ll pay you 10 Bitcoin to remodel my kitchen. Ok, but which Bitcoin? The 2017 version, or the much more valuable coin of 2018? How about I pay you 10 Bitcoin now, and 10 in April of 2020 to add on a room to my house? Assuming continued volatility, someone’s going to be very unhappy next April.

So while Bitcoin fails in the present as a dollar replacement, its volatility instructs. Who among us would comfortably enter into a transaction in which the medium of exchange facilitating the transaction is bouncing around in the most erratic of ways? The question is rhetorical.

And it’s one that helps explain the ongoing desire among some monetary thinkers to relink currencies to gold. Gold didn’t emerge as the primary definer of money by coincidence, but instead because its value is so remarkably stable. The latter is an effect of gold’s unique stock/flow characteristics. While roughly 2,000 metric tons of the yellow metal are mined each year, there are already around 200,000 metric tons of gold above ground. Gold is the “constant” simply because any sales or discoveries of it are highly unlikely to alter its price in material fashion.

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

Fear of Inflation & Sterilization

Fear of Inflation & Sterilization 

QUESTION: Mr. Armstrong; you were friends with Milton Friedman. Do you agree with his view that the Great Depression was caused in part by the Fed refusing to expand the money supply? Isn’t Quantitative Easing expanding the money supply yet it too has failed to create inflation. Would you comment on this paradox?

Thank you for your thoughtful insight.

P

ANSWER: Yes, this certainly appears to be a paradox. This results from the outdated theory of economics which completely fails to grasp the full scope of the economy and how it functions. This same mistake is leading many down the path of MMT (Modern Monetary Theory) which assumes we can just print without end and Quantitative Easing proves there will be no inflation. They are ignoring the clash between fiscal policy carried out by the government and monetary policy in the hand of the central banks. This is a major confrontation where central banks have expanded the money supply to “stimulate” inflation. Governments are obsessed with enforcing laws against tax evasion and it is destroying the world economy and creating massive deflation.

In 1920, Britain legislated a return to the gold standard at the prewar parity to take effect at the end of a five-year period. That took place in 1925. Britain based its decision in part on the assumption that gold flows to the United States would raise price levels in Britain and limit the domestic deflation needed to reestablish the pre-war parity. In fact, the United States sterilized gold inflows to prevent a rise in domestic prices. In the 1920s, the Federal Reserve held almost twice the amount of gold required to back its note issue. Britain then had to deflate to return to gold at the pre-war parity. Milton saw that the Fed failed to monetize the gold inflows, fearing it would lead to inflation.

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

Olduvai IV: Courage
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