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Image for post — Tulum, Mexico (1986) Photo by author

My comment on an article in The Tyee about our federal government’s latest throne speech by Prime Minister Justin Trudeau (https://thetyee.ca/Analysis/2020/09/24/Throne-Speech-Stew/).

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The idea that a sovereign nation can never run into trouble financially because it can create its own currency is certainly the dominant narrative amongst government and ‘mainstream’ economists/bankers. After all, who benefits the most from this storyline?

But is it in fact true?

Scratching below the surface of this ‘experiment’ suggests it is not.

If printing one’s own money were a panacea, then nations like Venezuela, Zimbabwe, or the German Weimar Republic (and countless other nations throughout history) would never have experienced the hyperinflation that they have. They would be the richest nations ever to have existed.

One could counter that this is because they had to use their debased currency to import goods. True, but if one is debauching one’s currency through exponential ‘printing’, then this may be true for any nation dependent upon imports, which almost every nation is in our globalised, industrial world.

The solution that nations have rested upon given this reality is that the central banks collude to all print at relatively the same rate, so currencies don’t fall/rise too drastically compared to their trading partners.

Fine, but what does endless money/credit creation due to the purchasing power of this fiat currency created from thin air?

Previous trials in this approach indicate that it totally debases/debauches the currency, significantly reducing the ‘wealth’ of the people holding/using it because of the inflation that it creates.
Here’s what John Maynard Keynes had to say about this: “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

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

Can We Trust the Future at All?

September 24, 2020

Can We Trust the Future at All?

QUESTION: What did Martin mean by gold having a 21 year high. I simply can’t see how it is possible for it not to go up from here as sovereign debt collapses and printing presses are on turbo

I’ll be getting the gold report when it’s out but…. I’m about to get my hands on a few million pounds and I just want it to vanish into the ether so they don’t tax it, gold coins seemed the obvious option

Cheers B

REPLY: The major low was 1999. We have to be concerned that this agenda does not seek to also regulate gold once again. They are manipulating the currencies and several countries are starting to buck the trend. The question becomes this assumption that gold will survive simply printing money. They have far more power than people realize.

Look at Andrews in Victoria, Australia. He has turned the place into East Germany. He is leading the way and setting an example of how to crush freedom.

They are trying desperately to retain power using this fake virus to justify suppression. They are moving to digitize all money. They will not tolerate free markets.

How to Tackle the Depression Head On

September 21, 2020

How to Tackle the Depression Head On

“I want to see people get money.” – Donald J. Trump, U.S. President, September 17, 2020

“Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet.” – Steven Mnuchin, U.S. Secretary of the Treasury, September 14, 2020

Money for the People

The real viral contagion that has infected the American populace is not an illness of the body. It’s something far worse than COVID-19. The American populace is suffering from an illness of the mind.

The general malady, as we diagnose it, is the unwavering belief that the government has an endless supply of free money, and the expectation that everyone, except the stinking rich, has claim to it. Why pursue self-reliance and independence when a series of stimulus acts promises the more abundant life? This viral contagion’s really ripped through the population in 2020.

For example, just a year ago, the American populace thought they could all live off the forced philanthropy of their neighbors. That to pay Paul you had to first rob Peter. The CARES Act proved to Boobus americanus that, without a shadow of a doubt, there’s free ‘money for the people’ in Washington. Sí se puede!

This week the Congress did its part to further the greatest show on earth. The people want stimulus. Congress intends to get to them, in good time.

Of course, the need to sprinkle the Country with printing press money was already a foregone conclusion. There was no discussion of the wisdom of not having a stimulus bill. The debate at hand was centered on how much.

Crazy Nancy wants $3.4 trillion. Senate Republicans want $500 billion. Something called the House Problem Solvers Caucus wants $2 trillion.

President Trump wants Republicans to “go for the much higher numbers.” His rationale: “it all comes back to the USA anyway (one way or another!).”

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

China is killing the dollar

September 19, 2020

China is killing the dollar

In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.

Introduction

On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that

“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].

Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the front page article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding.

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

Weekly Commentary: State-Directed Credit Splurge

September 13, 2020

Weekly Commentary: State-Directed Credit Splurge

New data released Friday confirm ongoing historic Chinese Credit excess. Total Aggregate Financing increased (a ridiculous) $524 billion during August to $40.5 TN, doubling July’s growth and exceeding estimates by almost 40%. It was the strongest monthly gain since March’s record $759 billion. This pushed y-t-d (8-month) growth to $3.828 TN, up 45% from comparable 2019 ($2.650 TN) and 67% ahead of comparable 2018 ($2.297 TN) growth. It’s worth noting Aggregate Financing surged an incredible $2.960 TN over the past six months, 62% ahead of comparable 2019 ($1.823 TN). At 13.3%, year-over-year growth was the strongest in several years.

With 2020 GDP estimates in the 2.0 to 3.0% range, the divergence between Chinese Credit and economic output is unprecedented. That Credit growth has accelerated in the face of rapidly deteriorating economic prospects portends major troubles ahead. China’s “Terminal Phase” excess – including rapid acceleration of late-cycle loans of deteriorating quality – is unparalleled in terms of both degree and duration. Stoking a stock market mania while prolonging a historic apartment Bubble only exacerbates systemic fragility.

August New Bank Loans increased an above forecast $187 billion. This boosted y-t-d loan growth to $2.102 TN, 20% ahead of comparable 2019. Six-month growth ($1.481 TN) was 29% above comparable 2019. Bank Loans were up 13.0% over the past year, 27% in two years, and 84% over five years.

Consumer Loans rose $123 billion during August. Year-to-date growth of $755 billion was 4.7% ahead of comparable 2019. However, six-month Consumer Loan growth of $722 billion was 23% ahead of comparable 2019. Consumer Loans were up 14.5% year-over-year, 33% over two years, 58% in three and 135% over five years.

Corporate Bonds expanded $53 billion. This pushed year-to-date growth to $580 billion, up 80% from 2019 and 133% from comparable 2018 growth.

But the August winner of the Chinese Credit Sweepstakes goes to government finance. Government Bonds jumped $202 billion during the month to $6.362 TN, the largest monthly increase in a data series going back to 2017. At $837 billion, year-to-date growth was 59% ahead of comparable 2019. Government Bonds increased 18.7% over the past year, 38% in two and 66% over three years (5-yr data not available).

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

Inflation, deflation and other fallacies

September 12, 2020

Inflation, deflation and other fallacies

There can be little doubt that macroeconomic policies are failing around the world. The fallacies being exposed are so entrenched that there are bound to be twists and turns yet to come.

This article explains the fallacies behind inflation, deflation, economic performance and interest rates. They arise from the modern states’ overriding determination to access the wealth of its electorate instead of being driven by a genuine and considered concern for its welfare. Monetary inflation, which has become runaway, transfers wealth to the state from producers and consumers, and is about to accelerate. Everything about macroeconomics is now with that single economically destructive objective in mind.

Falling prices, the outcome of commercial competition and sound money are more aligned with the interests of ordinary people, but that is so derided by neo-Keynesians that today almost without exception everyone believes in inflationism.

And finally, we conclude that the escape from failing fiat will lead to rising nominal interest rates, with all the consequences which that entails. The inevitable outcome is a flight to commodities, including gold and silver, despite rising interest rates for fiat money.

Demand-siders and supply-siders

In a macroeconomics-driven world, economic fallacies abound. They are periodically trashed when disproved, only to arise again as received wisdom for a new generation of macroeconomists determined to justify their statist beliefs. The most egregious of these is that inflation can only occur as the handmaiden of economic growth, while deflation is similarly linked to a recession spinning out of control into the maelstrom of a slump.

This error is the opposite of the facts.

Conventionally, macroeconomists split into two groups. There are the Keynesians who believe in stimulating demand to ensure there will always be markets for goods and services, which they attempt to achieve through additional spending by governments and by discouraging saving, because it is consumption deferred.

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

Book Review: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy

September 7, 2020

BOOK REVIEW: THE DEFICIT MYTH: MODERN MONETARY THEORY AND THE BIRTH OF THE PEOPLE’S ECONOMY

In January, the Congressional Budget Office (CBO) released its Budget and Economic outlook for 2020 to 2030. It is horrific reading. Federal budget deficits are projected to rise from $1.0 trillion this year to $1.3 trillion over the next 10 years.

Federal debt will rise to 98% of GDP by 2030, “its highest percentage since 1946,” the CBO says. “By 2050, debt would be 180% of GDP—far higher than it has ever been.” And that was before Covid-19 hit. Now those numbers will be much, much worse.

On top of this, politicians have been announcing grand schemes for further spending: $47 billion on free college tuition, $1 trillion for new infrastructure, $1.4 trillion to write off student loan debt, at least $7 trillion on the Green New Deal and $32 trillion on Medicare for All. By one estimate, these new proposals total an estimated $42.5 trillion over the next decade.

Adding these new spending proposals to the flood of red ink the CBO projects just from following the current path, the federal government is set to face a serious fiscal crisis in the not-too-distant future.

KEEP PRINTING

Or, perhaps not. There is an idea afoot in economics that, as Bernie Sanders’ former economic advisor Stephanie Kelton argues in her new book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, could revolutionize the field in the same way that Copernicus did to astronomy by showing that the earth orbited the sun.

Modern Monetary Theory (MMT) states that “in almost all instances federal deficits are good for the economy. They are necessary.” That being so, we don’t have to worry about this coming deluge of red ink, indeed:

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

The Economy Continues To Unravel Despite All Stimulus Measures

September 6, 2020

The Economy Continues To Unravel Despite All Stimulus Measures

Since the pandemic lockdowns were first implemented in the US I have been more concerned with the government and central bank response than the virus itself. As I have noted in past articles, the pandemic restrictions and subsequent economic and social crisis events they help to create will cause far more deaths than Covid-19 ever will. Not only that, but the actions of the Federal Reserve continue to con the American public into believing that there is some kind of “plan” to stop the crash that THEY engineered.

The only agenda of the Fed is to increase the pain in the long term; they have no intention of actually preventing any disaster.

This is evidenced in comments by voting members of the Fed, including Neel Kashkari who recently argued for the enforcement of hard lockdowns for at least six weeks in the US, all because the US savings rate was going up. Meaning, because Americans are saving more in order to protect themselves from economic fallout, Kashkari thinks we should be punished with an economic shutdown that would force us to spend whatever we have been able to save.

Do you see how that works?

Fed members and government officials demand hard lockdowns, depleting public savings and destroying small businesses. Then, the public has to beg the Fed and the government for more and more stimulus measures so that they can survive. The people and the system become dependent on a single point of support – fiat money creation and welfare. Yet, the evidence suggests that this strategy is failing to do much of anything except stall the inevitable for a very short time.

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

In The Long Run We Are All Alive

August 29, 2020

In The Long Run We Are All Alive

In 1976, economist Herbert Stein, father of Ben Stein, the economics professor in Ferris Bueller’s Day Off, observed that U.S. government debt was on an unsustainable trajectory. He, thus, established Stein’s Law:

“If something cannot go on forever, it will stop.”

Stein may have been right in theory. Yet the unsustainable trend of U.S. government debt outlasted his life. Herbert Stein died in 1999, several decades before the crackup. Those reading this may not be so lucky.

Sometimes the end of the world comes and goes, while some of us are still here. We believe our present episode of debt, deficits, and state sponsored economic destruction, is one of these times.

We’ll have more on this in just a moment. But first, let’s peer back several hundred years. There we find context, edification, and instruction.

In 1696, William Whiston, a protégé of Isaac Newton, wrote a book. It had the grandiose title, “A New Theory of the Earth from its Original to the Consummation of all Things.” In it he proclaimed, among other things, that the global flood of Noah had been caused by a comet.

Mr. Whiston took his book very serious. The good people of London took it very serious too. Perhaps it was Whiston’s conviction. Or his great fear of comets. But, for whatever reason, it never occurred to Londoners that he was a Category 5 quack.

Like Neil Ferguson, and his mathematical biology cohorts at Imperial College, London, Whiston’s research filled a void. Much like today’s epidemiological models, the science was bunk. Nonetheless, the results supplied prophecies of the apocalypse to meet a growing demand.

It was just a matter of time before Whiston’s research would cause trouble…

Judgement Day

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

This Analyst Says Gold’s Pullback is Proof that Higher Prices Are to Come

August 29, 2020

This Analyst Says Gold’s Pullback is Proof that Higher Prices Are to Come

Precious Metals Soaring

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold has more room to run, why central banks have been buying gold for over a decade, and two massive gold nuggets worth $250,000 found in Australia.

Standard Chartered: Gold has more to show this year despite hitting a new all-time high

For a steady asset such as gold, a rapid breach of its decade-old all-time high is quite a showing. Yet, according to multiple analysts, the metal could stagger market watchers some more by the end of the year. Since blazing past $2,000, gold has pulled back as some expected, yet seems unwilling to go below the $1,940 level if the previous two weeks are any indicator.

Standard Chartered Private Bank’s Manpreet Gill attributes gold’s correction to a slight recovery in the 10-year Treasury yield amid an increase in risk sentiment. If this is indeed the reason for the pullback, the development is actually positive for gold, as the general consensus is that sovereign bond yields are on a firm downwards spiral, with no central bank showing any inclination towards elevating its benchmark rate.

“We have quite a bit of one-sided positioning in gold and I think, you know, that’s actually unwound quite quickly. A lot of our proprietary indicators are telling us exactly that,” said Gill, while acknowledging that central bankers are favoring a cap on their bond yields.

In a recent note, Fitch Solutions’ analysts likewise said that gold should keep moving up for the rest of the year and pass its August high in doing so in the absence of any notable headwinds. “We expect gold prices to remain supported in the coming months with rising geopolitical tensions and an uneven and slow global economic recovery,” said the team in the note.

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

Peter Schiff: Government Tries to Replace the Economy With a Printing Press

August 25, 2020

Peter Schiff: Government Tries to Replace the Economy With a Printing Press

Peter Schiff recently spoke at the “virtual” Los Vegas Money Show and explained why we are near the endgame for the dollar.

Peter opened up his talk speculating that the Money Show could be close to the end of its run.

I think the money that most people have, or at least what they think is money isn’t going to be money much longer.”

What in the world is he talking about?

The looming dollar crisis.

The dollar is going to fall through the floor and inflation is going to ravish the United States. What’s about to happen is that the world is going to go off the dollar standard and go back to the gold standard. That is where we are headed.”

Peter warned that we’re about to see a loss of wealth on an unprecedented scale.

He reiterated that this isn’t about COVID-19. We were already on the cusp of a crisis. The coronavirus simply made it worse.

It’s one of many problems, but it’s not why we’re about to go through this massive economic collapse. But it is the monetary and fiscal policy response to COVID-19. The government’s cure is what’s going to kill the economy.”

In fact, the problems started long before the pandemic. As Peter reminds us, interest rate cuts and QE were already ongoing before the government shutdowns started last March. In fact, it goes back much further than that.

Everything the US government did in the aftermath of the 2008 financial crisis was a mistake. All the monetary policy was wrong. All the fiscal policy was wrong. As a consequence, we never actually recovered from that crisis.

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

THE WOLF STREET REPORT: The Zombie Companies Are Coming

August 25, 2020

THE WOLF STREET REPORT: The Zombie Companies Are Coming

“Easy money is a curse for capitalism.” You can also find the podcast on Apple Podcasts, Spotify, Stitcher, Google Podcasts, iHeart Radio, and others.

On Inflation (& How It’s Not What Happens Next)

August 23, 2020

On Inflation (& How It’s Not What Happens Next)

Everyone is convinced the dollar is going to inflate because more dollars are entering the system.

But are they really?

That is the question that sparked a succinct Twitter thread by Travis K (@ColoradoTravis) explaining why inflation is not what happens next (emphasis ours):

Let’s take a look at how dollars are born and how they die.

A dollar is ‘born’ when a loan is made against collateral on a bank’s balance sheet. Banks can issue multiples of dollars for every dollar of collateral they have.

It’s this multiplication effect that expands the amount of total dollars.

Generally, banks are limited in how much they can lend – let’s say it’s 10x their collateral. So for every dollar of collateral they have, they can lend 10 dollars.

By so lending, they ‘birth’ new dollars into the system.

As banks lend more, more dollars are created and the money supply increases. This multiplicative lending is the chief driver of total dollars in the system.

Banks lending a lot → more total dollars and inflation.

When do dollars die?

Dollars ‘die’ when debts are paid back. This reverses the multiplication effect of lending, leading to less total dollars in the system and a contraction of total dollars in circulation.

So what is the Fed ‘printer’ doing – creating dollars, right? Actually no, not really.

The printer only increases the collateral banks have to lend against. It does not directly ‘birth’ dollars, only *potential* dollars.

Banks are still the midwives, and the only ones who birth dollars into the system by lending.

The Fed can increase collateral by 1000x but unless the banks lend against that collateral, dollars will not enter circulation for you and I to interact with.

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

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

August 21, 2020

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

“Earlier today apparently a woman rang the BBC and said she had heard that there was a hurricane on the way. Well if you are watching, don’t worry, there isn’t.”

It’s blowing a full hooley out there this morning, which is very bad news for my olive trees as the storm is shaking the ripening fruit off. Shame. It’s the first time our little olive grove has produced what looked likely to become full-sized olives. I was going to add them to Dirty Martinis. Meanwhile, mink farms are being wiped out by coronavirus which is proving 100% fatal to the well-dressed ferrets. Interesting, but what does it mean…?

It’s Friday, which means I am allowed to go off on something of a tangent – so let’s not worry about how long this tech rally continues, the rising tensions in Europe, Apple spending $17bln on stock buybacks, China vs US, or the US election.

What’s got me worried this morning is the headline in the FT: UK Public Debt tops £2 trillion for first time on Covid Spending Boom.

Should we worry or should we not? (Clue: the first one…)

Let me ask the question: how long can governments continue to spend their way out of the Coronavirus crisis? The bills for long-term furlough programmes and sectoral bailouts and support, increased social services as unemployment rises, and the urgent need for health spending are going to come due at some point. Is it going to be a problem, and if yes, how big?

Government debt is rocketing higher – but does it matter? Conventional thinking, based on Reinhart and Rogoff, is when debt/GDP exceeds 77% there will a significant slowdown in growth.

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

Gold and Free Banking Versus Central Banks

August 16, 2020

GOLD AND FREE BANKING VERSUS CENTRAL BANKING

In spite of the officially declared “independence” of the Federal Reserve from the immediate political control of either Congress or the White House, America’s central bank is, nonetheless, a branch of the U.S. government that is responsible for setting monetary policy, overseeing a variety of banking regulations, and influencing market interest rates. As a result, politics is always present when it concerns the Federal Reserve, as witnessed in the nomination of Dr. Judy Shelton to serve on the central bank’s board of governors.

Dr. Shelton has become a lightning rod for angry opposition, not only due to Donald Trump, who as president of the United States nominated her to fill one of the seven slots on the Federal Reserve’s Board of Governors, but the fact that she has long been a public and vocal advocate for a return to some version of the gold standard as an “anchor” for limiting discretionary policies by the central bank.

Most academic and policy-oriented economists apparently are both flabbergasted and fearful that if she were to serve on the Fed board, she might actually attempt to limit the virtually unrestrained latitude the central bank currently has to seemingly create money and bank credit in practically any quantity, and, in the process, influence the level of interest rates at which banks make money available for borrowing purposes.

What is clearly horrifying to so many in the wide mainstream of the economics profession is the notion of a check on the powers and prerogatives of what amounts to America’s system of monetary central planning. But that is the very point of a commodity-based monetary system such as a gold standard, to limit abuse of the monetary printing press.

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

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