Money Flow Trading Method along with Risk Management
- #12,663
- Edited 8:02am Apr 1, 2024 7:49am | Edited 8:02am
- | Commercial User | Joined Dec 2014 | 14,165 Posts
- #12,669
- Edited 9:00pm Apr 1, 2024 8:42pm | Edited 9:00pm
- | Commercial User | Joined Dec 2014 | 14,165 Posts
The Implications Of Fatal Debt? Expect More Lies | ZeroHedge
The Implications Of Fatal Debt? Expect More Lies
https://zh-prod-1cc738ca-7d3b-4a72-b.../picture-5.jpg
BY TYLER DURDEN
MONDAY, APR 01, 2024 - 07:00 PM
Authored by Matthew Piepenburg via VONGREYERZ.gold/gold,
If you want to understand the direction of debt, rates, the USD, inflation, risk asset markets, gold, and the US endgame, it might be better not to listen to the experts.
https://assets.zerohedge.com/s3fs-pu...?itok=QrjVjTpB
Johnny Cash is a far better source…
Five Feet High & Rising
In a classic 1959 tune by Johnny Cash, the singer asks: “How high’s the water mama?”
This question is then answered by a riff that chants, “She said it’s two feet high and rising.’”
And with each subsequent refrain, the water level goes to three feet, four feet, and then five feet, “high and rising’.”
In short: An obvious flood.
And when it comes to debt in the land of the world reserve currency, Johnny Cash may have something to teach Jerome Powell and the other DC children drowning the US (and its debt-soaked Dollar) into a slow but steady debt flood.
Boring?
I’ve often said that good journalism, like honest economics, is boring.
One has to understand “hard” indicators like bond yields (which move inversely to bond price) and the high-school level basics of supply and demand forces.
But as I’ve also said countless times, and will say countless times more: The bond market is THE thing, because bonds are all about DEBT.
If you understand bonds, and in particular, the Fed’s hidden (real) mandate to save Uncle Sam’s sovereign IOUs from sinking in price, then you will be able to easily foresee (rather than date predict) the future of risk assets, gold, BTC, the USD and yes, inflation.
The complex truly is that simple.
How High’s the Debt Mama? 120% and Rising’
And if you turn to Johnny Cash and ask “How high’s the debt level mama?” well… the blunt answer informs just about everything you need to know.
So, let’s keep it simple.
Simple, Not Boring
Debt is WHERE it all begins, and it tells you exactly HOW the American song ends.
And just how high is the water (debt) mama?
Ten years ago, US public debt was $17T “and rising’.”
Today it’s $34.5T “and rising’.”
America’s debt to GDP is 120%, its deficit to GDP is around 6%, and every 100 days we add another $1T in borrowing to our shameless bar tab of debt addiction masquerading as capitalism.
https://assets.zerohedge.com/s3fs-pu...?itok=xOI1914h
Even our own Congressional Budget Office will confess that unless we issue more debt (and print more debased money to monetize it), our Medicare and Social Security piggy bank will be empty by 2030.
Meanwhile, the USA is staring down the barrel of $212T in unfunded liabilities yet only $190T in assets.
In other words, and based on objective math, America has the balance sheet of a banana republic.
No Crisis?
Apologists (i.e., truth and math-challenged politicos), however, will tell you there is no crisis, even as the water levels rise past our closed eyes.
The clever ones will remind us that America’s USD comprises 85% of FX transactions, the vast bulk (80%) of international trade settlements, and is in constant “milk-shake” demand from the Eurodollar, derivative, and SWIFT payment systems.
In other words, the Dollar is gonna be just fine.
Hmmm…
Facts vs. “Just Fine”
As warned from day 1 of the myopic (and suicidal) sanctions against Putin in which the US weaponized the world reserve currency, those days of a “just fine” USD simply ended.
Not all at once, but slow and steady, like a flood’s water line…
In just 2 years, we’ve seen undeniable signs of de-dollarization from the BRICS+ nations and an extraordinarily telling shift in the petrodollar dynamics (20% of 2023 global oil sold outside the USD), which would have been otherwise unimaginable in the pre-sanction era.
But, if you remain convinced that America and its reserve currency have magical immunity from the de-dollarization’s slow drip greenback demise, let’s get back to the oh-so-boring but oh-so-honest cries of the US Treasury market.
Why?
Again. Because the bond market is everything.
As important, the bond market has everything to do with debt, and current US debt is drowning the nation and diluting the USD, one slow trillion at a time.
Sound sensational?
Pounding A Fact-Based Fist
For years, I have pounded my fist reminding readers and viewers that debt destroys nations and currencies. Every time, and without exception.
For years I have pounded my fist saying that Powell’s “war on inflation” was a ruse, as every debt-soaked nation needs to debase its currency to inflate away debt.
And from day 1 of Powell’s claim (lie) that inflation was “transitory,” I’ve been calling his bluff.
For years, I’ve argued that the Fed would simply lie about inflation (i.e., grossly under-report it) to make it appear statistically lower than what we knew/felt it to be.
Even Larry Summers, who is the classic arsonist (from his repeal of Glass-Steagall to deregulating the derivatives markets) now playing at the fireman, has publicly stated that the actual US CPI scale, using pre-1983 housing methods, peaked last year at 18%, not the official 3.7% range…
If we then tack on a US debt/GDP ratio that is 30% higher today than in 2009, we mathematically see that despite Powell’s repressive “higher-for-longer” rate policies, we’ve made zero dent in our debt—instead, we’ve increased it.
In other words, our war against inflation is a loss; and our debts have increased.
And in the last couple of years, I’ve been pounding my fist that Powell would pivot from rising rates to pausing rate cuts to eventually cutting rates followed in turn by outright money printing (or rather mouse-clicking Dollars) to “pay” Uncle Sam’s debt at the expense of our currency via what Luke Gromen calls “super QE.”
And all modesty aside, I think I/we have been right…
Right or Wrong?
Already, and as of last week, Powell has openly projected rate cuts in 2024, and they are likely to come by or near September.
We’ll see.
For now, just the promise (words) of rate cuts have been enough to send Pavlovian (Fed-dependent) markets to all-time highs despite a real economy already under water.
The subsequent decline in the Market Option Volatility Estimate (“MOVE” Index) was a neon-flashing sign that the market is getting ready for a new flood of dollar-diluting liquidity…
https://assets.zerohedge.com/s3fs-pu...?itok=vagv4eWB
Where’s the QE, Matt?
But what about my forewarned QE?
What about that ultimate moment when Powell admits full defeat in his so-called “war” on inflation (while quietly seeking inflation) and openly does what many off us (nod again to Luke Gromen et al) already know he will do, that is: Debase the currency to “save” a rigged-to-fail (i.e., debt-based) USA?
It seems I/we have been wrong about that QE, no?
Well…Not so fast.
Coming Through the Back Door
Powell, along with his former Fed colleague-turned-mind-numbing Treasury Secretary, Janet Yellen, has been doing un-noticed back-door QE at staggering levels too complex (or obvious) for the mental midgets in our so-called mainstream media to even notice.
Shocker? Hardly…
Facts Are Stubborn Things
The fact is that five times in the last four years, DC has been doing QE by just another name (what I call “backdoor QE”) to avoid the embarrassment of direct QE.
Notwithstanding the “not-QE” (which was QE) in 2019 when the Fed bailed out a cash-dry repo market (which, by design, no one understood), the DC magicians have been doing trillions worth of QE-like liquidity measures without having to call it, well QE…
That is, the Fed and Treasury Dept. have been pulling liquidity out of the drying Treasury General Account, the now-retired “BTFP” measures, and the intentionally confusing reverse repo markets.
More recently (and equally as well intentionally confusing to the masses), the Fed is quietly on the verge of allowing the Fed banks to use unlimited leverage to buy unlimited amounts of USTs off the Fed’s balance sheet via the removal of what the fancy lads call “Supplementary Reserve Ratios.”
This latest trick, by the way, is just off-balance sheet QE, and yet another symptom of the big banks becoming branch offices of the Fed, as our already centralized America becomes even more grotesquely, well…centralized, which is a classic symptom of a desperate and debt-soaked regime.
But just in case none of the foregoing tricks of backdoor QE have convinced you of what amounts to just QE, we can get our clearest signals from—you guessed it: THE BOND MARKET.
That is, one of the most obvious examples of “backdoor QE” is the Treasury Department’s open yet ignored trick of issuing most of its recent debt from the short-duration end of the yield curve.
What The T-Bills Are Saying
Issuing more short-term IOUs in the form of T-Bills takes the supply-push inflation pressure off the openly unloved 10Y USTs, whose price declines (and subsequent as well as fatally unpayable yield/rate spikes) not only crushed regional banks but Uncle Sam’s wallet as well.
OK. Yield curves and duration implications may sound, well… boring, but stick with me because this matters.
The extreme levels of T-Bill issuance (as opposed to 10Y IOUs) have immense implications and is a flashing neon sign that the US is not heading into an economic crisis, but is in fact, ALREADY in a crisis.
Today, T-Bill issuance is at a two-decade high and comprises greater than 85% of all US Treasury issuance.
This short-end issuance is far more like QE, i.e. simple money printing—which, we remind you, is highly inflationary/reflationary.
Hard to believe? See for yourself:
https://assets.zerohedge.com/s3fs-pu...?itok=l0WaxjZP
The last time we saw such QE-like desperation from the T-Bill side of the yield curve was during the Great Financial Crisis and the COVID crisis.
No Crisis? Huh?
But according to our so-called “leaders,” we are not at all in a crisis today. As they keep reminding us, we are at “full employment” (eh-hmmm) and nominal GDP is growing at 6%.
Then again, nominal GDP “growing” on the back of over $23T in UST issuance (bonds, notes, and bills) is simply debt-driven “growth,” and debt-driven growth is not growth, it’s just debt.
https://assets.zerohedge.com/s3fs-pu...?itok=CUlK5A5P
In short, and as Luke Gromen concluded far better than I: “You know the debt crisis is real when the US resorts to short-term debt issuance.”
Summing Up
Whenever one is dealing with truth-challenged profiles like the Fed, Treasury Dept, or White House, it is far better/simpler to watch what they do rather than what they say, as the difference is approximately 180 degrees…
All of the evidence above (from debt levels, de-dollarization trends, petrodollar shifts, backdoor QE measures, and T-Bill over-issuance) screams an open and obvious debt crisis which ALWAYS indicates a consequent currency crisis.
Always.
And as I have said for years, including a public discussion with Brent Johnson, the US can’t afford a strong USD because its debt levels require a weaker, inflated USD, regardless of its “relative”/DXY “strength.”
The string cites of the evidence above (and beyond just rate cuts) is simply a cleverly veiled way of the Fed and Treasury telling us they want (need) a much weaker USD to save their necks at the expense of the dollar in your portfolio, checking account, or wallet.
Gold, of course, is sniffing this out.
So are the stock markets and BTC.
So are the global central banks, who are stacking gold and dumping USTs at record levels.
The COMEX and London exchanges are also sniffing this out, as physical gold and silver are going from churn motions to actual physical delivery at record levels.
Meanwhile, even the BIS has made gold a Tier-1 asset.
Just saying…
The empirical (rather than “sensational”) evidence of an unloved UST and distrusted (debased and weaponized) USD is there for all who have eyes to see and ears to hear.
Gold has hit all-time highs (and will go much, much higher) simply because the USD is going much, much lower.
But, of course, no one in DC will say the quiet part out loud.
The Implications Of Fatal Debt? Expect More Lies
https://zh-prod-1cc738ca-7d3b-4a72-b.../picture-5.jpg
BY TYLER DURDEN
MONDAY, APR 01, 2024 - 07:00 PM
Authored by Matthew Piepenburg via VONGREYERZ.gold/gold,
If you want to understand the direction of debt, rates, the USD, inflation, risk asset markets, gold, and the US endgame, it might be better not to listen to the experts.
https://assets.zerohedge.com/s3fs-pu...?itok=QrjVjTpB
Johnny Cash is a far better source…
Five Feet High & Rising
In a classic 1959 tune by Johnny Cash, the singer asks: “How high’s the water mama?”
This question is then answered by a riff that chants, “She said it’s two feet high and rising.’”
And with each subsequent refrain, the water level goes to three feet, four feet, and then five feet, “high and rising’.”
In short: An obvious flood.
And when it comes to debt in the land of the world reserve currency, Johnny Cash may have something to teach Jerome Powell and the other DC children drowning the US (and its debt-soaked Dollar) into a slow but steady debt flood.
Boring?
I’ve often said that good journalism, like honest economics, is boring.
One has to understand “hard” indicators like bond yields (which move inversely to bond price) and the high-school level basics of supply and demand forces.
But as I’ve also said countless times, and will say countless times more: The bond market is THE thing, because bonds are all about DEBT.
If you understand bonds, and in particular, the Fed’s hidden (real) mandate to save Uncle Sam’s sovereign IOUs from sinking in price, then you will be able to easily foresee (rather than date predict) the future of risk assets, gold, BTC, the USD and yes, inflation.
The complex truly is that simple.
How High’s the Debt Mama? 120% and Rising’
And if you turn to Johnny Cash and ask “How high’s the debt level mama?” well… the blunt answer informs just about everything you need to know.
So, let’s keep it simple.
Simple, Not Boring
Debt is WHERE it all begins, and it tells you exactly HOW the American song ends.
And just how high is the water (debt) mama?
Ten years ago, US public debt was $17T “and rising’.”
Today it’s $34.5T “and rising’.”
America’s debt to GDP is 120%, its deficit to GDP is around 6%, and every 100 days we add another $1T in borrowing to our shameless bar tab of debt addiction masquerading as capitalism.
https://assets.zerohedge.com/s3fs-pu...?itok=xOI1914h
Even our own Congressional Budget Office will confess that unless we issue more debt (and print more debased money to monetize it), our Medicare and Social Security piggy bank will be empty by 2030.
Meanwhile, the USA is staring down the barrel of $212T in unfunded liabilities yet only $190T in assets.
In other words, and based on objective math, America has the balance sheet of a banana republic.
No Crisis?
Apologists (i.e., truth and math-challenged politicos), however, will tell you there is no crisis, even as the water levels rise past our closed eyes.
The clever ones will remind us that America’s USD comprises 85% of FX transactions, the vast bulk (80%) of international trade settlements, and is in constant “milk-shake” demand from the Eurodollar, derivative, and SWIFT payment systems.
In other words, the Dollar is gonna be just fine.
Hmmm…
Facts vs. “Just Fine”
As warned from day 1 of the myopic (and suicidal) sanctions against Putin in which the US weaponized the world reserve currency, those days of a “just fine” USD simply ended.
Not all at once, but slow and steady, like a flood’s water line…
In just 2 years, we’ve seen undeniable signs of de-dollarization from the BRICS+ nations and an extraordinarily telling shift in the petrodollar dynamics (20% of 2023 global oil sold outside the USD), which would have been otherwise unimaginable in the pre-sanction era.
But, if you remain convinced that America and its reserve currency have magical immunity from the de-dollarization’s slow drip greenback demise, let’s get back to the oh-so-boring but oh-so-honest cries of the US Treasury market.
Why?
Again. Because the bond market is everything.
As important, the bond market has everything to do with debt, and current US debt is drowning the nation and diluting the USD, one slow trillion at a time.
Sound sensational?
Pounding A Fact-Based Fist
For years, I have pounded my fist reminding readers and viewers that debt destroys nations and currencies. Every time, and without exception.
For years I have pounded my fist saying that Powell’s “war on inflation” was a ruse, as every debt-soaked nation needs to debase its currency to inflate away debt.
And from day 1 of Powell’s claim (lie) that inflation was “transitory,” I’ve been calling his bluff.
For years, I’ve argued that the Fed would simply lie about inflation (i.e., grossly under-report it) to make it appear statistically lower than what we knew/felt it to be.
Even Larry Summers, who is the classic arsonist (from his repeal of Glass-Steagall to deregulating the derivatives markets) now playing at the fireman, has publicly stated that the actual US CPI scale, using pre-1983 housing methods, peaked last year at 18%, not the official 3.7% range…
If we then tack on a US debt/GDP ratio that is 30% higher today than in 2009, we mathematically see that despite Powell’s repressive “higher-for-longer” rate policies, we’ve made zero dent in our debt—instead, we’ve increased it.
In other words, our war against inflation is a loss; and our debts have increased.
And in the last couple of years, I’ve been pounding my fist that Powell would pivot from rising rates to pausing rate cuts to eventually cutting rates followed in turn by outright money printing (or rather mouse-clicking Dollars) to “pay” Uncle Sam’s debt at the expense of our currency via what Luke Gromen calls “super QE.”
And all modesty aside, I think I/we have been right…
Right or Wrong?
Already, and as of last week, Powell has openly projected rate cuts in 2024, and they are likely to come by or near September.
We’ll see.
For now, just the promise (words) of rate cuts have been enough to send Pavlovian (Fed-dependent) markets to all-time highs despite a real economy already under water.
The subsequent decline in the Market Option Volatility Estimate (“MOVE” Index) was a neon-flashing sign that the market is getting ready for a new flood of dollar-diluting liquidity…
https://assets.zerohedge.com/s3fs-pu...?itok=vagv4eWB
Where’s the QE, Matt?
But what about my forewarned QE?
What about that ultimate moment when Powell admits full defeat in his so-called “war” on inflation (while quietly seeking inflation) and openly does what many off us (nod again to Luke Gromen et al) already know he will do, that is: Debase the currency to “save” a rigged-to-fail (i.e., debt-based) USA?
It seems I/we have been wrong about that QE, no?
Well…Not so fast.
Coming Through the Back Door
Powell, along with his former Fed colleague-turned-mind-numbing Treasury Secretary, Janet Yellen, has been doing un-noticed back-door QE at staggering levels too complex (or obvious) for the mental midgets in our so-called mainstream media to even notice.
Shocker? Hardly…
Facts Are Stubborn Things
The fact is that five times in the last four years, DC has been doing QE by just another name (what I call “backdoor QE”) to avoid the embarrassment of direct QE.
Notwithstanding the “not-QE” (which was QE) in 2019 when the Fed bailed out a cash-dry repo market (which, by design, no one understood), the DC magicians have been doing trillions worth of QE-like liquidity measures without having to call it, well QE…
That is, the Fed and Treasury Dept. have been pulling liquidity out of the drying Treasury General Account, the now-retired “BTFP” measures, and the intentionally confusing reverse repo markets.
More recently (and equally as well intentionally confusing to the masses), the Fed is quietly on the verge of allowing the Fed banks to use unlimited leverage to buy unlimited amounts of USTs off the Fed’s balance sheet via the removal of what the fancy lads call “Supplementary Reserve Ratios.”
This latest trick, by the way, is just off-balance sheet QE, and yet another symptom of the big banks becoming branch offices of the Fed, as our already centralized America becomes even more grotesquely, well…centralized, which is a classic symptom of a desperate and debt-soaked regime.
But just in case none of the foregoing tricks of backdoor QE have convinced you of what amounts to just QE, we can get our clearest signals from—you guessed it: THE BOND MARKET.
That is, one of the most obvious examples of “backdoor QE” is the Treasury Department’s open yet ignored trick of issuing most of its recent debt from the short-duration end of the yield curve.
What The T-Bills Are Saying
Issuing more short-term IOUs in the form of T-Bills takes the supply-push inflation pressure off the openly unloved 10Y USTs, whose price declines (and subsequent as well as fatally unpayable yield/rate spikes) not only crushed regional banks but Uncle Sam’s wallet as well.
OK. Yield curves and duration implications may sound, well… boring, but stick with me because this matters.
The extreme levels of T-Bill issuance (as opposed to 10Y IOUs) have immense implications and is a flashing neon sign that the US is not heading into an economic crisis, but is in fact, ALREADY in a crisis.
Today, T-Bill issuance is at a two-decade high and comprises greater than 85% of all US Treasury issuance.
This short-end issuance is far more like QE, i.e. simple money printing—which, we remind you, is highly inflationary/reflationary.
Hard to believe? See for yourself:
https://assets.zerohedge.com/s3fs-pu...?itok=l0WaxjZP
The last time we saw such QE-like desperation from the T-Bill side of the yield curve was during the Great Financial Crisis and the COVID crisis.
No Crisis? Huh?
But according to our so-called “leaders,” we are not at all in a crisis today. As they keep reminding us, we are at “full employment” (eh-hmmm) and nominal GDP is growing at 6%.
Then again, nominal GDP “growing” on the back of over $23T in UST issuance (bonds, notes, and bills) is simply debt-driven “growth,” and debt-driven growth is not growth, it’s just debt.
https://assets.zerohedge.com/s3fs-pu...?itok=CUlK5A5P
In short, and as Luke Gromen concluded far better than I: “You know the debt crisis is real when the US resorts to short-term debt issuance.”
Summing Up
Whenever one is dealing with truth-challenged profiles like the Fed, Treasury Dept, or White House, it is far better/simpler to watch what they do rather than what they say, as the difference is approximately 180 degrees…
All of the evidence above (from debt levels, de-dollarization trends, petrodollar shifts, backdoor QE measures, and T-Bill over-issuance) screams an open and obvious debt crisis which ALWAYS indicates a consequent currency crisis.
Always.
And as I have said for years, including a public discussion with Brent Johnson, the US can’t afford a strong USD because its debt levels require a weaker, inflated USD, regardless of its “relative”/DXY “strength.”
The string cites of the evidence above (and beyond just rate cuts) is simply a cleverly veiled way of the Fed and Treasury telling us they want (need) a much weaker USD to save their necks at the expense of the dollar in your portfolio, checking account, or wallet.
Gold, of course, is sniffing this out.
So are the stock markets and BTC.
So are the global central banks, who are stacking gold and dumping USTs at record levels.
The COMEX and London exchanges are also sniffing this out, as physical gold and silver are going from churn motions to actual physical delivery at record levels.
Meanwhile, even the BIS has made gold a Tier-1 asset.
Just saying…
The empirical (rather than “sensational”) evidence of an unloved UST and distrusted (debased and weaponized) USD is there for all who have eyes to see and ears to hear.
Gold has hit all-time highs (and will go much, much higher) simply because the USD is going much, much lower.
But, of course, no one in DC will say the quiet part out loud.
- #12,671
- Edited 6:54am Apr 2, 2024 3:09am | Edited 6:54am
- | Commercial User | Joined Dec 2014 | 14,165 Posts
- #12,678
- Edited 6:12pm Apr 2, 2024 6:00pm | Edited 6:12pm
- | Commercial User | Joined Dec 2014 | 14,165 Posts
- #12,680
- Edited 8:10pm Apr 2, 2024 7:45pm | Edited 8:10pm
- | Commercial User | Joined Dec 2014 | 14,165 Posts
Bring Back Gold! | ZeroHedge
Bring Back Gold!
https://zh-prod-1cc738ca-7d3b-4a72-b.../picture-5.jpg
BY TYLER DURDEN
TUESDAY, APR 02, 2024 - 08:20 PM
Authored by Llewellyn Rockwell via LewRockwell.com,
In these days of rampant inflation, we must return to the gold standard - and the real thing too.
By this I mean the classical gold standard, not the so-called “gold exchange” standard, and with no fractional reserve banking, just as the great Murray Rothbard wanted. In what follows, I’ll discuss some of the economic issues below, but it’s important to realize that it’s a moral issue as well.
https://assets.zerohedge.com/s3fs-pu...?itok=B8vH9WuS
I spoke about the difference between the classical gold standard and the fake gold standard. This might seem a technical issue, but it’s one of vital importance. Joe Salerno, the leading contemporary Austrian School authority on monetary economics and Academic Vice President of the Mises Institute, explains:
“The historical embodiment of monetary freedom is the gold standard. The era of its greatest flourishing was not coincidentally the 19th century, the century in which classical liberal ideology reigned, a century of unprecedented material progress and peaceful relations between nations. Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War I.
Also, and not so coincidentally, this was the “War to Make the World Safe for Mass Democracy,” a political system that we have all learned by now is the great enemy of freedom in all its social and economic manifestations.
Now, it is true that the gold standard did not disappear overnight, but limped along in weakened form into the early 1930s. But this was not the pre-1914 classical gold standard, in which the actions of private citizens operating on free markets ultimately controlled the supply and value of money and governments had very little influence.
Under this monetary system, if people in one nation demanded more money to carry out more transactions or because they were more uncertain of the future, they would export more goods and financial assets to the rest of the world, while importing less. As a result, additional gold would flow in through a surplus in the balance of payments increasing the nation’s money supply.
Sometimes, private banks tried to inflate the money supply by issuing additional bank notes and deposits, called “fiduciary media,” promising to pay gold but unbacked by gold reserves. They lent these notes and deposits to either businesses or the government. However, as soon as the borrowers spent these additional fractional-reserve notes and deposits, domestic incomes and prices would begin to rise.
As a result, foreigners would reduce their purchases of the nation’s exports, and domestic residents would increase their spending on relatively cheap imports. Gold would flow out of the coffers of the nation’s banks to finance the resulting trade deficit, as the excess paper notes and checks were returned to their issuers for redemption in gold.
To check this outflow of gold reserves, which made their depositors very nervous, the banks would contract the supply of fiduciary media bringing about a monetary deflation and an ensuing depression.
Temporarily chastened by the experience, banks would refrain from again expanding credit for a while. If the Treasury tried to issue convertible notes only partially backed by gold, as it occasionally did, it too would face these consequences and be forced to restrain its note issue within narrow bounds.
Thus, governments and commercial banks under the gold standard did not have much influence over the money supply in the long run. The only sizable inflations that occurred during the 19th century did so during wartime when almost all belligerent nations would “go off the gold standard.” They did so to conceal the staggering costs of war from their citizens by printing money rather than raising taxes to pay for it.
For example, Great Britain experienced substantial inflation at the beginning of the 19th century during the period of the Napoleonic Wars, when it had suspended the convertibility of the British pound into gold. Likewise, the United States and the Confederate States of America both suffered devastating hyperinflation during the War for Southern Independence, because both sides issued inconvertible Treasury notes to finance budget deficits. It is because politicians and their privileged banks were unable to tamper with and inflate gold money that prices in the United States and Great Britain at the close of the 19th century were roughly the same as they were at the beginning of the century.
Within weeks of the outbreak of World War I, all belligerent nations departed from the gold standard. Needless to say by the war’s end the paper fiat currencies of all these nations were in the throes of inflations of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst. To put their currencies back in order and to restore the public’s confidence in them, one country after another reinstituted the gold standard during the 1920s.
Unfortunately, the new gold standard of the 1920s was fundamentally different from the classical gold standard. For one thing, under this latter version, gold coin was not used in daily transactions. In Great Britain, for example, the Bank of England would only redeem pounds in large and expensive bars of gold bullion. However gold bullion was mainly useful for financing international trade transactions.
Other countries such as Germany and the smaller countries of Central and Eastern Europe used gold-convertible foreign currencies such as the US dollar or the pound sterling as reserves for their domestic currencies. This was called the gold exchange standard.
While the US dollar was technically redeemable in honest-to-goodness gold coins, banks no longer held reserves in gold coins but in Federal Reserve notes. All gold reserves were centralized, by law, in the hands of the Fed, and banks were encouraged to use Fed notes to cash checks and pay for checking and savings deposit withdrawals. This meant that very little gold coin circulated among the public in the 1920s, and residents of all nations came increasingly to view the paper IOUs of their central banks as the ultimate embodiment of the dollar, franc, pound, etc.
This state of affairs gave governments and their central banks much greater leeway for manipulating their national money supplies. The Bank of England, for example, could expand the amount of paper claims to gold pounds through the banking system without fearing a run on its gold reserves for two reasons.
Foreign countries on the gold exchange standard would be willing to pile up the paper pounds that flowed out of Great Britain through its balance of payments deficit and not demand immediate conversion into gold. In fact, by issuing their currency to tourists and exporters in exchange for the increasing quantities of inflated paper pounds, foreign central banks were in effect inflating their money supplies in lock-step with the Bank of England. This drove up prices in their own countries to the inflated level attained by British prices and put an end to the British deficits.
In effect, this system enabled countries such as Great Britain and the United States to export monetary inflation abroad and to run “a deficit without tears” — that is, a balance-of-payments deficit that does not involve a loss of gold.
But even if gold reserves were to drain out of the vaults of the Bank of England or the Fed to foreign nations, British and US citizens would be disinclined, either by law or by custom, to put further pressure on their respective central banks to stop inflating by threatening bank runs to rid themselves of their depreciating notes and retrieve their rightful property left with the banks for safekeeping.
Unfortunately, contemporary economists and economic historians do not grasp the fundamental difference between the hard-money classical gold standard of the 19th century and the inflationary phony gold standard of the 1920s.” See here.
Many people think that even if 100% reserve banking is desirable as an ideal, it would never work in practice. How could banks stay in business if they couldn’t lend their checking deposits? Doesn’t the supply of money need to expand as the economy grows? Murray Rothbard demolishes these objections with characteristic force:
“Certain standard objections have been raised against 100 percent banking and 100 percent gold currency in particular. One generally accepted argument against any form of 100 percent banking I find particularly and strikingly curious: is that under 100 percent reserves, banks would not be able to continue profitably in business. I see no reason why banks should not be able to charge their customers for their services, as do all other useful businesses. This argument points to the supposedly enormous benefits of banking; if these benefits were so powerful, then surely the consumers would be willing to pay a service charge for them, just as they pay for traveler’s checks now. If they were not willing to pay the costs of the banking business as they pay the costs of all other industries useful to them, then that would demonstrate the advantages of banking to have been highly overrated. At any rate, there is no reason why banking should not take its chance in the free market with every other industry.
The major objection against 100 percent gold is that this would allegedly leave the economy with an inadequate money supply. Some economists advocate a secular increase in the supply of money by some criterion: population growth, growth of volume of trade, and the like; others wish the money supply to be adjusted to provide a stable and fixed price level. In both cases, of course, the adjusting and manipulation could only be done by the government. These economists have not fully absorbed the great monetary lesson of classical economics: that the supply of money essentially does not matter. Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the money unit, that is, in the amount of other goods that money will be able to buy.
An increase in the supply of money means merely that more units of money are doing the social work of exchange and therefore that the purchasing power of each unit will decline. Because of this adjustment, money, in contrast to all other useful commodities employed in production or consumption, does not confer a social benefit when its supply increases. The only reason that increased gold mining is useful is that the large supply of gold will satisfy more of the non–monetary uses of the gold commodity.
There is therefore never any need for a larger supply of money (aside from the non-monetary uses of gold or silver). An increased supply of money can only benefit one set of people at the expense of another set, and, as we have seen, that is precisely what happens when the government or the banks inflate the money supply. And that is precisely what my proposed reform is designed to eliminate.
There can, incidentally, never be an actual monetary “shortage,” since the very fact that the market has established and continues to use gold or silver as a monetary commodity shows that enough of it exists to be useful as a medium of exchange.
The number of people, the volume of trade, and all other alleged criteria are therefore merely arbitrary and irrelevant concerning the supply of money. As for the ideal of a stable price level, apart from the grave flaws of deciding on a proper index, two points are generally overlooked. In the first place, the very idea of a stable price level is open to challenge. Hoarding, as we have indicated, is always attacked; and yet it is the freely expressed and desired action on the market. People often wish to increase the real value of their cash balances or to raise the purchasing power of each dollar. There are many reasons why they might wish to do so. Why should they not have this right, as they have other rights in the free market? And yet only by their “hoarding” taking effect through lower prices can they bring about this result. Only by demanding more cash balances and thus lowering prices can the dollars assume a higher real value. I see no reason why government manipulators should be able to deprive the consuming public of this right.
Second, if people had an overwhelming desire for a stable price level, they would negotiate all their contracts in some agreed-upon price index. The fact that such a voluntary “tabular standard” has rarely been adopted is an apt enough commentary on those stable-price-level enthusiasts who would impose their ambitions by government coercion.
Money, it is often said, should function as a yardstick, and therefore its value should be stabilized and fixed. Not its value, however, but its weight should be eternally fixed, as are all other weights. Its value, like all other values, should be left to the judgment, estimation, and ultimate decision of every individual consumer.” See here.
If we want a true gold standard, can we get back to it? Of course, we can. The inflationary monetary policy we have today is the key to the financial elites' control over us. Without it, brain-dead Biden and his gang of neocon controllers couldn’t function. We must prevail, and we can prevail. As I said in 2002,
“The power to create money is the most ominous power ever bestowed on any human being. This power is rightly criminalized when it is exercised by private individuals, and even today, everyone knows why counterfeiting is wrong and unjust. Far fewer are aware of the role of the federal government, the Fed, and the fiat dollar in making possible the largest counterfeiting operation in human history, which is called the world dollar standard. Fewer still understand the connection between this officially sanctioned criminality and the business cycle, the rise and collapse of the stock market, and the continued erosion of the value of the dollar.
I would venture to guess that a sizeable percentage of even educated adults would be astounded to discover that the Federal Reserve does more than manage the nation’s money accounts, that its main activity consists in actually creating money that distorts production and creates inflation and the business cycle. I would go further to suggest that many educated adults believe that gold continues to serve as the ultimate backing of our monetary system, and would be astonished to discover that our money is backed by nothing but more of itself.
We have our work cut out for us, to be sure, mainly at the educational level. We must continue to state the obvious at every opportunity, that the fiat system is exactly what it is, a system of paper money backed by nothing of real value. We must continue to point out that because of this, our economic system is not depressed, but rather highly vulnerable to a complete meltdown. We must continue to draw attention to the only long-term solution: a complete separation of money and state based on the commodity that the market has always chosen as money, namely, gold.
This takes us back to our original question: is the gold standard history? Is it so preposterously unrealistic to advocate it that we might as well move to on other things? It won’t surprise you that my answer is no. If there is one thing that a long-term view of politics teaches, it is that only the long-term matters.
There will come a time when the current money and banking system, living off credit created by a fiat money system, will be stretched beyond the limit. When it happens, attitudes will turn on a dime. No advocate of the gold standard looks forward to the crisis nor to the human suffering that will come with it. We do, however, look forward to the reassertion of economic law in the field of money and banking. When it becomes incredibly obvious that something drastic must replace the current system, new attention will be paid to the voices that have long cast aspersions on the current system and called for a restoration of sound money.
Must a crisis lead to monetary reforms that we will like? Not necessarily, and, for that matter, a crisis is not a necessary precursor to radical reform. As Mises himself used to emphasize, political history has no predetermined course. Everything depends on the ideas that people hold about fundamental issues of human freedom and the place of government. Under the right conditions, I do not doubt that a gold standard can be completely restored, no matter how unfavorable the current environment appears towards its restoration.
What is essential for us today is to continue the research, the writing, and the advocacy for sound money, for a dollar that is as good as gold, for a monetary system that is separate from the state. It is a beautiful vision indeed, one in which the people and not the government and its connected interest groups maintain control of their money and its safekeeping.
What has been true for hundreds of years remains true today. The clearest path to the restoration of economic health is the free market undergirded by a sound monetary system. The clearest path toward economic destruction is for us to stop working toward what is right and true.” See here.
Let’s do everything we can to end the Fed and restore the real gold standard!
Bring Back Gold!
https://zh-prod-1cc738ca-7d3b-4a72-b.../picture-5.jpg
BY TYLER DURDEN
TUESDAY, APR 02, 2024 - 08:20 PM
Authored by Llewellyn Rockwell via LewRockwell.com,
In these days of rampant inflation, we must return to the gold standard - and the real thing too.
By this I mean the classical gold standard, not the so-called “gold exchange” standard, and with no fractional reserve banking, just as the great Murray Rothbard wanted. In what follows, I’ll discuss some of the economic issues below, but it’s important to realize that it’s a moral issue as well.
https://assets.zerohedge.com/s3fs-pu...?itok=B8vH9WuS
I spoke about the difference between the classical gold standard and the fake gold standard. This might seem a technical issue, but it’s one of vital importance. Joe Salerno, the leading contemporary Austrian School authority on monetary economics and Academic Vice President of the Mises Institute, explains:
“The historical embodiment of monetary freedom is the gold standard. The era of its greatest flourishing was not coincidentally the 19th century, the century in which classical liberal ideology reigned, a century of unprecedented material progress and peaceful relations between nations. Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War I.
Also, and not so coincidentally, this was the “War to Make the World Safe for Mass Democracy,” a political system that we have all learned by now is the great enemy of freedom in all its social and economic manifestations.
Now, it is true that the gold standard did not disappear overnight, but limped along in weakened form into the early 1930s. But this was not the pre-1914 classical gold standard, in which the actions of private citizens operating on free markets ultimately controlled the supply and value of money and governments had very little influence.
Under this monetary system, if people in one nation demanded more money to carry out more transactions or because they were more uncertain of the future, they would export more goods and financial assets to the rest of the world, while importing less. As a result, additional gold would flow in through a surplus in the balance of payments increasing the nation’s money supply.
Sometimes, private banks tried to inflate the money supply by issuing additional bank notes and deposits, called “fiduciary media,” promising to pay gold but unbacked by gold reserves. They lent these notes and deposits to either businesses or the government. However, as soon as the borrowers spent these additional fractional-reserve notes and deposits, domestic incomes and prices would begin to rise.
As a result, foreigners would reduce their purchases of the nation’s exports, and domestic residents would increase their spending on relatively cheap imports. Gold would flow out of the coffers of the nation’s banks to finance the resulting trade deficit, as the excess paper notes and checks were returned to their issuers for redemption in gold.
To check this outflow of gold reserves, which made their depositors very nervous, the banks would contract the supply of fiduciary media bringing about a monetary deflation and an ensuing depression.
Temporarily chastened by the experience, banks would refrain from again expanding credit for a while. If the Treasury tried to issue convertible notes only partially backed by gold, as it occasionally did, it too would face these consequences and be forced to restrain its note issue within narrow bounds.
Thus, governments and commercial banks under the gold standard did not have much influence over the money supply in the long run. The only sizable inflations that occurred during the 19th century did so during wartime when almost all belligerent nations would “go off the gold standard.” They did so to conceal the staggering costs of war from their citizens by printing money rather than raising taxes to pay for it.
For example, Great Britain experienced substantial inflation at the beginning of the 19th century during the period of the Napoleonic Wars, when it had suspended the convertibility of the British pound into gold. Likewise, the United States and the Confederate States of America both suffered devastating hyperinflation during the War for Southern Independence, because both sides issued inconvertible Treasury notes to finance budget deficits. It is because politicians and their privileged banks were unable to tamper with and inflate gold money that prices in the United States and Great Britain at the close of the 19th century were roughly the same as they were at the beginning of the century.
Within weeks of the outbreak of World War I, all belligerent nations departed from the gold standard. Needless to say by the war’s end the paper fiat currencies of all these nations were in the throes of inflations of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst. To put their currencies back in order and to restore the public’s confidence in them, one country after another reinstituted the gold standard during the 1920s.
Unfortunately, the new gold standard of the 1920s was fundamentally different from the classical gold standard. For one thing, under this latter version, gold coin was not used in daily transactions. In Great Britain, for example, the Bank of England would only redeem pounds in large and expensive bars of gold bullion. However gold bullion was mainly useful for financing international trade transactions.
Other countries such as Germany and the smaller countries of Central and Eastern Europe used gold-convertible foreign currencies such as the US dollar or the pound sterling as reserves for their domestic currencies. This was called the gold exchange standard.
While the US dollar was technically redeemable in honest-to-goodness gold coins, banks no longer held reserves in gold coins but in Federal Reserve notes. All gold reserves were centralized, by law, in the hands of the Fed, and banks were encouraged to use Fed notes to cash checks and pay for checking and savings deposit withdrawals. This meant that very little gold coin circulated among the public in the 1920s, and residents of all nations came increasingly to view the paper IOUs of their central banks as the ultimate embodiment of the dollar, franc, pound, etc.
This state of affairs gave governments and their central banks much greater leeway for manipulating their national money supplies. The Bank of England, for example, could expand the amount of paper claims to gold pounds through the banking system without fearing a run on its gold reserves for two reasons.
Foreign countries on the gold exchange standard would be willing to pile up the paper pounds that flowed out of Great Britain through its balance of payments deficit and not demand immediate conversion into gold. In fact, by issuing their currency to tourists and exporters in exchange for the increasing quantities of inflated paper pounds, foreign central banks were in effect inflating their money supplies in lock-step with the Bank of England. This drove up prices in their own countries to the inflated level attained by British prices and put an end to the British deficits.
In effect, this system enabled countries such as Great Britain and the United States to export monetary inflation abroad and to run “a deficit without tears” — that is, a balance-of-payments deficit that does not involve a loss of gold.
But even if gold reserves were to drain out of the vaults of the Bank of England or the Fed to foreign nations, British and US citizens would be disinclined, either by law or by custom, to put further pressure on their respective central banks to stop inflating by threatening bank runs to rid themselves of their depreciating notes and retrieve their rightful property left with the banks for safekeeping.
Unfortunately, contemporary economists and economic historians do not grasp the fundamental difference between the hard-money classical gold standard of the 19th century and the inflationary phony gold standard of the 1920s.” See here.
Many people think that even if 100% reserve banking is desirable as an ideal, it would never work in practice. How could banks stay in business if they couldn’t lend their checking deposits? Doesn’t the supply of money need to expand as the economy grows? Murray Rothbard demolishes these objections with characteristic force:
“Certain standard objections have been raised against 100 percent banking and 100 percent gold currency in particular. One generally accepted argument against any form of 100 percent banking I find particularly and strikingly curious: is that under 100 percent reserves, banks would not be able to continue profitably in business. I see no reason why banks should not be able to charge their customers for their services, as do all other useful businesses. This argument points to the supposedly enormous benefits of banking; if these benefits were so powerful, then surely the consumers would be willing to pay a service charge for them, just as they pay for traveler’s checks now. If they were not willing to pay the costs of the banking business as they pay the costs of all other industries useful to them, then that would demonstrate the advantages of banking to have been highly overrated. At any rate, there is no reason why banking should not take its chance in the free market with every other industry.
The major objection against 100 percent gold is that this would allegedly leave the economy with an inadequate money supply. Some economists advocate a secular increase in the supply of money by some criterion: population growth, growth of volume of trade, and the like; others wish the money supply to be adjusted to provide a stable and fixed price level. In both cases, of course, the adjusting and manipulation could only be done by the government. These economists have not fully absorbed the great monetary lesson of classical economics: that the supply of money essentially does not matter. Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the money unit, that is, in the amount of other goods that money will be able to buy.
An increase in the supply of money means merely that more units of money are doing the social work of exchange and therefore that the purchasing power of each unit will decline. Because of this adjustment, money, in contrast to all other useful commodities employed in production or consumption, does not confer a social benefit when its supply increases. The only reason that increased gold mining is useful is that the large supply of gold will satisfy more of the non–monetary uses of the gold commodity.
There is therefore never any need for a larger supply of money (aside from the non-monetary uses of gold or silver). An increased supply of money can only benefit one set of people at the expense of another set, and, as we have seen, that is precisely what happens when the government or the banks inflate the money supply. And that is precisely what my proposed reform is designed to eliminate.
There can, incidentally, never be an actual monetary “shortage,” since the very fact that the market has established and continues to use gold or silver as a monetary commodity shows that enough of it exists to be useful as a medium of exchange.
The number of people, the volume of trade, and all other alleged criteria are therefore merely arbitrary and irrelevant concerning the supply of money. As for the ideal of a stable price level, apart from the grave flaws of deciding on a proper index, two points are generally overlooked. In the first place, the very idea of a stable price level is open to challenge. Hoarding, as we have indicated, is always attacked; and yet it is the freely expressed and desired action on the market. People often wish to increase the real value of their cash balances or to raise the purchasing power of each dollar. There are many reasons why they might wish to do so. Why should they not have this right, as they have other rights in the free market? And yet only by their “hoarding” taking effect through lower prices can they bring about this result. Only by demanding more cash balances and thus lowering prices can the dollars assume a higher real value. I see no reason why government manipulators should be able to deprive the consuming public of this right.
Second, if people had an overwhelming desire for a stable price level, they would negotiate all their contracts in some agreed-upon price index. The fact that such a voluntary “tabular standard” has rarely been adopted is an apt enough commentary on those stable-price-level enthusiasts who would impose their ambitions by government coercion.
Money, it is often said, should function as a yardstick, and therefore its value should be stabilized and fixed. Not its value, however, but its weight should be eternally fixed, as are all other weights. Its value, like all other values, should be left to the judgment, estimation, and ultimate decision of every individual consumer.” See here.
If we want a true gold standard, can we get back to it? Of course, we can. The inflationary monetary policy we have today is the key to the financial elites' control over us. Without it, brain-dead Biden and his gang of neocon controllers couldn’t function. We must prevail, and we can prevail. As I said in 2002,
“The power to create money is the most ominous power ever bestowed on any human being. This power is rightly criminalized when it is exercised by private individuals, and even today, everyone knows why counterfeiting is wrong and unjust. Far fewer are aware of the role of the federal government, the Fed, and the fiat dollar in making possible the largest counterfeiting operation in human history, which is called the world dollar standard. Fewer still understand the connection between this officially sanctioned criminality and the business cycle, the rise and collapse of the stock market, and the continued erosion of the value of the dollar.
I would venture to guess that a sizeable percentage of even educated adults would be astounded to discover that the Federal Reserve does more than manage the nation’s money accounts, that its main activity consists in actually creating money that distorts production and creates inflation and the business cycle. I would go further to suggest that many educated adults believe that gold continues to serve as the ultimate backing of our monetary system, and would be astonished to discover that our money is backed by nothing but more of itself.
We have our work cut out for us, to be sure, mainly at the educational level. We must continue to state the obvious at every opportunity, that the fiat system is exactly what it is, a system of paper money backed by nothing of real value. We must continue to point out that because of this, our economic system is not depressed, but rather highly vulnerable to a complete meltdown. We must continue to draw attention to the only long-term solution: a complete separation of money and state based on the commodity that the market has always chosen as money, namely, gold.
This takes us back to our original question: is the gold standard history? Is it so preposterously unrealistic to advocate it that we might as well move to on other things? It won’t surprise you that my answer is no. If there is one thing that a long-term view of politics teaches, it is that only the long-term matters.
There will come a time when the current money and banking system, living off credit created by a fiat money system, will be stretched beyond the limit. When it happens, attitudes will turn on a dime. No advocate of the gold standard looks forward to the crisis nor to the human suffering that will come with it. We do, however, look forward to the reassertion of economic law in the field of money and banking. When it becomes incredibly obvious that something drastic must replace the current system, new attention will be paid to the voices that have long cast aspersions on the current system and called for a restoration of sound money.
Must a crisis lead to monetary reforms that we will like? Not necessarily, and, for that matter, a crisis is not a necessary precursor to radical reform. As Mises himself used to emphasize, political history has no predetermined course. Everything depends on the ideas that people hold about fundamental issues of human freedom and the place of government. Under the right conditions, I do not doubt that a gold standard can be completely restored, no matter how unfavorable the current environment appears towards its restoration.
What is essential for us today is to continue the research, the writing, and the advocacy for sound money, for a dollar that is as good as gold, for a monetary system that is separate from the state. It is a beautiful vision indeed, one in which the people and not the government and its connected interest groups maintain control of their money and its safekeeping.
What has been true for hundreds of years remains true today. The clearest path to the restoration of economic health is the free market undergirded by a sound monetary system. The clearest path toward economic destruction is for us to stop working toward what is right and true.” See here.
Let’s do everything we can to end the Fed and restore the real gold standard!