On Economy

     

 

 

What A Gold Standard Isn’t

Can we all recognize the simple fact that every government price-fixing scheme, ever, has failed?

For example, banana republics have declared their pesos to be worth $1. But when the market decides to redeem pesos for dollars 1-to-1, the central bank abandons the peg. A less-understood example is when the Swiss National Bank decided to hold its franc down to €0.77. It boasted it could print as many francs as necessary to keep the franc down. But it hit its stop-loss limit, and was forced to abandon this peg just like all the banana republics.

The gold standard is not a price-fixing scheme.

 

 

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The Missing Link

Often, Narratives pile up lots of baggage. To effectively deal with it, one must unpack it. One bit of luggage sticking up from the heap is the assertion that now the ruble has a link to oil. This is an indirect appeal to the wet street causes rain, i.e. that the price of oil set in dollars is why the dollar is the world’s reserve currency (and why the dollar has value). But it goes beyond merely this error.

Ayn Rand said that, “in the realm of cognition, nothing is as bad as the approximate.” The word link gives an approximate understanding. Oil is valuable. Whatever currency is linked to it surely must also be valuable. More than a penny per ruble, right?!

But what is a link? We have sometimes joked about those new flavored seltzers. The can says, “peach flavor”. There is a link between this sparkling-water-that-doesn’t-quite-taste-like-water and peaches. The link could be that the truck carrying the seltzer drove past a peach orchard. Or it could be something else.

In a Narrative such as this one, the word link is meant to suggest causality, without going so far as to state the alleged cause (and thus be exposed to debunking). In other words, they prefer to say that there’s a link between wet streets and rain rather than say outright that the cause of the rain is the wet streets.

It is true that, if it is raining, then the streets are wet. But note that causality is one way. We cannot say that if a street is wet that this necessarily means it is raining. It could be that someone is washing his car with a hose.

We cannot say that if a currency is remitted to pay for oil, that this necessarily means that currency is a reserve currency.

 

 

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Part I – Unpacking the Narrative of how Russia is going to change the global monetary system.

There is a Narrative about Russia and how it will change the monetary system. Many analysts in the gold community are promoting this story. There’s just one problem with this Narrative. It is like how Michael Crichton described the Gell-Mann Amnesia Effect, stating that the newspaper is full of stories explaining how “wet streets cause rain.”

The basic premise of this Narrative is that Russia will create a new gold standard, the dollar will crash, and of course gold will go to the moon.

Author Terry Goodkind, in his Sword of Truth series, wrote about a set of Wizard’s Rules. The Wizards First Rulesays thatpeople will believe something because they want to believe it’s true, or because they’re afraid it might be true.[1]

The gold community certainly longs for gold to go up to $100,000. And anyone in the West is afraid of the collapse of America—or at least Pax Americana.That’s why the story of the impending collapse of the dollar and rise of the gold-backed ruble resonates so broadly. It appeals to both greed and fear.

Our goal in writing this article is to help people understand why this Narrative offers a false hope/fear.

 

The Gamechanger

 

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Implications from the Federal Reserve’s Paper

Our first comment is that every monetary change from the Founding of America through present has been to move away from free markets, and to adulterate our currency. An analogy could be made to the Ship of Theseus, with each good plank replaced with an unsound board. A Zombie Ship of Theseus, decaying, but still afloat.

Let’s walk through the Fed’s paper. The very firstparagraphon page 1 says, “The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability…”

Monetary stabilityis defined as2% debasement per annum, an Orwellian twist. Andfinancial stabilityin the Fed’s regime is a myth.Interest rates shot the moon between 1947 and 1981, and since then have been falling—with volatility—into the black hole of zero.Meanwhile debt grows exponentially, and the marginal productivity of debt—how much GDP is added for each new dollar of debt—falls decade after decade. It is not only unstable, but unsustainable, heading towards an ultimate heat death of the economic universe.

 

 

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I write this with sadness, still, at the news of the death of my friend Heinz Blasnik. He is better known by his nom de plume, Pater Tenebrarum, who published the economics blog Acting Man and wrote for many other financial sites.

I met Heinz twice, at his home in Vienna. He was a kind and gracious host, sending his driver to pick me up and serving Austrian delicacies for lunch. When I met him, he was struggling near the end of a long illness which was the result of a youthful adventure. Even so, he retained a benevolent sense of life, and a positive spirit.

But this is not why I wanted to write this. We were friends because we shared some ideas. Important ideas. Ideas about the nature of the world, and mankind, and how man can work together and coordinate their productive activities. Economics and business are my life, and Heinz was the same way.

What better basis for a friendship than sharing important values?

Heinz was deeply, passionately interested in helping people understand economics. I know not how much time he gave to this cause—unpaid, as blogs do not make money—but it was surely more than I spend. He engaged with those who were interested. Sadly, Austrian economics is not mainstream, though there are more than enough people to keep a teacher—or sensei—busy. He was willing to correspond with me, and I credit his articles and emails for helping shape my own views.

We did not always agree. If you put 3 economists in a room then you have at least 4 opinions. But even when not, he listened with benevolent intention and did not make it personal. It was always about the ideas. I think this is an important and uncommon virtue.

On one of my visits, we discussed life, the universe, and everything. And he told me a bit about the Austrian welfare state. Which led me to write The Service Economy. I have traveled around the world, and I have shared food and drink with friends in many countries. Yet that one conversation with Heinz stands out as interesting and important. I can only recall one other discussion with one other friend that led directly to me writing an essay.

I don’t think Heinz believed in Heaven, but I hope everyone will understand when I say this. I would look forward to a day—many years in the future, I hope—when I could meet Heinz for beers in Heaven, and continue our conversation where it left off in 2021.

Adieu Heinz.

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

     

 

 

Shooting from the Hip

[ed. note: the tweets linked below mainly show videos from various lockdown phases]

 

Reminiscent of his demonetization effort in 2016, on 24th March 2020, Indian Prime Minister Narendra Modi, appeared on TV and declared an immediate nationwide curfew. No one was to be allowed to leave wherever he or she happened to be. All flights, trains (after 167 years of continual operation) and road transportation came to a complete, shrieking halt.

 

Stranded in India… [PT]

 

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Value Traps and Economic Ignorance

A financial analyst is often, or at least should be, more of a psychologist than a financial expert. There are companies that I knew fifteen years ago that had inherent value a multiple of what their stocks were trading at. Today, there continues to be similar upside, except that upside targets and share prices are lower. What went wrong?

 

A problem reaches the far North faster than climate change can melt all the ice. [PT]

 

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Dead Men Don’t Spend

The checks went forth yesterday.

And all the peoples rejoiced.

 

Stimulus blinders firmly attached! Let’s go! Mars is within reach! [PT]

 

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The Stress of Losing Billions

Up until the WallStreetBets crowd short squeezed Melvin Capital for a $7 billion loss, Robinhood had it made. But losing billions is stressful. And when your product blows up your customer the clucking that follows comes hot and heavy.

 

A surprise revival of business at Game-Stop… [PT]

 

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Silver Yo-Yo

The price of silver is going up and down like a yo-yo. On Sunday and into the first part of Monday, the price skyrocketed on news that Reddit was touting the metal. But as the data clearly showed, the price was not driven up by retail buying of physical metal.

 

Silver, March futures from Jan 27, 30 minute chart: a lot of volatility, but silver seems to have established a higher low after coming down from the initial spike. [PT]

 

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The Investment Asset of the Century Makes yet another Comeback

Even the most ardent cryptocurrency bulls are probably slightly slack-jawed at this juncture and can hardly believe it. To be sure, many people were undeterred by the vicious bear market that saw BTC melt down from just below $20,000 in Dec. 2017 to less than $3,300 in Dec. 2018, but we doubt that even these steadfast believers in the grand-daddy of cryptocurrencies expected to see new all time highs in less than two years. Oh well…

 

Look who’s back from the dead…

 

BTC, weekly – who says a bubble cannot be resurrected in two years time?

 

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The Lure of Easy Money

Right now happens to be an attractive time to do something stupid.  What’s more, everyone is doing it.  Maybe you are too. Stock valuations and corporate earnings growth no longer appear to matter.  Why not buy an S&P 500 index fund and let it ride?  Or, better yet, why not buy shares of Nvidia?

 

NVDA, weekly, over the past 6 years. The stock really started to take off after the 2016 election surprisingly brought an administration to power that was willing to cut taxes and roll back regulations. This vastly improved the competitive position of US-based companies in the world and boosted their profit margins. Other favorable narratives accompanied the rise of NVDA and other tech stocks specifically, such as the cryptocurrency mania and the increase in demand fostered by the pandemic. Add to that the biggest driver of them all – an unprecedented exercise in money printing by the Fed and other central banks – and a bubble for the ages emerged. And that is where we now are: in the greatest stock market mania of all time. [PT]

 

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