“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” - John Maynard Keynes
Showing posts with label John Maynard Keynes. Show all posts
Showing posts with label John Maynard Keynes. Show all posts
Monday, May 5, 2014
Gold Vs The CRB Commodity Index
http://www.zerohedge.com/news/2014-05-05/gold-vs-crb-commodity-index
Sunday, October 16, 2011
Thursday, April 28, 2011
Monday, January 17, 2011
Sunday, August 22, 2010
Dr. Keynes killed the patient
http://www.realclearmarkets.com/articles/2010/08/20/dr_keynes_killed_the_patient_98632.html
American consumers are trying their best to deleverage. In terms of the story, the patient is actually trying to lose weight. But the government is blocking deleveraging and trying to boost consumption. They are forcing food down the patient's throat. According to the Flow of Funds Report, households reduced debt at a 2.4% annualized rate ($330 billion) during Q1 of 2010. Meanwhile, the federal government was piling on debt at an 18.5% annual rate ($1.44 trillion). Since every dollar of government debt is a promise to tax the private sector in the future with interest, this public spending spree effectively negated the Herculean efforts of the private sector to return to a sustainable path.
That's where the arrogance of Washington is really apparent. Scores of millions of American consumers have made the decision that reducing their debt burden is in their best interests right now. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. By leveraging up the public sector, they have used their power to confiscate our savings. In short, they are forbidding us from following the common sense path to fiscal health.
Monday, May 10, 2010
Convoluted logic
After European finance ministers unveiled a $1 trillion bailout plan for Greece and other indebted nations, gold immediately crashed almost $30. Why did it crash if:
1) quantitative easing (money creation) is inflationary, and
2) gold is a hedge against inflation?
The answer is while gold is an effective hedge against inflation, it is an even better hedge against financial crisis (and eventual collapse). In light of the Club Med countries' fiscal problems, gold prices have been rising, as the possibility of bond defaults has become very real. Hence the correct flight to gold as a safety valve, and the incorrect flight to the USDollar as a long-term safe haven (I would agree the dollar may rise nominally in the short term--until the market figures out the USdollar is an impaired currency).
With the announcement of a bailout for indebted European countries, the markets perceive the possibility of a default has been taken off the table. Hence, the fear of a financial crisis subsided temporarily last night in Asian overseas trading. However, sober speculators realized quantitative easing is also inflationary, and subsequently drove the price of precious metals back up. Long-term, precious metals bulls will ultimately profit--whether inflation or financial crises occurs, probably both.
The Euro bailout is a precursor to more bailouts about to occur in the US. Attempts from both sides of the pond to normalize economic recovery will fail, as the bailouts are merely debt bandaids to major debt problems. I expect the Fed to "rescue" bankrupt states and municipalities, including currency swaps and quantitative easing as part of their monetary arsenal. The Fed certainly can't reduce short-term interest rates any further--we are already at zero.
In a related matter, European Central Bank (ECB) President Trichet last week declared the ECB would not resort to purchasing junk bonds from Greece, Spain or Portugal, in attempting to prop up the Euro currency. In a huge reversal last night, the ECB agreed to purchase said bonds. Talk about head fakes. In the process, the ECB slaughtered the bond vigilantes who were betting on the Euro collapsing, as well as the countries whose governments and citizens have been living beyond their means for decades. Ultimately, those bond vigilantes will be proven right, as the ECB has indeed extended the Euro zone life line, but they have done nothing to structurally resolve their debt problems. These bailouts merely delay the inevitable collapse; they do nothing to address the debt problems--if anything, they make them worse.
While current group think among economists, politicians, and academia have distorted Keynesian economics into its current monstrous from of government manipulation in markets, John Maynard Keynes for whom those economic theories have been named after, was absolutely correct with this comment:
In other words, perfectly efficient markets with rational price discovery mechanisms are mythical in a world where markets are rigged and gamed to the advantage of a powerful few. I should correct myself: gold is not only a hedge against inflation and financial crisis, it also hedges an individual against a corrupt and reckless government money printing press. When one takes possession of physical gold, there are no counterparty risks. Thousands of banks have collapsed over the course of modern banking history. Thus, depositors and holders of derivatives have lost capital in our fiat currency financial system, unlike holders of gold, which have retained their store of value for thousands of years. With gold ownership, there are no other claims against it, and you won't get zeroed out.
The only way to be dispossessed is if the government confiscates it, which is exactly what Franklin Delano Roosevelt did by Presidential Executive Order 6102 in 1933:
http://www.wellsfargonevadagold.com/confiscation-order.pdf
See disclaimers on side bar.
Disclosure: long physical gold and silver, long precious metals mining shares.
1) quantitative easing (money creation) is inflationary, and
2) gold is a hedge against inflation?
The answer is while gold is an effective hedge against inflation, it is an even better hedge against financial crisis (and eventual collapse). In light of the Club Med countries' fiscal problems, gold prices have been rising, as the possibility of bond defaults has become very real. Hence the correct flight to gold as a safety valve, and the incorrect flight to the USDollar as a long-term safe haven (I would agree the dollar may rise nominally in the short term--until the market figures out the USdollar is an impaired currency).
With the announcement of a bailout for indebted European countries, the markets perceive the possibility of a default has been taken off the table. Hence, the fear of a financial crisis subsided temporarily last night in Asian overseas trading. However, sober speculators realized quantitative easing is also inflationary, and subsequently drove the price of precious metals back up. Long-term, precious metals bulls will ultimately profit--whether inflation or financial crises occurs, probably both.
The Euro bailout is a precursor to more bailouts about to occur in the US. Attempts from both sides of the pond to normalize economic recovery will fail, as the bailouts are merely debt bandaids to major debt problems. I expect the Fed to "rescue" bankrupt states and municipalities, including currency swaps and quantitative easing as part of their monetary arsenal. The Fed certainly can't reduce short-term interest rates any further--we are already at zero.
In a related matter, European Central Bank (ECB) President Trichet last week declared the ECB would not resort to purchasing junk bonds from Greece, Spain or Portugal, in attempting to prop up the Euro currency. In a huge reversal last night, the ECB agreed to purchase said bonds. Talk about head fakes. In the process, the ECB slaughtered the bond vigilantes who were betting on the Euro collapsing, as well as the countries whose governments and citizens have been living beyond their means for decades. Ultimately, those bond vigilantes will be proven right, as the ECB has indeed extended the Euro zone life line, but they have done nothing to structurally resolve their debt problems. These bailouts merely delay the inevitable collapse; they do nothing to address the debt problems--if anything, they make them worse.
While current group think among economists, politicians, and academia have distorted Keynesian economics into its current monstrous from of government manipulation in markets, John Maynard Keynes for whom those economic theories have been named after, was absolutely correct with this comment:
"Markets can remain irrational far longer than you or I can remain solvent."
In other words, perfectly efficient markets with rational price discovery mechanisms are mythical in a world where markets are rigged and gamed to the advantage of a powerful few. I should correct myself: gold is not only a hedge against inflation and financial crisis, it also hedges an individual against a corrupt and reckless government money printing press. When one takes possession of physical gold, there are no counterparty risks. Thousands of banks have collapsed over the course of modern banking history. Thus, depositors and holders of derivatives have lost capital in our fiat currency financial system, unlike holders of gold, which have retained their store of value for thousands of years. With gold ownership, there are no other claims against it, and you won't get zeroed out.
The only way to be dispossessed is if the government confiscates it, which is exactly what Franklin Delano Roosevelt did by Presidential Executive Order 6102 in 1933:
http://www.wellsfargonevadagold.com/confiscation-order.pdf
See disclaimers on side bar.
Disclosure: long physical gold and silver, long precious metals mining shares.
Wednesday, November 11, 2009
von Mises vs. Keynes
John Maynard Keynes has more followers (inside the US government and its banking cartel), and has an economic theory named after him. Ludwig von Mises is largely forgotten by the mainstream financial press, even though his track record of predictions has been much better. A disciple of the Austrian School of Economics, von Mises was a libertarian who predicted in the 1920's that government intervention created distortions in credit and financial markets, causing asset bubbles that would eventually burst. Does that sound familiar?
In any case, his prediction came true in 1929, yet he was marginalized yet again with the emergence of Keynes in 1936, who espoused printing currency and running deficits in order to escape the throes of a Great Depression. Again, does that sound familiar?
Many from the intelligentsia mistakenly believe we are in the midst of a war of ideaologies, i.e., GOP vs. Democrats, conservatives vs. liberals, etc. In regards to financial policies, it's partially true, but not completely, because Administrations and legislators from both sides of the aisle have run up enormous budget deficits, while resorting to printing currency to fund the deficits. They have borrowed trillions from foreign sovereign funds, and contributed to the insolvency of entitlement programs such as Social Security and Medicare. We are simply a country that spends money we don't have.
In short, our government's fiscal and monetary policies have been reckless and irresponsible. President Obama and Congress are following the wrong playbook.
http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html (you may need a subscription to read this article)
In any case, his prediction came true in 1929, yet he was marginalized yet again with the emergence of Keynes in 1936, who espoused printing currency and running deficits in order to escape the throes of a Great Depression. Again, does that sound familiar?
Many from the intelligentsia mistakenly believe we are in the midst of a war of ideaologies, i.e., GOP vs. Democrats, conservatives vs. liberals, etc. In regards to financial policies, it's partially true, but not completely, because Administrations and legislators from both sides of the aisle have run up enormous budget deficits, while resorting to printing currency to fund the deficits. They have borrowed trillions from foreign sovereign funds, and contributed to the insolvency of entitlement programs such as Social Security and Medicare. We are simply a country that spends money we don't have.
In short, our government's fiscal and monetary policies have been reckless and irresponsible. President Obama and Congress are following the wrong playbook.
http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html (you may need a subscription to read this article)
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