Interview on Inflation
I’ve been doing a lot of interviews recently, for both radio and podcasts, about our new book Inflation. This recent podcast I thought was particularly good, in part because of the participation of Dick Bove, a Wall Street economist. Anyway, we were able to get into a little more complicated topics — which I like, although perhaps most people would like things to be simpler. Click here for podcast interview with John Aidan Byrne and Dick Bove.
Your Two Monetary Choices
(This item appeared at Forbes.com on July 10, 2022.) Today, there is a spreading awareness that our monetary situation is rather rotten. Leaving things up to central bankers, who are obviously making it up as they go along, has not worked out very well. Most recently, these central bankers got very aggressive in response to Covid in 2020; and the “inflation” that has followed has not been very surprising. People generally find monetary affairs to be extremely confusing. But, in the end it really amounts to a choice of two alternatives: The Gold Standard, and the PhD Standard. Today, we have the PhD Standard. We have a bunch of eggheads with PhDs making stuff up as they go along. But, this is not the way we used to do things in the United States. For nearly two centuries, from 1789 to 1971, we did not have central bankers with unrestrained freedom to not only adjust the knobs and dials as they saw fit, but to invent new knobs and dials — “QE,” “QT,” “interest on reserve balances,” “Reverse Repos” — at what seems to be an accelerating pace. For a long time, we did not have a central bank at all. Rather, the United States used a Stable Value system. The value of the currency was linked to some external benchmark — gold. This was also what all the other major countries used too. For a long time, the value of the dollar was 23.22 troy grains of gold. Since there are 480 grains in a troy oz., this worked out to 480/23.22 or $20.67 per ounce of gold. Until 1971, there was only one permanent devaluation, by President Roosevelt, in 1933. This reduced the value of the dollar to $35/oz. This continued until the floating fiat era began in
A Quick Look At Gold Stablecoins and Other Transactable Gold
Back in 2019, gold stablecoins existed, but they were barely viable with sub-$10 million market caps. Even the biggest USD stablecoin, Tether, was still only around $2 billion. But now, Tether is around $70 billion, and the gold stablecoins are getting up over $100 million. According to CoinMarketCap.com, there are two leading gold stablecoins at present: Paxgold (PAXG): $610m market cap. https://www.paxos.com/paxgold/ Tether Gold (XAUT): $451m market cap. https://gold.tether.to The reported market caps on these look pretty weird, though. Not the curve of organic expansion that we saw for USD Tether. But, maybe it is a plan to attain scale quickly. After the huge success of Tether and other USD stablecoins, these are no longer kitchen table operations. Larger-scale venture money is involved. This kind of crypto token can serve a purpose. However, a more centralized platform can also work well, and may be more viable for basic transactions. GoldMoney was the first example of this, although it never really realized its potential as a transactional device. Kinesis has set up an interesting platform for precious metals. Also, Coro has set up a gold-based platform that specifically targets transactional usefulness, with very low transaction costs and regulatory/banking system integration. It is not the kind of “pirate currency” that the crypto world promises, but probably more useful for 99% of daily business. WisdomTree, a large ETF provider, is also launching a similar platform that allows transfer of “digital gold.” I’ll also give notice to LD2 or “Liberty Dollar II,” a silver-based crypto stablecoin founded by Extra von NotHaus, son of Bernard von NotHaus. Bernard von NotHaus issued the Liberty Dollar, gold-backed private banknotes, starting in 1998, a breakthrough attempt to establish a private-sector currency alternative to the floating fiat USD. Liberty Dollar privately-issued banknotes Banknotes actually have a lot of difficulties
Why We Have Record Inflation And It’s Probably Not Going Away Fast
(This item ran at The Federalist, on April 19, 2022.) The U.S. consumer price index (CPI) in March was 8.5 percent higher than a year earlier, the highest “inflation” figure since the early 1980s. For a typical family, it now takes an additional $5,000 to buy the same stuff from a couple of years ago. Higher prices account for $3,500 of this, and $1,500 from higher taxes paid on income. What’s going on here? Is it a problem? What is the solution? Unfortunately, economists’ track record at diagnosing and resolving “inflation” problems over the past 70 years or so has been very bad. I put the word “inflation” in quotes because the term does not have an exact meaning. It arises from popular speech and has something to do with higher prices. From here, we should break down the possible factors into monetary factors, and nonmonetary factors. Both are at work today. What’s Causing Today’s Inflation “Non-monetary” factors are all the supply-demand-type issues that we can clearly see today. Much of the rise in the CPI comes from used car prices, which have soared due to shortages of new cars on dealers’ lots. A variety of similar supply-chain issues have left store shelves bare of a wide range of items. Government restrictions on housing development have created housing shortages in popular cities. “Monetary” factors are basically due to central bank policy. Since 1971, when the United States and the rest of the world left the Bretton Woods gold standard system, we have lived in an environment of floating fiat currencies. In the short term, the value of these currencies goes up and down somewhat unpredictably. In the longer term, there is a clear trend: The value of currencies goes down. A lot. Today, the value of the dollar is, by my estimate,
Recent Events
We’ve been doing some events related to our new book, Inflation. We did a “virtual event” with the Discovery Institute. Elizabeth Ames served as the moderator, which worked well since she knows the lay of the land. Click Here for a video of our virtual event with the Discovery Institute. This event was with the Manhattan Institute’s Adam Smith Society. Allison Schraeger served as the moderator. She hit the most important points. Click Here for a video of our event with the Manhattan Institute. Some of the podcasts I’ve been doing related to Inflation can be found at Padverb, a podcast aggregator/organizer: My feed at Padverb. I did a longer interview with Angelo Robles, with more of a family office/private wealth theme. It’s at YouTube. Interview with Angelo Robles via YouTube. Many thanks to all those who have taken an interest in our book. The response has generally been pretty good. We wanted a book that would reach out to regular people, not economic specialists or policy-wonky people. But, we also wanted to deal with economic subjects in a rigorous way, which also differs from a lot of mainstream economics. Also, we wanted it to be short enough that it would not be intimidating.
The IMF Bans the Gold Standard
I heard that the IMF banned its members from basing their currencies on gold. In other words, the gold standard is illegal, for IMF members (basically everyone). Really? Here’s a look at the IMF’s Articles of Incorporation, where we find: And here: And here: This is some interesting commentary from Martin Armstrong: QUESTION: Mr. Armstrong; People are adamant that there is a move to return to the gold standard. They claim various scenarios. Is there any such plot by the IMF and it seems strange that the ECB gold reserves are minimal. Can you explain the truth in this matter?Thank youGS ANSWER: The IMF has actually been jockeying positions for decades to remove gold as a monetary instrument quite to the contrary of these reports. IMF Special Drawing Rights (SDR) was first established with one SDR being equal to 0.888671 gram of fine gold, which was the par value of the US dollar on July 1, 1944. The IMF acquired its gold holdings through four main channels. First, 25% of initial quota subscriptions to join the IMF and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF’s gold. Furthermore, all payments of charges (interest on member countries’ use of IMF credit) were also normally made in gold. The structure was established with Bretton Woods and then a member wishing to acquire the currency of another member could do so by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970–1971. Thereafter, member countries could use gold to repay the IMF for credit previously extended. The IMF has decided to either return gold to member countries or to sell some of its holdings. The reasons for this are varied; between
The Absolute Best Way to End Inflation
(This item appeared in American Greatness, on May 13, 2022.) By far, the best way to stabilize the dollar is to return to the system that worked for most of our history, that was the foundation of America’s storied prosperity—a gold-standard system. With a gold standard, there would be no inflation. There was no inflation during the gold standard era in the late 19th century, an age of historic wealth creation that, in many respects, has yet to be equaled even today. No inflation, however, does not necessarily mean an end to fluctuating prices. Prices will continue to rise and fall in response to changes in supply, demand, and productivity. A gold-pegged dollar, however, would remove the price distortion that occurs with any level of inflation. It would allow prices to convey real market values. In other words, gold would enable money, for the first time in decades, to completely fulfill its role as a measure of worth and a facilitator of transactions. People conducting business in the marketplace would have a tool that really works. Commerce would boom. A gold standard would not only eliminate inflation. Studies have shown that the number of major financial crises have dramatically risen in the fiat-money era since 1971. No economic crisis was ever caused by stable money. The connection between sound money and a prosperous economy has been demonstrated repeatedly. This is illustrated not only by the historic wealth creation of the 19th century, but also the industrious, post-war years of the 1950s and ’60s, when the world was on the Bretton Woods gold standard. In the words of economist Judy Shelton: “We had maximum shared growth. It wasn’t just the wealthiest at the expense of the poorest. It was shared. Everybody was moving up [ . . . ] All around the world, you had
How Russia Can Go To A Gold Ruble #6: Long-Term Solutions
Now that some of the crisis atmosphere has passed, discussion has turned to more long-term considerations. How Russia Can Go To A Gold Ruble series Let’s identify some of these big-picture issues. Until recently, the Russian ruble has been a sort of lesser satellite of the USD and EUR, in the manner of most low-quality emerging market currencies. This goes back even to the Soviet Union. The currency reform of 1961 established a fixed exchange rate with USD, at 90 rubles per $100. Although this was somewhat imaginary under the Soviet system, the domestic ruble did maintain a pretty high real value until a crisis at the end of the 1980s. During the Tsarist era, the “ruble” was a silver-based currency standard of steadily depreciating value, similar to France’s livre tournois. During the 18th and 19th centuries, there were a variety of ill-fated experiences with paper currencies. Russia got its act together at the end of the 19th century, in 1885, when the ruble was reliably linked to gold. Or, semi-reliably since there was a devaluation in 1897, possibly related to the decline in silver vs. gold after 1870. This continued until WWI, which ended with hyperinflation and the Bolshevik Revolution. In other words, Russia’s history of currency management is not very good. It was no worse than some other countries of that time, but definitely not in the top class of countries including Britain, Germany, France and the US, whose currency reliability during the 19th century, and even in previous centuries, was very good. What we tend to see is that currency reliability has something to do with national character. Some countries are pretty good at it (the English-speaking countries, and their Germanic cousins), and some countries are notably bad at it (the Spanish-speaking countries, especially in Latin America).
How Russia Can Go To A Gold Ruble #5: Recent Events
After talking about broader principles for a while, and letting the present situation calm down a bit, let’s see how things have been shaping up in Russia. How Russia Can Go To A Gold Ruble series The ruble has had a splendid rise vs. gold, actually exceeding the 5000 rubles/gram goal expressed earlier. This translates into 155,517 rubles per troy oz., while the recent value was 125,601 rubles/oz., or 4,038 rubles/gram. As you can see, there was a broad plateau around 130,000 rubles/oz. so maybe they are taking advantage of the recent situation to return to somewhere around that previous plateau. Also, as we can see, there isn’t much of a close link for the ruble to gold at 5000/gram. This has been accompanied by a few official developments. MOSCOW (BLOOMBERG) – Russia is exploring whether to link the value of the rouble to gold and other commodities, Kremlin spokesman Dmitry Peskov said. “This question is now being discussed,” Mr Peskov told reporters on Friday (April 29). The idea was raised publicly by Security Council Secretary Nikolai Patrushev in an interview with a state-run newspaper this week, Mr Peskov said, offering no further details. Unprecedented sanctions on Russia’s central bank over the invasion of Ukraine deprived it of access to about half of its holdings, leaving it in possession of only gold and yuan. Before the war, President Vladimir Putin repeatedly argued that Russia needs to cut dependence on the dollar as a global reserve currency. Speaking with Rossiyskaya Gazeta, Mr Patrushev said experts are examining proposals to back the rouble’s value with gold and other goods as part of an alternative system of finance that guarantees a measure of sovereignty and reduces the link to the dollar. This is vague talk, which is fine for now. The important thing
How Russia Can Go To A Gold Ruble #4: Common Modes of Failure
We’ve been looking at how Russia can go to a gold standard right now, perhaps at 5000 rubles per gram of gold. How Russia Can Go To A Gold Ruble Series There is evidence that the Central Bank of Russia has indeed begun to do this, with the ruble definitively reaching its 5000/gram parity late last week. We will not talk so much about current events today, but rather, the common ways in which central banks mess up bigtime — including the Central Bank of Russia in 2015, and also in 2008-9 before they got their heads on straight in February 2009. It is the same pattern we see in Thailand in 1998, and many other cases, including Britain in 1931 and also the United States in 1971. In other words, we will talk not only about how to achieve a gold parity momentarily, but to keep it permanently, over decades and even centuries. As I said last week, the basic method to manage a currency’s value is: To REDUCE the base money supply when the currency is weak, via asset sales; To INCREASE the base money supply when the currency is strong, via asset purchases. The basic problem emerges when there is the sale of some asset — typically foreign exchange reserves or gold bullion — to support the currency’s value, but the base money supply does not contract. This asset sale is “sterilized” by the purchase or acquisition of some other asset (or lending), which results in little change to the base money supply. For example, in 2008-9 we see: November 24, 2008: Russia’s Currency CrisisJanuary 16, 2022: What’s Wrong With Turkey #2: Making It Way Too Complicated Last week, we talked about the large reduction in Base Money in February 2009, the result of “brick wall” selling
