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Another Judy Shelton Sound Money Op-Ed

On May 28, 2010, in Commodities, Our Culture, by Tim

It’s been a while (one hundred days, to be to be exact), but the Wall Street Journal published another in a long running series of sound money commentaries by Money Meltdown author Judy Shelton the other day. Titled The Recovery Starts with Sound Money, just like all the others,  this one is sure to be ignored by anyone in the general vicinity of Washington D.C. or any of the regional Federal Reserve offices.

What government policy makers in the U.S. and Europe fail to realize is that far from being seen as capable of delivering economic salvation, they are increasingly perceived as primary contributors to global financial ruin. Whether it’s the fiscal recklessness of spendthrift politicians or the refusal of government officials to acknowledge failings—distorting mortgage markets through Fannie Mae and Freddie Mac, skewing assessments of credit risk through loose monetary policy—the influence of government over the real economy is proving disastrous.

No wonder people are flocking to gold as they flee government-supplied money.
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It’s hard to see how economic recovery can proceed when citizens suspect that the monetary foundation beneath them is crumbling away. The willingness to work and sacrifice for the sake of future prosperity is a universal human quality—the hallmark of entrepreneurial faith—but people must believe there is a link between effort and reward. Money forges that link by providing a dependable store of value; in doing so, it performs a vital social function.
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The transition to a firmer monetary footing to support entrepreneurial capitalism could be initiated by linking major global reserve currencies to gold and silver—commodities long associated with monetary functions. It would logically begin with the dollar. U.S. citizens could ask Congress to authorize the limited issuance of gold-backed Treasury bonds that would provide for payment of principal at maturity in either ounces of gold or the face value of the security, at the option of the holder.

If my memory of reading history serves, many decades ago it was commonplace for business contracts to written as “payable in x dollars or y ounces of gold” at the payee’s discretion. Of course, that’s a lot easier to do when you’re on a gold standard than when you’re on a paper standard where the gold price in dollar terms rises 20 percent every year.

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The “Loop Current”

On May 28, 2010, in Commodities, Our Culture, by Tim

One man’s depiction of why, despite the disaster in the Gulf of Mexico, things might not change much given the current working relationship between Big Oil and Washington.

From the Jim Morin collection at the Miami Herald.

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Still Clueless About Gold and Paper Money

On May 28, 2010, in Commodities, Our Culture, by Tim

How can you write an entire article that bashes gold (e.g., how it has no intrinsic value, pays no dividend, etc. ) and not once mention the negative attributes of paper money – what replaced gold for good (supposedly) about 40 years ago?

Really! Think about it for a second.You can’t.

Why? Because once you start talking about how you don’t really need a gold standard or anything backing a currency so long as governments and central banks act prudently, you realize that governments and central banks are completely incapable of doing so over long stretches of time and the end result will always be the destruction of the currency.

But that’s what Brett Arends does in this report on investing in gold and, in the process, he quotes famed investor Warren Buffett who also seems to be deficient in this area:

Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
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It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.

Honestly, the Wall Street Journal has been one of the more enlightened mainstream media outlets when it comes to gold, but this really sets them back a few notches in my view.

This is like something that you’d read in Money Magazine.

(more…)

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Where the Dumbest Drivers Are

On May 28, 2010, in Our Culture, by Tim

There’s a moderately interesting survey of driver behavior up over at CNN/Money today. Based on a survey by GMAC, the report shows via an interactive graphic where the worst drivers can be found, what you see below being just one of the many options that can be selected to generate a map of states to avoid when driving cross country.

Who would have known that people changing clothes while driving was even a problem?

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Once the Solution, Now the Problem

On May 28, 2010, in Currencies, Debt, Europe, by Tim

The current issue of The Economist has a couple of good reports about the financial market crisis, now better recognized as a sovereign debt crisis, where governments once viewed as the solution are now clearly the problem. The cover story is excerpted below and the other report is Rescuing the Rescuers.

IT’S not quite a Lehman moment, but financial markets are more anxious today than at any time since the global recovery took hold almost a year ago. The MSCI index of global stocks has fallen by over 15% since mid-April. Treasury yields have tumbled as investors have fled to the relative safety of American government bonds. The three-month inter-bank borrowing rate is at a ten-month high. Gone is the exuberance that greeted the return to growth. Investors are on edge.

What lies behind these jitters? New nervousness about geopolitical risk, with tensions rising in the Korean peninsula, has not helped. But that comes on top of two wider worries.

One is about the underlying health of the world economy. Fears are growing that the global recovery will falter as Europe’s debt crisis spreads, China’s property bubble bursts and America’s stimulus-fuelled rebound peters out. The other concerns government policy. From America’s overhaul of financial regulation to Germany’s restrictions on short-selling, politicians are changing the rules in unpredictable ways (see article). And the scale of sovereign debts has left governments with less room to counter any new downturn; indeed, many of them are being forced into austerity.

The danger is that these fears reinforce each other in a pernicious reversal of the dynamics of 2008-09. Then, co-ordinated government action on a grand scale stopped the global financial crisis from turning into a depression. Now, thanks to incompetence and impotence, governments may become the problem that will drag the world economy down.

As might be expected, few fundamental flaws are seen in the current system, in fact, they conclude by noting that “the fundamentals are reasonably good”, fearing instead that some dumb politician will screw things up once again. If only the world were run by economists…

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Hendry: “I Would Recommend You Panic”

On May 28, 2010, in Banks, Economy, by Tim

In this widely watched BBC video, Hugh Hendry of hedge fund Eclectica Management recommends the world panic over the ongoing European debt crisis and then the group debates whether perpetual bailouts and a much longer slowdown are preferable to a real purging of the system and a much shorter recession that would also see major reforms.

At about the 3 minute mark, you’ll hear Hendry call for the system to be purged, “Let’s take on a recession. It’s going to be tough. People are going to lose their jobs. They’re going to lose their jobs anyway. We can spread this over 20 years or we can get rid of it over 3 years.”

It is somewhat bothersome (to me at least) that most mainstream economists – like Jeffrey Sachs in this clip – just dismiss this sort of talk out of hand, giving little of no consideration to the idea that there are fundamental flaws in the current system that can not be fixed.

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