2010 December 20 | timiacono.com

Tax Cut/Stimulus Bill a Boon for Cartoonists

Just imagine how much funnier this latest batch of cartoons about the rising national debt might be if they weren’t all, for the most part, true.

From the John Cole archive at the Scranton Times-Tribune.

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“We are Now Demonetizing Money”

Manuel Hinds, former finance minister of El Salvador, shares some thoughts on paper money in this Wall Street Journal op-ed today, making a number of very good points about the current global monetary system, all of which should just add to the cognitive dissonance being experienced by mainstream economists and policymakers.

Unbridled monetary printing led us to the collapse of Bretton Woods in the late 1960s and then into the stagflation of the 1970s and early 1980s. Then, after a brief recess that ended in the mid-1990s—the result of Paul Volcker’s refusal to print money during his tenure as Federal Reserve chairman—we returned to trigger-happy monetary creation.

As a result, in the past 15 years we have gone from bubble to bubble, and from bust to bust, printing money first to keep the economy going; then to overcome the bursting of the dot-com bubble, then to sustain a triple bubble of housing, securitized instruments and commodities; then to overcome the effects of the bursting of these bubbles, which is leading to a second commodity bubble and a boom in emerging markets that seem to be waiting to go bust.

This failure should lead us back to the drawing board to re-design the international monetary system, reversing the trend that prevailed during the 20th century. We started that century with a fundamental international currency, gold, which kept its value through time and was widely accepted around the world. We ended the century with more than 150 currencies that change their value constantly and at different rates from each other, in such a way that most currencies are not accepted in most countries.

In pursuance of the illusion that money can remove hard budget constraints, we moved from order to disorder. After demonetizing gold in the 1970s, now we are demonetizing money by debasing and politicizing it.

Mentioning the gold standard that prevailed all over the world during the Industrial Revolution brings about derisory comments, some of them suggesting that the value of gold was based on fetishism. This is a mistake. The gold standard was a highly rational system. It kept prices constant through centuries and provided an automatic mechanism to remove international imbalances, such as those that are creating today’s currency wars, without the help of any international bureaucracy.

The gold standard achieved this not because of any mystical property of gold itself but because it was an impersonal system. Central banks or governments could not tamper with monetary creation. This is what we need today.

And that’s precisely why a return to sound money – in whatever form – is not likely to come voluntarily. It would take power and control away from governments, their central banks, and the rentier class to which they’ve now become beholden.

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An Odd Six Months for GLD?

On Friday, the popular SPDR Gold Shares ETF (NYSE:GLD) made the biggest single-day addition of gold bars to its trust in more than two months – some 15.2 tonnes. But, it’s been a strange second half of the year for the the $57 billion ETF as its gold holdings have been badly trailing the move up in gold prices as shown below.

Note that the scales on the left and right are the same. Prior to 2009, the gold price had been consistently above the trusts holdings when measured in tonnes, however, from early-2009 until the middle of this year, the reverse was true. Today, the gold inventory is down about two percent from its summer high as the gold price has surged more than $200.

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Monday Morning Links

The Case Against Floating Currencies – WSJ
Morici: Downgrade U.S. Treasuries to Junk – CNBC
French AAA Grade at Risk as Downgrades Sweep Europe – Bloomberg
Asians in festive shopping spree as West sulks – ChannelNews Asia
Self-righteous Germany must accept a euro-debt union or leave EMU – Telegraph
What’s not to like about your big, fat bonus? – Washington Post
Debt Pyramid Scheme Now the Norm in America – Bloomberg
Bangladesh investors riot over stock market fall – BBC
Audacity of ‘austerity,’ 2010 Word of the Year – AP
When Zombies Win – Krugman, NY Times

Oil Trades Close to 2-Year High – Bloomberg
Gold draws in safe-haven flows, up for second day – Reuters
Bears Turn Bulls as U.S. Gains From Roiling Markets – Bloomberg
S&P 500’s Most Overbought Close in More Than a Year – Bespoke
Silver ETFs outshine Gold in 2010 – Commodity Online
Cramer: Buy Any Dip in Gold Prices – CNBC
A golden year end? – MarketWatch

Disinflation denial – Money Illusion
Weighing Costs, Companies Favor Temporary Help – NY Times
You Can’t Buy a Ream of Paper on Minimum Wage – Tavakoli, HuffPost
Rising Interest Rates Signal a Bullish Recovery – Fiscal Times
Chinese endure power shortages as coal runs short – AP
High inflation is a cock-up not a conspiracy – Telegraph
Newly Built Ghost Towns Haunt Banks in Spain – NY Times
UK mortgage lending at 10-year low in November – AP
Anatomy of Mortgage Fraud, Part III – HuffPost
Opening the Bag of Mortgage Tricks – NY Times
Bullard: QE2 at Least Modestly Successful – CNBC

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