Thursday, August 19, 2010
Tuesday, August 3, 2010
The first is a clip from "Rollover", a 1981 film where the dollar collapses following a massive withdrawal of dollar funds from American banks by the Arabs, following some type of scandal in the gold market.
Second is a documentary made in the Netherlands. It is centered primarily on how it would affect Europe and has some very interesting interviews, including Peter Schiff.
Part 1 (of 6): http://www.youtube.com/watch?v=SrNl1Lkho0c
Sunday, July 18, 2010
The Japanese Yen is the largest and most important currency in the world, after the Dollar and Euro, yet I hear almost no talk about the incredible appreciation. And what is even more astounding is that the BOJ has held rates at 0.1% and Japan has a massive national debt, yet they have so far unable to prevent this appreciation against the dollar. What this says about the world financial system I am not sophisticated enough to fully diagnose, but I wish it would get more press!
Tuesday, July 13, 2010
The Bahamas conch shell dollar is a simplistically beautiful coin that I very much admire. It captures the spirit of the Bahamas and coastal living without needing a complex allegory or an overly detailed scene. It is also interesting because sea shells were used as money in some aboriginal cultures, so it is somewhat analogous to how some coins depict wheat stalks, fish, or fur-trade animals (like the beaver or buffalo). The imagery, face value, and metal composition creates continuity between ancient barter, early money, silver money, and modern fiat.
It is .4666 ounces of silver. I am not sure what its purity is.
The paper money system is an evil which punishes those who believe in it. Just like any other confidence game, what you need to do is to say in your own head, “One cannot get something for nothing,” and then you are free. Immediately you know what you have to do. You know exactly how the present system started. In 1933, the Democratic Party said, “We’re going to rob from the rich and give to you.” Rob they did. Take from the rich? Not a chance. Once you voted for rob, you became a victim. It is just like those people who play the state lottery. They lose and lose and lose, but their heads are full of big winnings around the corner.
-Howard Katz, July 12 2010, The Chart Is True
Sunday, July 11, 2010
Friday, July 9, 2010
"A study of the markets show that the short term is hard to trade, and on this level most people lose. The path to success is to play the big moves. The big money is made in the big moves. The big moves are easy to trade. You get on board the trend. You do not try to catch the exact top or bottom. You just ride the trend and let it make money for you. Look at some of the big trends of our era: silver 1971-1980, up 38 times, gold 1970-1980, up 25 times, DJI 1982-2007, up 18 times, S&P 1982-2007, up 15½ times. In every one of these, as the trend was just beginning to lift off, the vast majority of people decided that the market was much too high and chickened out. I have mentioned the gold bug who, in 1972, with gold at $65/oz., gave up his hope that it would ever hit $70. There was Robert Prechter, who forecast DJI 3,600 in the early 1980s, gave up too soon and remained stubbornly bearish from 1987 to today. If you don’t need the psychological comfort of having others agree with you, then you have the mental toughness to make it as a speculator."
-Howard Katz, June 28th 2010, The Art of Speculation
My favorite silver of this week is a set of fractional bullion coins that hearken back to the most basic foundations of Western liberty, government, and mindset - the ancient Greeks and their citizen soldiers, the Hoplites. I wrote my senior thesis for my history degree on how Greek culture shaped their brand of warfare on the battlefield, so I could go on for quite a while, but I'll spare you and show the shiny stuff:
These 1/2 ounce, 1/4 ounce, and 1/10 ounce .999 silver fractionals are called "sovereign silver", which is appropriate on several levels. I actually don't know what company actually manufactures them, but they are available here: http://thesilvermerchants.com/buy-silver/100-ounce-sovereign-fractional-set
(I have never done business with the website they are sold on, so I in no way recommend or endorse it - hopefully they are a good dealer because I think I need some!)
Friday, July 2, 2010
Only the Austrians Understand Interest RatesPresented by Robert P. Murphy at "Austrian Economics and the Financial Markets," the Mises Circle in Manhattan on 22 May 2010 in New York, New York. Includes an introduction by Mises Institute president Douglas E. French.
Tuesday, June 29, 2010
Monday, June 28, 2010
"Gold is valuable for no other reason than human beings like shiny metal things. If squirrels ran the global economy, they would probably have an acorn-standard because they like nuts - there is no fundamental difference."
This statement is not entirely true since the supply of gold is finite, but I found it amusingly appropriate given the name of this blog.
Saving occurs when an individual or corporation does not consume a portion of the wealth they have created, but instead, sets it aside or stores it for future use. People or organizations do this for a number of reasons. First, it protects them from temporary disruptions in their future income flow, like the squirrel who saves nuts for the winter. Second, it allows them to take advantage of opportunities that may arise in the future, such as a drop in price of a certain asset they desire or the emergence of a new industry, which they can then acquire because they have wealth in reserve. But thirdly, and most importantly as it pertains to macro-economics, saving is the only means by which there can be large scale capital investment and increased productivity in the economy.
Only by saving can the amount of funds available to business be sufficient for large-scale capital investments, research, and other improvements (note: in the short term, artificial central bank credit can take the place of savings as the source of funding for growth, but this is neither sustainable nor wise as I will explain). Installation of a new “state of the art” robotic automotive assembly line, for example, cannot generally be paid for out of current income streams - especially in a competitive industry where profit margins can be quite small. The money must either come from the companies cash savings, the issue of corporate stocks or bonds (which are purchased with individual or institutional savings), or most likely in the form of a loan from a financial institution (which its lends from it’s depositor’s savings).
For an even simpler example, imagine a primitive society that is living “hand to mouth” in the forest. In order to advance to the next economic stage - an agricultural society - they must first save enough food to tide them over while they are clearing land, tilling the fields, and waiting for the first harvest. They must create excess food and forgo consuming it, so that they can then be sustained by it while they make capital improvements on the land and create capital goods like hoes, plows, etc and new structures like granaries, grain mills, etc. This is because the more advanced economy requires a greater delay between initial investment and first returns.
The same holds true for advancing from an agricultural society to an industrial society - enough savings must be created in order to finance the building of factories, the research into manufacturing technique, the opening of mines and other raw materials sources, and the hiring and training of many workers. All these steps must somehow be financed prior to the factory making a profit; there must be an existing pool of savings to use up or borrow from in order to get the factory off the ground.
The same principle applies in today’s economy. There is often a gap of many years between the initial research into a new field of technology and that technology’s mass production for general use in society. How is this paid for in the interim between conception and sale to the public? It must be paid for by loans from savings and investment from savings. The necessity of savings in order for future growth to take place is universal. Wealth must be stored instead of consumed immediately or society never advances beyond the hunter-gatherer stage. It is not just necessary in the production process, but generally to the running of any business that may require loans for capital goods, from restaurants to barbers to colleges to law firms - almost all businesses need credit in order to improve or expand. When there is no savings, there is no credit. Without savings, banks have no money to lend …. unless …
Some politicians and central bankers think they have found a way around this economic rule by printing money and simply giving it to the banks, or by loaning it to the banks at very low rates of interest. This accomplishes six things, all of them negative.
1. Artificial money creation devalues the other existing units of currency due to the principle of supply and demand - more currency is printed, but the same amount of goods still exist in the real world. Therefore, there are more currency units vying for the same number of real assets, which drives the prices higher, thus robbing everyone who is a saver of those currency units. This discourages savings because people would rather spend the money now than save it as it loses its value over time.
2. Low central bank rates distort the rate of return paid on savings accounts, certificates of deposit, corporate bonds, and other common savings instruments to the downside. This occurs because banks do not want to pay a depositor 5% interest, for example, when they can get the same amount of money lent out from the central bank at 1%. Then, this lower rate trickles into all other interest bearing instruments because the rate of return on demand deposit savings has been reduced, thus making other forms of savings more appealing, even at reduced rates. With more people and dollars bidding on anything with a decent interest rate, the rates fall. This is partly the explanation for why 10-year US Treasury rates are so low right now despite the massive increase in money supply, which, one might think, would cause investors to demand a higher rate in order to compensate for inflation. In this environment, the saver is hit with a two-pronged attack of simultaneously higher price inflation and lower interest rates on savings. Even if interest rates stay the same, the real rate of return diminishes due to inflation. This is a recipe to reduce saving to net zero or even a negative rate, which occurred in the United States.
3. A vicious cycle develops, because as fewer people save, more artificial credit must be created by the central bank in order to keep the party going. This can be clearly seen by looking at a graph of Federal Reserve interest rates in recent years. And because artificial credit creation acts as a stimulant (at least for awhile), a boom cycle often takes place and financial “bubbles” are formed. This happens because there is more business expansion (due to easy credit) and higher asset valuations (due to inflation and perceived future value based on false growth assumptions) than there is real savings to justify. 4. When interest rates are too low, it is easier to borrow. Therefore, with the combination of low rates and perceived economic boom, more long-term investments are made than are actually prudent. For example, more houses are built and sold because it costs less to borrow the money and people assume that they will go up in value as the economy “expands”. Now where have we seen that before?
5. Because of the problems #1 and #2, anyone who wants to stay ahead of inflation and find a truly high-yield investment must increase their risk in order to achieve this. People are more willing to accept higher-risk investments (such as sub-prime mortgage-backed securities) because it the only way they can stay ahead of inflation and because the perceived economic growth gives them undeserved confidence in their risk-taking. When money flows into poor investments instead of sound ones, as well as when asset values are artificially high, it causes serious economic imbalances that can only be sorted out by a recession or creative destruction in the market place.
6. Because recessions and depressions are highly unpopular, politicians and central bankers do everything they can to avoid them. Specifically, they create yet more artificial stimulus and credit, which only makes the underlying problems of inflation, low savings rates, bubbles, imprudent loans and debt loads, and high-risk malinvestment worse. They put off the pain as long as possible instead of dealing with the problem, like a wounded soldier who, instead of going through the painful task of stitching up his wound, opts to simply keep taking morphine until he bleeds to death.
On an individual basis, the only way to protect yourself from these disastrous effects is to become a silver (or golden) squirrel. While all the other animals are eating birdseed and breadcrumbs from the Fed and assuming the Fed will be scattering them out forever, you can be burying nutrition-dense walnuts and acorns for the winter. In the Spring, you will be fat and healthy, and the other animals who ate out of the Fed’s hand will have starved.
Saturday, June 26, 2010
|Below I am re-posting an article from Kitco.com. It is magnificent! It contains so many things which I intend to cover in this blog in the future, such as old European coin standards, the thaler, the role of silver in commerce, etc. I own some thalers as well as early Hungarian coins from the 1500s, so I will be discussing some of the topics brought up by Professor Fekete. The thaler became the basis for the 8 Reale and the 8 Reale was the basis for the US Dollar - both were standards of international trade for many years. Most importantly though, Professor Fekete calls for FreeGold (essentially) in this article! (see: FOFOA blog) So, I will analyze this article and its themes in the future, but for now I just wanted to get it posted because it is extremely valuable reading.|
Architecture for a New World Financial System
The Symposium was held at the historic town of Hall in Tirol, Austria, for a good reason. Hall in Tirol (just east of Innsbruck) had been the “monetary capital” of Europe for centuries.
It all started in 1477 with the moving of the Mint from Meran in South Tirol (now part of Italy) where it had been operating since 1271, to Burg Hasegg in Hall, by Archduke Sigismund of Austria (1427-1496). At the same time the Archduke instituted important monetary reforms. He opened the Mint to silver. As a result, silver mining was revived in the valleys of Tirol, and new mining methods and technology were developed. Ultimately, the much-debased coinage of Medieval Europe was replaced by sound currency that brought heretofore unprecedented prosperity to the people of Renaissance Europe. The currency reform of Archduke Sigismund has laid the foundations for the architecture of a new world financial system.
The coins issued by the Mint were revolutionary in several respect. The fineness of silver coins was 937. Prior to this date, practically no silver had been coined in Europe. The size of silver coins was also increased, first from 4 to 6 Kreutzers and again, in 1484, with the introduction of the half-guldengroschen, from 6 to 30 Kreutzers. The runs were still small. The real revolution occurred in 1486, when the size of the silver coins struck at the Mint was doubled, and serial production was introduced.
As the fifteenth century drew to a close, coinage throughout Europe was in a shambles. The financing of ceaseless wars between dukes and kings over territorial disputes was largely done through the debasement of the silver coinage. The fact that the rate of debasement differed from country to country, from dukedom to dukedom, only made matters worse. Trade, investment, and progress were hampered by the lack of uniform, easily recognizable, and reliable means of payment.
The Great Debasement of Middle Ages in Europe was akin to the debasement of coinage a thousand years earlier, culminating in the collapse of the Roman Empire in 480, followed by a breakdown of law and order lasting for centuries. Had the Great Debasement of the Middle Ages been allowed to continue, history would have repeated itself, and another breakdown of law and order lasting for centuries would have followed.
Also, there was an incessant drain of silver from Europe to Asia, especially to India, Indonesia, and the Far East, representing payments for exotic Oriental goods such as spices, porcelain, silk, and other fine fabric and cloth. The word „consumerism” could be applied to this period as well, meaning the „conspicuous consumption” of the aristocracy. Just as today, the one-way trade from Asia was sapping the resources and threatened the prosperity of Europe.
The demand for reliable and uniform silver coinage to finance expanding trade was met by the currency reform of Archduke Sigismund. As more silver was coming from the mines due to improved mining technology, minting technology was also changed to make large mintages possible. Mass production methods in striking silver coins were introduced. Previously, coins had been struck individually by hand from single blanks. No wonder that issues were small. In 1486 the Mint in Hall introduced silver strips to replace silver blanks, and installed machinery to strike silver coins serially from the strips. The machinery was made of wood and was powered by hydraulics, but was still strong enough to allow doubling the size of the silver coin from 30 to 60 Kreutzers (from 5 to 10 Groschens). Thus was the historic Guldengroschen coin, nicknamed the guldiner of Hall born. It served as prototype of the other historic coin 30 years later, the thaler.
In 1490 Archduke Sigismund ceded his control of Tirol, rich in salt and silver (both having monetary importance) to his cousin, the future Holy Roman Emperor Maximilian I (1459-1519), a towering historical figure, recognized as the second founder of the House of Habsburgs. Their names are shining in the monetary history of the world. History books assert that the Modern Age started with the discovery of America by Columbus in 1492. They got it wrong. The Modern Age started with the opening of the Mint to silver in 1487 by Sigismund and Maximilian.
The father of Maximilian, Emperor of the Holy Roman Empire, Frederick III, suffered a great setback in his fortunes when the king of Hungary, Mathias Corvinus occupied the Habsburg capital Vienna in 1485. He had to pay for his defeat a second time as well: next year the electors forced him to give up his title as the King of the Romans and elected Maximilian in his stead (while he could retain his title as Emperor until his death in 1493).
Maximilian I was crowned in Aachen on April 9, 1486. This important event was followed by the first issue of the Guldengroschen, struck from silver found in Schwaz near Hall, in 1487. The new coin was an instant and unqualified success. Indeed, it was a landmark in the monetary history of the world. The silver coin soon reached world-class status as its mintage beat all earlier records, and its circulation spread all over Europe. Naturally, the success of the guldiner soon attracted imitators in every dukedom of Europe with a silver mine.
The winner among these imitators was the Joachimsthaler nicknamed “thaler” (from which the English word “dollar” was derived). The silver came from the rich mines of Joachimsthal, or Joachim’s Valley, in Bohemia (today, the Czech Republic). Saint Joachim, the husband of Saint Anne and the father of the Blessed Virgin Mary, is commemorated by the first thaler struck 30 years after the inauguration of the guldiner in 1518. It was of similar physical size but had slightly lower fineness. It became the standard for silver coinage for almost four hundred years in Europe and, later, in America.
The market dropped the guldiner and embraced the thaler. The Mint in Hall had to turn to the production of thalers of which it struck 17 million specimens during the 20-year period from 1748 through 1768 alone.
Burg Hasegg was built in the late 13th century. It housed the Mint from 1477 through 1806 when coin production ceased partly because of the Napoleonic wars, partly because of the exhaustion of nearby silver mines. The Mint in Burg Hasegg is a museum now, open to the general public. It displays minting presses at their various stages of development, including (a replica of) the first mass-producing minting press utilizing silver strips instead of silver blanks. Demonstrations of historical printing techniques are given from time to time. The castle itself is an example of early Gothic era Tirolean fortress architecture, with an impressive watchtower, the Münzerturm.
On June 9, 2010, I climbed the 204 steps leading to the top observation deck of Münzerturm. It offers an unparalleled view of the valley of the River Inn and the mountains enclosing it. There was a guestbook, in which I wrote the following sentence:
Open the Mint to Gold Again!
Let us hope that world leaders will have the wisdom of Archduke Sigismund and Emperor Maximilian I who opened the Mint to silver, thus saving European civilization from further decay, ushering in the “Silver Age” of prosperity.
Once again, both civilization and prosperity are in grave danger as a result of spiraling monetary debasement and one-way trade from Asia to Europe, threatening the West with capital destruction and shrinking employment. This trend can be reversed only through a return to sound currency. Opening the Mint to gold would usher in a new “Golden Age” of prosperity.
The Great Financial Crisis
The present Great Financial Crisis is far from over. In fact, it is getting worse. It can be described as a debt crisis or, at its roots, a belated gold crisis. The landmark year was 1971, when the United States defaulted on its international gold obligations. Now there have been many defaults in history, but the one forty years ago was unique in that it exiled gold from the international monetary system; thereby gold has been prevented from discharging its natural function as the ultimate extinguisher of debt ever since.
When you pay a debt of $100 by writing a cheque on your bank account, the debt is not extinguished, it is merely transferred to your bank. If you pay it by handing over a $100 Federal Reserve note, the debt is not extinguished either but is transferred to the Federal Reserve bank that has issued the note. Ultimately the U.S. Treasury is responsible for all the liabilities of the Federal Reserve. Under these monetary arrangements the total dollar debt outstanding can only grow, never contract, even if there is a net reduction of debt in the economy. All debt presumed to have been extinguished will ultimately show up as an increase in the indebtedness of the U.S. government. No matter how you look at it, the desire to retire debt is frustrated by the lack of an ultimate extinguisher in the system. The consequences are frightening.
Let’s draw a biological, nonetheless valid and convincing analogy by looking at the human metabolism. The elimination of toxic waste from the human body is of paramount importance. Bowel movement and passing water are the two main forms of excretion. If either of these processes is blocked permanently, death becomes inevitable. It is no different with the economy, albeit death may be longer in coming. The economy uses credit all the time, and some of it will turn out to be toxic even in the best of circumstances. If there is no way to eliminate this toxic waste from the system, that is to say, if there is no ultimate extinguisher of debt, then death is near. In the world economy, gold is the main agent of detoxification.
The tragedy is that the captains of the world economy refuse to realize that runaway debt is the logical consequence of their having exiled gold from the international monetary system in 1971. They try to cure the bad effects of too much debt, or the presence of toxic debt in the system by introducing more of it. They have no idea how total debt could be decisively reduced and toxic debt safely eliminated.
They are playing a very dangerous game with the welfare of the people. When credit collapse finally comes, production disappears, employment shrinks, law and order break down. We are running into an unprecedented crisis with our eyes blindfolded. Wishful thinking will not coax out “green shoots”.
Open the Mint to Gold!
The economic disaster staring us in the face will force the recognition that we have to change course. The present leadership will have to admit that its theories and practices have utterly failed. They will have to give up their position in disgrace, and the new leadership will have to see reality as it is. They must see that gold has a place in the body politic as well as in the body economic. They must return the world to the gold standard which is the only monetary arrangement that provides for an orderly retirement of debt, and is capable of doing justice between consumption and saving. The world needs a new financial system with stable exchange rates, stable interest rates, and stable bond prices. The architecture of this new financial system must involve three principles.
FIRST, the Mint must be opened to gold. What does this mean? It means that if people think that there is not enough money in circulation, they can do something about it. They can take their gold to the Mint and exchange it for the gold coin of the realm free of seigniorage charges, and with no limit imposed on the amount. In other words, they would get gold back in coined form, ounce for ounce, and the cost of minting would be absorbed by the government, the same way as it absorbs the cost of maintaining highways in good repair. Such a regime is mandated by the U.S.
Constitution, and is referred to as “free and unlimited coinage of gold”.
Conversely, if people think that there is too much money in circulation, they should be able to do something about that, too. Owners of gold coins of the realm must have the right to hoard, melt down, or export them as they see fit. In this way the power to regulate the money supply will be vested in the people, rather than in representatives or unelected bureaucrats. When you look at it this way, you realize that the destruction of the gold standard in the 1930’s was a power-grab, pure and simple. The power to create money is unlimited power. As such, it must be reserved for the people. Take it away, and you have overturned constitutional order. Opening the Mint to gold simply means a return to limited government and to the principle of separation of powers. The world-wide regime of irredeemable currency will in retrospect appear as a brief reactionary period in history.
Abolish legal tender protection of paper money!
SECOND, legal tender protection of fiat money must for once and all be declared unconstitutional. This measure is necessary to remove coercion whereby the government can force citizens to provide services against irredeemable promises to pay.
Such coercion was first legalized in France and Germany in the year 1909, five years before the outbreak of World War I. These countries wanted to make sure that their military and civil service can be paid in chits, thus putting the defense and labor force at the disposal of the government, independently of the state of budget and collection of taxes. In this way the electorate was denied its say in deciding whether the planned war is worth the blood and treasure to expend, or when to stop a war already in progress. World War I could have come to an early end but for the legal tender laws. As soon as treasuries had run out of gold, the belligerent governments would have been forced to make peace, unless the electorate agreed to pay for continuing the bloodshed and destruction of property in the form of higher taxes and sending more young men to their death in the trenches.
Bring back self-liquidating credit!
THIRD, Adam Smith’s Real Bills Doctrine should be rehabilitated. Bills of exchange, drawn on merchandise in urgent demand, maturing into gold coins in 91 days (the length of a quarter), must be allowed to enter into spontaneous monetary circulation. The credit represented by maturing bills of exchange — representing a mass of goods moving apace to the final consumer, also known as social circulating capital — is elastic and self-liquidating. It flows and ebbs with the variable need for goods and services. Most importantly, it is liquidated at the time when the ultimate gold-paying consumer withdraws merchandise from the market. For this reason it is not inflationary.
Our financial system lacks self-liquidating credit and, in consequence, the debt tower of Babel just keeps growing until it will topple and bury the world economy under the debris. Real bill circulation would bring back self-liquidating credit. This would guarantee the flexibility of the monetary system not through government coercion but through the voluntary cooperation of the producers and the consumers in satisfying human wants.
It can be seen that the market for real bills is nothing else but the clearing house of the gold standard. In 1918, at the end of World War I, the victorious powers in their wisdom decided not to allow the world to return to multilateral financing of international trade. To be sure, they were sincere in saying that they wished to return to the gold standard, witness Great Britain’s 1925 decision to make the pound sterling once again convertible into gold at the pre-war exchange rate — but only bilateral trade was authorized. This was tantamount to the castration of the gold standard: once its clearing house was amputated, it could not perform.
The victorious powers did this out of spite and vengeance. They wanted to cripple Germany over and above the provisions of the Versailles peace treaty. Forcing bilateral trade upon Germany was equivalent to peacetime blockade whereby the Entente powers could monitor and control Germany’s imports and exports. The measure backfired. The Great Depression and the 1931-36 collapse of the international gold standard was a direct consequence of the forcible elimination of multilateral financing of world trade through real bills.
The measure to eliminate real bills from circulation world-wide had another grave consequence that I have to mention. It destroyed the wage fund of society and became the cause of mass unemployment on a scale never before seen — as predicted by the German economist Heinrich Rittershausen. Real bills alone make it possible to pay workers for producing goods that the consumer cannot purchase before they reach the maturity of a finished good in 91 days. But workers have to eat in the meantime! A substantial part of the social circulating capital is spoken for by the wage fund. Disallowing real bill circulation destroys the wage fund and causes mass unemployment, forcing the government to pay dole to the unemployed. The architecture for a new world financial system may start dismantling the so-called welfare state since, with the return of real bills circulation, the wage fund will be replenished and full employment can be realized.
Outlawing open market operations
The gold standard did not collapse because of its “contractionist tendencies” — as alleged by Keynes. It collapsed because of its clearing system, the bill market was blocked. Falling prices in 1930 were not the cause of the Great Depression: they were the effect. The cause was falling interest rates.
Falling interest rates were in turn caused by the illegal introduction of open market operations by the Federal Reserve of the United States in 1921, following the panic in the Treasury bond market. The Federal Reserve Act of 1913 did not authorize open market operations, quite the contrary. Treasury bonds were not on the list of “eligible paper” acceptable as collateral for issuing Federal Reserve notes and deposits. Federal Reserve credit was supposed to be backed by gold, or real bills maturing into gold. To the extent that Federal Reserve credit outstanding could be backed only by Treasury paper in lieu of real bills or gold, the Federal Reserve bank was found short of collateral and was to be penalized by fines on a progressive scale. Starting in 1921 the Treasury “forgot” to collect the penalty. It was a “sweetheart deal”: in turn, the Federal Reserve banks offered a cozy place in their portfolio to Treasury’s bonds, notes, and bills. Congress was presented with a fait accompli. It had no choice but to legalize the practice of open market operations ex post facto in 1935.
The architecture for a new financial system must rule out such a conspiracy between the government and its central bank. Open market operations must be outlawed as they invite bond speculators to bid up bond prices by promising them risk-free profits. As a consequence, interest rates will have a downward bias. Falling interest rates not only falsify the natural rate of interest; they also cause capital destruction. The gold standard plus outlawing the practice of open market operations will stabilize interest rates at their natural level.
Outlawing the practice of borrowing short to lend long
In addition to outlawing open market operations, the practice of commercial banks to borrow short in order to lend long must also be outlawed. Such a practice ignores the danger that the bank could be caught on the wrong foot when short-term interest rates rise while long term interest rates fall (i.e., the yield curve is “flattening”, let alone “inverting”). This means, in particular, that mortgages are ineligible as collateral to back commercial credit, and commercial banking must be separated from investment banking.
Eliminating double standard in applying the Criminal Code
In drawing the blueprint for the architecture for a new financial system it must be remembered that double standard in jurisprudence is inadmissible. The government and its central bank must be subject to the same Criminal Code as everybody else. Ordinary citizens are not allowed to issue obligations which they have neither the intention nor the means to meet at maturity. If they do, they commit a crime dealt with by the Criminal Code under the heading “fraud”. There is no valid reason to allow the government and its central bank to issue obligations that they have neither the intention nor the means to pay.
Eliminating double standard in applying contract law
In the same order of ideas I mention that no double standard ought to be tolerated in contract law either. In particular, banks should not be exempt from the provision of bankruptcy procedure in case of non-performance on contractual obligations. If a bank fails to pay its sight liabilities in gold as contracted, then it must not be allowed to promote its dishonored paper as money. Depositors ought to be able to press for liquidation of the bank or to avail themselves of any other remedies prescribed by contract law. There is no valid reason to treat banks and financial institutions any differently from other corporations in case they fail to perform on their contracts.
When the Mint in Hall was opened to silver in 1477, Archduke Sigismund and Emperor Maximilian I put the threat of a breakdown in law and order behind them. Their measure ushered in a new financial order promoting peace and prosperity.
In a latter-day replay of the medieval saga, an enlightened government in some part of the world may open its Mint to gold. The initiative would be widely followed, as was that of the Mint in Hall, and the world would be spared of a breakdown of law and order. The measure would usher in a new financial order promoting peace and prosperity.
Antal E. Fekete
An adaptation of the keynote address delivered at the
European BANKERS Symposium
June 9 - 10, Hall in Tirol, Austria
Before the Federal Reserve Bank began to systematically inflate the United States' money supply by the issuance of notes masquerading as instruments properly backed by actual US dollars (see; US Coinage Act of 1792), the cost of a first class letter was 2 cents. Today it is 44 cents, and that is with the USPS losing money (2013 update: now 46 cents). This is an increase of 22 times, or a reduction in buying power of 95.5%. This is roughly equal to what Ron Paul and other hard money advocates say regarding the USD's loss in purchasing power overall. The reason it is not a full 98% (the number that is often quoted as the true debasement) is probably due to advances in mail sorting and transportation efficiency over the technology of the late 1800s.
As you can see, the only time the cost was above 2 cents was during the inflation occurring in the immediate aftermath of the War Between the States and during America's brief involvement in World War One beginning in 1917. However, by 1971, the final death of the quasi-gold standard, the price of postage had quadrupled. By the end of the dollar panic in 1981, the price had increased ten-fold. This was about correct, proportionally speaking, since gold began at $35/oz and settled down in the early 80s in the $300-400 range (a ten-fold increase).
In recent history, there have been postage rate increases every year for the last four years (2006, 2007, 2008, 2009), as the monetary base in the US has increased exponentially.
Rates for Domestic Letters, 1863-2009
Effective Date Postage, in Cents*
Per ½ Ounce
July 1, 1863 3
October 1, 1883 2
July 1, 1885 2
November 2, 1917 3
July 1, 1919 2
July 6, 1932 3
August 1, 1958 4
January 7, 1963 5
January 7, 1968 6
May 16, 1971 8
March 2, 1974 10
December 31, 1975 13
May 29, 1978 15
March 22, 1981 18
November 1, 1981 20
February 17, 1985 22
April 3, 1988 25
February 3, 1991 29
January 1, 1995 32
January 10, 1999 33
January 7, 2001 34
June 30, 2002 37
January 8, 2006 39
May 14, 2007 41
May 12, 2008 42
May 11, 2009 44
Chart Source: United States Postal Service, usps.com
The USPS now has "forever stamps", which one can purchase at the current first-class postage price, but can be used at anytime in the future. Personally, I have no idea why anyone would buy any other stamps. If you had bought forever stamps in 2007, you would have had a roughly 2% rate of return (as of 2010) - better than short-term treasuries, at least. That is obviously not a great increase, but stamps are something most people need regardless, so "forever stamps" are a logical purchase if you are a letter-mailer. In essence, though not legally or literally, "forever stamps" are an inflation-indexed transferable bearer instrument issued by the United States Postal Service. Obviously there is no coupon and they won't cash them for you, but liquidating them on the secondary market would probably not be difficult. The ROI is both low and uncertain, so I would never recommend them as a way to store wealth, but you really can't go wrong picking up a few sheets in lieu of regular postage. More importantly, the cost of postage is good evidence of price inflation in the United States.
Countries that adopt the Euro agree to switch from their old currency at a permanent and irreversible fixed rate. For example, the French Franc is permanently fixed at 6.55957 Francs per Euro. The member countries' respective central banks have discretion as to how long and in what manner they will honor their old coins and banknotes. Some allow for redemption by mail, while others require currency to be redeemed in person. Some allow citizens to redeem by mail, but not non-citizens. Some require you to have a European bank account if redeeming by mail. Some have unlimited redemption and others have set cut-off dates, after which the old currency cannot be redeemed. If you need to check details for a particular currency, you can either go directly to their central bank's website, or the European Central Bank's website (www.ecb.int).
Here is a chart of redemption time limits:
Country --- Exchange of banknotes until --- Exchange of coins until
Belgium ---- unlimited --- 31 December 2004
Germany --- unlimited --- unlimited
Ireland --- unlimited --- unlimited
Greece --- 1 March 2012 --- 1 March 2004
Spain --- unlimited --- unlimited
France --- 17 February 2012 --- 17 February 2005
Italy --- 29 February 2012 --- 29 February 2012
Cyprus --- 31 December 2017 --- 31 December 2009
Luxembourg --- unlimited --- 31 December 2004
Malta --- 31 January 2018 --- 1 February 2010
Netherlands --- 1 January 2032 --- 1 January 2007
Austria --- unlimited --- unlimited
Portugal --- 28 February 2022 --- 31 December 2002
Slovenia --- unlimited --- 31 December 2016
Slovakia --- unlimited --- 31 December 2013
Finland --- 29 February 2012 --- 29 February 2012
Other areas that use the Euro: The Azores, Canary Islands, French Guiana, Guadeloupe, Vatican City, Madeira Islands, Martinique, Mayotte, Monaco, Montenegro, Reunion, Saint Pierre & Miquelon, Saint-Martin, San Marino.
Exceptions to the Euro in Europe are:
Great Britain & Northern Ireland, Pound (GBP)
Sweden Kronor (SEK)
Norway Kroner (NOK)
Switzerland Franc (CHF)
Romanian New Lei (RON)
Poland Zlotych (PLN)
Hungary Florint (HUF)
Estonian Krooni (EEK)
Czech Republic Koruny (CZK)
Croatia Kuna (HRK)
Bulgaria Leva (BGN)
Latvia Lat (LVL)
Lithuania Litas (LTL)
Macedonia Denar (MKD)
Albania Lek (ALL)
Moldova Leu (MDL)
Ukraine Hryvna (UAH)
Belarus Ruble (BYR)
Before converting coins or notes, be sure to check that they are not rare dates or otherwise worth more than their value in Euros. Also be sure that the coins and notes were legal tender in the country at the time that they adopted the Euro. If the currency was already obsolete before the Euro was adopted, you will not be able to change it. If you have a crisp note, chances are that you are better off saving it as a collector item. Ebay is full of pre-Euro notes, many of which are selling at higher than their official conversion rate, though right now it seems that only high-grade notes are consistently bringing a premium.
Personally, I have been collecting coins from Austria, Germany, Ireland, and Spain for several years now because they have no time limit on redemption and are in essence, "as good as the Euro". I was able to redeem several thousand Pesetas in Madrid in 2009, which was quite neat because the Euro coins and notes I received were brand new and uncirculated. There was also a very fine restaurant advertising "Dine with Pesetas", where patrons could pay with the old currency.
I will post more details about Euro conversion in the future if there is any interest.
Below is a picture of the Banco Central De Espana, or Central Bank of Spain. Don't worry if you have a lot of coins - they have a counting machine.
The Spanish Central Bank in Madrid:
"All the perplexities, confusion and distress in America arise, not from defects of the Constitution or Confederation; not from any want of honor or virtue, as much as downright ignorance of the nature of coin, credit and circulation."
So, dear reader, I hope we can learn more about such matters together. The central banks of the world are perhaps the most powerful institutions currently in existence, and therefore it is prudent to understand the things which they control or create.
I was in part inspired to begin blogging by the wonderful blog "FOFOA". FOFOA is based on the ideas from several cryptic internet postings in the late 1990s by an anonymous major player the world gold market. I am in no ways associated with the author, nor do I necessarily agree with everything posted there. I am simply an OCOFOFOA: Occasional Reader Of Friend Of Friend Of Another. My area of expertise is somewhat different, since I plan to write primarily on actual coins and notes themselves, rather than on abstract theory of money, value, and banking. But we'll see what I get into as time goes on.
Oh, I almost forgot, I will probably write a lot about SILVER!!!