Posts Tagged ‘Gold’

For anyone not familiar with the work of Ann Pettifor – one of the few to correctly call the coming of the financial crisis a number of years prior to it arriving, and one of the main proponents of the Jubilee 2000 campaign which cancelled a portion of third world debt – please search for her various articles, lectures and opinions online.

Associated with Keynesian economics and the Labour party, her views may be dismissed by some, however upon closer inspection, I was interested in her view on the creation of money, and what this meant for resolving the debt and economic problems facing the developing world.

She is principally part of the PRIME think tank/research group, which has a number of papers on its site proving an alternative voice on economic issues

The above lecture at the LSE discusses her latest book, ‘The Production of Money: How to Break the Power of Bankers’, and gives an insight into her theories.

What I wish to highlight, are the following;

  • The issue of commodity money, and how scarce resources should not be used as a basis of any monetary system
  • The recognition that a fiat monetary system, can and should be used for the benefit of the population – outside the control of private banks, but in the knowledge that an entirely man-made system should be used to achieve a level of prosperity in all societies
  • There are certainly many socialist aspects to these beliefs, such as exerting capital controls and spending money into existence in terms of health, education and social expenditure thus increasing national debt, however interest ideally should not be necessary when such a system is implemented
  • There are some similarities with what Positive Money are advocating, but it seems there are specific differences, as this discussion points out…

 

 

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One argument which is used to discredit any realistic attempt to return to a gold standard in todays environment of ever expanding money supply, is that currently there is too much money in the system and too little gold to be able to adequately replace one for the other.

Well, Jim Rickards has one answer for us to consider…..

It is true that at today’s price of about $1,300 an ounce, if you had to scale down the money supply to equal the physical gold times 1,300 that would be a great reduction of the money supply.

That would indeed lead to deflation. But to avoid that, all we have to do is increase the gold price. In other words, take the amount of existing gold, place it at, say, $10,000 dollars an ounce, and there’s plenty of gold to support the money supply.

The limiting factor here is not the commodity….but the price itself.

Basic supply and demand economics and its impact on price…..don’t let so-called experts make simple concepts seem impossible. We can’t change the quantity, so change the price! Guess that means the market does not give us a correct price signal in view of this?

I’ve done that calculation, and it’s fairly simple. It’s not complicated mathematics

A Fascinating and extremely pertinent view expressed by MoneyWeek in the following article

A question which has certainly been raised in discussions about the nature and indeed, the durability, of this cryptocurrency, one must decide whether this trend will fall victim to many of the faults of other fiat currencies or does it take of the allure of precious commodities which can potentially outlast humanity itself?

On the surface I cannot think of Bitcoin as anything other than pseudo-fiat, however we may never even know the authority behind it, even if it is everyone of those that use it – can we not fall victim to the same whims of the State? Any man made invention will have its deep flaws and cannot be assumed to be beyond manipulation.

However, I understand the commodity like nature of it too, but as Buffet once remarked about gold, you certainly cannot eat bitcoin, you can’t even touch it, so how much of a commodity can we really think of it as?

..if someone were to hack the algorithm behind a bitcoin, that might have the same effect as a central bank printing money: it could lead to a loss of faith and value. Now there’s an irony! Central bankers are to fiat currencies what hackers are to cryptocurrencies!

My research will continue….

Jim Rickards shares his opinions on the current gold market activity in this article;

http://www.telegraph.co.uk/business/2016/04/17/gold-is-the-spectre-haunting-our-monetary-system1/

Some fascinating insights on the way Dollar wealth can be used for geo political means and how it is the currency denomination, rather than the commodity itself which can determine how effective it is from outside influence and control.

Explore the following link for Jim Rickards explanation of the Tiffin Dilemma which links the US Dollar to global trade and the also to the gold standard and currency preservation….

http://www.capitalandconflict.com/central-banks/triffins-dilemma-and-the-future-of-sdrs-2/

 

A long standing concern with using Gold as sound money is the market in which it operates. Please see previous posts exploring this however a current article from the Telegraph sheds more light on the workings of these mechanisms, further highlighting the extent of the manipulation possible and the lack of transparency – it is a wonder that we still call it a market, since it arguably doesn’t even meet some of the fundamental proponents, namely efficient information and price movements based on real participants trading the commodity.

It is telling how much speculators were able to move the market recently. Some commentators have often ridiculed the extent of their influence when markets work in the right way….whenever that is.

Note also the reference to how controlled the price is relative to the US Dollar – the world’s (great fiat) reserve currency – any thoughts the days of the Dollar were numbered should be tempered. This demonstrates the ability to control Gold through the ‘tool’ of paper currencies and interest rates, let us not think merely changing the base of money will solve our problems, we must reconstruct the entire market and all it stands for.

Emerging markets have borrowed $4.5 trillion in US dollars. The borrowers are vulnerable to a double squeeze from both higher US rates and a dollar spike.

What threatens to become a “margin call” for dollar debtors could ricochet through gold markets as a secondary effect. It may have begun already.

Islamic peer-to-peer cryptocurrency

 

My appreciation goes to a blog reader for forwarding this link;

Bitcoin for Islamic Finance

I am personally highly dubious of any thought of assessing Bitcoin or any crypto-currency as sharia compliant. However the article raises some fair points, in my humble opinion. One argument would be that this is still a medium created by Man, unlike a real commodity.

Moreover, given the impact of the ‘Sharing Economy’ now taking hold via peer-to-peer websites, we need to ask whether money as we know it is essential to all transactions anyway. More on this in an upcoming post…

Make up your own minds, send me your comments