italy is well progressing on road to argentina
in the mean time, just in in-tray
Below is from today's Bill Fleckenstein's dispatch
Championing the Gold Standard Cause
Now, with the help of Jim Grant, I'd like to talk a bit about paper money, gold, and inflation. In an article headlined "China Channels 'Monkeybrains,'" (Grant's Interest Rate Observer, current issue), Jim provided an excellent discussion on this very topic. He began as follows:
"Too much debt got us into this mess, and too much debt will see us out of it. Socialize the risk of a new cycle of open-throttle lending and cling to the monetary system that assures a repeat crisis. Such, approximately, is the global policy-making consensus. Central bankers and finance ministers have achieved an uncommon meeting of the minds. The cure for what ails us is the hair of the dog that bit us, they prescribe, though not exactly those words."
Jim goes on to ask the $64 trillion question: "In the fad for 'quantitative easing,' when might the laughter turn to tears?" Of course, none of us know that. It probably won't be a unique moment in time but rather a gradual change in inflation -- a phenomenon he defines thusly: "Inflation is not 'too much money chasing too few goods,' but too much money, period."
On the subject of protecting oneself from inflation or money-printing/money debasement, Jim states: "What the fatal, redundant increment of cash chooses to pursue varies from cycle to cycle." That's an extremely important point. As I have stated repeatedly, I continue to look for beneficiaries of money-printing. I think I know that gold and silver (and probably platinum) will serve in that capacity, but there will be others as well. One can't know where the excess money is going to go. One can only have opinions and be alert to clues.
Continuing on, Jim notes another problem with our money-printing "standard" (as opposed to the gold standard): the imbalances that build up, leading to the sort of calamities we experienced last fall and winter: "New under the paper-money arrangements of recent decades is a kind of intrinsic imbalance. The major debtor country loses no reserves even as the creditor countries gain them."
The gold standard is the only monetary system that actually worked over time. Imbalances were self-correcting because when countries got into trouble due to over-consumption, gold left their shores and headed to more prudent countries. Today, it would be on a fast track from the USA to China -- until the "imbalances" were reduced. Were the gold standard to have been in place over the last decade, we would have been forced to rein in our spending/speculating ages ago -- thus preventing the kind of damage that all of this money has inflicted.
Monsieur de Gaulle on Gold
Lastly, in Jim's terrific book "Money of the Mind," there is a quote from Charles de Gaulle from February 4, 1965 that is a very succinct explanation of why gold will always be money:
"It is difficult to envision in this regard any other criterion, any other standard than gold. Yes, gold, which does not change in nature, which can be made into either bars, ingots, or coins. Gold has no nationality, which is considered, in all places and all times, the immutable and fiduciary value par excellence. Furthermore, despite all that it was possible to imagine, say, write, or do in the midst of major events, it is a fact that even today no currency has any value except by direct or indirect relation to gold [my emphasis], real or supposed. Doubtless, no one would think of dictating to any country how to manage its domestic affairs. But the supreme law, the golden rule . . . is the duty to balance from one monetary area to another, by effective inflows and outflows of gold, the balance of payments resulting from their exchanges."
and a follow-on comment note by astute pen pal
"New under the paper-money arrangements of recent decades is a kind of intrinsic imbalance. The major debtor country loses no reserves even as the creditor countries gain them."
the most troubling fact - it is one of the things at the heart of the global credit inflation of the past three to four decades. when the last vestiges of the gold standard were ditched in '71 ,credit growth started to take off (and went increasingly parabolic over time).
the funny thing is, at around the same time credit growth took off, real economic growth began to slow down markedly, and real wage growth began to stagnate - which goes to show that copious amounts of credit from thin air are not the 'lifeblood of the economy' as some politicians and others have been fond of asserting.
the same people of course who say that consumption is the most important facet of economic activity and progress.
the same people who confused asset price inflation with 'wealth creation' and insisted that a zero savings rate was nothing to worry about. |
