The following article was written by Peter Schmidt. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
When currency was backed by gold, a central bank’s main function was to maintain the value of the issued currency in terms of gold. For example, if a central bank created too much money against the gold reserves in the banking system, an increasing number of people would begin to exchange their currency for gold. To combat this, a central bank would be forced to raise interest rates and decrease the money supply. The higher interest rates would incentivize people to exchange gold for larger savings on deposit that earn interest. Banking reserves – gold – would return to the banking system and the economy would return to balance. The prime reason for insisting on defining currency in terms of a precious metal was to provide a self-correcting braking mechanism to the creation of money. As expressed by the great Wilhelm Röpke:
Up until 1964, silver was literally money in the United States. Dimes, quarters and half-dollars were made from 90% silver. Looking at the value of these silver coins today reveals just how much the US government and Federal Reserve have devalued American money.
Gold tends to get more attention than silver, but the white metal still shines and some analysts believe it is poised to out-perform its big brother. Based on the historical silver/gold ratio, silver is currently significantly undervalued compared to gold.
So, could silver outshine gold in the wake of the next economic crisis? Analyst Dan Kurz thinks it might, and he builds the case in his latest in-dept analysis at DK Analytics.
Have you heard about what’s happening in Argentina?
We talk a lot about the impact of central bank monetary policy on the US economy. We recently made the case that the Federal Reserve is in the process of driving the economy into the ditch. But the Fed’s easy-money policies have also played a role in blowing up bubbles in other economies around the world. Some of those may be in trouble as well.
Argentina’s currency has lost about 12% of its value since April. In a recent article published on the Mises Wire, Economist Daniel Lacalle said the trouble in Argentina could be a signal that we’ve hit a “sudden stop” – when the flow of cheap dollars into an economy suddenly reverses. Once central bank can wreak havoc. Get two in on the action and throw in some irresponsible government policies and you have a real mess on your hands.
Last week, we ran an article highlighting the fact that Venezuelans are better off holding video game money than bolivars.
Whenever we publish an article like that criticizing socialism, we always get some people insisting, “That’s not real socialism.” In fact, they emphatically claim that socialism has never really been tried.
But as Ryan McMaken points out in an article published on the Mises Wire, “real socialism” has been tried – more than once. And it’s failed every single time.
About a year ago, the IMF published a creepy paper offering governments suggestions on how to move toward a cashless society even in the face of strong public opposition. It hasn’t been in the news a whole lot lately, but the war on cash undoubtedly continues.
Governments and central bankers claim moving toward a cashless society will help prevent crime and will boost convenience for the average citizen. But the real motivation behind the war on cash is control over you. We got a first-hand look at what happens when governments restrict access to cash when India plunged into a cash crisis after the Indian government enacted a policy of demonetization in November 2016.
Andy Haldane serves as chief economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England. He proposed the elimination of cash during a speech in the fall of 2015. Durham University professor of finance and economics Kevin Dowd has written a paper titled Killing the Cash Cow: Why Andy Haldane Is Wrong About Demonetization. Dowd wrote an article published by the Mises Wire outlining his arguments. It provides a fantastically detailed overview of the war on cash and why it threatens “widespread economic damage.”
Everything is great!
We’ve heard this mantra over and over again from government officials, TV talking heads and Federal Reserve bankers. But as we’ve been saying, all the optimism in the world can’t trump economic reality. And there are a lot of signs in the global economy indicating everything is not, in fact, great.
Dan Kurz at DK Analytics aggregates large amounts of economic data and forms it into a big picture. In his most recent post, Dan compiled a long list of economic and financial risks lurking out there in the global economy.
You can say, “Everything is great,” all you want. But if it isn’t, it isn’t.
Pundits and politicians keep trying to talk up the economy. They might be able to keep optimism running high for a while, but at some point, expectations will run headfirst into economic reality.
In his most recent podcast, Peter Schiff argued that nobody is ready for the long-term pain that’s ahead. That’s because the mainstream is mostly ignoring the warning signs. By-and-large, the message you’ll get watching CNBC or Fox Business is that “everything is great!” Peter has been hammering on this theme. In an earlier podcast, he noted that everybody is still optimistic about the economy because the stock market is so high.
The Federal Reserve manipulates interest rates, creates money out of thin air, blows up asset bubbles and generally wreaks havoc on the economy. But some people have found an even more insidious problem with the Fed.
It’s not “diverse” enough.
Historian Tom Woods offered up some pretty sharp observations about this latest “outrage” in a recent email. And lest you think this is just a screed against left-wing social justice warriors, he has some sharp words for Republicans too. There’s pretty much bipartisan agreement when it comes to the “indispensable” nature of the Fed.
The Federal Reserve claims to be tightening. According to the conventional wisdom, the Fed will raise interest rates at least three times in 2018 – maybe even four. And last fall, the central bank announced its plan to begin shrinking its balance sheet.
But have you actually looked at the Fed’s balance sheet? Dan Kurz of dkanalytics.com has. In fact, he has dug deep into the Federal Reserves opaque world of financing and concluded all of this talk of shrinking balance sheets and normalized interest rates is pure fantasy.
As sure as night follows day, before all too long the world’s leading central banks will be abandoning both fledgling interest rate increases and QT fantasies (reducing the size of their balance sheets by selling bonds and stocks) out of ‘status quo necessity.'”
Jerome Powell came out pretty hawkish in his public debut yesterday. The new Federal Reserve chairman said he sees little risk of recession and reaffirmed plans to continue tightening the money supply through interest rate increases and quantitative tightening.
My personal outlook for the economy has strengthened since December. I don’t see [the recession risks] as at all high at the moment.”
But there are signals that Powell’s optimism is unwarranted and that the monetary blanket knitted together with nearly a decade of easy money may be about to unravel. In fact, the deceleration in the growth of the money supply orchestrated by the Fed matches the trend just prior to the 2008 crash.
Mises Institute academic vice president, and Pace University professor of economics Joseph Salerno explains in an article originally published on the Mises Wire.