What happens when central banks push interest rates to zero – in some cases below zero – and hold them there for nearly a decade?
You get debt.
Lots and lots of debt.
Record levels of debt, in fact.
You can add Poland to the list of countries buying gold.
The Polish central bank added about seven tons of gold to its reserves in July and another two tons in August, according to International Monetary fund data. It was the largest gold purchase by Poland since 1998.
For the last 10 years, central banks have been on a gold-buying spree. At least some of them have.
On net, central banks globally added 193.3 tons of gold during the first half of 2018, according to World Gold Council data. That represents an 8% increase over 2017. The last time we saw this kind of central bank buying was in the 1950s, but as a report published by Forbes points out, the motivations are much different now than they were then.
Does gold still matter?
A lot of people dismiss gold and precious metals as irrelevant to the world monetary system. But how can money be irrelevant?
Liechtenstein-based Incrementum AG managing partner Ronald-Peter Stöferle joined Mises Institute president Jeff Deist to talk about all things gold, including why it is still money and an important part of the global financial system.
In a world drowning in debt, the US stands out, according to the International Monetary Fund.
Global debt has reached record levels. According to a recent IMF report, the world has amassed $164 trillion of debt. That comes to 225% of global debt to GDP, levels not seen since the peak of the 2008 financial crisis when combined public and private sector global debt-to-GDP hit 213%.
We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
Over the last couple of months, we’ve focused a lot of attention on the stock market bubble. But some analysts say we should be watching the bond market bubble. Last summer, former Fed chair Alan Greenspan issued an emphatic warning: Beware, the bond bubble is about to burst. And when it does, it will take stock prices down with it.
Last week, Mint Capital strategist Bill Blain issued a similar warning.
The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market.”
The following article by Louis Rouanet was originally published at the Mises Institute FedWatch.
Although today high levels of inequality in the United States remain a pressing concern for a large swath of the population, monetary policy and credit expansion are rarely mentioned as a likely source of rising wealth and income inequality. Focusing almost exclusively on consumer price inflation, many economists have overlooked the redistributive effects of money creation through other channels. One of these channels is asset price inflation and the growth of the financial sector.
The rise in income inequality over the past 30 years has to a significant extent been the product of monetary policies fueling a series of asset price bubbles. Whenever the market booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble.
The following article by Ryan McMaken was originally published on the Mises Wire and is reprinted with permission
Earlier this month in the Wall Street Journal, James Grant explored the latest academic attack on the gold standard — this time in the form of One Nation Under Gold by financial journalist James Ledbetter.
Not that the establishment economics profession needs another book trashing gold. Among the university- and government-employed PhDs who hand down their wisdom about economics from on high, few have anything but disdain for the yellow metal.
Grant knows this all too well.