How Business Owners Take Cues From Interest Rates

https://www.zerohedge.com/news/2018-06-01/how-business-owners-take-cues-interest-rates

Authored by Frank Shostak via The Mises Institute,

[MD] The Mises Institute is professionally and universally clueless about money. But within that community, Frank Shostak holds the record for irrational thought. In the olden days his clarion call was “money pumping” … as if money could be pumped. Let’s see what he’s up to now.

According to the Austrian Business Cycle Theory (ABCT) the artificial lowering of interest rates by the central bank leads to a misallocation of resources because businesses undertake various capital projects that prior to the lowering of interest rates weren’t considered as viable. This misallocation of resources is commonly described as an economic boom.

[MD] According to the theory of park swings, if you push on a swing, it will oscillate. What in the world does Shostak think the business cycle is but the money changers farming operation? We here at MD know that a “real” money process does not allow any such perturbations … thus this is a non-sequitur. Now let’s watch him sequitur.

As a rule businessmen discover their error once the central bank – that was instrumental in the artificial lowering of interest rates – reverses its stance, which in turn brings to a halt capital expansion and an ensuing economic bust. From the ABCT one can infer that the artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.

[MD] As we love to do here, we point out the nonsense that happens or is imagined to happen without a real money process in operation. What Frank writes about here “can not happen” with a real money process. INTEREST collections are in a bear hug with DEFAULTs experienced. Neither INTEREST nor DEFAULTs are a knob anyone can turn.

Critics of the ABCT maintain that there is no reason why businessmen should fall prey again and again to an artificial lowering of interest rates. Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates. Correct expectations will undo or neutralize the whole process of the boom-bust cycle that is set in motion by the artificial lowering of interest rates. Hence, it is held, the ABCT is not a serious contender in the explanation of modern business cycle phenomena.

[MD] What Frank writes here would be true … if we had a real money process. But we don’t. We have a manipulated money process. What could be more obvious when we see them repeatedly use the term “monetary policy”. A real money process has no such capability … and never will. But the so-called “business cycle” which requires no theoretical examination … is a real tool of manipulation. And it does what it is intended to do … to put traders off balance in a “predictable way” … predictable to those turning the knobs … not to the traders suffering the manipulations.

According to a prominent critic of the ABCT, Gordon Tullock,

One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.1

[MD] Consider an inventory control analogy. If you know exactly what demand will be and have total control of supply, you can have a part arrive at the exact moment a customer comes in to buy it. But if either of those expectations cannot be expected, you must lay in “safety stock” (i.e. surplus for eventualities) to keep service percentage high. Now if someone is artificially manipulating demand or supply for their own benefit, you have two things: (1) A cheater benefiting from his behavior; and (2) A non-optimal process that must pay the cost of defending against the cheater. There’s enough of that going on in business without having it being done covertly and overtly to the money itself … especially in the name of “price stability” and “full employment”.

Even Mises himself had conceded that it is possible that some time in the future businessmen will stop responding to loose monetary policy thereby preventing the setting in motion of the boom-bust cycle.

[MD] No they won’t. In the inventory control example, the businessman statistically observed the supply and demand patterns. When they are noisy and unpredictably cyclical, he must lay in more safety stock. When they’re highly predictable, he can trim his safety stock dramatically. Let’s see what the “Mises” genius himself has to say on the subject.

In his reply to  Lachmann he wrote,

It may be that businessmen will in the future react to credit expansion in another manner than they did in the past. It may be that they will avoid using for an expansion of their operations the easy money available, because they will keep in mind the inevitable end of the boom. Some signs forebode such a change. But it is too early to make a positive statement.2

[MD] Idiot! The businessman has no choice. He must serve his customers in the face of any eventuality. Picture him going to his bank and saying he’s not going to pay his mortgage this month because of “tightening” but fear not, next month there will be “loosening” and I will make both payments then.

Do Expectations Matter?

Now, a businessman has to cater for consumers future requirements if he wants to succeed in his business.

So whenever he observes a lowering in interest rates he knows that this most likely will provide a boost to the demand for various goods and services in the months ahead. Hence, if he wants to make a profit he would have to make the necessary arrangements to meet the future demand.

[MD] What is Shostak arguing for? He hasn’t made a demand to institute a “real” money process to make this manipulation impossible.

For instance, if a builder refuses to act on the likely increase in the demand for houses because he believes that this is on account of the loose monetary policy of the central bank and cannot be sustainable, then he will be out of business very quickly. To be in the building business means that he must be in tune with the demand for housing.

[MD] Actually, he’s better to be in tune with the money changer’s farming operation. That’s the tune that is being played.

Likewise, any other businessman in a given field will have to respond to the likely changes in demand in the area of his involvement if he wants to stay in business.

If a businessman has decided to be in a given business this means that the businessman is likely to cater for changes in the demand in this particular business irrespective of the underlying causes behind changes in demand. Failing to do so will put him out of business very quickly.

[MD] But do you see these businessmen or Shostak demanding the institution of a real money process? I wonder if Shostak will demand anything to deal with this manipulation problem.

Hence, regardless of expectations once the central bank tightens its stance most businessmen will “get caught”. A tighter stance will undermine demand for goods and services and this will put pressure on various business activities that sprang up whilst the interest rate stance was loose. An economic bust emerges.

Furthermore, even if businessmen have correctly anticipated the interest rate stance of the central bank and the subsequent changes in the growth rate of money supply, because of the variable time lag from money changes to its effect on economic activity it will be impossible to establish the accurate timing of the boom-bust cycle.

[MD] Frank. Read some history! Thomas Jefferson wrote in 1802 “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” And even if he didn’t write it, it’s absolutely true and obvious.

Due to the time lag, prior changes in money supply could continue to dominate the economic scene for an extended period. (Given that the time lag is variable, it is not possible to ascertain when a given change in the money supply growth rate is going to start to dominate the economic scene and when the effect of past changes in money supply is going to vanish).

We can conclude that correct expectations cannot prevent boom-bust cycles once the central bank has eased its interest rate stance.

The only way to stop the menace of boom-bust cycles is for the central bank to stop the tampering with financial markets.

[MD] And the only way to get them to do that … since they’re doing it “on purpose for their farming operation”  … is to INSTITUTE A REAL MONEY PROCESS TO COMPETE WITH THEM. Asking them kindly “please don’t do that” isn’t going to work.

Deviant Investor: Debt Ceiling Delusions and Dollar Difficulties

Debt Ceiling Delusions and Dollar Difficulties

Read:  Harvey, Irma, Gold and Bad Options

MD: Notice that  Deviant Investor represents himself as a “non-traditional perspective”. And then he rejects us in moderation for being “unorthodox”. Go figure.

Here at MD we have no illusion about what money is. We see all governments as just traders. And we see all governments for the irresponsible traders that they are … they never deliver on their money creating trading promises … they just roll them over … and that’s just plain counterfeiting.

Now let’s point out where the Deviant Investor just plain “doesn’t get it”!

 

Guest Post from Clint Siegner, Money Metals Exchange

Those who paid any attention to the financial press last week saw the following narrative; President Donald Trump betrayed Republicans by cutting a deal with Democrats Nancy Pelosi and Charles Schumer. They agreed to punt on the borrowing cap until December and spend $15 billion for hurricane relief.

MD: So what? The borrowing cap is an illusion. It does not exist in practicality. Every time they pretend it does, it results in a paid holiday for government workers … and them moves right on up.

Americans are supposed to conclude that Trump is flip-flopping, and that Republicans aren’t responsible. Dig just a little, and you’ll find only one of those things is true.

Trump is flip-flopping, no question about that. The president campaigned on promises to honor the borrowing limit. This tweet from 2013 is what candidate Trump had to say on the matter: “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!”

MD: Man is this guy deluded! He’s recognizing Republicans (presumably in contrast to Democrats), admitting to be one, and is embarrassed by what Trump is and does? Surely he jests!

But any implication that Republican leaders in Congress actually oppose more borrowing is patently false. Republicans in Congress overwhelmingly supported the deal. It was passed in the House with a vote of 316 to 90. The Senate voted 80 to 17.

MD: Leaving me with “Trump is Flip Flopping” is the truthful statement?

Some who voted in opposition likely only did so for the sake of appearances. Others thought the president and Democrats did not go far enough. GOP leaders Paul Ryan and Mitch McConnell wanted a deal to suspend the borrowing cap for much longer than the 3 months they got.

Make no mistake – lots of Republicans share the commitment to unlimited borrowing with the President and Democrats.

MD: I agree. They should have unlimited “money creation” privileges as should all traders (within principled reason … you shouldn’t be able to create money to build a General Motors from scratch). But, as with all irresponsible traders, they should have an interest load commensurate with their propensity to default. In their case, that is 100%. Therefore, they effectively cannot create money (the borrowing metaphor is a fiction). Institute a proper MOE process in competition with theirs, and the debt ceiling no longer moves in any direction but down … until they prove themselves to be responsible traders … which of course they never will do.

At least the currency markets seem to have gotten it right. Last week’s decline in the dollar may be a recognition the debt ceiling – the final pretense of borrowing restraint – will soon be going away. The sooner investors at large arrive at this conclusion, the better it will likely be for owners of hard assets.

MD: With a proper MOE process (i.e. real money) there is no such thing as a “currency market”. The “real” money (best denominated in HULs … Hours of Unskilled Labor” never declines or increases. In a proper MOE process, money is every bit as hard as gold (but easier to trade with). Gold isn’t money at all … and never has been. It’s just a clumsy and expensive and inefficient stand-in for real money … it’s just stuff like cement blocks are stuff.

 

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Thanks to Clint Siegner

 

Cafe Hayek: About prices

Bonus Quotation of the Day…

by Don Boudreaux on September 12, 2017

… is from the opening paragraph of Chapter III, section 5, of James Mill‘s 1821 Elements of Political Economy (original emphases):

The benefit which is derived from exchanging one commodity for another, arises, in all cases, from the commodity received, not from the commodity given.  When one country exchanges, in other words, when one country traffics with another, the whole of its advantage consists in the commodities imported.  It benefits by the importation, and by nothing else.

DBx: UPDATE: There is one modification to make to Mill’s statement: when producers – domestic and foreign – are better able to take advantage of economies of scale in production and distribution because of access to larger numbers of consumers, consumers – domestic and foreign – also gain in the form of greater output and lower prices of those goods and services.  That is, by allowing the prices of some domestically produced goods to fall, freer trade that enables domestic producers of those goods to take advantage of the economies of scale that enables production to take place at lower per-unit costs benefits domestic consumers in a way in addition to greater access to imports.

MD: This has always perplexed me about the Mises Monks and their Austrian Economics. Why are they so fixated on prices. Prices are strictly a perception between two parties in a trade. When they have negotiated a trade to the satisfaction of both, that perception is the same for both. It has nothing to do with any other trader or trade (unless the traders themselves choose it to be).

A “proper” MOE process cares absolutely nothing about prices … ever. And by its very process, it guarantees that the money in and of itself has zero influence on prices … perpetually … and everywhere.

Cafe Hayek: Public Interest

From Quotation of the Day

[I]ndividuals within the bureaucratic structure often possess wide discretionary powers to lay down rules of procedure, allocate the funds among the competing demands, or develop standards for performance.

MD: This reveals an obvious flaw in bureaucratic structures. It reveals an obvious reason why governments and their bureaucracy are not the way to address issues.

In each case, the bureaucrat who makes the decision will be motivated to some extent by his own private cost and private benefits rather than those of Congress or those which might be genuinely defined as public interest.

MD: Actually it’s much worse than stated here. Special interests now actively pursue positions in bureaucracies (being subsidized by their special interest) to further those special interests. They become an “attachment” to an existing government … and eventually take it over from within.

Bureaucrats are themselves no different from anyone else, and they will act so as to preserve and to advance their own career prospects.

MD: Actually they are very different from anyone else. They are under-skilled, competitive yet incapable of competing, and they are power hungry. It takes a special personality with a defect to be a government worker. Anyone given a choice of work in the private sector or public sector will choose the private sector … unless they are power hungry.

Hence, unless these prospects are tied directly to the public interest, the inherent inefficiency in bureaucratic process will tend to dissipate, at least to some degree, almost any collective effort to achieve social betterment.

MD: The “public interest” can never be ascertained. All that acting in the public interest does is to declare some individuals as being outside the public domain. Every action taken in one person’s interest is an action against another person’s interest.

Cafe Hayek: An Odd Tic

An Odd Tic

by Don Boudreaux on September 12, 2017

MD: I really don’t have much to add to embrace the concept being discussed here. It is right on. Anyone who has read the Federalist Papers and particularly the Anti-Federalist papers will know the Federalists had two principle reasons for forming a union: (1) To use the union to bully the merchant’s competition. (2) To use the union to protect the merchant’s practices. It was all about what was good for the merchants … not for the people. They only thing they needed the people for was to pay for it.

Government is “never” the solution to such issues. Governments create the problem in the first place and government  applied to the solution just exacerbates the problem … and leads to wars.

One of oddest tics exhibited by protectionists who otherwise have pro-free-market sympathies is to insist that the government of their country (say, the United States) use punitive tariffs and other trade restrictions in order to countervail the market-distorting effects of the policies of foreign governments.  There are many problems with this specific argument for protectionism (again, not least that, in practice, it is aimed only at those policies of foreign governments that are believed to artificially lower the prices of those countries’ exports; it is never aimed at those policies of foreign governments that make the prices of those countries’ exports higher).

But here I note only that it is especially odd for people who allegedly understand and celebrate the virtues of free markets to justify protectionist restrictions on the grounds that these restrictions will allegedly countervail or “adjust for” whatever market distortions are (or are asserted to be) unleashed by the economic interventions of foreign governments.  It is odd because these particular protectionists – in the U.S., many conservatives – generally distrust their government to act wisely, prudently, skillfully, knowledgeably, and apolitically when meddling in the economy.  And yet as soon as the stated particular reason for intervention is foreign-government misdeeds that allegedly distort the American market, these free-market types – these free-market conservatives – lose all of their skepticism of their own governments’ abilities to intervene wisely, prudently, skillfully, knowledgeably, and apoloticially.

Cafe Hayek: Should There Also Be “Queue Controls”?

MD: What Cafe Hayek says in this article is so obviously true it is scary that they even have to say it. But then Cafe Hayek doesn’t know what “real” money is either … and that is scary too.

Should There Also Be “Queue Controls”?

by Don Boudreaux on September 7, 2017

in Prices, Reality Is Not Optional, Seen and Unseen

Here’s a letter to another person who caught a radio interview with me this morning:

Mr. Kasim Wagner

Mr. Wagner:

Thanks for your e-mail.

You write that “it plainly is wrong for anyone to force people to pay higher prices for supplies in disaster areas” and, therefore, “government’s duty is to protect people from this greed.”

First, I agree that it’s wrong to force people to pay higher prices.  But we’re not talking about forcing people to pay higher prices.  Every buyer is free not to pay higher prices.  Of course, those people who don’t pay higher prices don’t get the goods.  Yet people are no more forced to pay whatever prices they pay because of natural disasters than they were forced to pay whatever prices they paid before any natural disaster became a reality.  All of those prices are paid voluntarily – a fact that is both economically and ethically relevant.

Second, if you truly believe that it’s unethical for anyone self-interestedly to cause consumers’ costs of acquiring much-needed goods to rise significantly, then you must believe that it’s unethical for people to rush into, and to stand in, the long lines that occur whenever there are shortages of goods.  Every person standing in front of Jones in a line of consumers hoping to buy, say, bottled water self-interestedly puts his or her own welfare ahead of that of Jones.  Each of those persons standing in front of Jones – both by increasing the chance that the store will run out of bottled water by the time Jones reaches the front of the line, and by increasing the amount of time that Jones waits in line – raises Jones’s cost of acquiring bottled water.

Do you believe that the individuals standing in line in front of Jones are unethical?  Should government, in addition to imposing a ceiling on the monetary price that people pay for bottled water, also impose a “queue ceiling” on the number of people who stand in line to buy bottled water?  If, as I suspect, your answer to each of these questions is “no,” why do you believe that government should prohibit only those increases in the costs of acquiring a good that take the form of increases in the monetary price of the good?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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Deviant Investor: War on Cash Backfires

War on Cash Backfires

Guest Post from Clint Siegner, Money Metals Exchange

Indian Prime Minister Narendra Modi launched a surprise attack on cash in late 2016. He gave Indians a few days to convert the two largest denomination bills then circulating to bank deposits, after which point any undeposited notes would become worthless. The move was intensely controversial. Transactions completed using cash represented the vast majority of economic activity in the country.  [Editor: See note below!]

MD: When looking at individual transactions, cash represents the majority of economic activity in any country. When you’re talking about “real” money, “all” transactions are in cash. And all cash transactions are totally anonymous. This is different than saying “money creation” is anonymous. With “real” money, “all” money creation is transparent. This means anyone can see who is creating the money and under what terms and how they are performing on delivering on those terms. And they can see this is real time.

In order to sell the program Modi employed a familiar strategy. He vilified the users of cash as tax cheats and criminals. He promised the measure would punish black marketeers, boost the Indian economy, and increase tax revenues. The latter may be true – forcing transactions onto the grid is good for nosy bureaucrats trying to impose taxes and controls.

But it now appears Modi’s claims about the amount of criminal activity tied to cash and promises of economic growth were nonsense.

 

The official argument was that cash is an indispensable tool for black marketeers. The reform would catch many of these “criminals” with piles of cash they would be unwilling to declare and deposit. That argument fell apart last week when the Indian central bank reported that 99% of the outlawed bills were converted to deposits. Turns out very few “criminals” were punished.

MD: So, did they reverse the policy?

Meanwhile the Indian economy is paying the price. Growth has slowed significantly and some estimate as many as 5 million jobs have been destroyed by the demonetization of cash. More and more Indians are angry.

MD: Why would that be? What transactions that were being done in large denominations quit being done altogether?

They didn’t enjoy the upside promised by Modi. Instead, they suffered massive economic disruption and loss of privacy. Perhaps India’s experience will provide an object lesson elsewhere in the world where bankers and the political elite are waging a similar war on cash.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Thanks to Clint Siegner, Money Metals Exchange

Note: Voltaire understood the process over two centuries ago. He said, “Paper money eventually returns to its intrinsic value – zero.” (Voltaire, 1694-1778)

MD: And that is correct. It’s only money when the promised delivery is in process. On delivery, the money is returned and destroyed.  And during the delivery process, the money itself never has intrinsic value. It doesn’t need it … just like 1965 when we proved that coins didn’t need silver content to be useful to traders. So what?

Unbacked debt based fiat currencies (dollars, euros, pounds and most others) that possess no intrinsic value are devalued by central bankers and governments.

MD: This is nonsense. When you know what money is, you know “all” money is “fiat” … and that is no issue at all. Governments counterfeit money. They don’t create it with a trading promise on which they intend to deliver. And counterfeit money is obviously not real money and is not tolerated at all in a proper MOE process.

And with “real” money there is no such thing as a central bank. There is no need for one. And with “real” money, the value of the money itself never changes. That is guaranteed by the process itself … a process that maintains perpetual perfect balance between supply and demand for the money itself.

With “real” money, the ideal unit of measure is the HUL (Hour of Unskilled Labor). This unit (like the ounce … and unlike the ounce of gold) has never changed over all time. It has always traded for the same size hole in the ground.

They do it because it benefits the political and financial elite and appears beneficial in the short-term. History shows the supposed benefits of devaluation are nonsense, but they keep trying…..

MD: And they couldn’t keep trying with a “proper” MOE process and “real” money. The process would exclude them from the playing field with its natural negative feedback system … i.e. mitigating defaults immediately with interest collections of like amount.

Fiat paper money and political power do not mix well. The people — not the political or financial elite — pay the price.

MD: Counterfeiting and political power are a “natural” mix. And it is correct: counterfeiting results in inflation … and that hurts responsible traders. The problem is not in the “fiat”ness of the money … it’s in the counterfeiting by the governments.

It has happened before and will happen again. Gold and silver are good alternatives to devaluations by governments and central bankers.

MD: Gold and silver are only good for a very short time when counterfeiting finally results in a reset. In the normal operation of a “real” MOE process, gold and silver play no role whatever. They are just clumsy inefficient stand-ins for real money. They can’t compete with real money except at reset time … which never occurs with a “proper” MOE process … because counterfeiting is not tolerated by a proper MOE process. With our current process (and all historical MOE processes), counterfeiting is not only tolerated, it is required. Governments need the inflation to sustain themselves and the money changers, that institute those governments for their protection, need the fictional “time value of money” to demand tribute and run their farming operation (i.e. business cycle).

Gary Christenson

The Deviant Investor

MD: Gary Christenson and the Deviant Investor need to “get a clue” … but they won’t because they’re in the gold selling business.

 

Cafe Hayek: in Complexity & Emergence, Economics, Hayek, Philosophy of Freedom

 

MD: This article illustrates how poorly the Mises Monks write. It also illustrates how they analyze a problem to death … totally failing to recognize that the problem they are analyzing is totally irrelevant.

Quotation of the Day…

by Don Boudreaux on September 4, 2017

in Complexity & Emergence, Economics, Hayek, Philosophy of Freedom

… is from page 60 of one of F.A. Hayek’s greatest essays, his 1945 lecture “Individualism: True and False,” as this essay is reprinted in Studies on the Abuse & Decline of Reason, Bruce Caldwell, ed. (2010), which is volume 13 of the Collected Works of F.A. Hayek (original emphases):

To the accepted Christian tradition that man must be free to follow his conscience in moral matters if his actions are to be of any merit, the economists added the further argument that he should be free to make full use of his knowledge and skill, that he must be allowed to be guided by his concern for the particular things of which he knows and for which he cares, if he is to make as great a contribution to the common purposes of society as he is capable of making.  

MD: One sentence … 91 words … no concepts … no coherent thesis … and he mixes two fictions … religion and economics. What’s not to love about the Mises Monks. What it does seem to properly say is: A society must be very advanced for an economist to be perceived of value. No society can get large enough for an economist to “really” be of value.

Their main problem was how these limited concerns, which did in fact determine people’s actions, could be made effective inducements to cause them voluntarily to contribute as much as possible to needs which lay outside the range of their vision.  

MD: See what I mean about analyzing a problem to death … a problem that is irrelevant? I guarantee you, in the olden days before anyone could even say “economist” or “christian”, someone struggling with a tree branch too large for them to place would immediately get help from another human standing by. No instruction manual, advanced inbred degree, or analysis required.

What the economists understood for the first time was that the market as it had grown up was an effective way of making man take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’.

MD: I wonder if the Mises Monks ever stand back and realize: It takes a very very large society indeed to find anything about the Mises Monks to be of redeeming value. If you need sand poured out of a boot, you’re sure not going to go to a Mises Monk … even in an advanced society.

DBx: Here’s Sheldon Richman on “Individualism: True and False.

Cafe Hayek: How much government … how much force.

 

Quotation of the day …

by Don Boudreaux on September 3, 2017

in Reality Is Not Optional

MD: To the “gold is money” folks, reality sure seems to be optional.

… is from page 719 of the 2007 Liberty Fund edition (Bettina Bien Greaves, ed.) of Ludwig von Mises’s 1949 treatise, Human Action:

MD: Mises Monks quoting from their bible.

The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.  Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

DBx: You might believe, as Mises himself believed, that a peaceful and prosperous society requires some minimum amount of government.

MD: And you might believe that the camel requires some minimum amount of his head under the tent.

Or you might believe, as most people believe, that a peaceful and prosperous society requires a great deal of government.  Or you might be a comrade who longs for complete and detailed government design of, and control over, all of our economic activities.  Wherever you stand on the spectrum of “minimum, nightwatchman government to Soviet-style state control,” you must never forget that the ultimate distinguishing feature of the state is its ability to issue dictates that are enforced with coercion.  And this reality does not disappear when state decisions are made democratically.

Every state erects statues to its most successful operatives, flies its flags gloriously high in the sky, conducts its business in imposing buildings, adorns its officials with impressive titles and honorifics, and – above all – assures its subjects that it possesses a superhuman capacity to know and to care, and that it uses this capacity always and only in ways that make the state an indispensable boon to everyone over whom it reigns.  Yet behind all this pomp and fine display are iron fists and spiked boots.

MD: … and money that is not real.

Deviant Investor: Gold: New 2017 High

Gold: New 2017 High


Guest Post from Stefan Gleason, Originally Published on
Money Metals Exchange

Gold’s naysayers and doubters came out in full force earlier this summer as sentiment reached its nadir. The mid-year pullback in prices did, too.

There can be no doubt about it now – gold has broken out of its summer doldrums. On Monday, the yellow metal finally broke through the longstanding $1,300/oz resistance zone to make a new high for the year at $1,316.

MD: Can you imagine how boring this would all be if we had “real” money? “There can be no doubt about it now — real money has broken out of it summer doldrums of 1.000 HULs. On Monday, the ideal media finally broke through the longstanding 1.000 HULs resistance zone to make a new high for the year … and the decade … and the century  … at 1.000 HULS.

Assuming the breakout holds, the next upside target is $1,375/oz, the high point for 2016.

MD: “Assuming the breakout holds, the next upside target is 1.000 HULs, the high point for the millennium.

There are plenty of bullish factors behind gold’s recent upside momentum to continue pushing prices higher in the days and weeks ahead. The gold mining stocks are starting to show relative strength again. And the U.S. Dollar Index appears to have begun another new down leg this week, falling Monday to a two-and-a-half-year low.

MD: Now really. How can these twerps think gold is money?

Another bullish factor is geopolitics. Gold gained a few more dollars in early trading Tuesday morning in Asia after North Korea launched a missile over Japan. Japanese Prime Minister Shinzo Abe said, “Their outrageous act of firing a missile over our country is an unprecedented, serious and grave threat and greatly damages regional peace and security.”

MD: Real money is “never” affected by geopolitics … or any other kind of politics for that matter.

On any ordinary news day, this dangerous provocation from North Korea would be the top story on all the cable news channels. Hawks would be calling on the U.S. to retaliate, and doves would be warning of the potential for millions of deaths in the event war breaks out in the densely populated region.

For now, though, the unprecedented flooding caused by Hurricane Harvey is the Trump administration’s top priority. Early estimates are that the storm has caused $40 billion in damage. Water levels are still rising in Houston, and surrounding areas extending to Louisiana, so the scale of the catastrophic losses stemming from 11 trillion gallons of water will continue to grow in the days ahead.

MD: Real money is never affected by weather calamities … or earth shaking calamities … or run away fires. In fact, that’s when it really shines. Traders will create money (i.e. make trading promises spanning time and space) immediately and begin repairs and rebuilding. They will be unconstrained in creating this money. And they can make promises spanning 5 or 10 years with periodic payments to prove performance and maintain the negative feedback loop. Responsible traders will enjoy zero interest load. And all traders will enjoy zero inflation. Life is good.

Several major oil refineries have been shut down by the storm. However, crude oil production is little affected. Oil inventories are expected to build even as gasoline prices rise (gasoline futures jumped 3% on Monday).

MD: You really have to wonder about this reporting. They reported that the refineries would be shut down for as much as a month. And they reported they’re tapping the strategic oil reserve for crude oil. Now what in the world is that crude oil supposed to do without refineries?

The disaster is bringing Americans from disparate backgrounds and worldviews together, united in a common purpose to help provide relief to those in need. Perhaps Congress will set aside some of its partisan acrimony when it goes back into session next week. Unfortunately for taxpayers, though, outbreaks of bipartisanship are usually associated with emergencies that cause both sides to agree on even more spending.

MD: Somebody (this writer) needs to ask themselves “what is the purpose of congress?”

The political pressure to make sure federal agencies are equipped to handle Harvey relief efforts (which will be ongoing for months) figures to be overwhelming. Conservatives who had aimed to force concessions in an upcoming budget fight may conclude that they now have no leverage to do so.

MD: With real money, the agencies couldn’t do this. They couldn’t create the money to do it because they are deadbeats. They never return the money they create. But with real money the agencies wouldn’t be needed to do this in the first place.

President Donald Trump so far hasn’t backed off his vow to pursue border wall funding even if Congress refuses and a government shutdown occurs. But a government shutdown in the aftermath of a major natural disaster could be a political disaster for whoever gets blamed for it.

MD: The only thing bad about a government shutdown is that we continue to pay the government workers for overtly doing nothing rather than covertly doing nothing. A permanent government shutdown would be oh-so-refreshing.

With so many risks hitting investors this week, it’s no surprise that the gold market is benefiting from safe-haven inflows.

MD: Now reconcile that with your “gold is money” meme!

Silver is benefiting as well. Although the silver market has not yet hit a new high for the year, prices advanced nearly 2.5% Monday to close above the 200-day moving average.

If silver can now start showing leadership, that would be bullish for the entire precious metals complex. The gold:silver ratio currently stands at about 75:1. Gold is still trading at a high price historically relative to silver.

The ratio can move rapidly to the downside when silver prices are surging. That was the case from late 2010 to early 2011, when the ratio dropped from the high 60s to the low 30s. An even bigger move could be in store for those who buy silver now, while the gold:silver ratio is still in the 70s.

MD: I can just picture this writer sitting on the beach and giving us a play by play of the waves coming in. I wonder if he would even move to claiming the waves are money.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

 

Thanks to:  Stefan Gleason, Originally Published on Money Metals Exchange