Investors worldwide are buying gold. No surprise, as portfolios are seriously damaged given the bloodbath created in broad markets in the first months of 2016.

Since February of 2016, U.S.-based funds have invested most in precious metals. After the Brexit, those funds added $2 billion, according to Reuters. SPDR Gold Shares was especially popular, taking in $1.4 billion over the week, while U.S. Treasury funds reeled in $864 million.

“Fund investors bid up gold and other precious metals prices during the seven-day period ended July 6 as markets took cover following Britain’s June 23 vote to exit the European Union, a process often referred to as Brexit.”

Even more interesting is the latest trend among Japanese investors. They are not only flocking to gold, but they are buying and storing particularly in Switzerland. That is because of continued negative interest rates and fears of currency depreciation as “the government grapples with the heaviest public debt burden in the developed world,” according to Bloomberg.

In the first six months of 2016, Japanese investors spent 62% more on buying gold in Switzerland compared to the same period in 2015. Japanese investors are truly concerned about the economic and financial future of their country, given the unprecedented monetary policies of their central bank, leading to a continued plunge in their currency.

Bloomberg released the following chart which reflects how horrible Japanese interest rates are (10-Year government bond yields). The chart also shows Swiss interest rates which over the long term follows the same path as Germany’s yields. The big difference between Japan and Switzerland, however, is that the Bank Of Japan has a balance sheet that truly exploded in recent years, which, combined with a continued Japanese currency, is a recipe for future turmoil.

These data points prove yet another time that, if anything, gold remains the go-to safe haven asset. Moreover, probably more interesting for Gold And Liberty readers, Switzerland has clearly not lost its luster when it comes to ultra-safe storage.

The post Japanese Investors Flocking To Switzerland To Buy And Store Gold appeared first on Gold And Liberty.

by Matt Erickson from www.PatriotCorps.org

The last of the Amendments of the Bill of Rights, the Tenth, is as exceptional as the others, declaring:

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

The essence of the Tenth Amendment is that the States individually reserved all the powers which they didn’t collectively delegate over to the federal government.

Qualifiers must be inserted into that broad statement, of course, because within the Constitution, the States also voluntarily relinquished, back to the people at large, some of the powers which the States had previously exercised but were thereafter prohibiting themselves from exercising, such as the power to emit bills of credit (the power to issue a paper currency).¹

The principle of reserved powers is actually inherent within the delegation of enumerated powers. Thus, by the very structure of the original Constitution, the principles of the Tenth Amendment were in force even before it was ever formally proposed and ratified as an amendment. The ratification of the Tenth Amendment simply validates and acknowledges this strict constitutional principle openly and unambiguously.

The Preamble to the Bill of Rights informs us that the amendments therein (including the Tenth) help to “prevent misconstruction or abuse” of federal powers and help extend the ground of “public confidence” in the general government.

But do they today?

Does the Tenth Amendment today actually help prevent the abuse of federal powers? Does it today extend public confidence in the federal government?

Sadly, it doesn’t, or at least not anywhere near as it should. In fact, by most measures, the Tenth Amendment appears quite impotent.

The Tenth Amendment forms the central basis of the horribly-misnamed “States’ Rights” movement, an otherwise welcome effort to place appropriate brakes on unauthorized federal powers and return them back to the States.²

The Tenth Amendment serves as an appropriate rallying point for patriots, although sadly it also stands today as the shaky foundation for all sorts of false assertions alleged by otherwise well-intentioned patriots, who continuously assert burdensome federal powers in apparent excess of the Constitution are ‘unconstitutional’.

When tested in court, the powers in question, time and again, however, are upheld as within the power of the federal government to exercise.

So constitutionalists cry ‘foul’ even louder, but this burying of one’s head in the sand is without effect, other than in failing to provide an effective barrier to the federal government from getting larger and ever more powerful.

It is as if strict-constructionists are missing something of profound importance; as if they don’t understand something among the most basic of constitutional principles.

So the source — the Constitution — is studied further, only nothing is discovered because conservatives study the same information from the same incomplete mind-set which wholly misses the point of how government may ever act in apparent contradiction to the Constitution.

To these lost patriots, the exceptional Tenth Amendment appears as a dead-letter and the other limitations imposed within the Constitution, impotent.

But what if the exceptional Tenth Amendment is not a dead-letter; what if it simply has an exception which constitutionalists entirely overlook or otherwise foolishly ignore?

To understand what is transpiring under their very noses, strict constructionists cannot afford to ignore any constitutional principle, no matter how seemingly-irrelevant it appears to their case at first glimpse.

The question which patriots must ask themselves today, after decades and even centuries of defeat, is whether there is ever a time when the States do not reserve powers unto themselves; i.e., is there ever a time when the Tenth Amendment simply does not apply?

When the States act collectively, the answer is ‘no’.

All powers not delegated to the United States by the States united under the U.S. Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people, whenever the States act together.

But acting individually, that is another thing altogether.

And that is the proper starting point to begin making sense of centuries of government nonsense.

Every State in the Union, has, voluntarily, under Article I, Section 8, Clause 17 of the U.S. Constitution, individually ceded or transferred from their reserved powers, all the rest of those governing powers they have over specific tracts of land and have given these powers and land over to Congress and the U.S. Government, for authorized federal purposes.

In 1791, the States of Maryland and Virginia voluntarily gave up all of their reserved State powers, in a specific area of land not over ten miles square, for the future federal seat (what in time became the District of Columbia).³

And every State in the Union (counting again Maryland and Virginia), has also ceded lands to Congress and the U.S. Government for “Forts, Magazines, Arsenals, dock-Yards and other needful Buildings.”

In all of these “exclusive legislative” areas authorized under Clause 17, no longer does any State have any reserved powers, other than in the latter areas States often reserved one or more powers, such as to serve civil process.

In these Article I (Section 8, Clause 17) cessions of power, one State here individually cedes all powers except those specifically and explicitly reserved in their cession law.

Even if a State reserved some other named power (beyond the power to later serve legal papers upon persons found within the lands they gave up), it is imperative for patriots to realize that this cession of power is wholly opposite normal (collective) cessions of State power to the federal government under Articles VII and V, of ceding only named powers and reserving all others.

Cessions of State power under Article I cede all power except what are explicitly named in a reservation of powers!

The cessions of power in both Articles VII and V (combined) and those in Article I therefore wholly oppose each other and are as different as the night is from the day.

Due to such differences, one must realize therefore that the forms of government created under these two mutually-exclusive cessions of State power are themselves mutually exclusive and stand at opposing ends of a political spectrum.

Under the whole of the Constitution, the Congress and U.S. Government were delegated enumerated powers together only with the necessary and proper means to implement those named powers.

Throughout all the States of the Union, outside of exclusive legislation areas, the whole of the Constitution and all of its limitations (including the Tenth Amendment) apply.

This normal Republican Form of Government has but limited power which federal officials and members of Congress are utterly powerless to move beyond or expand.

But in the government seat and exclusive legislative jurisdiction forts and ports, here members of Congress and federal officials have a fantastic amount of discretion to govern as they see fit, Federal Tyranny, as explained below.

In exclusive legislative areas, members of Congress and federal officials here act in the place of the State, but when they do, the U.S. Constitution, including the Tenth Amendment, does not here necessarily apply!

The whole of the Constitution was never meant to address the otherwise local powers of Congress for the government seat, only Article I, Section 8, Clause 17 does so.

The Tenth Amendment reserves powers to the individual States, powers which the States did not collectively delegate to the Congress and U.S. Government.

But despite Article VII, despite Article V, despite the Tenth Amendment, a State may voluntarily, under Article I (Section 8, Clause 17), cede lands and the governing power over those lands to Congress and the U.S. Government for allowed purposes.

Only in these exclusive legislative jurisdiction areas does one American government now have all governing power. Everywhere else outside of these exclusive legislative jurisdictions, governing power is divided into federal and State jurisdictions by the express terms of the Constitution.

After ceding all remaining State power, these ceded lands, legally-speaking, are no longer part of a State; they are federal enclaves where members of Congress may exercise exclusive legislation “in all Cases whatsoever.”

Thus members of Congress and government officials here act in the place of a State, as if they were the State, but emphatically neither they nor the lands are a ‘State’.

Since these enclaves no longer form any part of a ‘State’, it is important to realize that no longer does any State Constitution there remain valid.

Members of Congress do not form any part of any State legislature, so they may enact otherwise local legislation for these exclusive legislative jurisdictions without needing to conform to any State Constitution.

Imagine the extent of power which a State legislature could exercise if no State Constitution defined and limited their power. Well, that is the amount of control the U.S. Congress may exercise in these exclusive legislative jurisdiction areas!

And since these federal enclaves are not legally a ‘State’, neither do the limitations imposed upon ‘States’ in the U.S. Constitution here apply!

Thus, the constitutional limits on States, from emitting bills of credit, for example, do not here apply to Congress legislating for the federal seat and enclaves.

Members of Congress may, for the government seat and federal enclaves scattered throughout the Union, emit bills of credit without violating any constitutional principle.

Doesn’t this sound like the extensive authority which members of Congress and federal officials have been known to exercise for decades and even more than a century? Most assuredly.

But this still doesn’t accurately describe the extent of power which members of Congress and federal officials may exercise here in these exclusive legislative areas, because there is here only one constitutional clause which actually discusses the extent of power which members of Congress may here draw upon, and this clause provides them with the enumerated power to legislate exclusively “in all Cases whatsoever!”

How’s that for essentially unlimited government of unimaginable discretion?

Here in federal enclaves, members of Congress and government officials act with and under the powers which one State individually ceded them, not all the States of the Union!

Members of Congress and federal officials do not even have to draw on any of the powers which all the States of the Union ceded them (in Article VII and Article V [although those powers may also be here exercised]) when they legislate for the government seat and enclaves.

In other words, members of Congress and government officials do have the constitutional ability, under Article I, Section 8, Clause 17, to exercise powers far, far beyond the normal limits of all the other constitutional clauses.

Members of Congress and government officials therefore do have the constitutional ability to ignore the Tenth Amendment, for no substantial powers here in the government seat were ever reserved to any State in the Union!

Members of Congress and government officials therefore do have the constitutional ability to ignore the Tenth Amendment, for no substantial powers here in exclusive legislative jurisdiction forts, magazines, arsenals, dock-yards and other needful buildings were ever reserved to any State in the Union!

Once patriots wrap their minds around this fundamental principle of the Constitution, which has always been with us (since the Constitution was first ratified), they may finally begin to make sense of two centuries’ worth of government nonsense, where the government often seemed to have a split personality, as if it had two different rulebooks under which it could operate, even if patriots couldn’t ever figure out the second.

Once strict-constructionists understand that the U.S. Constitution has always allowed for a second form of government, they may finally begin to understand how the government and the courts have long made them look like ignorant fools who don’t know well the Constitution.

The federal government is not a magical genie, nor a wizard with spectacular power (for the whole Union, anyway), but only a government of limited powers which may otherwise exercise extensive power over small tracts of land (which do not extend to the ‘public lands’ of the western States).

Obviously, for increasing their power and influence, members of Congress and government officials choose to operate primarily through the latter, even if they don’t individually and personally know exactly how they may exercise such extreme amounts of power.

The federal government excels only at keeping American patriots in the dark, keeping the true source of its nearly unlimited power well-hidden from prying eyes. It has no obligation to fully disclose its clever methods of deceit and deception, it just has to rule according to (some) law (ignorance of the law is no excuse).

It is time to follow the lead of the dog Toto in The Wizard of Oz, to follow one’s nose to the true source of the stench and pull back the curtain on the man or woman hiding behind the curtain pulling the levers of unlimited government.

It is time to stop concentrating on electing ‘the right person’ to positions of unlimited power, to stop working solely within democratic confines.

It is instead time to start concentrating on upholding proper republican principles of limited government, where it matters little who wins elections because the powers are limited only to those enumerated, together merely with those means both necessary and proper for their implementation.

Read Patriot Quest, a free download at www.PatriotCorps.org for further information and understanding how this constitutional principle of profound importance was ever overlooked and how it may finally be properly contained or eliminated.

See also the websites
www.FoundationForLiberty.org
www.Scribd.com/matt_erickson_6
www.Archive.org

—

Endnotes:

1. See Article I, Section 10 of the U.S. Constitution.

2. ‘Rights’, at least when used in its strict sense (as the Declaration of Independence, Constitution, and Bill of Rights use the term), are unalienable and therefore belong only to people, as gifts endowed us by our Creator.

In contrast to ‘Rights’ held only by people, American governments are delegated only ‘Power’. “States’ Rights” is therefore an oxymoron, a contradiction in terms.

The concept of an American government having inherent rights which cannot be separated from it is antithetical to the fundamental principles of American government.

An accurate term for describing the movement to limit the powers of the federal government (instead of the States’ Rights movement) would instead refer to the Reserved Powers of the States.

3. In 1846, because the Virginia lands of Alexandria were deemed no longer necessary for the federal purposes for which they had been ceded, Congress retroceded Virginia’s lands back to her (and so Alexandria is again part of Virginia and no longer a federal enclave). See Volume IX, Statutes at Large, Page 35.

The post The Exceptional Tenth Amendment and Its Exception appeared first on Gold And Liberty.

This video is a MUST LISTEN. It highlights great thoughts from a great mind: Dr. Ron Paul.

“Proclaim Liberty Throughout The Land …” is full of wisdom from a hero of liberty and freedom. Dr. Paul has dedicated his life to the values of individual liberty, peace and prosperity. His words should be taken seriously, and they contain fundamental educational value for each and everyone of us.

Listen to the quotes from Dr. Paul in this video which collects highlights from throughout the last three decades.

The post Featured Video: Thoughts From A Lifetime Hero Of Liberty appeared first on Gold And Liberty.

By David Galland and Stephen McBride, Garret/Galland Research

The 85-year-old political activist and philanthropist hit the headlines post-Brexit saying the event had “unleashed” a financial-market crisis.

Well, the crisis hasn’t hit Soros just yet.

He was once again on the right side of the trade, taking a short position in troubled Deutsche Bank and betting against the S&P via a 2.1-million-share put option on the SPDR S&P 500 ETF.

More interestingly, Soros recently took out a $264 million position in Barrick Gold, whose share price has jumped over 14% since Brexit. Along with this trade, Soros has sold his positions in many of his traditional holdings.

Soros had recently announced he was coming out of retirement, again.

First retiring in 2000, the only other time Soros has publicly re-entered the markets was in 2007, when he placed a number of bearish bets on US housing and ultimately made a profit of over $1 billion from the trades.

Since the 1980s, Soros has actively been pursuing a globalist agenda; he advances this agenda through his Open Society Foundations (OSF).

What is this globalist agenda, and where does it come from?

The Humble Beginnings

The globalist seed was sowed for young George by his father, Tivadar, a Jewish lawyer who was a strong proponent of Esperanto. Esperanto is a language created in 1887 by L.L. Zamenhof, a Polish eye doctor, for the purpose of “transcending national borders” and “overcoming the natural indifference of mankind.”

Tivadar taught young George Esperanto and forced him to speak it at home. In 1936, as Hitler was hosting the Olympics in Berlin, Tivadar changed the family name from Schwartz to Soros, an Esperanto word meaning “will soar.”

George Soros, who was born and raised in Budapest, Hungary, benefited greatly from his father’s decision.

Allegedly, in 1944, 14-year-old George Soros went to work for the invading Nazis. It is said that until the end of the war in 1945, he worked with a government official, helping him confiscate property from the local Jewish population.

In an 1998 interview with 60 Minutes, Soros described the year of German occupation as “the happiest time in my life.”

Soros’s Venture into Finance

When the war ended, Soros moved to London and in 1947 enrolled in the London School of Economics where he studied under Karl Popper, the Austrian-British philosopher who was one of the first proponents of an “Open Society.”

Soros then worked at several merchant banks in London before moving to New York in 1963. In 1970, he founded Soros Fund Management and in 1973 created the Quantum Fund in partnership with investor Jim Rogers.

The fund made annual returns of over 30%, cementing Soros’s reputation and putting him in a position of power—one he utilizes to this day to advance the agenda of his mentors.

The Currency Speculations That Threw Britain and Asia into Crisis

In the 1990s, Soros began a string of large bets against national currencies. The first was in 1992, when he sold short the pound sterling and made a $1 billion profit in a single day.

His next big currency speculation came in 1997. This time Soros singled out the Thai baht and, with heavy short-selling volume, destroyed the baht’s artificial peg to the US dollar, which started the Asian financial crisis.

“Humanitarian” Efforts

Today, Soros’s net worth stands at $23 billion. Since taking a back seat in his company, Soros Fund Management, in 2000, Soros has been focusing on his philanthropic efforts, which he carries out through the Open Society Foundations he founded in 1993.

So who does he donate to, and what causes does he support?

During the 1980s and 1990s, Soros used his extraordinary wealth to bankroll and fund revolutions in dozens of European nations, including Czechoslovakia, Croatia, and Yugoslavia. He achieved this by funneling money to political opposition parties, publishing houses, and independent media in these nations.

If you wonder why Soros meddled in these nations’ affairs, part of the answer may lie in the fact that during and after the chaos, he invested heavily in assets in each of the respective countries.

He then used Columbia University economist Jeffrey Sachs to advise the fledgling governments to privatize all public assets immediately, thus allowing Soros to sell the assets he had acquired during the turmoil into newly formed open markets.

Having succeeded in advancing his agenda in Europe through regime change—and profiting in the process—he soon turned his attention to the big stage, the United States.

The Big Time

In 2004, Soros stated, “I deeply believe in the values of an open society. For the past 15 years I have been focusing my efforts abroad; now I am doing it in the United States.”

Since then, Soros has been funding groups such as:

• The American Institute for Social Justice, whose aim is to “transform poor communities through lobbying for increased government spending on social programs”

• The New America Foundation, whose aim is to “influence public opinion on such topics as environmentalism and global governance”

• The Migration Policy Institute, whose aim is to “bring about an illegal immigrant resettlement policy and increase social welfare benefits for illegals”

Soros also uses his Open Society Foundations to funnel money to the progressive media outlet, Media Matters.

Soros funnels the money through a number of leftist groups, including the Tides Foundation, Center for American Progress, and the Democracy Alliance in order to circumvent the campaign finance laws he helped lobby for.

Why has Soros donated so much capital and effort to these organizations? For one simple reason: to buy political power.

Democratic politicians who go against the progressive narrative will see their funding cut and be attacked in media outlets such as Media Matters, which also directly contribute to mainstream sites such as NBC, Al Jazeera, and The New York Times.

Apart from the $5 billion Soros’s foundation has donated to groups like those cited above, he has also made huge contributions to the Democratic Party and its most prominent members, like Joe Biden, Barack Obama, and of course Bill and Hillary Clinton.

Best Friends with the Clintons

Soros’s relationship with the Clintons goes back to 1993, around the time when OSF was founded. They have become close friends, and their enduring relationship goes well beyond donor status.

According to the book, The Shadow Party, by Horowitz and Poe, at a 2004 “Take Back America” conference where Soros was speaking, the former first lady introduced him saying, “[W]e need people like George Soros, who is fearless and willing to step up when it counts.”

Soros began supporting Hillary Clinton’s current presidential run in 2013, taking a senior role in the “Ready for Hillary” group. Since then, Soros has donated over $15 million to pro-Clinton groups and Super PACs.

More recently, Soros has given more than $33 million to the Black Lives Matter group, which has been involved in outbreaks of social unrest in Ferguson, Missouri, and Baltimore, Maryland, in 2015. Both of these incidents contributed to a worsening of race relations across America.

The same group heavily criticized Democratic contender Bernie Sanders for his alleged track record of supporting racial inequality, helping to undercut him as a competitive threat with one of Hillary Clinton’s most ardent constituencies.

This, of course, greatly enhances the clout Soros wields through the groups mentioned above. It is safe to assume that he is now able to drive Democratic policy, especially in an administration headed by Hillary Clinton.

Simply, what Soros wants, he gets. And it’s clear from his history that he wants to smudge away national borders and create the sort of globalist nightmare represented by the European Union.

In recent years, Soros has turned his attention back to Europe. Is it a coincidence that the continent is currently in economic and social disarray?

Another Home Run: the Ukrainian Conflict

There’s no doubt about Soros’s great influence on US foreign policy. In an October 1995 PBS interview with Charlie Rose, he said, “I do now have access [to US Deputy Secretary of State Strobe Talbott]. There is no question. We actually work together [on Eastern European policy].”

Soros’s meddling reared its ugly head again in the Russia-Ukraine conflict, which began in early 2014.

In a May 2014 interview with CNN, Soros stated he was responsible for establishing a foundation in the Ukraine that ultimately led to the overthrow of the country’s elected leader and the installation of a junta handpicked by the US State Department, at the time headed by none other than Hillary Clinton:

CNN Host: First on Ukraine, one of the things that many people recognized about you was that you during the revolutions of 1989 funded a lot of dissident activities, civil society groups in Eastern Europe and Poland, the Czech Republic. Are you doing similar things in Ukraine?

Soros: Well, I set up a foundation in Ukraine before Ukraine became independent of Russia. And the foundation has been functioning ever since and played an important part in events now.

The war that ripped through the Ukrainian region of Donbass resulted in the deaths of over 10,000 people and the displacement of over 1.4 million people. As collateral damage, a Malaysia Airlines passenger jet was shot down, killing all 298 on board.

But once again Soros was there to profit from the chaos he helped create. His prize in Ukraine was the state-owned energy monopoly Naftogaz.

Soros again had his US cronies, Secretary of the Treasury Jack Lew and US consulting company McKinsey, advise the puppet government of Ukraine to privatize Naftogaz.

Although Soros’s exact stake in Naftogaz has not been disclosed, in a 2014 memo he pledged to invest up to $1 billion in Ukrainian businesses, but no other Ukrainian holdings have since been reported.

His Latest Success: the European Refugee Crisis

Soros’s agenda is fundamentally about the destruction of national borders. This has recently been shown very clearly with his funding of the European refugee crisis.

The refugee crisis has been blamed on the civil war currently raging in Syria. But did you ever wonder how all these people suddenly knew Europe would open its gates and let them in?

The refugee crisis is not a naturally occurring phenomenon. It coincided with OSF donating money to the US-based Migration Policy Institute and the Platform for International Cooperation on Undocumented Migrants, both Soros-sponsored organizations. Both groups advocate the resettlement of third-world Muslims into Europe.

In 2015, a Sky News reporter found “Migrant Handbooks” on the Greek island of Lesbos. It was later revealed that the handbooks, which are written in Arabic, had been given to refugees before crossing the Mediterranean by a group called “Welcome to the EU.”

Welcome to the EU is funded by—you guessed it—the Open Society Foundations.

Soros has not only backed groups that advocate the resettlement of third-world migrants into Europe, he in fact is the architect of the “Merkel Plan.”

The Merkel Plan was created by the European Stability Initiative whose chairman Gerald Knaus is a senior fellow at none other than the Open Society Foundations.

The plan proposes that Germany should grant asylum to 500,000 Syrian refugees. It also states that Germany, along with other European nations, should agree to help Turkey, a country that’s 98% Muslim, gain visa-free travel within the EU starting in 2016.

Political Discourse

The refugee crisis has raised huge concern in European countries like Hungary.

In response to 7,000 migrants entering Hungarian territory per day in 2015, the Hungarian government reestablished border control in order to keep the hordes of refugees from entering the country.

Of course this did not go down well with Soros and his close allies, the Clintons.

Bill Clinton has since come out and accused both Poland and Hungary of thinking “democracy is too much trouble” and wanting to have a “Putin-like authoritarian dictatorship.”

Seeing through Clinton’s comments, Hungarian Prime Minister Viktor Orbán responded by saying, “The remarks made about Hungary and Poland … have a political dimension. These are not accidental slips of the tongue. And these slips or remarks have been multiplying since we are living in the era of the migrant crisis. And we all know that behind the leaders of the Democratic Party, we have to see George Soros.”

He went on to say that “although the mouth belongs to Clinton, the voice belongs to Soros.”

Soros has since said of Orbán’s policy toward the migrants: “His plan treats the protection of national borders as the objective and the refugees as an obstacle. Our plan treats the protection of refugees as the objective and national borders as the obstacle.”

It’s hard to imagine that he could be any clearer in his globalist intentions.

The Profit Motive

So why is Soros going to such lengths to flood Europe with hordes of third-world Muslims?

We can’t be sure, but it has recently come to light that Soros has taken a large series of “bearish derivative positions” against US stocks. Apparently, he thinks that causing chaos in Europe will spread the contagion to the United States, thus sending US markets spiraling downward.

The destruction of Europe through flooding it with millions of unassimilated Muslims is a direct plan to cause economic and social chaos on the Continent.

Another example of turmoil equaling profit for George Soros, who seems to have his tentacles in most geopolitical events.

We all understand correlation is not causation. However, given Soros’s extraordinary wealth, political connections, and his long track record of seeing and profiting from chaos, he is almost certainly a catalyst for much of the geopolitical turmoil now occurring.

He is intent on destroying national borders and creating a global governance structure with unlimited powers. From his comments directed toward Viktor Orbán, we can see he clearly views national leaders as his juniors, expecting them to become puppets that sell his narrative to the ignorant masses.

Soros sees himself as a missionary carrying out the globalist agenda taught to him by his early mentors. He uses his vast political connections to influence government policy and create crises, both economic and social, to further this agenda.

By all appearances, Soros is conspiring against humanity and is hell-bent on the destruction of Western democracies.

To any rational thinker, some global events just don’t make sense. Why, for example, would Western democracies take in millions of people whose values are completely incompatible with their own?

When we look closely at the agenda being actively promoted by the leading globalist puppet master, George Soros, things become a little clearer.

Want to read more? If you haven’t done so already, sign-up for your free subscription to The Passing Parade from Garret/Galland Research.  It’s a rousing weekly romp on economics and markets, with a dose of politics and other follies. It’s free and you can cancel at any time. Click here now to start subscription today!

The post How George Soros Singlehandedly Created the European Refugee Crisis and Why appeared first on Gold And Liberty.

Some people object to the gold standard because gold has no intrinsic value. An example of a person expressing this notion is Richard Cook in We Hold These Truths: The Hope of Monetary Reform (Aurora, Colorado: Tendrill Press, 2008-2009), pages 55-56. (Cook is a promoter of the social credits monetary theory and believes that money should have no value in-and-of itself. Yet he opposes gold even though he claims that it has no value in-and-of itself.)

The extent that gold has no intrinsic value is the extent that food, water, shelter, and clothing have no intrinsic value. Valuation is mostly subjective. A person who is full from just eating a large meal places little value on another meal, even a gourmet meal, for several hours. A person who has not eaten for several days places a great deal of value on even a mediocre meal.

However, when a person uses gold as money, each additional unit of gold that he possesses decreases the value of gold as money at an almost unnoticeable rate. On the other hand, when a person needs a gold crown on a tooth, he values that gold as a crown more than he values it as money. Once the tooth is crowned, his valuation of gold for a crown rapidly approaches zero until he needs another tooth crowned.

If intrinsic value means that gold has no absolute value in-and-of itself, independent of human thought, then neither gold nor anything else has such value. When people say that gold has intrinsic value, they usually mean that it has value in-and-of itself because of its uses. Gold has value because of its use in jewelry, electronics, medicine, and religion. That is, it has value in its monetary use because it has value in its nonmonetary use. When people began using gold as money (medium of exchange, store of value, etc.), its monetary use added to its intrinsic value.

Unlike US federal reserve notes, gold has an intrinsic value not affected by law. The reason that federal reserve notes have value is that the dollar used to be a definite weight of gold and that the federal reserve notes were once redeemable in gold on demand. Likewise, other fiat paper currencies have value because they were once convertible in gold or are descendants of currencies that were. Once paper money, including its electronic equivalent, ceases being redeemable in gold, its value, i.e., purchasing power, begins declining. Legal tender laws slow the decline fiat paper money to their nonmonetary intrinsic value of crude toilet paper and Btu content. Furthermore, electronic money has no intrinsic value.

As a medium of exchange, money is whatever a willing buyer and a willing seller agree on to make the exchange. However, unless the government forces them to, no sane person is going to trade a useful product for a worthless piece of paper or an electric blip. That paper or its electronic equivalent can only have value if it is or once was related to something that had value in-and-of itself. If money has no value in-and-of itself or is not descended from money that did, how does one know the value of the money? Legal tender laws are often needed to force people to accept irredeemable paper money for payment. Otherwise, it would quickly reach its intrinsic value of its nonmonetary use.

A corollary notion is that gold is totally useless unless goods and services are available for sale (Cook, p. 56). No, it is not. To the contrary, it is highly useful even if not used as money. Its nonmonetary uses are what gave it value that enabled it to be used for money. Today, gold is not used as a medium of exchange, yet it is highly valuable.

A pre-1933 US gold dollar has the purchasing power of about 65 US-federal reserve-note dollars in June 2016. Thus, a gold dollar has much more value, intrinsic or otherwise, than the federal-reserve-note dollar.

If one believes that gold has no value whereas electronic blips, which is the predominant form of money today, do, he should go to some poverty-stricken country like Haiti and find out which one really has value. He will have no problem spending his gold coin. He will have difficulty finding anyone willing to sell him something for his electronic blip. (We are assuming that the government does not prohibit exchanging goods and services for gold.)

Furthermore, if gold has no value, why do governments expend many more resources guarding their hoards of gold than they expend guarding any vault filled with paper currency? If gold has no value, why do people expend their time and resources looking for, mining, and refining gold?

By Thomas Allen – http://tcallenco.blogspot.com.au/

From the Gold Standard Institute (subscribe here)

The post Gold Has No Value appeared first on Gold And Liberty.

Many years ago I sat through the most fascinating lectures on Soviet studies delivered by RMA Sandhurst professor Chris Donnelly. In those far off days as a subaltern, I used to peer through the wire on the inner German border and wonder what they thought as they peered back. By the end of my Soviet Studies course, I had a good idea.

I wish western politicians would study Russian history; understanding why other countries react in a certain way would be a big step towards the peace that most of us want. I made my case for a bottom-up review of NATO last year. I make no apology for re-emphasising the danger of treaty expansionism here. This time not the NATO treaty but the Treaty of Rome.

The Russians have always regarded their vast land mass as their primary defence mechanism, in much the same way as Great Britain regards the sea. In addition, they have historically preferred to add buffer States to their own borders. The Soviet experience, in what they call the Great Patriotic War, re-enforced this geopolitical strategy and viewed from a Russian perspective it is understandable. The same war conceived the European Union, it would be disingenuous to pretend there is any difference between the two conceptually, only the degree of electoral structure is different.

A look at an immediate post-war map of the Warsaw Pact and NATO countries shows the massive expansion of the latter compared to the former. When you study it try to imagine you are a Russian. Then look at the Ukraine, you cannot fail to notice the impact of a potentially hostile salient in the heart of the Russian Federation.

The Ukraine was part of the czarist Russian Empire and it came under Russian protection at their own request in the sixteenth century. They feared Poland all those years ago. So the relationship with Russia goes back much further than the birth of the Federal Republic of Germany or indeed Italy historically. No surprise, therefore, the electorate is split between Ukrainian and Russian speaking people. Their electoral representation unsurprisingly reflects this. No clear or permanent majorities, therefore, manifest themselves at election time. When they do they are short lived.

The Ukraine is, sadly, bankrupt and corrupt. The two usually go together. Like so many other countries in this condition, Venezuela and Argentina are prime examples, they have brought it on themselves. The natural wealth of the Ukraine is staggering. In 1912 it was the bread basket of the world, it produced more grain than North America. Today it is crippled by debt, in hock to America, the EU, and the Russian Federation. Creditors always expect a political payback and this actually keeps reform at bay.

Is there a solution?

There can be. Frederick Bastiat’s famous creed ‘when trade crosses borders armies don’t’ is a reliable beacon for peace. Free trade is the catalyst for world peace, yet that great trading nation, Holland is expected to take a hostile view of the proposed EU/Ukraine free trade agreement. Why? The answer is that many distrust the EU, the Dutch don’t believe it will stop at free trade, neither do the Russians. The genuine fear is it will lead to full EU membership and then naturally to NATO membership. Whichever way you look at it, it is both dangerous and irresponsible. Bankrupt and politically unstable means at best massive expense for the EU taxpayer, at worst a catalyst for war with Russia.

Original source: Institute for Direct Democracy in Europe, written by General Badger

The post Ukraine, the EU and Russia appeared first on Gold And Liberty.

In my last article ‘Costs of Compliance’, I wrote about the Mengerian concept of ‘Marginalism’ particularly as it applies to the Marginal Productivity of Labor. Specifically, how this margin is defined; as the line between profit and loss as far as labor productivity vs costs is concerned. I also mentioned that a similar concept will hold for the marginal productivity of capital, that is the profitability or lack of it in regards to investments in productive capital.

Now in a world of honest money, the situation is simple. Savings are equivalent to hoarding; stuffing Gold and Silver coins and bars into the mattress, to hold for a rainy day… and to enjoy the natural appreciation, the natural increase of purchasing power of money as the world economy improves, and the cost of producing most goods slowly and inexorable declines.

Investing in an honest world is also simple; investment implies the purchase of Gold bonds; bonds that produce return in the form of Gold, bonds that mature into Gold… and bonds that are protected from loss or gain of market value through the benefit of sinking funds designed to do just that. Investment in bonds in such a scenario implies absolute security and steady income for widows and orphans; return of principle at full value plus increase in purchasing power, coupled with modest but dependable returns.

Speculation is also a part of the honest money world; this simple fact is stuffed down the memory hole, and speculation is equated with gambling, but this is not so; speculation is not gambling. In an honest money economy, speculation has positive and important roles. Speculators buy shares of companies; yes, buying stocks is speculative; after all, how does the share buyer know that the company will prosper, produce income (dividends) and in fact survive?

Thus, speculation provides funds needed for capital investment, a crucial component of economic development. Furthermore, speculation is essential to the viability of commodities markets; commodities such as grains and fuel are traded on these markets… which are in effect a regulated, well defined method of forward sales. For example, a grain farmer wishes to sell his crop for a reasonable price, well before the crop actually matures.

This relieves the farmer of the risk of a price drop due to bumper crops or lesser demand… by giving up the opportunity to make excess profits due to price increases that poor crops or unexpectedly high demand would produce. On the flip side, the grain mill operator also would like to buy grains at a known price, avoiding the risk of soaring prices while giving up potential gains due to prices dropping.

In other words, the producer and the buyer both wish to avoid risk. Commodity markets allow for this in a systematic manner. However, these markets cannot thrive without liquidity, that is plenty of money… and supplying liquidity is another role of the speculator; the speculator takes on the risk avoided by producers and consumers, in return for the opportunity to profit from price swings. Not only does this speculative buying/selling allow the producer and consumer to meet, but it tends to reduce wild destructive price swings; speculative buying when prices tank supports the farmer and speculative selling when prices soar supports the buyer.

Finally, we have an activity called gambling; a form of ‘entertainment’… and while gambling seems to provide titillation for the gambler, and serves to enrich the casino or ‘game house’, gambling does not in any way contribute to economic development. Human nature seems to get a kick out of gambling… but there is no place for gambling in a proper economic system, no important role like for investment, and for appropriate speculation.

Indeed, New Austrian Economists consider speculation to be bets placed against natural phenomena like poor weather that effect crop yields and gambling to be bets placed against man created risk. Weather is not controlled by any casino; but in today’s Fiat world, speculation has degenerated into gambling; interest rates and Forex, the biggest futures markets of all, are vehicles for gambling on casino created risk. Humans (casino owners) set Forex and interest rates, not nature.

This is how low we have sunk; whereas bonds used to be considered safe, secure sources of income for widows and orphans, today the bond market is the biggest casino of all. Zirp and Nirp policies ensure that there is no income available for bond holders, for savers; gamblers, falsely called speculators, however, are well served by rising or falling interest rates. Bond prices rise and fall in inverse proportion to interest rates.

Mainstream Austrian economists, if I may call them mainstream, do not recognize this fact; they are still stuck with the words of Mises, written many decades ago, before the importance of ‘speculation’ in interest rate and Forex futures was recognized.

So, how does all this tie to the marginal productivity of capital? In the days of honest money, the answer was clear; bonds produced steady, secure income… and only gains higher than the prevailing rate of interest would encourage speculation, the purchase of equities. For example, if the long term interest rate is 5%, consider the choices facing someone with funds to invest.

If a business venture promises a 10% net return, this is a powerful inducement; buy the business (shares) and double your investment income. Likely the increased income is worth the increased risk. On the other hand, if interest rates are 7.5%, and the equity can produce 10%, the difference may not be worth the extra risk; fewer speculators will show up. And at the limit, if the business gains 7.5%, no one would take the risk; much easier and safer to buy the 7.5% bond, and simply clip coupons.

Thus interest rates are limited by equities; if interest rates rise, there will be more buying of bonds and selling of equities; this pushes up bond prices, which is the same as pushing down interest rates… and pushes down equity prices, which is the same as increasing dividend yields. On the other hand, if interest rates are too low, hoarding takes over; no one will buy or hold bonds for a pittance… but will choose to hold their Gold money out of the markets. A scarcity of money due to hoarding leads directly to higher interest rates; those who need capital must pay the price requested by the holders of Gold.

Now this natural feedback mechanism falls apart under Fiat; the interest rates floor is no longer set by holders of Gold coin, but by banksters; so rates continue to fall… rates approach zero, debtors (like the G’man) benefit, savers are robbed, speculators (gamblers, mostly the banksters themselves) make a killing, and the economy tanks due to the impoverishment of the saver (middle) class.

But wait; if interest rates are so low, should not equities soar? Should not entrepreneurs gleefully invest… after all, with 0% interest, even an enterprise that produces only 2-1/2% net return seems lucrative, no? Furthermore, unnaturally low interest rates reduce the cost of capital; it is possible to borrow at near zero rates, and invest in business that would normally be marginal, or even sub-marginal; unprofitable.

Indeed, this is one of the tenets of Austrian economics; malinvestment. That is, investment in business ventures only viable under artificially low interest rates, ventures that will collapse when rates return to the norm.

But what if interest rates never rise, are not allowed to return to the norm? What if rates keep going down, asymptotically approaching zero… in fact, and incredibly, even going under zero? Should not there be a mad scramble for ever more ‘malinvestment’? For ever more enterprises… leading to more and more employment, more and more economic growth? With negative rates, an enterprise that simply breaks even sounds so good!

Why is this not happening? Why instead of a boom is there severe structural unemployment, debt explosion, looming economic collapse? Is it possible that the theories under which the CB’s control interest rates are wrong? Is it possible that artificially lowering interest rates is destructive to the economy?

No kidding.

Thus we come to the crunch; even though the marginal productivity of capital has been forced down by ‘policy’, there is no improvement to the economy, only destruction. The reason should be obvious; newly minted ‘money’ has not flown into productive enterprise, but into speculation (gambling). Why should anyone invest in a business that is marginal, that is risky, and that produces meager returns… when there are enormous profits to be made in gambling?

Especially risk free gambling; the big banks not only gamble in interest rates futures, to the tune of a quadrillion dollars’ worth of interest rate and forex derivatives, but the big banks also set the rates! If this is not a giant casino, then I don’t know what is. This is like arsonists running the fire insurance business.

Not only is wealth being burned in this gambling frenzy, not only is wealth being transferred from savers and producers to gamblers and gangsters, but endless human talent is tragically wasted in working to devise ever more effective means of profiting from gambling… instead of turning to solving all the problems that plague our world; war, hunger, poverty, pollution, the ongoing destruction of civilization.

William Jennings Bryan, American presidential hopeful, advocate of honest money, battling against the demonetization of Silver, famously said “You shall not crucify mankind upon a cross of gold”. Unfortunately, while he was right in his battle for Silver money, he was wrong about the ‘Cross of Gold’. Mankind is being crucified on a cross of paper.

By Rudy J. Fritsch

From The Gold Standard Institute (subscribe here)

The post Casino World appeared first on Gold And Liberty.

The Office of Management and Budget has released new data on the amount of time Americans spend complying with the federal tax code. Tax Foundation summarizes the data here.

Individuals and businesses spend 8.9 billion hours a year on federal tax paperwork, which is equivalent to 4.3 million people working full-time and year-round on this unproductive activity. That “tax army” is three times larger than our uniformed military of 1.4 million active duty service members.

The burden of tax paperwork can be expressed in dollars. Based on the average earnings of U.S. workers, Tax Foundation finds that federal tax paperwork imposes a $409 billion annual cost on the economy.

The main reason to overhaul the tax code is to increase incentives for working, investing, and other productive activities. But you can appreciate how wasteful the tax code is by considering the paperwork burden of particular provisions. For example, the federal estate tax imposes $20 billion a year in paperwork costs, but the tax only raises $21 billion a year for the government. It clearly makes no sense to impose a tax if it costs as much to collect as the money raised.

The largest paperwork costs stem from the income tax. Tax Foundation has found that replacing the federal income tax with a simple flat tax would reduce the paperwork burden by about 90 percent. With that reform, Americans would be at peace with the tax code, and we could demobilize the tax army.

Originally posted at downsizinggovernment.org

The post Tax Army Larger than U.S. Army appeared first on Gold And Liberty.

Central banks (CBs) have long issued paper currency. The development of Bitcoin and other private digital currencies has provided them with the technological means to issue their own digital currency. But should they?

Addressing this question is part of the Bank’s Research Agenda. In this post I sketch out how a CB digital currency – call it CBcoin – might affect the monetary and banking systems – setting aside other important and complex systemic implications that range from prudential regulation and financial stability totechnology, operational and financial conduct.

I argue that taken to its most extreme conclusion, CBcoin issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money. By redefining the architecture of payment systems, CBcoin could thus challenge fractional reserve banking and reshape the conduct of monetary policy.

The next big question for central banks?

Digital currency is no longer the preserve of cypherpunks and crypto-anarchists. Economists and central bankers alike have been pondering whether CBs should issue their own digital currency. Koning (2014) and Andolfatto (2015) have discussed the idea of ‘Fedcoin’, Ben Broadbent recently spoke on the possible technological underpinnings and consequences of a CB digital currency, and the People’s Bank of China has announced it is looking into the idea.

Show me the money

Cash is simply coins and notes – embodiments of ‘money.’ Because banknotes and coins circulate in the economy, they are also referred to as ‘currency’. Yet currency is only a very small part of money (see McLeay et al (2014)). Money mostly consists of electronic deposits: broad money consists of (currency and) households’ and firms’ deposits with commercial banks, while base or CB money consists of (currency and) commercial banks’ deposits with the CB (‘CB reserves’).

On the face of it, customer bank deposits and CB reserves are very similar. They are both current account balances. But there is a crucial difference. CB reserves are risk-free. Bank deposits are not, because banks engage in lending that incurs at least some risk. As Mervyn King (2010) remarked, the ‘pretence that risk-free deposits can be supported by risky assets is alchemy’. Commercial banks’ fallibility is the reason behind the existence of public deposit insurance and lending-of-last-resort by the CB – an attempt to enforce one-for-one convertibility between bank deposits and CB money.

What might happen if the CB were to issue digital currency?

Now assume a CB issued CBcoin, a digital currency with one-for-one convertibility with paper currency and CB reserves. The issuance of CBcoin would simply create a third CB liability, risk-free and irredeemable.

The first step would be to decide whether, and at what interest rate, CBcoin might be remunerated. CB reserves are the means by which most CBs today implement monetary policy, by setting the interest rate paid on the reserves (or via the rate on repo transactions).

If CBcoin were remunerated at the same rate as CB reserves, it would be interchangeable with reserves. And if the CB chose to replace cash with CBcoin, it could then charge a negative interest rate on deposits to bypass the dreaded zero lower bound, as considered by Kimball (2013) and Haldane (2015). In this scenario, the overall quantity of CB money would stay the same, only the composition of the CB liabilities would change.

But even if the CB didn’t use the price or quantity of CBcoin as an additional monetary policy instrument, CBcoin issuance could have much wider ramifications, as a by-product of its impact on the payment system.

An overhaul of transactions settlement?

CB reserves currently play a central role in payment systems. If two parties need to settle a transaction but hold deposits at different banks, the payment requires a transfer of funds between the two banks. Banks net out such transfers and settle the residual amount using CB reserves as the medium of exchange.  This makes CB money the ultimate settlement asset (see Rule (2015)). While some intermediated electronic payments such as the UK’s Faster Payments Service are fast, traditional systems can be slow, taking up to three business days to settle a transaction (see Kroeger and Sarkar (2016) and Yermack (2015)).

If households and firms were given access to CBcoin accounts at the CB, banks’ dominant role as providers of payment services would be called into question. As a risk-free, interest-bearing asset, CBcoin would be preferable to bank deposits (and even paper currency, presuming anonymity concerns were addressed), encouraging households and firms to convert their bank deposits into CBcoin deposits. The appeal of CBcoin vis-à-vis deposits would likely depend on the relative interest rate payable.

In effect, retail payments (and securities transactions) would no longer have to be mediated by banks, as the funds would be transferred directly from one party’s CBcoin account to another’s. A disintermediated payment system could gradually replace the current centralised system and its associated credit and liquidity risks (see BIS (2003)). The main benefit to CBcoin account holders would be access to cheap and fast peer-to-peer transactions.

An end to traditional banking?

Commercial banks currently have the power to create money. When a bank makes a loan, it simultaneously creates a deposit, adding to broad money. So, by extending credit, banks not only create their own funding (deposits), they also control the level of broad money in the economy (see McLeay et al (2014)). Banks hold a fraction of the loans they extend as CB reserves, so as to back a fraction of their deposit liabilities with CB reserves – a setup known as fractional reserve banking. This fractional backing of deposits means that if all households suddenly wished to convert their deposits into hard currency, banks would not have enough reserves to repay them, so would either need to sell off their loan books in exchange for currency or utilise the CB’s lender-of-last-resort facilities.

If households and firms converted their bank deposits into CBcoin, commercial banks’ deposit-funded model would come under pressure. Broadly speaking, there are two possible delimiting scenarios. In the first, banks would compete with CBcoin by offering higher interest rates on their customer deposits. How much higher would of course be an empirical matter. By raising banks’ funding costs – other things equal – this could dent bank profitability and lead to tighter credit conditions. But banks would continue to issue loans and create broad money.  In a recent paper, Barrdear and Kumhof use a DSGE model that accommodates fractional reserve banking to study the macroeconomic consequences of CB digital currency issuance.

Another scenario would see a large-scale shift of customer deposits into CBcoin, forcing banks to sell off their loan books. Bank deposits could still exist but as saving instruments, no longer used to make payments. Banks could still originate loans, provided they lent money actually invested by customers, say, in non-insured investment accounts that couldn’t be used as a medium of exchange. Banks would operate like mutual funds, losing their power to create money and becoming pure intermediaries of loanable funds, as described in economic textbooks.

Under this scenario, the contraction of broad money (bank deposits), and the attendant emergence of ‘private-sector base money’ made of CBcoin would mark the demise of fractional reserve banking (see Sams (2015)). The conversion of bank deposits into CBcoin deposits at the CB would amount to 100% reserve backing for deposits. This could usher in a system similar to theChicago Plan, a set of monetary reforms proposed by Irving Fisher during the Great Depression and recently revisited by Benes and Kumhof (2012). The Plan’s call for the separation of the credit and money-creating functions of private banks would be addressed – with 100% reserve backing, banks could no longer create their own funding – deposits – by lending.  Similar “narrow banking” proposals have emerged since the financial crisis, such as that of Kay (2009), Kotlikoff’s Limited-Purpose Banking (2012) or the Vollgeld initiative (2015), recently rejected by the Swiss government.

A new framework for monetary policy?

The conflation of broad and base money, and the separation of credit and money, would allow the CB to control the money supply directly and independently of credit creation, calling for a reassessment of monetary policy along two dimensions. First, the prospect of direct control of the money supply might alter the relative merits of using interest rates or the money supply as the main policy instrument. If so, this newfound CB power could reopen the debate between advocates of rules versus discretion in the conduct of monetary policy. For instance, the signers of the Chicago Plan, in particular Milton Friedman, envisioned a constant money growth rule rather than the discretion over interest rates that has prevailed since CB independence in the 1990s.

Watch this space!

Mapping out the implications of CB digital currency issuance is a very complex endeavor. It is helpful as a first pass to sketch out partial scenarios, as I have done in this post for banking and monetary policy, but the devil lies in the detail. Research is ongoing so watch this space!

By Marilyne Tolle who works in the Bank’s MPC Unit.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk. You are also welcome to leave a comment below. Comments are moderated and will not appear until they have been approved.

Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

The post Central Bank Digital Currency: The End Of Monetary Policy As We Know It? appeared first on Gold And Liberty.

According to a recent Bankrate survey, one in six investors prefer gold investments as the best asset to invest their money in 2016 if they would not need for at least 10 years. That is remarkable, as it is the same percentage investors that prefer stocks. Bonds are only prefered by 6% of investors, real estate by an astonishing 25%, and, ironically, 23% said they would simply bank the money.

It is no surprise that gold investments in 2016 have gained in popularity. Gold and related investments are back as ‘safe haven’ investments as 2016 has been a year, so far, with a lot of uncertainty in geopolitics, markets and monetary policies.

The investment landscape is changing driven by changing geopolitical and monetary dynamics.

Michael Kosares from USAgold.com picked out an interesting quote from a recent Financial Times column (Brexit and the power of wishful thinking) in which author Tim Hartford sheds some light on the psychological transformation now taking place among investors:

“Perhaps the most important lesson is that we spend too much energy trying to foretell the future, and too little trying to be resilient whatever happens. . . Because scenarios are persuasive stories, they can help us face up to uncomfortable prospects and think clearly about possibilities we would rather ignore. And because scenarios contradict each other, they force us to acknowledge that, in the end, we cannot actually see into the future. As a result we move from ‘What will happen?’ to ‘What will we do if it does?'”

Kosares rightfully observes that, in order to become “resilient whatever happens”, requires acting before, not after, the next financial crisis headlines the evening news. He writes:

Many now reject the old financial religion that diversification amounts to the proper blend of stocks and bonds and little else. That formulation was acceptable when the money was sound and the federal government had not buried itself under a $19 trillion pile of debt. It held sway when confidence was running high and considerably more of the population than 17% were satisfied with the direction of the country (a polling number recently reported by Gallup). Now investors are looking to add safety and liquidity to their portfolios to augment the pursuit of capital gain, and, as the Bankrate survey shows, are now turning to the preeminent safe haven – precious metals.

Even Willem Buiter, chief economist for Citigroup and a long-time critic of gold, now says he would own the metal. “Gold, in times of uncertainty and especially in days of uncertainty laced with negative rates, looks pretty good,” he concedes. At the same time, he sees stocks as in a bubble. He believes investors are “pinning their hopes on a long-term growth of corporate earnings which bear no relationship to underlying economic growth.”

The post One In Six Prefer Gold In 2016 As Long Term Investments appeared first on Gold And Liberty.

When the term first made it into the mainstream media, about 6 years ago, to describe the rise of anti-cash regulations, it was hard to predict the international snowballing effect that would today establish it as one of the most powerful monetary policy waves in modern economic history.

At first, national governments started gently “nudging” citizens to embrace more modern and convenient alternatives, initially by transitioning state-related payments and services, like tax collections and welfare payments, into the banking system. Soon thereafter, they also began placing restrictions on cash transactions. Starting in 2011, Spain and Italy outlawed cash transactions over certain limits, €2500 and €1000 respectively, then Belgium and Portugal followed suit and France reduced the limit from €3000 to €1000 in 2015, while Germany, to the public’s great displeasure, announced plans to ban cash payments of more than €5000. As shown in the chart below, the regulatory wave effectively swept through Europe and soon became the “new normal”. In the meantime, Norway’s biggest bank DNB called for a total ban on cash, while Sweden’s plan for a cashless society, meant that now in more than half of the branches of the country’s largest banks, no cash is kept on hand, nor are cash deposits accepted. However, the term “war on cash” was really catapulted into the headlines this February, when ECB President Mario Draghi announced his plans to scrap the €500 note. The very next day, Harvard economist and former Secretary of the Treasury, Larry Summers called for the elimination of the £50, the €500, the Swiss CHF 1,000, as well as the $100.

Official narrative vs. Counter-narrative

The reason given for the escalation of governmental efforts to restrict or, indeed, outlaw cash transactions is the same in all of the above-mentioned cases: cash is the ”instrument of choice” for terrorists, drug lords, money launderers and tax evaders; law-abiding citizens have no real use for it anymore. With the rise of credit and debit cards for everyday payments, online banking and wire transfers for large sums, all being embraced as modern alternatives to cash, the average citizen is now actively being encouraged to abandon physical currencies and digitalize all their transactions, for the sake of transparency. In other words, the official narrative, reading between the lines, roughly translates to “you have nothing to fear, if you have nothing to hide”.

“Without being able to use high-denomination notes, those engaged in illicit activities — the ‘bad guys’ — would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’,” argues Peter Sands, the former chief executive of Standard Chartered.

Upon closer inspection, these arguments generally fail to stand up to factual scrutiny. The abolition of €500 banknotes or $100 bills is unlikely to have any effect on serious crime or terrorist operations. Merely switching to another denomination, or any other currency for that matter, be it conventional or not (blood diamonds, drugs, art, etc), would not significantly impact organized crime operations, nor would it make any real difference in the fight against terror. Only last November, the official investigation into the horrific Paris attacks, revealed that the IS-affiliated terrorists used prepaid bankcards to rent hotel rooms outside the capital the night before. As for money laundering and tax evasion, both most commonly involve sneaking “ill-gotten” gains into the conventional financial system in the form of real estate, stocks, bonds or other assets, or as the Panama Papers showed us, often using obscure regional legal loopholes, intricate “Russian doll” schemes of shell companies and creative accounting. So far, no scientific evidence, nor research findings, other than anecdotal, have been presented to substantiate these claims as the basis of the anti-cash crusade.

Another way, however, to look at this policy trend, is to juxtapose the so-called War on Cash with the concurrent and increasingly widespread adoption of negative interest rates by central banks worldwide. The core rationale of this measure is rather simplistic: Negative interest rates are, in essence, a tax on bank deposits, ultimately aiming to discourage depositors from saving and to incentivize spending instead, thereby stimulating economic demand. In this light, cash is the fatal flaw of this plan, as it places serious constraints on the central banks’ power to practically enforce the strategy. As long as paper money is available as an alternative store of value, customers have leverage against the bank’s negative interest rates. They can simply withdraw their deposits to avoid being penalized for saving and just hoard cash instead of spending it; a course of action greatly simplified by using large-denomination bills, that would allow for efficient storage. Naturally, such a choice would imply shouldering various risks and expenses, mostly security- and convenience-related. However, as the penalties for saving become steeper, there comes a moment where the cost-benefit analysis would dictate that cash is the preferred vehicle of storing wealth and would provide a viable “way out”, if negative rates become “too negative”.

The only way, therefore, for the central banks’ scheme to work, is to eliminate this leverage and to block the exit route. Without a physical currency that can be withdrawn and stored outside the system, deposits would be essentially held hostage by the banks, and the customer could only either spend it or watch it shrink over time, crunched away by negative rates.

Social and economic casualties

The official narrative, and often the counterarguments as well, focus exclusively on the ex post facto effects of this policy wave, largely ignoring the invaluable role that cash plays in the lives of ordinary, law-abiding citizens today. For one thing, cash enables legal transactions to be executed efficiently and in real time, without either party paying any fees. It does so, without the risk of getting hacked, or having one’s identity stolen or being subject to disruptions due to power cuts or system failures. It also facilitates the economic inclusion of low-income or low-tech segments of the population that do not have access to an account, i.e. the “unbanked”: That’s 8% of the U.S. population according to a 2013 FDIC survey, and 2 billion adults worldwide, according to World Bank figures.

Naturally, privacy concerns take center stage in this debate. In a world where all accounts and transactions can be recorded and monitored, combined with the increasing technological capacity for big data management and manipulation, the amount of power handed over to governments and central institutions would be unprecedented. By simply tracking the spending patterns and financial activity of individuals and companies, and thus enabling profiling, a long list of potential abuses instantly springs to mind, while serious questions are raised about the future of confidential information and right to privacy.

Proactive Defense

Assuming that the rate of victories that the war on cash has scored already continues unabated, in combination with negative interest rates being adopted even more widely, it is reasonable to expect that the average saver will soon face considerable barriers in attempting to “cash out” their deposits or to store them out of the banking system. And if the single viable option in order not to lose value over time would be to spend, then the wiser choice would obviously be to opt for investment over consumption.

As a precautionary strategy, the saver’s aim should be focused at wealth preservation. This might be achieved by investing in a diversified set of conservative, low-risk investments. Of course, the “right” strategy depends on the structure and the aims of each investor’s portfolio and one size does not fit all, however in general, actively managed hedge funds with a strategy that is not correlated to the stock market, as well as gold, can provide options to fill the void of cash and facilitate the storage of wealth outside of the cash system.

Originally published on MountainVision.com

Source BFI Insights Q3 2016 | Checkout BFI’s One Trust “ONE secure plan to protect and grow your offshore nest egg“

The post War On Cash appeared first on Gold And Liberty.

Gold mining and discovery has peaked last year, according to experts.

‘Peak gold’ is the term used to indicate that the ‘golden years’ of gold mining have been reached. Going forward, in 2016 and beyond, gold mining will become much more expensive, and the number of remaining ounces in the ground is drying up.

Goldman Sachs analyst Eugene King estimates that we have only “20 years of known mineable reserves of gold.”

2016 is the first year after the world has reached its ‘peak gold’ stage.

Frank Holmes predicts that a surge in mergers and acquisitions in the gold mining sector is coming. He believes that, as long as they have reliable output, mid-cap companies could be gobbled up by the Barricks and Newmonts of the world.

A logic consequence of recovering the last known gold is that the gold price would spike to levels only imagined.

Did Gold Production Peak Last Year?

Global gold mining output has been contracting since 2013. According to Goldcorp CEO Chuck Jeannes on The Wall Street Journal, 2016 is the first year into the ‘peak gold’ era as 2015 was the last year that gold was within spitting distance.

“There are just not that many new mines being found and developed”, and “this “very positive” for the gold price going forward”, he said.

This year, second-quarter mine supply was 2% less than the same period in 2015, according to Thomson Reuters GFMS. Analysts now expect global production to fall 3% in 2016, after years of growth.

Moreover, the number of new projects and expansions coming online is decreasing now, as evidenced by the following chart.

Frank Holmes writes in his most recent article:

The truth of the matter is, when it comes to discovering new gold deposits, the low-hanging fruit has likely already been picked. Gone are the days when someone could stumble upon an exposed hunk of gold at the bottom of a riverbed, as James Marshall did in 1848, setting off the California Gold Rush. Every year, the pursuit of gold becomes increasingly more challenging—not to mention more expensive—requiring ever more sophisticated tools and technology, including 3D seismic imaging, direction drilling and airborne gravimetry. (A satisfactory “gold fracking” method, however, seems unlikely to become reality any time soon.)

Compounding the issue is the fact that the number of years between discovery of a new major deposit and production is widening, due to the increase in feasibility assessments, compliance, licenses and more—and that’s all before nugget one can be extracted. The average lead time for gold mines worldwide is close to 20 years, though it can sometimes be more, depending on the jurisdiction. This highlights the need for worldwide policy reform to remove many of the barriers that obstruct responsible mining.

The post 2016 Is The First Year Of Peak Gold appeared first on Gold And Liberty.

Many banks and financial entities envision the blockchain as delivering value to their customers in the form of reduced fees, faster funds transfers and simplified processes. Much less heralded, but potentially far more dramatic, is the transformational impact the blockchain could have on the world’s massive unbanked population.

The blockchain first achieved notoriety as the backbone of bitcoin, the web-based cryptocurrency. By using distributed networks of computer users to record and secure transaction records almost instantaneously, the blockchain has the potential to bypass the need for correspondent banking and other intermediaries for, say, international money transfers. But for those who lack an entrée into basic financial services, blockchain’s accessibility and scalability could make it a practical gateway to the global economy.

The convergence of mobile money and digital finance has already given rise to innovations like M-Pesa and many other services to help more than 400 million people living in cash-based eco-systems have formal financial service, according to GSMA.

Despite the significant headway in recent years made by providers in reaching areas previously untouched by banking services, more than two billion potential financial services customers remain stranded. In an industry characterized by geographic fragmentation, mobile money providers have yet to find a clear path to achieving significant scale required to realize network effect for long-term viability.

Among many other uses, the blockchain could bolster these efforts by becoming the backbone to open the closed-loop mobile money services. Right now, certain payments services only work between two parties if they both have accounts. Similarly, mobile money services, often developed by the mobile operators themselves, often didn’t allow for consumers to easily pay each other on separate mobile networks. But the blockchain could expand interoperability to link these fragmented, closed loop services both domestically and internationally.

In addition to enabling more unbanked users to send money to other unbanked users, such a backbone would serve to connect the banked with unbanked users in areas such as cross-border remittances and cross-border business-to-business payments.

Considering both the interoperability value proposition and blockchain’s ability to significantly improve the cost structures of inefficient cross-border payments, financial institutions understand the stark reality: the incumbents can no longer dismiss disruptive blockchain technology as a viable means to serve the unbanked masses. Doing so would mean disintermediation by competition seeking to serve the next few billion participants of the global economy.

The opportunity to reach this population is further bolstered by trends around smartphone adoption. Just as banked customers in developed markets embraced smartphones, populations in emerging markets are expected to replace their mobile feature phones with smartphones as costs are driven down — specifically with low-cost, open-platform Android devices manufactured in China and India. The affordable devices will provide them with access to the next generation of data-rich, user-friendly financial service applications.

Underpinning these applications will be the blockchain, which will supply an infrastructure that can dramatically reduce the cost of operations and support new business models aimed at sustainably serving the poor. Blockchain technology, in conjunction with Android smartphones, can revolutionize the speed of open innovation, bridging the distance between Silicon Valley and The Great Rift Valley.

Blockchain’s promise extends well beyond financial services; it extends into adjacent verticals such as healthcare and land rights. The common denominator that will link all digitally enabled services could very well be blockchain-enabled digital identity systems, securely stored and managed in a distributed ledger.

A cryptography-protected ID, accessed by a unique combination of private and public keys and verified with biometrics, also has the potential to allow users to control their own data, deciding how much of it to share. It is also conceivable that unbanked refugees might rely on the blockchain to be issued an ID so that they can begin their lives anew, free from the threat of a corrupt government subverting their rights. These same refugees, or similar populations, may have their land titles and deeds documented in the tamper-proof blockchain for proof of ownership upon return to their homeland. These same titles and deeds could act as securitization for credit.

As of now, however, competing efforts to demonstrate its value are still in their embryonic and experimental stages.

As the race to develop both public and private blockchains — not to mention, combinations of the two — intensifies, a set of much-needed best practices should emerge. While the blockchain may ultimately reshape many transaction-related practices, the technology still faces a host of tough-to-tackle obstacles, ranging from legal and regulatory issues to concerns about vulnerability. Security fears have recently been raised anew after the Decentralized Autonomous Organization (DAO) — in this case, an investment fund based on smart contracts for Ethereum — was exposed as having a dangerous software loophole.

But the potential for the blockchain to serve as connective tissue for the large unbanked market should make longstanding deterrents dissolve. The promise of the blockchain could provide financial services companies with a real business solution to serving the world’s poor.

Written by Menekse Gencer is PwC’s global payments fintech leader. Appeared on AmericanBanker.com.

The post Blockchain Can Bring the Unbanked into the Global Economy appeared first on Gold And Liberty.

This article was originally published on Mountain Vision:

The banking sector is not in a good shape in 2016, and that is probably a huge understatement. Just seconds ago, we read this excellent quote on MarketWatch which really says it all: “The risk of a crash in eurozone bank equity prices has increased … The market is ready to pay a higher price to hedge against a substantial fall in eurozone bank stock prices. This suggests rising unease about the sector.”

Given current market conditions, it was very interesting, to say the least, to read the results of the 2016 stress tests of Europe’s banking sector.

For anyone who paid attention to the changes in the methodology of this year’s stress tests of Europe’s biggest banks, the results released last week did not hold any surprises. Overall, a “clean bill of health” was issued, while the keywords of the take-away message were “significant improvement”, “optimism” and “crisis-resilience”. The good news should have reassured investors about EU banks, but their response would indicate that they didn’t get the memo: the report was welcomed by the markets with a sharp share price decline across the sector, suggesting that investors remain unconvinced about the rosy picture it painted. And such cynicism appears to be justified: many analysts have already questioned the stress tests’ reliability and accurate reflection of the sector’s challenges. Breaking with past practice, this year’ tests did not come with a pass/fail mark, while the adverse scenario that the European Banking Authority (EBA) used to assess the 51 banks did not take into account the zero and negative interest rate environment. Additionally, the EBA used stated book value as a basis to assess the banks, vastly overstating the real value, reflected in the market. It also did not factor in the effects and aftermath of Brexit and no banks from Portugal or Greece were included in the stress tests; both countries still presenting major concerns, grappling with high debts and low growth.

Reality Check

In sharp contrast to the report’s attempted optimism, fundamental figures reveal that the European lenders are facing serious, structural problems that seem to be setting the scene for a banking crisis. Euro STOXX Banks, the index which tracks 48 of Europe’s largest banks, is down 34.6% only in 2016. Last July saw the sector hit its highest point since 2008, yet since then, European banks lost around 40% of their value (more than half a trillion euros), as can be seen in the chart below. Or to better illustrate the scale of the problem, these losses exceed the total value of Italy’s entire stock market.

Individual banks’ performances in 2016 also hint at a brewing banking crisis: Credit Suisse has fallen 51%, Deutsche Bank and Commerzbank shrank by over 45%, the Spanish BBVA saw its profits decline by 54% last quarter, while Swiss UBS’s profits plunged by 64%. And as for the Italian banks, the magnitude of their troubles had to be acknowledged in the EBA stress test report as well: 17% of funds loaned out by Italy’s retail banks are risk of default, the assessments revealed, which is over three times the average of the EU banking sector.

Specifically, concerns focused on the world’s oldest bank, Banca Monte dei Paschi di Siena SpA, which has already been bailed out twice by the government since 2009. The bank, was the only one flagged in the stress test as severely underfunded, as shown in the graph below. Now officially holding the title of the riskiest bank in Europe, Monte dei Paschi has experienced a 65% slide in its share price during recent weeks.

The making of the next banking crisis

There are a number of forces that contribute to what could easily spiral into a sector-wide crisis (read also The Health Of U.S. And European Banks Becoming A Concern In 2016). An obvious aggravator is the overall European economic growth pace, the slowest in decades, as well as Brexit, that also stuck a severe blow to the already ailing industry, along with the rising political tensions throughout the continent that further exacerbate uncertainty and unease. The biggest threats to the EU banking sector are, however, systemic and largely self-inflicted.

Negative interest rates have played a major role in pushing European banks this close to the edge. The ECB’s policy of reversing the “natural” relationship between interest and time, and the incentives that it has traditionally carried so far for banks and for their customers, has resulted in a paradoxical dead-end. The ECB’s deposit charges, that were meant to ease and encourage lending, have diminished the banks’ profit margins. Last week, Commerzbank AG, the biggest lender to German companies, echoing a previous statement by Deutsche Bank, suggested that their clients would face higher fees, in order to sustain the costs of the record-low rates. The bank, that earlier this year reportedly considered storing billions in physical cash in vaults instead of depositing it with the ECB, also released an estimate of the cost of the negative rate policy: 161 million euros ($180 million) of lending revenue at its two biggest units, in the first half of 2016.

The roots of the EU banks’ troubles go even deeper, however, and they can be traced back to internal and external mismanagement and the adoption of inept policies. The consistent trend of bad banking of the last years has been encouraged by the ECB’s own monetary and regulatory agenda. The much needed write-offs did not take place, as the cost of funding decreased and it just became cheaper to keep carrying the soured debt – which is why, today, the market value of major European banks stands at around 70% of the stated book value. Investors have caught on, and they have already factored in the inevitable losses, while the banks themselves are using delaying tactics and kicking the can down the road.

A recent study, by Sascha Steffen of ZEW, Viral Acharya of NYU Stern and Diane Pierre of the University of Lausanne, has also brought to light another sign of managerial mishandling. According to the report, there is an estimated a capital shortfall of €123bn across the 51 banks tested last month by the EBA. Yet, despite this, 28 of the 34 publicly listed lenders that took part in the stress tests, have paid out €40bn in dividends in 2015 (more than 60 per cent of their earnings), while the 10 banks that performed the worst in said tests, have paid out almost €20bn since 2011. The authors of the report further pointed out that if European banks had stopped paying dividends in 2010, “the retained equity could have funded more than 50% of the capital shortfalls we estimate in 2016”. As opposed to regulators in the US, the EBA does not stop undercapitalized banks from distributing dividends. Such a policy stance, combined with the implicit (and sometimes even explicit) assurance that “help will always come”, through QE, bail-outs or any other shape or form of state rescue, encourages reckless and irresponsible choices that simply pass the risks onto the taxpayers.

End of the line

As the situation stands today, any mention of prospective bail-outs is politically toxic, and no national or European authority dares raise such a possibility in this climate, for fear of further market unrest or even bank runs. Nevertheless, institutional denial of the troubling facts, reluctance to face the numbers, and regulatory gloss-overs and perpetuation of the problems, can hardly suffice to “wish away” a looming banking crisis.

Banks are the cornerstone of our current financial system and thus, a crisis in this sector can reverberate and pose serious threats across the entire economy. Also, the degree of centralization and interdependence means that a “European banking crisis” is anything but: it can quickly spread into an international one.

Therefore, any wise investing response would be a proactive one. A balanced, diversified portfolio in 2016 should include vehicles and assets that effectively preserve value and isolate it from the banking sector. Qualitative diversification, investing in traditionally resilient assets and holding physical gold, is in-line with this approach. Of crucial importance, as well, would be to apply a portfolio-appropriate degree of geographical and jurisdictional diversification: hedging through holding positions in multiple markets internationally, physical storage of assets in safe and stable jurisdictions, shielded from the volatility of any one country or region.

The post EU Banking Crisis 2016 Set To Send Shockwaves Across The Economy appeared first on Gold And Liberty.

There have been some conflicting issues with reference to the actual meaning of natural rate of interest according to some scholars and how our Fed officials are explaining it. This is well documented in a recent Wall Street Journal article. These officials are unable to relate the present economic state with the natural rate using funny expressions like “mysterious” with the term. The question is what is mysterious about the whole issue? How are Yellen and her team defining the rate? What is the basis of their definition and what is causing the miss ups? While we may not be able to answer all the questions, the term “mysterious” has been used in guiding one of its decisions surrounding its set target for Fed’s rate.

It is obvious that Fed’s thinking of natural rate is wrong and portrays their lack of proper understanding of what the concept actually means. The thought of Yellen at present is that natural rate is only meant to work for the present situation (short term). This is far from what the term really stands for; a long term rate of an economic growth side by side inflation. Natural rates are known to work for more than one economic cycle and this is what our Fed fails to understand. Both Bernanke and Yellen are defining natural rate in terms of the FFR (Fed Fund Rate). This is clearly pointed below:

While Federal Reserve officials debate when to next raise short-term interest rates, they also are wrestling with the question of how high to lift them in coming years. Signs point toward the new normal being much lower than in the past, which has broad implications for when the Fed should tighten monetary policy, how quickly, and how far. Fed officials disagree about their likely end point, in part because they are struggling to understand why another underlying interest rate—the mysterious natural rate—has fallen in recent years. And for that many are turning to the musings of Knut Wicksell, a Swedish expert on the subject who died 90 years ago (WSJ).

Are you wondering why the Fed officials are missing things up? One would think that they should have deeper understanding of these things going by their positions, but the reverse is the case here. While they are confused on the right time to increase the interest rate at short term level, they are also caught in the web of how they will increase it later. But, there is no relationship between natural interest rate and short term rates. It is believed that it cuts across all years as long as it is consistent with the current economic growth rate and able to balance between investments and savings.

The term “natural rate of interest” is synonymously used to mean neutral rate, equilibrium real interest rate and the Wicksellian interest rate. Neutral interest rate is used by some economics when such rates are employed to avoid asset speculations. Those using equilibrium real interest rate do so to explain how such rates help in keeping their economy at desirable equilibrium. Because of the impact of Wicksellian, the Swedish economist, on the definition of natural interest rate as a rate which becomes compatible with price stability level as well as stable asset price, the term became associated with his name. In a nutshell, any rate that consistently helps to maintain current economy growth within its growing rate and also stabilizing inflation is natural interest rate.

Some people even prefer using the normal interest rate for it but, that could lead to more confusion because the question will be which one is abnormal interest rate? While there may be divergent views on it, it is a type of interest rate that will neither cause a boom (over heating for the economy) nor recession (lack of demand). The aim of every monetary policy is to find that neutral or natural rate that will properly spell desirable economic growth even in the face of inflation. There is power in having a rate that is consistent with a State’s current GDP by balancing it with its level of potentials.

One of the reasons for Fed’s wrong perception is diverse models (econometric) and techniques (statistical) usually employed to arrive at the result of natural interest rate. It implies that inference has to be made from each calculation. If 10 economists are brought together, it means they will probably have different data since their decision is drawn from observed data. A closer look at different years and periods has given different natural rates. Also, despite the different estimates given by different models, the rate has remained at one point since the year 2009 with no sign of ever recovering in spite of the strength our real economy has gained ever since. Can we then conclude and join our voices with Fed that it is mysterious?

According to this article,

There are a number of problems with the conventional conception of the natural rate. It rests on abysmal ignorance of the history of economic thought. It also profoundly misconceives the relationship between the financial and real sectors of the economy. These misconceptions of the origin and essence of the natural rate lead to a monetary policy that renders wholly futile all attempts to empirically identify or “estimate” its level.

It is obvious from the forgoing that Yellen and Bernanke are disciples of Keynes and not Wicksell’s. Everyone is entitled to his or her opinions. If they are sticking with one and leaving the other, it may just be their level of understanding or a way of proving their point for not increasing the long awaited FFR. The effect of their stand is weakening investment and leading the economy downwards to deflation and other associated problems.

The post Why The Fed’s Thinking Of Natural Rate Of Interest Is Wrong appeared first on Gold And Liberty.

Precious metals have significantly outperformed all other asset classes with year to date gains of 44% in Silver, 31% in Platinum, 28% in Palladium, and 26% in Gold. 2016 marks the highest recorded annual gain for gold in 36 years. Investment demand for the metal is 16% higher this year than the previous recorded high reached in 2009. Attempting to capitalize on this growing investment interest, the London Metal Exchange (LME) announced this week its plans to launch a gold and silver London based listed derivatives exchange in the first half of 2017. The new exchange will compete directly with the existing London over-the-counter market (OTC) system, the listed COMEX exchange in the U.S, and the Shanghai exchange in China. Contract sizes will be identical to those traded on the COMEX exchange.

London’s role as a major precious metal trading center harkens back to the 17th century but volumes have recently eroded as major banks pulled out of London precious metal trading due to increased regulatory scrutiny since the financial crisis and accusations of past market misconduct. The local precious metal market has an annual turnover of $5 trillion per year.

The 139 yr old LME has traditionally focused on the industrial metals with the exception of a brief and unsuccessful 3 yr foray into gold during the 1980’s. In 2014, the LME lost the bid to administer the important London gold benchmark fixing to one of its major rivals, the Intercontinental Exchange (ICE). The London precious metal market is administered by the London Bullion Market Association (LBMA) and dominated by privately negotiated (OTC) off exchange transactions. Listed trades have historically flowed to the U.S. COMEX exchange but have gravitated in recent years towards the Shanghai exchange as physical gold demand in Asia continues to outpace that of the U.S. and Europe combined.

30 banks were initially approached to take part in the LME venture but only 5 ultimately committed to the scheme. Important to note and critical to the long term viability of the nascent exchange is that none of the members are large gold clearing banks and the LBMA itself, the arbiter of good delivery standards, is not involved in the project. Like the OTC market, the new contracts will settle on an unallocated basis. This means that once the contracts reach maturity, investors own a fractional interest in a pool of gold or silver held by a bank but not specific bars. In the event of a bank failure, like in the case of Lehman Brothers 8 years ago, investors rank as unsecured creditors without a specific claim to physical gold or silver bars. This, in my opinion, is the critical flaw of the LME proposal. The new venue might be useful for high frequency traders that seek to arbitrage minute price differences between exchanges around the globe or front run customer orders but it does not offer investors a new or more secure alternative to what is already widely available in other markets. The financial crisis made it abundantly clear to long term precious metal investors that gold and silver should be held in physical form and outside of the banking system.

By Eric Schreiber from EMS Capital

The post Does The Precious Metal Market Need Another Derivatives Exchange? appeared first on Gold And Liberty.

THE global financial system has been hijacked by an “unelected dictatorship” of communist central bankers who are steering the world towards a Soviet-style collapse of epic proportions.

No, it’s not the ravings of a “Zerohedge nutter or freak”, but a sober warning from leading economist Vimal Gor, head of income and fixed interest at BT Investment Management.

Mr Gor has used his monthly update to clients to tackle the elephant in the room: the failure of record low interest rates and money-printing programs to stimulate global growth, and the ever-increasing and undemocratic powers of central banks.

“[Our] financial system … feels like we are living in the Matrix,” he writes.

“Everyone tells me the world I live in and the markets I position in are capitalist and democratic, but then why does it feel so much like a dictatorship where unelected people control everything?”

Mr Gor argues that pre-GFC, central banks’ decisions on short-term interest rates were only one of a number of factors that impacted growth, and that fiscal policy and government regulation were arguably more influential in driving structural growth.

“But as politics globally becomes more partisan, less and less gets done and therefore fiscal policy sits on the backburner, which has meant the central banker’s role has morphed into something grotesque,” he writes.

Central bankers now “attempt to control the price of everything”, from the short-term interest rate via monetary policy and long-term yields through bond-buying programs, to the price of equities via direct buying and even the level of currencies through money-printing programs.

“[And] remember, these institutions are all unelected and largely unregulated,” Mr Gor writes. “A central banker effectively has total control everything. As Uncle Ben said in Spiderman, ‘With great power comes great responsibility’, but who are the central banks responsible to?”

Mr Gor goes as far as to argue that the main role of central banks is fundamentally anti-capitalist, because control over interest rates implicitly gives control over the value of all riskier asset classes, rather than a pure capitalist system in which the market decides everything.

“Doesn’t this mean that the way global economies and markets are now run is either the communist model or a dictatorship masked as a capitalist democracy?” he asks.

“The slow transition from a capitalist society to a communist-lite one isn’t in our view just a thought experiment, it is there in fact. What else are the much-lauded macro-prudential tools that central bankers love so much if not a direct way to control the price of credit?”

While he doesn’t suggest a “conspiracy”, he says he is “considering what happens if the institution of the central bank and the academic theory that it is built upon is flawed and is hurting far more than it’s helping”.

“How do we know that, if the market never actually had a chance to decide, that short rates should be at 10 per cent rather than deeply negative?” he asks.

“If interest rates are low and growth is weak the typical central banker’s response is to cut rates further, but what if the low rates are causing the slow growth, that’s a pretty bad mistake to make isn’t it?

“So let’s continue down the rabbit hole and ask the ultimate question, which is — if central bankers are acting like communists, then will our system fail spectacularly like, for example, the Soviet Union?”

The western world is currently seeing its own “revolt” in response to inequality and low wages — issues that “exist because of the failures of monetary policy” — in the form of populist, anti-establishment and pro-protectionist movements, Mr Gor writes.

And the end game, he warns, is the relinking of governments and central banks.

“This gets around the central bank’s independence, making it purely just a tool for the government to have unlimited capability to provide capital for the greater good,” he writes.

“We have no issue with governments taking advantage of super low interest rates to provide fiscal stimulus, but printing money to do that is a step that should be taken with incredible caution.

“History hasn’t been kind to those countries that have stepped down this route, examples of what occurred in Japan, the Weimar Republic and the step to World War II are very hard to ignore.”

Courtesy of News.com.au, written by frank.chung@news.com.au

The post Will Our System Fail Like The Soviet Union? appeared first on Gold And Liberty.

The post Monetary Exhaustion Means Rising Gold Prices appeared first on Gold And Liberty.

In my last articles we dug into the technicalities of Mengerian ‘Marginalism’. We looked at the marginal productivity of labor, and the marginal productivity of capital; both topics important to an understanding of economics. Having gone ‘rightward’ into more details, we now turn ‘leftward’, to a larger picture overview of economics.

Indeed, we need to view the larger world situation beyond conventional ‘economics’, as economics has become inbred, tightly focused on finances, money, monetary policy, fiscal policy; the financial sector has become the proverbial tail that wags the dog.

In an honest, prosperous world finance supports the real economy, the physical economy; after all, one cannot eat Gold as we have surely heard often enough… and of course, neither can we eat paper promises. We need real products from a real industrial/agricultural base to provide the essentials of life, and the luxuries that take life beyond survival.

As we saw in the last couple of articles, ‘gambling’, or what is today called speculation, has mostly replaced the real, physical economy; Wall Street has replaced Main Street… at least in the Western world. All the ‘dirty, polluting’ smokestack industries… except perhaps the military… have been sent over to China and India.

In the meantime, the Western world led… or more accurately coerced… by Washington has focused on money supply, on derivatives, forex futures, interest rates futures, stock markets, stock options, bond markets, NIRP, ZIRP; focused on the financial tail.

Now one truism for success in anything is to simply ‘do more of what works and less of what doesn’t’. This truism is of course too simple to be accepted by the ‘intelligentsia’. As Mr. Bernanke so famously put it, if you don’t hold a doctorate… or at least a masters… in economics, we won’t even talk to you.

Really! We need a post grad degree to understand that doing more of what works and less of that which doesn’t work is the way to go? Bah. In fact, the so called ’intelligentsia’ have not enough real intelligence to understand this truism… and that the bottom line is, do what works and avoid what does not work.

For a real world example, let’s compare China to the West… the Chinese economy has achieved marvels; in a few decades, China has gone from desperate famine, to being the No. 1 economy in the world (measured by purchase power parity) and certainly No. 2 by any (Dollar equivalent) measure.

Those ‘smoke stack’ industries shipped to China must be doing something right. Maintaining double digit economic growth, moving 600 Million people from poverty to the middle class… the Chinese are indeed doing something right, and clearly are doing ever more of it. In the meantime in the West, the middle class is being destroyed; real wages are shrinking, and only the 0.01% benefits.

Forty million US residents are living in poverty, surviving on food stamps… and this number is growing daily. Infrastructure is falling apart; conservative estimates suggest that it would take ~1Trillion USD just to bring existing infrastructure up to par; never mind building new. In the meantime the military complex sucks up that very same 1 Trillion, yearly… and wastes it on war, aggression, regime change, on spreading mayhem. Just maybe, the West is doing something wrong… and should be doing less of it, not more.

So, what is China doing right, and what is the West doing wrong? Clearly, China is growing its real, physical economy… growing the dog, not the tail. Meanwhile, the West is focusing on the tail; the financial world… and allowing the real, physical economy to deteriorate. No savings, just borrowing and spending; while China has the one of the highest saving rates in the world… along with India, a country that is also starting to do more of what is right and less of what is wrong.

Now clearly if the world were on an unadulterated Gold standard, much of this problem would disappear. Zirp and Nirp would become impossible; speculation (gambling) in Forex and interest rates would disappear and would be replaced by emphasis on the physical economy… but to get to that point, much needs to change; especially people’s perception must change.

The world must realize that we need to do what works, not do what does not work. After all, when the US was on a Gold standard… even an adulterated one… in the nineteenth century, the US economy grew at a world record pace; the pace that the Chinese economy is growing at now, the pace that the Indian economy is approaching.

Real world examples abound, if we but look and see; the US economy is 70% dependent on consumer spending; so what does the ‘intelligentsia’ do? Work to stimulate even more consumer spending! What utter insanity. Consumer spending is not the driver of an economy; capital spending is… spending on productive goods.

If you buy a car for personal use, on credit, that is consumer spending; the car payments come from other sources of income. If you buy the same car, but use it as a taxi, this is capital investment; the car will pay for itself, the debt incurred is self-liquidating. This is not consumer spending.

More specifically, we should also differentiate capital investment; a taxi will last for maybe five or six years; short term. A factory will last for decades; medium term. A highway, railway, dam etc. will, with some upkeep, last for a century; indeed, aqueducts built in Roman times (two thousand years ago) are still in service. This is long term investment indeed. The initial cost has been amortized a hundred times over.

Guess what; China, and lately India, are investing big time in infrastructure; dams, water reservoirs, bridges, railways… such real physical entities will serve for generations, never mind the next quarter results. Do more of what works, and less of what doesn’t.

Now understand, the politics of all this are another issue; the Chinese one party government is doing right things, but by no means am I suggesting the west needs to copy Chinese government structures; indeed, India has a more ‘westernized’ political system… but is still starting to do right things.

Mind you, the Chinese one party system is clearly stated; if Chinese policy is wrong, there is only one party to blame, the Chines Communist Party. In the USA, the one party (Demopublican) system is hidden behind a façade of ‘democracy’; if a wrong policy is implemented by the Republicans, why simply blame them and vote for Democrats. Then when the Democrats continue with wrong policies, we can blame them and vote Republican… as if anything actually changed. So which system is more honest?

In any case, we need to start doing more of what works and less of what doesn’t; we need to stop the tail wagging the dog… and soon. It is late in the game, and total economic meltdown is just around the corner… and such a meltdown is a big reason for wars to start. In today’s nuclear age a major war would cause our extinction. Extinction is forever.

Written by Rudy J. Fritsch

This article appeared in the Gold Standard Institute (subscribe here)

The post Time To Stop The Tail Wagging The Dog appeared first on Gold And Liberty.

August 24, 2016 “Information Clearing House” – This week marks the first anniversary of the 2015 Greek debt crisis, the third in that country’s recent history since 2010. Last Aug. 20-21, 2015, the ‘Troika’—i.e., the pan-European institutions of the European Commission (EC), the European Central Bank (ECB), plus the IMF-imposed a third debt deal on Greece. Greece was given US$98 billion in loans from the Troika. A previous 2012 Troika imposed debt deal had added nearly US$200 billion to an initial 2010 debt deal of US$140 billion.

That’s approximately US$440 billion in Troika loans over a five year period, 2010-2015. The question is: who is benefitting from the US$440 billion? It’s not Greece. If not the Greek economy and its people, then who? And have we seen the last of Greek debt crises?

One might think that US$440 billion in loans would have helped Greece recover from the global recession of 2008-09, the second European recession of 2011-13 that followed, and the Europe-wide chronic, stagnant economic growth ever since. But no, the US$440 billion in debt the Troika piled on Greece has actually impoverished Greece even further, condemning it to eight years of economic depression with no end in sight.

To pay for the US$440 billion, in three successive debt agreements the Troika has required Greece to cut government spending on social services, eliminate hundreds of thousands of government jobs, lower wages for public and private sector workers, reduce the minimum wage, cut and eliminate pensions, raise the cost of workers’ health care contributions, and pay higher sales and local property taxes. As part of austerity, the Troika has also required Greece to sell off its government owned utilities, ports, and transport systems at ‘firesale’ (i.e. below) market prices.

Europe’s Bankers Got 95 Percent of Greek Debt Payments

The US$440 billion in Troika loans—and thus Greek debt—has not been employed to benefit the Greek people, or to help the Greek economy recover from its eight years of depression; it has gone to pay the principle and interest on previous Troika debt, as that debt has been piled on prior debt in order to pay for previous debt.

A recent 2016 released study has revealed conclusively where all the interest and principal payments on the US$440 billion debt has gone. It has gone directly to European bankers and investors, and to the Troika institutions of the EC, ECB, and IMF, who indirectly in turn recycle it back to private bankers and investors.

According to the White Paper (WP-16-02) published by the European School of Management and Technology, ESMT, this past spring 2016, entitled “Where Did the Greek Bailout Money Go?”, more than 95 percent initial Troika loans to Greece went to pay principal and interest on prior Troika loans, or to bailout Greek private banks (owned by other Euro banks or indebted to them), or to pay off European private investors and speculators. Less than 10 billion euros was actually spent in Greece.

The ESMT study further estimates the most recent, third Greek debt deal of last Aug. 2015 will result in more of the same: Of the US$98 billion loaned to Greece last year, the study projects that barely US$8 billion will find their way to Greek households.

The Cost to Greece Eight Years Later

In exchange for the 95 percent paid to the Troika and banker-investor friends, the austerity measures accompanying the Troika loans has meant the following: Greece’s unemployment rate today, in 2016, after eight years is still 24 percent. The youth jobless rate still hovers above 50 percent. Wages have fallen 24 percent for those fortunate enough to still have work. The collapse of wages is due not just to layoffs or government and private business wage cutting, both of which have occurred since 2010, but is due also to the shifting of full time to part time work. Full time jobs have collapsed 27 percent, the lowest ever, while part time jobs have risen 56 percent, to the highest ever. The poorest and most vulnerable Greek workers and households have seen their minimum wages reduced by 22 percent since 2012, on orders of the Troika. And pensions for the poorest have been reduced by approximately the same. All that to squeeze Greek workers, households and small businesses in order to repay interest on debt to the Troika, to Europe’s bankers, and private investors.

None of the debt, austerity, depression, and collapse of incomes existed before the Troika intervened in Greece starting in 2010. Greece’s debt to GDP was around 100 percent in 2007, about where it had been every year for the entire preceding decade, 1997-2007. It was no worse than any other Eurozone economy, and better than most. Greek debt rose in 2008 to 109 percent due to the global recession, accelerating to 146 percent of GDP in 2010 with the first Troika debt deal of US$140 billion. It then surged to more than 170 percent in 2011, where it has remained ever since as another US$300 billion was added in Troika loans in 2012 and 2015.

Greece’s debt since 2010 is certainly not a result of Greek government spending, which has fallen from roughly 14 billion euros to 9.5 billion in 2015, reflecting Greece’s deep austerity cuts demanded by the Troika. Nor can it be attributed to excessive wages and too many public jobs, as both these have declined by a fourth as debt has accelerated. The debt is Troika loans forced on Greece in order for Greece to pay principal and interest on previous loans forced on Greece.

And Still No Relief 2015-16

What happened a year ago, in the third Troika debt deal of Aug. 2015, was the same that happened in 2012 and 2010: US$98 bill more debt was added to Greece’s already unsustainable US$340 or so billion. In exchange, last August Greece had to implement the following even more severe austerity measures:

Generate a budget surplus of 3.5 percent of GDP from which to repay Troika debt-i.e. around US$8 billion a year. Raise sales taxes to 24 percent, plus more tax hikes on “a widening tax base” (i.e. higher taxes for lower income households). Introduce what the Troika calls “holistic pension reform”—i.e., cut pensions up to 2.5 percent of GDP, or around US$5 billion a year, and abolish minimum pensions for the lowest paid and the annual supplemental pension grants. Introduce a “wide range” of labor market reforms, including “more flexible” wage bargaining, easier mass layoffs, new limits on worker strikes, and thousands more teacher layoffs as part of “education reform”. Cut health care services and convert 52,000 more jobs to part time. And introduce what the Troika called a more “ambitious” privatization program. And this is just a short list.

And How Has Greece’s Economy Actually Performed over the Past Year?

Greek government spending since Aug. 2015 has further declined by 30 percent as of mid-year 2016, except for military spending that has risen by US$600 million. Since Aug. 2015, quarterly Greek GDP has continued to contract on a net basis. Greek debt as a percent of GDP has risen further.

There are 83,000 fewer full time jobs. (But 28,000 more part time jobs). Youth unemployment rates have risen from 48.8 to 50.3 percent. Consumer spending has dropped by almost 10 percent, as consumer confidence continues to plummet, home prices deflate, and business investment, exports, and imports all slow. In other words, the Greek economy continues to worsen despite the added US$98 billion Troika debt and the more extreme austerity measures imposed a year ago.

Is Another Fourth Greek Debt Crisis Inevitable?

The answer is “Yes.” Greece cannot generate a 3.5 percent surplus from which to pay the mountain of principal and interest on its debt. Debt repayments in 2016 to the Troika were relatively minimal in 2016. In 2017-18, however, greater debt repayments will come due as Greece’s inability to repay will no doubt worsen, when the next Europe-wide recession hits, which is likely in 2017-18 as well. The next Greek debt crisis may erupt even before, as a consequence of the current deterioration in Europe’s banking system in the wake of Brexit and the deepening problems in Italy’s and Portugal’s banking systems. Contagion elsewhere could quickly spill over to Greece, precipitating another fourth Greek banking and debt crisis.

An Emerging New Financial Imperialism?

By imposing austerity to pay for the debt the Troika since 2010 has forced the Greek government to extract income and wealth from its workers and small businesses-i.e. to exploit its own citizens on the Troika’s behalf-and then transfer that income to the Troika and Europe bankers and investors. That’s imperialism pure and simple-albeit a new kind, now arranged by State to State (Troika-Greece) financial transfers instead of exploitation company by company at the point of production. The magnitude of exploitation is greater and far more efficient.

What’s happened, and continues to happen in Greece, is the emergence of a new form of financial imperialism that smaller states and economies, planning to join larger free trade zones and ‘currency’ unions, or to tie their currencies to the dollar, the euro, or other need to avoid at all cost, less they too become ‘Greece-like’ and increasingly debt-dependent on more powerful capitalist states to which they decide to integrate economically.

Neoliberalism is constantly evolving and with it forms of imperialist exploitation as well. It starts as a free trade zone or ‘customs’ union. A single currency is then added, or comes to dominate, within the free trade customs union. A currency union eventually leads to the need for a single banking union within the region. Central bank monetary policy ends up determined by the dominant economy and state. The smaller economy loses control of its currency, banking, and monetary policies. Banking union leads, of necessity, to a form of fiscal union. Smaller member states now lose control not only of their currency and banking systems, but eventually tax and spending as well. They then become ‘economic protectorates’ of the dominant economy and State-such as Greece has now become.

By Jack Rasmus

For a deeper analysis of Greek debt and the emerging new financial imperialism, see Dr. Jack Rasmus, “Looting Greece: An Emerging New Financial Imperialism,” by Clarity Press, September 2016.

The post Who Profited From the $440 Billion Greek Bailout? Not Greeks appeared first on Gold And Liberty.