This article originally appeared on LewRockwell.com

In Berlin on Christmas Day in 1989, Leonard Bernstein conducted Ode to Freedom Beethoven: Symphony No. 9 (Official Concert of the Fall of the Berlin Wall 1989. As Klaus Geitel, one of the Europe’s most respected music critics, wrote in his translated essay at LeonardBernstein.com:

The Ode “To Freedom”—as Bernstein had the soloists and chorus sing in the final movement of Beethoven’s Ninth Symphony—indeed symbolized for many Germans a depth of joy they had hitherto hardly known: freedom, a gift from the gods…

Not only the Bavarian Radio Symphony Orchestra was to participate, but musicians from the most important orchestras in the world as well: from Dresden and from Leningrad, which now again bears the old, venerable name of St Petersburg, from London, New York and Paris. All were to combine to achieve the common goal of ringing the bell of emotion, of joy at this great, historical moment which Leonard Bernstein had conceived. He was truly more than a conductor; he shook people awake from the rostrum, surrendering to Beethoven’s music and yet rendering it with all his heart and soul at the same time.

Hearing Bernstein is a poignant experience. And it is no less touching to see him at work, to follow his efforts, to perceive his alternation between reserve and extreme concentration, his welling gentleness, and cheerfulness, his re-creative energy.

I cannot help remembering the fall of the Berlin Wall and the exultation, seemingly of millions of people worldwide, at the prospects of peace and freedom, the end of the cold war and the threat of nuclear annihilation. Bernstein invoked something holy, creating art in the service of the noblest aspect of the human soul—the seeking of liberty and peace; such is the work of divinely inspired genius, both his and Beethoven’s.

Yet so many years later, the hope so many of us had seems unjustified. We are living in an altogether different world.

Besides me is a book I’ve taken from my late mother’s nightstand, one of her favorite works of history, a book that deserves an entire essay of its own: Black Sea by Neal Ascherson. In her own hand on a single yellow Post-it® note, written in red ink on and placed on the first page of Chapter Ten are the words: “Here is the story of Abkhazia and Georgia.”

Chapter ten begins:

In August 1992, a small savage war broke out on the shores of the Black Sea between Abkhazia and Georgia. It ended, just over a year later, with the defeat of the Georgian forces led in person by President Edward Shevardnadze and the emergence of a precariously independent Republic of Abkhazia.

Ascherson explains the causes of the conflict and what we found to be the most tragic consequence of the war:

Abkhazia also lost its history. More accurately, it lost the material evidence of its own past, the relics and documents which any newly independent nation needs to re-invent and reappraise its own identity. This was not an accidental consequence of the fighting for Sukhum. It was, in part, a deliberate act of destruction.

The National Museum was not burned, but it was looted and devastated…The huge marble relief of a woman and her children, found on the sea-bed off the site of Dioscurias, was spared because the staff (several of whom were Georgians) hid it behind boards. But the Georgian soldiers took the coin collections and even replicas of gold and silver vessels whose originals were already in the museum at Tbilisi…Soldiers do this everywhere in occupied cities—it was no worse than the plundering of the Kerch museum in the Crimean War. But the fate of the State Archives was different.

…One day in the winter of 1992, a white Lada without number plates, containing four men from the Georgian National Guard drew up outside. The guardsmen shot the doors open and then flung incendiary grenades into the hall and stairwell. A vagrant boy, one of the many children who by then were living rough on the streets, was rounded up and made to help spread the flames, while a group of Sukhum citizens tried vainly to break through the cordon and enter the building to rescue burning books and papers. In those archives was most of the scanty, precious written records of Abkhazia’s past…the archives also contained the entire documentation of the Greek community…As a report compiled later in Athens remarked: ‘the history of the region became ashes.’

In 2008, there was another conflict in the region that not only involved Georgia and Abkhazia but Ossetia and Russia. And through the Internet (most likely finding him from a blog post on LewRockwell.com), listening to his commentary which was at odds with the narrative dispensed by the mainstream media, we discovered Professor Stephen F. Cohen, Professor of Russian Studies and History at New York University and Emeritus Professor of Politics at Princeton. His is a voice that to this day speaks to us with conviction, intelligence and passion to warn us of the dangers on the path that’s been taken by the elites. His is a voice singularly different from the angry and provocative voices we hear every day in the press. The difference now between events eight years ago and today is that a direct military confrontation between the United States with Russia appears possible.

I don’t think I have to remind readers of the recent headlines, especially the allegations of Russian hacking of the DNC and the NSA or the conflicts even taking place between American and Russian athletes during the Olympic Games. To any thinking person, it is obvious that a new cold war is taking place.

Given current events, I follow the work of Professor Cohen with even greater interest.

In Should the West Engage Putin’s Russia?: The Munk Debates (Kindle edition here), which took place on April 10^th, 2015, Professor Cohen, begins his talk by making the core of his arguments on the perils of the new Cold War:

Unlike Ms. Applebaum, I come here, my first trip to Canada, as a patriot of American and Canadian security, on behalf of my family, and yours. I believe that we need a partner in the Kremlin if we are going to have global security—not a friend, but a partner who shares our fundamental security interest. To achieve that, we must not merely engage Russia; we must pursue full co-operation on security and other matters. National security, for both Canada and the U.S., still runs through Moscow. This is an existential truth.

I want you to consider something I’m going to share over the course of this debate. Remember what the former United States senator Daniel Patrick Moynihan once said: “Everyone is entitled to his or her own opinions, but not to his or her own facts.” It’s profound.

Here are the facts: The world today is much more dangerous, far less stable and ordered than it was twenty-five years ago when the Soviet Union existed. There are more nuclear states but less control over the sale of nuclear weapons, over nuclear know-how, and over nuclear material. There are more regional conflicts, more open ethnic and religious hatreds, and there is more political extremism and intolerance. As a result, there is more terrorism in more places.

And to make matters worse, there is more economic and social deprivation and resentment. And as we all know, there are more environmental dangers and foreseeable shortages of the earth’s resources.

Here’s the other fact: not one of these existential dangers can be dealt with effectively without Russia’s co-operation, no matter who sits in the Kremlin. Even after the fall of the Soviet Union, Russia remains the world’s largest territorial country, and one that straddles the fateful frontline between Western and Islamic civilization. Russia still has, proportionately, more of the world’s natural resources, from energy to freshwater, than any other nation.

And, of course, Russia has its arsenals and stockpiles of every conceivable weapon of mass destruction. Whether we like it or not, Russia still has sympathizers, partners, and allies around the world, even in Europe and the Western hemisphere. These are facts. Not opinions.

What is the alternative? Our opponents say it is to isolate Russia. They want to weaken, destabilize, and carry out regime change—as if it were that easy—in Russia.

I think it is important to read both sides of the arguments presented, to decide for yourself which argument has the greater merit: the one for isolation of Putin’s Russia and military escalation or the one, which Professor Cohen presents, of the benefits of a new détente instead of a new Cold War.

In addition to his published writings, Professor Cohen makes weekly appearances on The John Batchelor Show, which is also carried with a summary on Professor’s Cohen’s page atThe Nation. The two most recent ones are Cold-War Casualties From Ukraine and Syria to the New York Times’s ‘Standards’ and Neo-McCarthyite Kremlin-Baiting of Trump Continues to Prevent Urgent Policy Debates.

In earlier broadcasts with John Batchelor, Professor Cohen described perhaps Obama’s finest hour as President: when he chose to work with President Putin, removing the threat of Syria’s chemical weapons arsenal, and preventing direct American military intervention and attendant massive loss of life. However, the spirit behind that decision evidently no longer exists. As Cohen questions in his June 22^nd podcast, “Is Washington waging an undeclared war against Russia”?

Cohen raises three “hypothetical” and heretical questions for discussion. Does the recent escalation of anti-Russian behavior by Washington, from its growing NATO military buildup on Russia’s western borders and refusal to cooperate with Moscow against the Islamic State in Syria to the Obama administration’s refusal to compel its government in Kiev to implement a negotiated settlement of the Ukrainian civil war, reflect an undeclared US war against Russia already underway? Given that many US allies are unhappy with these developments, has Washington gone “rogue”? And does the recent spate of warfare media “information” reflect these new realities?

As evidence, Cohen points to some recent examples: the emerging permanence of NATO’s “exercises” on Russia’s borders on land, sea, and in the air; the Obama administration’s refusal to separate physically its “moderate oppositionists” in Syria from anti-Assad fighters recognized as terrorist groups, despite having promised to do so; the demand by 51 State Department “diplomats” that Obama launch air strikes against Assad’s Syrian army, which is allied with Moscow, even if it might mean “military confrontation with Russia”; the questionable allegation that Russia had hacked files of the Democratic National Committee coupled with a NATO statement that hacking a member state might now be regarded as war against the entire military alliance; and the EU’s renewal of economic sanctions against Russia without any meaningful pretext.

As evidence that many US allies are unhappy with these developments, even opposed them, Cohen cites the German Foreign Minister’s denunciation of NATO’s buildup as “war-mongering”; the stated desire of several major European countries, which (not the United States) pay the economic costs to end the sanctions; the growing political and security relationship between Israel Prime Minister Netanyahu and Putin; and the relative success of the international economic conference in St. Petersburg last week, hosted by Putin, whom the Obama administration continues to try to “isolate.”

Whether or not Washington’s behavior constitutes undeclared war, Putin, at the conference, warned that if it continues it will mean “war,” reinforcing Cohen’s impression that Moscow is preparing for the worst, bringing the two nuclear superpowers to their worst confrontation since the 1962 Cuban missile crisis.

In the summary of the August Seventeenth podcast (link above), which is the most recent at the time of my writing, Professor Cohen raises the following questions concerning the attack on Crimea allegedly by Ukrainian Agents:

Last week’s still somewhat mysterious episode in Crimea was an important example. Russian President Putin announced that Kiev had sent agents with terrorist intent to (now) Russia’s Crimean peninsula. They were captured and one or more Russian security agents were killed. Putin said the episode showed that Kiev had no real interest in the Minsk peace talks and that he would no longer participate in them, the other participants being the leaders of Germany, France, and Ukraine. Kiev said the episode was a Russian provocation signaling Putin’s intent to launch a large-scale “invasion” of Ukraine.

Cohen asks, as is always asked when a crime is committed, who had a motive? So far as he can judge, Putin had none. Kiev, on the other hand, is in a deepening economic-social political crisis and losing its Western support, especially in Europe. Cohen thinks it fully possible that Kiev staged the episode to rally that flagging support by (yet again) pointing to Putin’s impending “aggression.” Washington seemed to support Kiev’s version—leading Cohen to wonder whether a faction in the administration was also involved—while Europe, certainly Germany, openly doubted Kiev’s version. If Putin is serious about quitting the Minsk negotiations, Cohen adds, it means war is now the only way to end the Ukrainian civil and proxy war, a way certainly favored by some factions in Washington and Kiev.

Factional politics were even clearer regarding Syria, where Obama had proposed military cooperation with Russia against the Islamic State—in effect, finally accepting Putin’s longstanding proposal—along with important agreements that would reduce the danger of nuclear war. The Wall Street Journal and The Washington Post had reported strong factional opposition to both of Obama’s initiatives—in effect, a kind of détente with Russia—and both have been halted, though whether temporarily or permanently is unclear. Cohen thinks we will soon know, because Putin needs a decision by Obama now as the crucial battle for Aleppo intensifies. Under his own pressure at home, Putin seems resolved to end the Islamic State’s occupation of Syria, Aleppo being a strategic site, without or with US cooperation, which he would prefer to have…

The degradation of The New York Times (announced on its front page last week in a declaration that it would suspend its own standards in covering Trump and his presidential campaign) is, according to Cohen, especially lamentable. Once the Times set high journalistic standards for young journalists elsewhere in the media. Judging by the growing number of young “journalists” who assail critics of US policy toward Russia as Kremlin “apologists,” “stooges,” and “useful idiots,” rather than actually study the issues and debate the critics, the Times is no longer an exemplar. Unprofessional, unbalanced journalism is another reason Cohen thinks this Cold War is more dangerous than was the preceding one—as well as a mainstream media disgrace.

In reading his words, I am reminded of what Lew Rockwell wrote about Murray Rothbard in his book, Fascism versus Capitalism:

When Rothbard would take on a subject, his very first stop was not to sit in the easy chair and think of the top of his head; instead, he went to the literature and sought to master it. He read everything he could from all points of view. He sought to be as much an expert in the topic as other experts in the field.

In other words, Rothbard’s first step toward writing was to learn as much as possible…If you follow his model, you will not regard this as an arduous task but as a thrilling journey…

There is another respect in which we can all emulate Murray. He was fearless in speaking the truth. He never let fear of colleagues, fear of the profession, fear of editors or political cultures, stand in the way of his desire to say what was true.

It is entirely possible that Professor Cohen has never read the work of Murray Rothbard but from listening to him, from reading his writings, I have no doubt he uses a comparable methodology. Yet I do suspect that he is facing the same professional disdain that the courageous Rothbard did, and is all too often being accused of being an “apologist” when it is all too obvious to clear thinking, rational minds that Cohen is a scholar and a historian who asks questions of the utmost importance and urgency. As Cohen himself has said about Putin, “Personally, I don’t care much about Putin. I wish I were going to live long enough to see how my fellow historians evaluate Putin’s role as a leader of Russia. And I think it is going to be a big debate, the positives and the negatives.”

In the Cyberpunk novel CTRL ALT REVOLT by Nick Cole I found an unexpected gem, this statement by a principal character, perhaps the true motive for HarperCollins corporate contempt for the work, meaning the abortion issue was only clever misdirection:

…the truth is the most valuable thing in the world. It’s, in fact, the only thing that has value and provides value for everything else. Everything that’s false can’t be relied on and is therefore actually worthless. Therefore, there’s no sense in having it. But if you have the truth, well then, you’ve really got something there, don’tcha? See, with the truth, you can really do anything. The truth makes you very powerful.

I think that Should the West Engage Putin’s Russia?: The Munk Debates is well worth reading for those interested in seeking and finding the truth, not to mention who the three thousand attendees chose as the winner: the side for engagement with Russia or the side for containment. I am eagerly looking forward not only to Professor Cohen’s weekly conversations with John Batchelor but to his soon to be published book, Why Cold War Again?: How America Lost Post-Soviet Russia.

It is obvious that the tension between Russia and the United States is greater than it has been in decades, that we may face another Cuban missile crisis yet without the mechanisms that existed decades ago to defuse it, as Cohen has warned.

I quoted from Ascherson’s book because of the deliberate destruction of Abkhazia’s cultural and historical heritage presaged the destruction of Syria’s at Palmyra, perhaps for the same motives even if the vandals were not of same culture and faith.

After Palmyra was liberated, a concert was performed, Praying for Palmyra: Russian orchestra performs concert honoring victims of Syria war, conducted by Valery Gergiev, an Ossetian. As the blogger The Saker noted:

I find it most significant that the concert did not begin with a piece by a Russian composer. Instead, the Russians chose to begin with a poignant piece by Johann Sebastian Bach: this famous “Chaconne”, Partita for solo violin Nº 2 in D minor, BWV 1004. Yehudi Menuhin called the Chaconne “the greatest structure for solo violin that exists,” and Violinist Joshua Bell has said the Chaconne is “not just one of the greatest pieces of music ever written, but one of the greatest achievements of any man in history. It’s a spiritually powerful piece, emotionally powerful, structurally perfect.” (source).

Perhaps providentially, 2016 is the centennial year of Yehudi Menuhin, who was not only a great artist but a man of peace, the winner of the prestigious The Wolf Prize. I would like to think the man who, in my opinion, was the greatest performer of Bach’s Chaconne, was there in spirit.

In recalling that concert at Palmyra of perhaps equal historical significance to Bernstein’s, perhaps Americans and Russians can find common ground in their universal cultural heritage, in the battle for civilization that rages upon us, a battle against the darkness that exists in the hearts of men of both nations.

I am not as young as when Bernstein performed Beethoven’s Ninth and the Berlin Wall fell. Death is stalking and has claimed friends, some whom I’ve never met, such as divinely inspired geniuses like Bernstein and Menuhin, whose magisterial performance of Bach I listen to as I write these words. Yet I would like to think that the best aspect of man’s spirit is the strongest, the spirit that motivated both concerts. I would like to think that there are millions who will thoughtfully consider and debate Professor Cohen’s perspective. I would like to have hope that those who made their voices heard and our political leaders listened to, forestalling direct military intervention in Syria—if only briefly—can be raised and heard once again.

If Gamers can have a hashtag against injustice, #GAMERGATE, if there are already hashtags Stop World War III and #liberty, I have faith there can be a hashtag #STOPTHENEWCOLDWAR. After all, post nuclear war environments are great for gaming but not for living in. Perhaps a self-organizing, leaderless global movement will form. I’d like to think the human love of life and liberty, of beauty and hope, on display on Christmas Day 1989, still lives on in the hearts of millions around the world, including Americans and Russians. Professor Cohen has made us aware of alternatives, now and in the past.

I think we have to try.

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“The dollar and gold are synonymous,” Harry Dexter White, the architect of the Bretton Woods international monetary system, told Congress in 1945. “There is no likelihood that . . . the United States will, at any time, be faced with the difficulty of buying and selling gold at a fixed price freely.”

Under the Bretton Woods system, currencies were tied to the U.S. dollar at a fixed rate, and the dollar was in turn tied to gold at $35 an ounce. Today there is much nostalgia about Bretton Woods — a belief that the quarter-century from 1946 to Aug. 15, 1971 (when the system collapsed) was a golden era of monetary stability. But the reality was very different.

Although the International Monetary Fund was inaugurated in 1946, the first nine European countries to meet the requirements of its Article VIII — that their currencies be freely convertible into dollars at a fixed rate — didn’t do so until 1961. And by then, the system was already coming under enormous strain, as the U.S. — contrary to White’s assurances — was losing gold reserves.

The fundamental problem was that the United States couldn’t simultaneously keep the world adequately supplied with dollars and sustain the large gold reserves required by its gold-convertibility commitment. The logic was laid bare by economist Robert Triffin in his now-famous 1960 congressional testimony. There were, he explained, “absurdities associated with the use of national currencies as international reserves.” It constituted a “‘built-in destabilizer’ in the world monetary system.” The European dollar-convertibility pledges, far from representing the final critical step into a new monetary era, “merely return[ed] the world to the unorganized and nationalistic gold exchange standard of the late 1920s.”

When the world accumulated dollars as reserves, rather than gold, it put the United States in an impossible position. Foreigners lent the excess dollars back to the U.S. This increased U.S. short-term liabilities, which implied the U.S. should boost its gold reserves to maintain its convertibility pledge. But here’s the rub: if it did so, the global dollar “shortage” persisted; if it didn’t, the U.S. ultimately wound up hopelessly trying to guarantee more and more dollars with less and less gold. This became known as “the Triffin dilemma.”

If concerted international action wasn’t taken to change the system, Triffin explained, a deadly dynamic would set in. The United States would need to deflate, devalue, or impose trade and exchange restrictions to prevent the loss of all its gold reserves. This could cause a global financial panic and trigger protectionist measures around the world.

What could prevent this? President John F. Kennedy, who took office soon after Triffin’s testimony, wouldn’t countenance a dollar devaluation; austerity, likewise, wasn’t in the cards. Instead, the U.S. resorted to plugging the dikes with taxes, regulations, gold-market interventions, central-bank swap arrangements, and moral suasion directed at banks and foreign governments — just as Triffin had anticipated.

Under Richard Nixon, inflation climbed rapidly, reaching nearly 6% in 1970, and world dollar reserves rose sharply. In tandem, American monetary gold stocks tumbled to a mere 22% of dollars held by foreign central banks, down from 50% a few years prior.

By May 1971, Germany could no longer hold its currency peg. The deutsche mark was being driven up by relentless capital inflows as the world dumped dollars. After a bruising internal debate, the German government floated the mark on May 10. While this succeeded in curbing speculative flows into Germany, it did not halt the flow out of the U.S.

Nixon’s Treasury secretary, John Connally, angrily rejected suggestions from IMF Managing Director Pierre-Paul Schweitzer that the U.S. raise interest rates or devalue the dollar. Instead he blamed Japan, the newest destination for speculative capital in the wake of the mark’s float, for its “controlled economy.”

Dollar dumping accelerated. France sent a battleship to take home French gold from the New York Fed’s vaults.

Finally, Nixon opted for what Connally convinced him would be seen as a bold and decisive move. On Aug. 15, he went on national television to announce his New Economic Policy. In addition to tax cuts, a 90-day wage and price freeze, and a 10% import surcharge, the gold window would be closed; the U.S. would no longer redeem foreign government dollar holdings. Connally followed on by making the president’s priorities brutally clear to a group of European officials, telling them that the dollar was “our currency, but your problem.”

The Bretton Woods monetary system was finished. This should, Harry White had believed, have meant the end of the dollar’s international hegemony. “There are some who believe that a universally accepted currency not redeemable in gold . . . is compatible with the existence of national sovereignties,” he wrote in 1942. “A little thought should, however, reveal the impracticability of any such notion.” Countries, he said, would never “accept dollars in payment of goods or services” unless they were “certain [they] could convert those dollars in terms of gold at a fixed price.”

The world would face rough waters before it would find out whether he was right. Would the world lapse into a 1930s-style spiral of protectionism? Or could an international monetary system of sorts be made to work without gold?

For all its problems, the current dollar-based non-system has been far more resilient than the Bretton Woods gold-exchange standard, which never operated as White intended. And the real alternatives — a classical gold standard, in which interest rates are driven by cross-border gold flows; or a supranational currency, like Keynes advocated at Bretton Woods — are likely to remain too radical politically. We are, therefore, almost surely stuck in a fiat dollar world for some time to come.

Written by Benn Steil is director of international economics at the Council on Foreign Relations and author, most recently, of “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order.”

This article originally appeared on MarketWatch

The post Adopt A Gold-Backed Dollar? This Is What Happened The Last Time The World Tried. appeared first on Gold And Liberty.

Warren Buffet famously said during the 1990s dot-com bubble that he did not invest in technology because he did not understand it. Although he subsequently took a meaningful stake in IBM (which may prove his point), we suspect his technological blind spot was in reality his awareness that no matter how much a business might change the world, ridiculous valuations ensure negative returns-on-investment. There is another issue we would bet Buffett understood deeply that kept him away: one cannot make a decent ROI over time by staking a depreciating asset.

In High Cotton we asked will there come a time when we are forced to recognize that borrowing to form capital in the form of deflationary, technologically-led productivity is the macroeconomic equivalent of borrowing to buy a depreciating asset, like a car? We get what we want now, but it is counterproductive if we cannot reinvest our savings at a higher return. This is a big, conceptual topic but one that deserves critical thought and attention from investors.

The easiest way to reduce the concept is to ask yourself whether the success of Amazon and Uber should enhance GDP over time. We argue they will detract from it, but that this is a good thing. Innovation increases productivity. It does not directly increase demand or economic activity. So, if an economy’s economic model is to try to increase output growth by increasing credit (and overall debt levels as a result), then the economy’s growth model is not in sync with how it seeks to form capital. The credit issued and debt assumed may have produced higher contemporaneous GDP through increased investment, consumption and trade, but it did so at the great expense of future nominal revenues, earnings, profit margins, and, ultimately, at the great expense of balance sheet viability.

Much of the capital stock built over the last twenty years has been capital that offers deflationary pricing. Businesses that helped streamline past inefficiencies through innovation grew revenues and employed more labor, for themselves and other businesses that exploited their innovations, but they also reduced the value of labor, which in turn widened wealth and income gaps. We have been left with economies able to economize at a rate that exceeds the natural rate of nominal growth. The debt remains and monetary policy makers have had to step into the breach, manipulating money stocks and markets to keep the whole thing afloat.

Why do policy makers’ econometric models continue to solve for growth? Beats us. One very obvious (albeit unmentioned) rationalemight be because all the aggregate debt must be serviced. Nominal growth increases nominal revenues, which in turn makes it easier to service debt today, but far more difficult to repay or reduce it tomorrow. (We do not await such a discussion in next month’s Fed minutes.)

As a result, our economies are caught in a debt-for-debt’s-sake leverage trap where credit is issued and debt assumed merely to tread water. It is like squeezing a water balloon here to make it expand there. Meanwhile, the capital stock is growing in the form of rising capital market prices. Is there a natural conflict? Why would we value equity and credit markets higher if they represent lower future revenues, earnings and profit margins? Perhaps because the market expects all numbers to increase in nominal terms even if businesses shrink in real terms?

Ideologies

Karl Marx was a good thinker. We agree with his view that societies develop based on class struggle, but are unwilling to agree with a socialist prescription, which represses human desire and initiative and sees governments as superior economic arbiters. Capitalism is much more to our liking (and we are saddened that talk of capitalism makes us nostalgic).

We have used the term “financialism” to describe the current economic model endorsed broadly by political economists. Economies do not build wealth when they do not build capital, and capital (as in capital markets) that can only maintain value by becoming more encumbered is not sustainable. It is a mirage. Although economic policy makers can (or think they can) continue this illusion indefinitely, they cannot get around the fact that doing so reduces human desire and initiative. What incentivizes the factors of production to produce when there is no real (inflation-adjusted) wealth to be gained?

Marx argued that capitalism naturally leads to social tensions that ultimately force it to fail as a means of distributing wealth and capital. Juxtapose that view on the social, political and economic environment today. What are the platforms offered by our political elite? How are our economic policy makers proceeding? How do we spend our days? Any objective analysis produces the conclusion that statist ideologies are gaining favor – if not out of design, then certainly out of perceived necessity.

Investors should check their ideologies and personal politics at the door. (For the record, we are registered “unaffiliated”, not Democrat, not Republican, not Independent, not Libertarian.) The fact is, however, that strong and enduring capital markets can only survive in truly capitalist economies, preferably with strong representative governments. With accretive capital formation in question, it occurs to us that the largest global capital markets have become little more than tools for Marx’s “ruling class” – in this case wellfunded politicians and their patrons – to socialize the factors of production (so far successfully). We will leave moralizing to others. Whether such a conclusion is good, bad or irrelevant to market performance is the focus of this report.

Investing

How that water balloon is squeezed greatly impacts consumption, trade and investment, as well as the flow of funds among equity, fixed-income, FX and commodity markets. Global wealth is finite but it shifts based on collective perceptions of needs, wants and how to measure wealth itself. As long as our capital markets are not producing capital, investors will have to continue playing the equivalent of financial whack-a-mole. Marx argued the game will have to be unplugged one day. As long as global balance sheet remain highly leveraged and irreconcilable in real terms, we see no evidence to the contrary.

There is no doubt that true capital was built in the past as a direct result of excessive credit creation supported by irrational equity valuations. But the cost of that capital formation was steep and was largely borne by investor excitement over whiz bang innovation. Fiber optic cable would never have been laid at the turn of the century without massive balance sheet leveraging and excitement surrounding memories like Webvan.com. Still, fiber bandwidth remains and serves as worthwhile infrastructure.

Contrast that with the nature and distribution of capital formed when a consumer buys an iPhone. A deconstruction of the iPhone 6s Plus by IHS Technology concluded its component costs total about $236 per phone. Tech analyst Horace Dediu further estimated that the labor cost per phone is about $30. This $266 per phone manufacturing cost does not include shipping or warehousing. (The great majority of the phone’s components are manufactured and assembled in China and Taiwan.) Let’s be conservative and assume each phone costs Apple $300. Of that, we assume the great majority of capital created from manufacturing the phone is split among shareholders in Asian component businesses.

Judging by its $750 retail price, there would be about $450 remaining to design the phone (in California), advertise it globally, ship it, and pay mobile phone carriers to retail it. Apple’s free cash flow and retained earnings per phone are not the real point, but rather the process of manufacturing and selling the phone does not seem to spread purchasing power over a broad audience, say, the audience that actually benefits from using the device.

The capital iPhones create is shared by a relative few while its benefits are socialized. Is this a bad thing? This is for each of us to decide, but we do not think it is economic. Apple has the largest market capitalization in the world’s largest equity market. It directly employs about 100,000 people and maybe keeps twice that figure employed around the world. While the market can choose to value businesses anyway they wish, buying a $750 phone on credit destroys current and future wealth among the masses, which, in turn, cannibalizes Apple’s and other business’s future revenues and earnings.

While we all benefit today from capital spending that laid cable twenty years ago, very few of us will benefit in productive terms from Apple’s operations, even if Apple shares are owned broadly in our retirement accounts and pension funds. Maybe capital spending is low and declining today because there is very little capital to be gained from spending? Maybe the cost of capital (interest rates) is zero or negative around the world because capital production is also near zero or negative?

Written by Paul Brodsky | Macro Allocation Inc

The post Marx & Markets appeared first on Gold And Liberty.

Written by Robert F. Kennedy Jr. Originally appeared on Politico.eu.

In part because my father was murdered by an Arab, I’ve made an effort to understand the impact of U.S. policy in the Mideast and particularly the factors that sometimes motivate bloodthirsty responses from the Islamic world against our country. As we focus on the rise of the Islamic State and search for the source of the savagery that took so many innocent lives in Paris and San Bernardino, we might want to look beyond the convenient explanations of religion and ideology. Instead we should examine the more complex rationales of history and oil — and how they often point the finger of blame back at our own shores.

America’s unsavory record of violent interventions in Syria — little-known to the American people yet well-known to Syrians — sowed fertile ground for the violent Islamic jihadism that now complicates any effective response by our government to address the challenge of ISIL. So long as the American public and policymakers are unaware of this past, further interventions are likely only to compound the crisis. Secretary of State John Kerry this week announced a “provisional” ceasefire in Syria. But since U.S. leverage and prestige within Syria is minimal — and the ceasefire doesn’t include key combatants such as Islamic State and al Nusra — it’s bound to be a shaky truce at best. Similarly President Obama’s stepped-up military intervention in Libya — U.S. airstrikes targeted an Islamic State training camp last week — is likely to strengthen rather than weaken the radicals. As the New York Times reported in a December 8, 2015, front-page story, Islamic State political leaders and strategic planners are working to provoke an American military intervention. They know from experience this will flood their ranks with volunteer fighters, drown the voices of moderation and unify the Islamic world against America.

To understand this dynamic, we need to look at history from the Syrians’ perspective and particularly the seeds of the current conflict. Long before our 2003 occupation of Iraq triggered the Sunni uprising that has now morphed into the Islamic State, the CIA had nurtured violent jihadism as a Cold War weapon and freighted U.S./Syrian relationships with toxic baggage.

This did not happen without controversy at home. In July 1957, following a failed coup in Syria by the CIA, my uncle, Sen. John F. Kennedy, infuriated the Eisenhower White House, the leaders of both political parties and our European allies with a milestone speech endorsing the right of self-governance in the Arab world and an end to America’s imperialist meddling in Arab countries. Throughout my lifetime, and particularly during my frequent travels to the Mideast, countless Arabs have fondly recalled that speech to me as the clearest statement of the idealism they expected from the U.S. Kennedy’s speech was a call for recommitting America to the high values our country had championed in the Atlantic Charter; the formal pledge that all the former European colonies would have the right to self-determination following World War II. Franklin D. Roosevelt had strong-armed Winston Churchill and the other allied leaders to sign the Atlantic Charter in 1941 as a precondition for U.S. support in the European war against fascism.

But thanks in large part to Allen Dulles and the CIA, whose foreign policy intrigues were often directly at odds with the stated policies of our nation, the idealistic path outlined in the Atlantic Charter was the road not taken. In 1957, my grandfather, Ambassador Joseph P. Kennedy, sat on a secret committee charged with investigating the CIA’s clandestine mischief in the Mideast. The so called “Bruce-Lovett Report,” to which he was a signatory, described CIA coup plots in Jordan, Syria, Iran, Iraq and Egypt, all common knowledge on the Arab street, but virtually unknown to the American people who believed, at face value, their government’s denials. The report blamed the CIA for the rampant anti-Americanism that was then mysteriously taking root “in the many countries in the world today.” The Bruce-Lovett Report pointed out that such interventions were antithetical to American values and had compromised America’s international leadership and moral authority without the knowledge of the American people. The report also said that the CIA never considered how we would treat such interventions if some foreign government were to engineer them in our country.

This is the bloody history that modern interventionists like George W. Bush, Ted Cruz and Marco Rubio miss when they recite their narcissistic trope that Mideast nationalists “hate us for our freedoms.” For the most part they don’t; instead they hate us for the way we betrayed those freedoms — our own ideals — within their borders.

Contineu reading on Politico.eu to get an understanding of the underlying drivers and causes.

The post Why the Arabs Don’t Want us In Syria appeared first on Gold And Liberty.

By Steen Jakobsen from Saxo Bank:

This is VERY important to know and understand – there are 2.7 trillion US$ in money market fund in the US. In the past these were mainly going to “Prime funds” which invested in short-term government and commercial papers. Then came Lehman and hell broke loos

These funds have in history guaranteed 1$ NAV always – but under Lehman it “broke the buck”, and we had liquidity crisis and a non-existent Commercial Paper market. Now in order to avoid same thing to happen the SEC per October 14^th will allow PRIME FUNDS to trade only to its NAV  (making it significantly more risky).

This has means 500 billion US$ has left “prime funds” and gone to Government funds, which, as the name says, can only buy government short-term papers – this has then created excess demand for T-bills and left LIBOR bid, because of course, the main difference btw prime fund and government is CP papers – mainly banks and mortgage issuers – ie. 500 Bln USD is “missing” in short-term funding.

Hence LIBOR bid, a further 500 bln. USD is expected to leave before October 14^th according to Morningstar.

Of course everything may go smoothly, but with a Fed wanting to hike you need to understand this “indirect” increase in not only the price of money but also the il-liquidity risk.

Below article from MACRO-OP on this theme, an attachment from Vanguard Prime Fund, the world biggest Primefund and finally some charts to support/follow the flow.

(from Macro-Ops.com)

LIQUIDITY CRISIS? WHAT THE NEW SEC MONEY MARKET FUND REGULATIONS MEAN FOR THE FINANCIAL SYSTEM

Things could get real interesting in the next few months.

On Oct. 17th a new SEC rule finally comes into play that will affect money market funds and liquidity across the financial sphere. There’s potential for some really big moves here.

Most investors don’t know this is coming, making it a giant surprise when it finally happens. And that’s because SEC rules tend to get complicated, and their knock on effects get even muddier. We’ll do our best to simplify exactly what’s happening and what it means for the markets.

The story starts with money market funds — the open-ended mutual funds that invest in short-term debt such as US Treasury bills and commercial paper. These funds have always been a popular alternative to bank deposits because they were considered just as safe, while also providing a higher yield.

But the key to their “safety” was the funds’ promise to keep their net asset value (NAV) fixed to $1-a-share. This guaranteed that you would at least get back as much as you put into the fund. And it was widely believed that this $1 level would always hold. Whenever the value of the fund went above $1-a-share, you would be paid out in dividends.

This all changed in the 08’ financial crisis.

The entire financial system, from fiat currencies to debt, is based on confidence. And when this confidence falters, you start having serious problems.

Before 08’, the markets had confidence in Lehman Brothers and considered them a “safe” asset. That obviously didn’t last…

Lehman collapsed. And in the process, it set off a chain reaction.

Lehman, like other trusted institutions, used the money markets for short-term funding. And it could do that because it was a trusted institution that people believed could always pay its debts. And this trust is what keeps the financial system going — including the money markets.

You can imagine what happened to money market funds’ $1 NAV promise once Lehman failed.

The Reserve Primary Fund, the oldest US money market fund, “broke the buck”. Its NAV fell to 97 cents and all hell broke loose.

Now Lehman was only a small portion of the Reserve Fund’s assets, but it didn’t matter. Confidence was lost when the $1 NAV level didn’t hold up. Investors stampeded out of the Reserve Fund, causing it to collapse. This in turn triggered a run on other money funds, threatening the liquidity of the whole financial system.

As we explained before, money market funds invest in many short-term debt securities like commercial paper. Banks and big corporations rely on those loans from the funds to pay their day-to-day bills. Without that funding, operations seize up and you have a chain reaction that creates a liquidity crisis. This is exactly what was happening, which is why the government had to step in with bailouts to make sure the whole system didn’t collapse.

Now the key here is liquidity. Liquidity is the lifeblood of the financial sphere, and without it, the system chokes up.

Here’s where our October SEC rule comes into play. They decided,“damn, we don’t want this happening again”, and set some new standards that are finally coming online on October 17th.

These new rules basically say that prime and municipal money market funds (the funds invested in riskier assets than T-bills) will have to float their NAV’s. They would also be required to impose liquidity fees and redemption gates when times get rough like in 08’.

Now the point of these rules is to make the entire market safer. If the NAV isn’t pegged to $1 and is allowed to float below that level, itshould give investors a better idea of the risk they’re involved with. And the extra redemption rules should prevent runs on money market funds that kill liquidity.

These rules may sound all well and good, but they usually cause unintended consequences. Whenever you put new regulations into play, market participants are forced to adjust in one way or another. These adjustments and their effects become difficult to predict.

And this is what we’re now seeing. Investors are making a massive shift in the money markets. They’re moving from riskier prime funds that will be forced to abide by these new rules, to safer government funds which are exempt.

The reason they’re moving is because of their risk aversion. Investors are used to their money market funds being 100% safe and returning their money. But if you introduce a floating NAV, then there is a realistic chance of actually losing on these short-term investments. That’s why you’re seeing the shift to T-bill funds that can still hold that $1 NAV promise.

So far $500 billion has moved from prime to government funds. Total assets in prime funds have now dropped below $1 trillion for the first time in 17 years. Many prime funds are also closing because of these new rules and investors’ responses. According to Sagar Patel of Morningstar, the number of prime funds has dropped from around 500 before the law, to 460 today. He believes more will continue to shut-down as we get closer to the actually implementation time. He even expects another $500 billion to move out of prime funds in the next few months.

This is clearly a massive shift that is completely changing the money market landscape. Now there are a couple of things that may happen as a result.

First, we may get more easing on the interest rate side of things. As we know, US Treasuries are considered some of the safest assets in the world. And because of the global deleveraging we’re going through, we’ve seen a relentless bid causing a massive run up in their prices. Interest rates are also being pushed lower and lower as a result.

The hundreds of billions of dollars flooding into the T-bill market will only exacerbate this trend. Especially when the $1.51 trillion t-bill market is already short on supply. As of now, the Treasury’s plan is to add about $188 billion in additional bill supply during the next two quarters to help cope with the increased demand. But there’s no guarantee that will be enough. The quick influx of funds could be enough to disrupt the T-bill markets’ structure. That would result in some wonky action in short term interest rates. But no one is really sure what will happen.

The other problem that’s brewing is in the lending markets. And problems in the lending markets are extra dangerous because they directly affect liquidity, which as we said, is the lifeblood of the financial system.

The prime markets are where a lot of large corporations and banks get their day-to-day financing from commercial paper. This is considered unsecured funding (meaning there’s no underlying asset backing it up) and is based on the credibility of the borrowing firm. This is a prefered route to access short-term capital for many institutions because it’s quick and avoids SEC involvement, which usually becomes expensive.

But now with the new rule change and all this money flowing out of the prime money market funds, this source of funding is drying up. More corporations will be forced to find other ways to support their daily expenses like payroll. But unfortunately, these other options are more expensive, and will likely lead to a slowdown in business activity and possibly unmet obligations. This could only be a negative for equity markets as corporate costs go up to account for the change.

And even worse off are foreign banks that depend on prime unsecured financing to meet their dollar obligations. A lot of these banks don’t have US customers depositing cash with them. This means they don’t have a ready supply of dollars available like US banks. In order to get the dollars they need, they access commercial paper through prime funds.

US dollars are the key to the liquidity of banks around the world because USD is a global reserve currency. It’s used in all types of transactions, even when neither party is based in the US. This makes access to dollars extremely important. But now with these new prime fund requirements, these banks are facing dollar liquidity problems.

We’re seeing the first of these problems developing in Japan’s banks. Reports have shown that out of the collective balance sheet of Japanese banks with branches in New York, almost 2/3rds of their funds raised on the liability side come straight from unsecured funding.

Now the lack of this unsecured funding is forcing banks to try and find alternative dollar sources. And their actions are causing distortions in the broader market.

Recently we referred to the above chart as the most important in the world.

To summarize, what you’re seeing is a huge discrepancy between interest rates implicit in the FOREX swap rate and the market interest rates (LIBOR). Normally these two are supposed to be consistent with each other. But right now they aren’t. A large reason why they’re different is because of the structural changes in the money market we just described.

So what does this mean?

First, there looks to be little appetite to lend dollars in the swap market. Swaps can sometimes be very illiquid, which means they can be high risk. No one wants to lend because they don’t want to chance not getting those dollars back. They’re anticipating and protecting for liquidity issues. And what’s funny is that by doing that, they’re in turn creating the liquidity issues they fear.

Second, the LIBOR rate is continuing to increase, signaling tougher standards of lending between banks.

This again shows the lack of options once banks lose their funding from prime markets.

We all know how supply and demand works. So we know what happens when more institutions need dollars, as less institutions are able to supply them. The squeeze that’s coming from this reality has a good chance of causing a massive USD runup.

You should also remember that the world is also already collectively short $8-11 trillion US dollars from the USD carry trade. That’s another reason no one wants to lend anymore dollars. But if the USD appreciates from the prime money market squeeze, it could cause the carry trade unwind too, forcing the dollar even higher and exacerbating supply problems.

Banks struggling to obtain dollars will cause massive liquidity problems in the system. Central banks understand this and are already working to try and ease the issue. The Bank of Japan for example has been expanding its swap lines and adding new facilities to help their banks access dollar funding.

The big question though is whether this will be enough. Or, will this new money market rule be the spark that ignites the USD carry trade unwind, freezing liquidity in the system, creating a situation worse than 08’.

Most investors have put USD carry trade theme behind them in recent months, which tends to happen when you get price action in the dollar like we’ve been seeing since 2015…

But the USD carry trade situation is still alive. And it will happen. The question is when. We’re keeping our eye on the dollar for a signal.

October looks like as good a time as any for the trend to kick-off with this NAV rule coming into play. Hopefully now you won’t be surprised when it happens…

The post Prepare For A Liquidity Crisis With New SEC Rules For Money Market appeared first on Gold And Liberty.

The quarterly Advisory Board organized by Incrementum Liechtenstein took place recently, and, as usual, the discussion was focused on challenging the consensus view. Part of the discussion was centered around helicopter money which is one of the anticipated scenarios that central banks around the world will launch shortly, meant as a monetary tool to ‘stimulate’ the economy.

We believe the discussion about helicopter money was particularly interesting, and, in this article, we picked out some key thoughts on that topic. We recommend readers to read the whole document (i.e., transcript of the meeting), in order to get valuable thoughts on the consequences of helicopter money on financial markets and inflation.

Besides helicopter money, some trading ideas were discussed, as well as the consequences of the Brexit, gold and mining stocks, inflation expectations and the outlook for the US dollar. Read the full document (pdf).

James Rickards discusses different forms of helicopter money as well its economic consequences :

I don’t think we’ll see it in 2016, but I’d say it’ll definitely be on the agenda in 2017. It makes sense to start with a definition of what helicopter money actually is, because a lot of people are going to the cameras and to the news without actually having understood what it is. One thing that it’s not: It’s not dropping money out of helicopters. But what it means: It is money printing, but a different kind of money printing than we had so far.

The big question is: How can you print money such that it’s certain to be spent? It’s a problem if people don’t spend because they’re fearful, too concerned, they want to save or want to do leverage – and it’s the same thing in the corporations. If the economy is in a liquidity trap, you turn to government, because the government is really good in spending money. So the idea is: The government spends the money and the money thus comes into circulation – if they build a bridge, if they build a train station or whatever. So somebody gets the job, somebody sells concrete, steel, glass and so on. So you put the money into circulation, you increase GDP – but obviously this increases the deficit. Well, then they say: “Fine, the government will just issue some bonds to cover the deficit”. And if you ask: “Well, who will buy the bonds at a reasonable interest rate?” The answer is: The central bank will buy the bonds and they’ll do that with printed money. So in the end of the day, we’ll still have central banks printing money. To a large extent it looks like QE, but the difference is that the money is 100% certain to be spent, because governments are really good in spending money and apparently that expands the economy.

The basic question is on what will governments spend the money on? Here the elites – by that I mean Larry Summers, Adair Turner, Christine Lagarde and so on – say governments should spend it on infrastructure. Certainly, we need infrastructure and this in the long term serves the economy. However, in the real world we find that governments don’t usually make wise choices, it usually wastes the money in one way or the other. So you rather end up wasting the money with expenses rather than improving the infrastructure, that’s point number 1.

Secondly, it can be doubted that even if money is spent on infrastructure, it might not be spent wisely. For that you have to look no further than China, where they report 45% of the GDP of the last 10 years as an investment, but at least half of that has been wasted. I have been to China and have seen that people are upset about this. If you adjust Chinese GDP for reasonable investment versus just flushing money down the toilet, we would take off at least a quarter of their GDP for the last 10 years.

The other variation of helicopter money is that some people such as Jeremy Corbyn in the UK say that one doesn’t even have to spend the money into infrastructure, but that one could just give it to the people by sending everybody a cheque – which is called People’s QE. And actually President Jimmy Carter did something very similar during the 1970’s just to get out of recession: They just sent to everybody 1000-dollar-cheques. So that’s really helicopter money, it’s sending cheques to everybody. But the mainstream view is that it will be spending on infrastructure.

But the latest refinement, which has been discussed by Modern Monetary Theorists, is “Well, why can’t we just spend all the money once and have the central banks monetize it? But you don’t even have to pay off the debt.” So this is the idea from which the so-called ‘perpetual bond’1 has emerged. So now it’s the same thing: Governments run larger deficits, they use the deficit spendings to build infrastructure (if they favor), which in theory keeps the economy moving. You issue debt to cover your deficit, but this debt is perpetual and has no maturity and the central bank simply buys it and puts the securities on its balance sheets forever and ever.

And then I have been in this debate with Modern Monetary Theorists – they just described what I just described to you: basically perpetual debt at close to zero interest rates with the government spending the money to stimulate the economy and the debt that hasn’t to be repaid, as the central bank buys it for printing money and holds it forever. And if you look at that you might say: “Well, what’s wrong with that?” And I’ll throw that question out to the group; I have my own answers. But it’s a question that if we are not going to depend on logical or economic principles and just print money, you do have to be prepared to answer that question: What’s wrong with perpetual debt, helicopter/printed money by the central banks, as this is actually where we are heading?

Now one last thing in terms of how productive this is at the end of the day. I talked about the infrastructure and how that money can be wasted. So this is something that has been advocated, they teach this at universities, say it in the political dialogue, it has a lot of proponents from George Soros, Ben Bernanke, Christine Lagarde etc. – I don’t see many opponents to the mainstream other than Austrians. That’s why helicopter money is definitely coming.

And helicopter money does require coordination with fiscal policies; the monetary authorities, the central banks cannot do it on their own, they need to sync up with the fiscal authority so that the debt is entering and stimulating the economy. But even if you are doing infrastructure spending, we decide whether it’s wasted or not, which I think in many cases it would be, almost by definition: It’s not clear that there’s any Keynesian multipliers associated with that. Yes, if you build an airport, you are going to hire someone to come in and do construction and you are going to buy some cement. But the money paid to those individuals might go straight into savings or paying off debt, paying off credit card, student loans etc.

But I don’t agree with the thesis that money printing definitely causes inflation. I’m not saying money printing doesn’t matter for inflation, but money printing is only one of two ingredients, the other one being the velocity of the turnover of money – such things are crucial, people actually have to spend the money. But velocity is a psychological thing rather than economics. But be that as it may, money printing is certainly one of the ingredients: So you print enough money and put it in enough places, sooner than later psychology will change, the money will be spent and inflation breaks out. So this creates inflationary vectors that offset the deflationary vectors from demography and technology and debt deleveraging, I think we all understand fairly well.

Heinz Blasnik on the question whether helicopter money creates inflation:

I think the question about inflationary and deflationary outcomes is important. I recently discussed it with some friends and one of them said: “If the Bank of Japan really does something like issuing a perpetual bond, isn’t it basically just an accounting operation? Because after all, what we’re doing now is already a form of helicopter money, as they monetize one third of the public debt of the country.” What I replied to that was that the central banks have had a lot of leeway in conducting inflationary experiments because of the deflationary undertow in the system. The banking system is fragile, and the large amount of outstanding debt creates deflationary pressures.

But on the other hand, from the point of view of the public, all of this is still seen as temporary, it’s dealing with the exigencies of the moment – we have a kind of emergency, so the central banks are taking special measures and so on. But somehow at the back of it there is always the implication that one day things are going to be normal again, that all these special measures are going to be taken back one day.

If I recall correctly, Mises said the following:

Inflationary policies can be implemented for a very long time without any consumer price inflation rising, precisely because people expect them to be temporary. And if they tend to have a high demand for money, their cash balances rise, so prices don’t increase. But he also mentioned: Once the public becomes convinced that the inflationary policy is not temporary but permanent, then that is the point at which price inflation begins to take off.

Actually, in his article on helicopter money Ben Bernanke said explicitly, it must be done in such a way that the public knows it’s permanent, that it is a permanent addition to the money supply.The question then is, if they do things like introducing perpetual bonds, where is the psychological threshold at which people really start to spend money such that consumer prices take off? One cannot know where this point is of course. Since most people don’t really understand central bank policies, there is some leeway due to that as well. But there has to be a threshold somewhere and if it is crossed, people will lose confidence in the money issued by the central banks.

This article originally appeared on MountainVision.com

The post When Will Helicopter Money Take Off? Consequences For Markets? appeared first on Gold And Liberty.

The most definitive study on fascism written in these years was As We Go Marching by John T. Flynn. Flynn was a journalist and scholar of a liberal spirit who had written a number of best-selling books in the 1920s. It was the New Deal that changed him. His colleagues all followed FDR into fascism, while Flynn himself kept the old faith. That meant that he fought FDR every step of the way, and not only his domestic plans. Flynn was a leader of the America First movement that saw FDR’s drive to war as nothing but an extension of the New Deal, which it certainly was.

As We Go Marching came out in 1944, just at the tail end of the war, and right in the midst of wartime economic controls the world over. It is a wonder that it ever got past the censors. It is a full-scale study of fascist theory and practice, and Flynn saw precisely where fascism ends: in militarism and war as the fulfillment of the stimulus spending agenda. When you run out of everything else to spend money on, you can always depend on nationalist fervor to back more military spending.

Flynn, like other members of the Old Right, was disgusted by the irony that what he saw, almost everyone else chose to ignore. After reviewing this long history, Flynn proceeds to sum up with a list of eight points he considers to be the main marks of the fascist state.

As I present them, I will also offer comments on the modern American central state.

Point 1. The government is totalitarian because it acknowledges no restraint on its powers.

If you become directly ensnared in the state’s web, you will quickly discover that there are indeed no limits to what the state can do. This can happen boarding a flight, driving around in your hometown, or having your business run afoul of some government agency. In the end, you must obey or be caged like an animal or killed. In this way, no matter how much you may believe that you are free, all of us today are but one step away from Guantanamo.

No aspect of life is untouched by government intervention, and often it takes forms we do not readily see. All of healthcare is regulated, but so is every bit of our food, transportation, clothing, household products, and even private relationships. Mussolini himself put his principle this way: “All within the State, nothing outside the State, nothing against the State.” I submit to you that this is the prevailing ideology in the United States today. This nation, conceived in liberty, has been kidnapped by the fascist state.

Point 2. Government is a de facto dictatorship based on the leadership principle.

I wouldn’t say that we truly have a dictatorship of one man in this country, but we do have a form of dictatorship of one sector of government over the entire country. The executive branch has spread so dramatically over the last century that it has become a joke to speak of checks and balances.

The executive state is the state as we know it, all flowing from the White House down. The role of the courts is to enforce the will of the executive. The role of the legislature is to ratify the policy of the executive. This executive is not really about the person who seems to be in charge. The president is only the veneer, and the elections are only the tribal rituals we undergo to confer some legitimacy on the institution. In reality, the nation-state lives and thrives outside any “democratic mandate.” Here we find the power to regulate all aspects of life and the wicked power to create the money necessary to fund this executive rule.

Point 3. Government administers a capitalist system with an immense bureaucracy.

The reality of bureaucratic administration has been with us at least since the New Deal, which was modeled on the planning bureaucracy that lived in World War I. The planned economy— whether in Mussolini’s time or ours— requires bureaucracy. Bureaucracy is the heart, lungs, and veins of the planning state. And yet to regulate an economy as thoroughly as this one is today is to kill prosperity with a billion tiny cuts.

So where is our growth? Where is the peace dividend that was supposed to come after the end of the Cold War? Where are the fruits of the amazing gains in efficiency that technology has afforded? It has been eaten by the bureaucracy that manages our every move on this earth. The voracious and insatiable monster here is called the Federal Code that calls on thousands of agencies to exercise the police power to prevent us from living free lives.

It is as Bastiat said: the real cost of the state is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The state has looted us just as surely as a robber who enters our home at night and steals all that we love.

Point 4. Producers are organized into cartels in the way of syndicalism.

Syndicalist is not usually how we think of our current economic structure. But remember that syndicalism means economic control by the producers. Capitalism is different. It places by virtue of market structures all control in the hands of the consumers. The only question for syndicalists, then, is which producers are going to enjoy political privilege. It might be the workers, but it can also be the largest corporations.

In the case of the United States, in the last three years, we’ve seen giant banks, pharmaceutical firms, insurers, car companies, Wall Street banks and brokerage houses, and quasi-private mortgage companies enjoying vast privileges at our expense. They have all joined with the state in living a parasitical existence at our expense.

Point 5. Economic planning is based on the principle of autarky.

Autarky is the name given to the idea of economic self-sufficiency. Mostly this refers to the economic self determination of the nation-state. The nation-state must be geographically huge in order to support rapid economic growth for a large and growing population.

Look at the wars in Iraq, Afghanistan, and Libya. We would be supremely naive to believe that these wars were not motivated in part by the producer interests of the oil industry. It is true of the American empire generally, which supports dollar hegemony. It is the reason for the North American Union.

Point 6. Government sustains economic life through spending and borrowing.

This point requires no elaboration because it is no longer hidden. In the latest round, and with a prime-time speech, Obama mused about how is it that people are unemployed at a time when schools, bridges, and infrastructure need repairing. He ordered that supply and demand come together to match up needed work with jobs.

Hello? The schools, bridges, and infrastructure that Obama refers to are all built and maintained by the state. That’s why they are falling apart. And the reason that people don’t have jobs is because the state has made it too expensive to hire them. It’s not complicated. To sit around and dream of other scenarios is no different from wishing that water flowed uphill or that rocks would float in the air. It amounts to a denial of reality.

As for the rest of this speech, Obama promised yet another long list of spending projects. But no government in the history of the world has spent as much, borrowed as much, and created as much fake money as the United States, all thanks to the power of the Fed to create money at will. If the United States doesn’t qualify as a fascist state in this sense, no government ever has.

Point 7. Militarism is a mainstay of government spending.

Have you ever noticed that the military budget is never seriously discussed in policy debates? The United States spends more than most of the rest of the world combined. And yet to hear our leaders talk, the United States is just a tiny commercial republic that wants peace but is constantly under threat from the world. Where is the debate about this policy? Where is the discussion? It is not going on. It is just assumed by both parties that it is essential for the US way of life that the United States be the most deadly country on the planet, threatening everyone with nuclear extinction unless they obey.

Point 8. Military spending has imperialist aims.

We’ve had one war after another, wars waged by the United States against noncompliant countries, and the creation of even more client states and colonies. US military strength has led not to peace but the opposite. It has caused most people in the world to regard the United States as a threat, and it has led to unconscionable wars on many countries. Wars of aggression were defined at Nuremberg as crimes against humanity.

Obama was supposed to end this. He never promised to do so, but his supporters all believed that he would. Instead, he has done the opposite. He has increased troop levels, entrenched wars, and started new ones. In reality, he has presided over a warfare state just as vicious as any in history. The difference this time is that the Left is no longer criticizing the US role in the world. In that sense, Obama is the best thing ever to happen to the warmongers and the military-industrial complex.

The Future

I can think of no greater priority today than a serious and effective antifascist alliance. In many ways, one is already forming. It is not a formal alliance. It is made up of those who protest the Fed, those who refuse to go along with mainstream fascist politics, those who seek decentralization, those who demand lower taxes and free trade, those who seek the right to associate with anyone they want and buy and sell on terms of their own choosing, those who insist they can educate their children on their own, the investors and savers who make economic growth possible, those who do not want to be felt up at airports, and those who have become expatriates.

It is also made of the millions of independent entrepreneurs who are discovering that the number one threat to their ability to serve others through the commercial marketplace is the institution that claims to be our biggest benefactor: the government.

How many people fall into this category? It is more than we know. The movement is intellectual. It is political. It is cultural. It is technological. They come from all classes, races, countries, and professions. This is no longer a national movement. It is truly global.

And what does this movement want? Nothing more or less than sweet liberty. It does not ask that the liberty be granted or given. It only asks for the liberty that is promised by life itself and would otherwise exist were it not for the Leviathan state that robs us, badgers us, jails us, kills us.

This movement is not departing. We are daily surrounded by evidence that it is right and true. Every day, it is more and more obvious that the state contributes absolutely nothing to our wellbeing; it massively subtracts from it.

Back in the 1930s, and even up through the 1980s, the partisans of the state were overflowing with ideas. This is no longer true. Fascism has no new ideas, no big projects—and not even its partisans really believe it can accomplish what it sets out to do. The world created by the private sector is so much more useful and beautiful than anything the state has done that the fascists have themselves become demoralized and aware that their agenda has no real intellectual foundation.

It is ever more widely known that statism does not and cannot work. Statism is the great lie. Statism gives us the exact opposite of its promise. It promised security, prosperity, and peace; it has given us fear, poverty, war, and death. If we want a future, it is one that we have to build ourselves. The fascist state will not give it to us. On the contrary, it stands in the way.

In the end, this is the choice we face: the total state or total freedom. Which will we choose? If we choose the state, we will continue to sink further and further and eventually lose all that we treasure as a civilization. If we choose freedom, we can harness that remarkable power of human cooperation that will enable us to continue to make a better world.

In the fight against fascism, there is no reason to be despairing. We must continue to fight with every bit of confidence that the future belongs to us and not them.

Their world is falling apart. Ours is just being built.Their world is based on bankrupt ideologies. Ours is rooted in the truth about freedom and reality. Their world can only look back to the glory days. Ours looks forward to the future we are building for ourselves.

Their world is rooted in the corpse of the nation-state. Our world draws on the energies and creativity of all peoples in the world, united in the great and noble project of creating a prospering civilization through peaceful human cooperation. We possess the only weapon that is truly immortal: the right idea. It is this that will lead to victory.

Originally posted at Mises.org.

[Excerpted from the article “What is Fascism?,” originally published in The Free Market 29, no. 7 (Fall 2011).]

Llewellyn H. Rockwell, Jr. is chairman and CEO of the Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Fascism versus Capitalism. Contact: email; twitter.

The post The Eight Marks of Fascist Policy appeared first on Gold And Liberty.

By Zerohedge:

In the latest stunning development involving a documented failure of a bank to deliver physical gold when demanded, yesterday we reported that according to German website godmode-trader.de, a client of the Xetra-Gold Exchange-Traded Commodity was told the fund’s designated sponsor, Deutsche Bank, would be unable to deliver the requested gold. This was contrary to the explict reps and warrantiesmade explicitly in the Xetra-Gold’s prospectus, which said that investors are entitled to the delivery of the certified amount of physical gold at any time, and proudly added that “since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered.”

As the German article concluded: anyone who wants to easily convert their Xetra-Gold holdings into physical gold – at least for clients of Deutsche Bank – can do so only by selling their shares, and then buying gold coins or bars directly elsewhere. Which leads the author to the logical question: what is the worth of the Xetra-Gold service, which certifies the right to redeem physical gold, if said delivery is no longer possible? In other words, what was supposedly an ETC which promised physical delivery upon demand, is nothing more than yet another “paper only” play.

We asked another, more nuanced question: is the inability to deliver physical gold an issue with Xetra-Gold, or with the company’s “designated sponsor“, Deutsche Bank, and if the latter is suddenly unable to satisfy even the smallest of delivery requests by retail clients, just how pervasive is the global physical gold shortage?

Our report has stirred a significant response, both at Deutsche Bank, and at Xetra-Gold, which today filed an official response, one which can be read in German on the following page.

What is notable is that instead of immediately refuting the story – as it should have done if there is no breach of prospectus covenants – and declaring that any and all physical gold demands have and will be satisfied, Xetra took a very circular approach to responding, one which in effect confirmed our concerns, that the issue was not so much with Xetra, but with the sponsor bank, in this case Deutsche Bank.

Furthermore, the author of the original godmode article, Oliver Baron, penned his own reaction, in an article titled “Deutsche Boerse takes a stand.” He writes that “yesterday’s article “Xetra-Gold: Nothing but a scrap of paper?” has struck nerves: Not only that GodmodeTrader was cited among others, at “Zero Hedge” a financial website influential on Wall Street, but also at Deutsche Bank and at Deutsche Boerse, where the article has caused quite an internal stir, as Godmode traders was informed.”

He further writes that Deutsche Boerse Commodities has released a fairly spongy formulated observation on the physical delivery of Xetra-Gold. This is what is said:

Deutsche Börse Commodities GmbH stresses that owners of Xetra Gold units can exercise their right to delivery of securitised gold at any time. The gold is delivered by the bank branch on which the investor has its securities account – on the condition that the branch offers this service, as the gold can only be delivered through the investor’s custodian bank.

As we reported yesterday, what made this particular “failure to deliver” notable is that the original client had asked for delivery via a Deutsche Bank branch, the same bank as the ETC’s sponsor, which is why, as we noted before, this appears to have been a problem involving not Xetra-Gold, as much as Deutsche Bank itself.

Baron agrees. As he writes, “in other words, it depends, according to Deutsche Boerse Commodities, on the particular bank branch whether the physical delivery can be carried out.”

And, as we learned last night, it does appear that if the delivery is requested at a Deutsche Bank branch, the answer is no.

But this is where it gets even worse. As Baron adds, in a telephone conversation with the author, the Deutsche Boerse Commodities exchange was unwilling to supply further information to Godmode traders whether physical delivery is generally feasible at most bank branches or not. And worst of all, “the exchange was unable to name any bank which is in a position to deliver physical gold without problems.”

Baron’s conclusion: “the “right” for actual delivery at Xetra-Gold is theoretical: physical delivery is only possible if the respective bank branch also cooperates. Suspicious gold investors should consider Xetra-Gold as another form of paper gold and not as a physical gold investment.”

Our take is slightly different: while we already know that physical delivery at Deutsche Bank appears to have been compromised, according to the Deutsche Boerse response, the ability of any and every other bank in Germany to deliver gold is now likewise questionable. Which begs the question: where is all the physical gold?

The post Deutsche Boerse Responds To Deutsche Bank’s Failure To Deliver Physical Gold appeared first on Gold And Liberty.

45 years ago, almost to the day, Richard Nixon rocked the global financial system by abandoning the fixed exchange convertibility of gold and the United States dollar.  The president justified his 1971 action by telling the world he had been  “converted” to Keynesian economics.  In reality, quick action was required on his part to protect existing U.S. gold reserves and continue the fiscal policy expansion designed by previous government technocrats to concurrently fund a war and social spending.  The price of gold quadrupled over the next 3 years.

Today, global regulations and negative interest rate policies, designed by a younger group of policy makers and implemented by monetary authorities at the Swiss National Bank, Nordic Central Banks, and the European Central Bank have “converted” traditionally safety-seeking European investors into market timing speculators.

Life insurance companies and pension funds no longer invest in European government bonds for safety and yield.  They invest in these guaranteed to loose (when held to maturity) securities either due to regulatory requirements or in the hope of selling them at a higher price to central bankers unconstrained by the formalities of profit and loss calculations.

The markets functioned in a different fashion not that long ago.  Bonds were the safest investment.  They promised full return of principal plus interest.  Next down the risk spectrum came commercial real estate, offering rental yield, like a bond, but were subject to an indeterminate sale price in the future with the potential for capital appreciation.  Equities offered the potential for capital appreciation with a reduced dividend yield, or none at all, and an indeterminate terminal price.  Lastly, commodities and precious metals, viewed, as the riskiest investments of all offered no yield, an indeterminate terminal price, only the potential for speculative price appreciation.

Gold is often quoted by Keynesians as a “barbarous relic” because it does not generate a positive yield like bonds once did.  Before central bank negative interest rate policies, investors bought bonds for yield and equities for capital gains.  Now investors buy equities for yield in the form of dividends and buy bonds for capital gains to compensate for the performance drag from the negative yield.  Over 13 US$ trillion worth of government bonds currently trade at a negative yield on speculation that they will appreciate further in the future.  Negative yielding bonds bought for capital appreciation will naturally gravitate along the risk spectrum and trade like the riskiest asset.

In his latest investment letter from Janus Capital, Bill Gross makes a very valid point that central bank negative interest rate policies have turned trillions of dollars worth of bonds from assets into liabilities.  As such, in keeping with generally accepted accounting standards and reflective of economic reality, insurance companies and pension funds should move the loss due to these securities from the left hand side of their balance sheet to the right side; an unlikely act that would significantly impair both industries.

A fixed income portfolio constructed for safety and yield no longer capable of providing either should be remodeled with the one asset that is bought for safety and offers no yield.  It’s doesn’t have any counterparty credit risk, it’s shiny, and yellow.

by Eric Schreiber, Investment Asset Manager at EMS Capital

The post Central Bank Interest Rate Policies To Benefit Precious Metals Yet Again appeared first on Gold And Liberty.

Spiraling unfunded liabilities and the looming pension crisis have regularly been making headlines for the better part of 2016, and with good reason. The situation is dire both in the US and in Europe, even though the exact scale of the problem has proved challenging to quantify. Differences in calculation approaches have produced a diversity of estimates: Present and future contributions, benefit levels, average salaries, economic growth, life expectancy and demographics are taken into consideration in varying degrees, while liabilities are also discounted using the assumed future return on investments and assets. However, even if we choose the most optimistic and generous of calculations, the unfunded government promises still appear to be unfundable as well.

Although the unfunded liabilities problem encompasses the totality of future benefits and welfare commitments that governments cannot afford to honor on today’s budgets and projected returns, the most urgent of those, and the one that has captured the public’s attention, is pensions. On both sides of the Atlantic, fears over an imminent pension crisis are on the rise. And it is not just state-run plans that are at risk: the monetary policy and economic environment of the last years has thrown private pension fund completely off-course as well.

State-run pension schemes at breaking point

In the US, the government is faced with an abysmal financial chasm between the future and the present, which can prove catastrophic for future taxpayers and economic growth. On an analysis released in April, Moody’s revealed that “The unfunded liabilities of the various federal employee pensions systems, covering civilian and military employee benefits, amount to about $3.5 trillion, or 20% of US GDP,”. This is the amount of promised benefits that is not covered by current fund assets, future expected contributions, and investment returns, under the assumption that rates will range between 3.7% and 4.1%. On a state level, Illinois and New York have unfunded pension debts over $300 billion each, while New Jersey, Ohio and Texas exceed $200 billion. As for California, the gap ranges from $550 billion to $750 billion, depending on the calculation.

State and local government pensions are at significantly higher risk than corporate pension funds, as these have to comply to higher standards and strict regulations, as opposed to their public sector counterparts. According to a recent report entitled “The Coming Pensions Crisis” by Citi Global Perspectives & Solutions (GPS), in the US, current unfunded corporate defined benefit commitments stand at $425 billion, while government employee defined benefit pension plans have from $1 trillion to $3 trillion in unfunded commitments (depending on the discount rate used). “Unfortunately, while governments often impose genuine requirements for funding contributions on corporate sponsors, they rarely impose those standards on themselves,” the report stated.

The problem is far from contained within the US, as seen in the chart below. According to the Citi report, unfunded government pension liabilities for 20 countries belonging to the Organization for Economic Co-operation and Development (OECD) stand at $78 trillion. European countries with extensive state-run pension systems face the biggest challenges:  Germany, France, Italy, the U.K., Portugal and Spain had estimated public sector pension liabilities that topped 300 percent of GDP.

Private pension funds thrown off-course

Pension fund managers have so far relied on their investment returns, to accommodate the future payouts to their clients, and through conservative and low-risk investment options that were available to them, they were able to honor their commitments. In recent years, however, this is no longer the case. In our current low-to-negative interest rate environment, “safe” investments and traditional conservative options in 2016 are all but extinct. “In 1995, a portfolio made up wholly of bonds would return 7.5% a year with a likelihood that returns could vary by about 6%”, according to research by Callan Associates Inc. By contrast, in 2015, to make the same returns “investors needed to spread money across risky assets, shrinking bonds to just 12% of the portfolio. Private equity and stocks needed to take up some three-quarters of the entire investment pool. But with the added risk, returns could vary by more than 17%.”

Concerns over pension funds have been on the rise in the UK recently, following the Bank of England’s decision to lower its benchmark rate to 0.25%, the lowest in its 322-year history, and to revive a bond purchasing program from 2012.  As Ros Altmann, a minister under David Cameron, put it “The Bank wants to stimulate the economy by bringing down

interest rates, but the Bank is not acknowledging the negative impact these measures are having on pension deficits, and neither is the government”. British government bonds, or gilts, have seen a steep yield decline over the last few years, even before the news of the interest rate cut pushed them to record lows. Pension funds, hold a disproportionate amount of such bonds, believing them so far to be conservative and stable investments, with reasonable and reliable returns, that could guarantee payouts to future retirees. The BoE’s policy move, will now make it even harder to achieve the returns the funds need and stirred fears that managers will be forced to take on even more risk, to keep their commitments.

Collateral damages

Regarding the state-run pension programs, the troubles that afflict them today were predictable years ago: Public sector pensions, like any other welfare-benefits program, is and has been treated like a political football for too long. There was always a number of solutions in sight, but no single political figure or party ever wants to be the one who either openly increases contributions or cuts promised pensions. Voter and union pressure would make such steps politically suicidal. Thus the can kept on being kicked down the road, to the next incumbent, while the deficit grew leviathan.

The widening funding gap in public pension plans is not just the public sector employees’ problem: State and local governments increasingly resort to cutting quality-of-life services, in a desperate effort to keep their pension schemes afloat. And that affects everyone: Apart from public libraries, museums, parks and recreation centers limiting their opening hours or closing altogether, other, more essential community services suffer cuts: Police and fire departments, for example; and everyone would suffer the consequences of that, no matter if their pension plan is with the state or not.  Also, with public sector pensions at imminent risk, wide media coverage of the problem and no realistic solution in sight, the idea of a possible need for bail-outs has began to gain traction, justifiably favored by unions and other pressure groups. If such a policy is widely adopted, then the taxpayer will be directly made to pay for the mismanaged and bankrupt state pension plans.

Focusing on the private pension funds, these future retirees have little hope of their savings being rescued by the government. Fund managers everywhere are fighting an uphill battle against low interest rates, while there’s the scary thought that surely haunts them, “If they have delivered such poor performances with stocks in extraordinary highs, how will they fare upon the inevitable correction that lies ahead?”.

The way out

As a general rule, proactively taking back control over one’s pension savings seems to be the viable way out of the sinking ship that is the retirement system world-wide. A wise step would be to minimize and hedge against any state-borne risks, though geographical diversification, by securing assets across multiple safe and predictable jurisdictions. Even in this hostile economic landscape, conservative investments and reliable choices can still be found, but on an individual-portfolio basis, and one size does not fit all. It is therefore up to the individual to tailor their own retirement plan and to seek advice from an asset manager that considers their specific needs and expectations, while ensuring off-shore stability. An investment structure that provides adequate geographic diversification while complying with the relevant legal framework, could be of particular importance to citizens of countries with especially complex and restrictive regulations, such as the US and some EU member-states.

Another significant feature to look out for when exploring retirement plans, would be tax efficiency. An investment structure that satisfies relevant regulatory requirements and allows tax-deferred compounding of the profits, could offer a real long-term advantage. Over time, tax-deferral and therefore compound growth, can make a very big difference in effective retirement saving and investing.

This article originally appeared on Mountain Vision

The post The Time To Hedge Is Now: Pension Crisis In 2016 And Beyond appeared first on Gold And Liberty.

Claudio Grass from GlobalGold.com joined Bubba today for an awesome discussion on Gold, the FED and the rest of the nonsense going on globally. Bubba immediately asks Claudio about free markets and price discovery, Claudio responds with the central banks around the globe are too big and too powerful and need to be reigned in. The fact that the FED can basically print money at will is going to cause a greater problem down the road and we will have to pay the piper

Bubba and Claudio continue their conversation as Claudio explains how fast information moves. Bubba questions Claudio explaining that most people believe in the power structure and  even with the information they don’t necessarily believe. Claudio explains that change is needed, that people are being led down the path of destruction. Bubba and Claudio agree that the system is broken and that the too big to fail has to stop.

Bubba asks Claudio about GlobalGold.com and what they do. Claudio explains that they store their gold outside of the banking system believing that gold and silver are the global currency talking about the 50 hyperinflation we have seen along with many other problems that make the metals a place to be. One problem that investors have trouble dealing with is the need for immediate gratification, Claudio warns that gold is a great hard asset but not to trade but to own. Gold should be a long term safety play and not bought with money that will be needed tomorrow.

Last week Deutsche Bank refused redefinitions on paper gold and Bubba asks Claudio is he concerned that there is not enough gold to match all of the paper gold that is out there. Claudio is not a fan of the paper gold and is concerned that it may be oversold and not enough to match that amount. Bubba and Claudio talk about the problems created by eliminating true free markets and are concerned that socialism is coming much closer than we would like.

Listen to the full interview

The post Precious Metals: The Place to Be appeared first on Gold And Liberty.

A few weeks ago, the IRS published its quarterly “name and shame” list in theFederal Register. That’s the list federal law requires the agency to maintain of individuals who give up their US citizenship. The official name is “Quarterly Publication of Individuals, Who Have Chosen to Expatriate.”

Whatever you call it, getting on this list makes you an enemy of the state – in an instant, you are blacklisted.

The image of former US citizens living tax-free in some tropical paradise is an irresistible populist target. Rep. Sam Gibbons (D-FL), referring to expatriates, spoke of “the despicable act of renouncing allegiance to the United States.” Rep. Martin Frost (D-TX) supported an “exit tax,” which is now in effect, under President Clinton on the basis of “basic patriotism and basic fairness.” Congressman Neil Abercrombie (D-HI), described expatriates as, “Benedict Arnolds who would sell out their citizenship, sell out their country in order to maintain their wealth.”

Some of the attacks have been downright personal. When Facebook co-founder Eduardo Saverin gave up his US citizenship in 2012, Sen. Charles Schumer (D-NY) accused him of de-friending the US “just to avoid paying taxes.”

But the hate-mongering hasn’t slowed down the number of Americans expatriating. Since President Barack Obama took office in 2009, the number of citizens expatriating has skyrocketed from 231 in 2008 to 4,279 in 2015. That’s an increase of 1,752%!

Here’s a chart of expatriation trends since 1998, after the law took effect in 1996 requiring the IRS to publish this data quarterly.

Why Are So Many Americans Jumping Ship?

Given the populist rage against expatriation, you’d think these numbers would be plummeting. Obviously, they’re not. So what’s behind the explosive growth in expatriations?

Tax obligations are one reason, although that’s not as much of a factor as you might think. Alone among major countries, the US imposes a tax and reporting obligations on all of its citizens, even those living permanently outside the US. Having to file two sets of tax forms annually – one for the US and the other for a citizen’s adopted country – obviously is a burden.

For wealthy expatriates, there can be some tax savings, but not as much as the popular media and loudmouth members of Congress might want you to think.

Eduardo Saverin is a great example. Bloomberg News, for instance, claimed that Saverin saved at least $67 million in federal income taxes when he gave up US citizenship. Given the way such statements spread on the internet, within a few days, just about every news source in the US picked up that figure.

Only, it’s not true. When Saverin expatriated, he had to pay an exit tax on capital gains from the pre-IPO value of his Facebook stock. Since it cost him next to nothing to acquire his original interest in the company, every dollar of gain was subject to the exit tax, less the $651,000 exclusion than in effect. Based on the pre-IPO value of that stock, I’d wager Saverin paid an exit tax of more than $350 million. And that includes just his Facebook shares. Any other asset he owned at the time of expatriation with an unrealized gain was also subject to the exit tax.

Does that sound like unfriending the US to you? Far from criticizing Saverin, Charles Schumer and his friends in Congress should have given him a gold medal for being “taxpayer of the year.” Sure, Saverin won’t have to pay US taxes going forward on his non-US income. But he certainly didn’t save $67 million off the bat.

Another reason Americans expatriate is the practical difficulties of being a US citizen living in another country. Worldwide taxes are just the beginning.

For instance, Americans face an overwhelming compliance burden with respect to their non-US investments and business activities. Take, for instance, the onerous FinCEN Form 114, the “Report of Foreign Bank and Financial Accounts.” Fail to file this form and you could face a five- year prison term and a fine of $250,000 or more. True, sanctions typically are much less severe, but many other mandatory disclosure forms exist, all of them easy to miss and all with significant penalties for noncompliance.

Don’t forget too that if you owe more than $50,000 in taxes or penalties, the State Department can revoke your passport.

US laws like the infamous Foreign Account Tax Compliance Act (FATCA) have also made it extraordinarily difficult for Americans living abroad to carry on the most basic financial and business relationships in their adopted countries. FATCA, for instance, forces foreign financial institutions to enforce US tax and reporting rules with respect to their US clients. If these institutions fail to do so, they face a 30% withholding tax on many types of US source income and other capital transfers.

In many cases, it’s easier to “fire” US clients than deal with this risk. As a result, Americans living abroad report bank accounts being closed, mortgages called in, and insurance policies canceled. One client’s employer told him he’d be fired unless he gave up US citizenship within 30 days.

It’s also nearly impossible for an American living abroad to enjoy a normal retirement in their adopted country. That’s because, with only a few exceptions, the IRS considers the buildup in value in a non-US retirement plan to be taxable.

Thus, the approximately nine million Americans living overseas often feel like they’re under siege from their own government. But if they expatriate, they become enemies of the state. Not only are they subject to hate-mongering by ignorant politicians, but wealthy expatriates like Eduardo Saverin also face the onerous exit tax.

Don’t Come Back!

Then there’s the matter of being readmitted to the US to visit family, friends, and business associates. Some expatriated Americans can’t obtain visas to the US, even for brief visits. One of our insider sources says this policy stems from “the highest levels” of the Obama administration – perhaps from Obama himself.

But just to make sure expatriates know “who’s the boss,” in 2012, Senators Schumer and Bob Casey (D-PA) introduced legislation to retroactively punish them. The “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act,” or Ex-PATRIOT Act, would punish wealthy expatriates by forbidding them from ever reentering the US. The proposal would apply to anyone with a net worth of $2 million or more at the time of expatriation. It would also be retroactive for the 10-year period prior to enactment of the statute.

The Ex-PATRIOT Act didn’t pass in 2012, or in 2013 when Schumer reintroduced it as an amendment to another act. But I wouldn’t be at all surprised if it reappears in 2017. It’s hard to see how someone like Donald Trump, who bashes everything non-US, could oppose this bill. And Hillary Clinton has long slammed corporations that move their base of operations from the US to save on corporate taxes. It’s not a huge jump to conclude that if elected, she’d sign the Schumer-Casey proposal into law.

Think of it this way: If you were in Congress and wanted to get reelected, would you dare to vote against the bill?

The bottom line is, if you expatriate from the United States, you should be mentally prepared never to return. Current policy merely makes it difficult to qualify for a visitor’s visa, but the Ex-PATRIOT Act could make you a permanent exile.

Reprinted with permission from Nestmann.com.

The post The Rising Cost of Saying Goodbye to the US appeared first on Gold And Liberty.

This is an interview that the Mountain Vision team conducted with Mr. Frank Suess, CEO and Chairman of BFI Capital Group.

Over the last couple of years, we have seen extraordinary policies take effect, low-to-negative rates, more QE, resulting in significant distortions in the global economic landscape and financial asset valuations. What is your assessment of the monetary direction so far adopted by the Central Banks and their impact on the markets and the wider economy?

We actually discussed the ECB’s extreme monetary experiments in a recent Mountain Vision article. The ECB is truly taking QE to the next level, yet again. And they are doing this even though their actions so far have had little to no positive impact on economic growth.

Arguably, these monetary games were able to buy some time, postponing the next financial crisis. Unfortunately, the time was not used for proper fiscal and structural reforms. Look at where we are: today, most economies around the world, and certainly the largest international economies, have higher debt levels and deficits than they did in 2008. We have some 12 Trillion of negative yielding government bonds worldwide. And, money velocity is at an historic low. That is why central bankers, with all their money printing, are pushing on a string.

In the end, the result of all this cheap money will be disastrous. Even if the  hazards were not apparent from the beginning, they are certainly undeniable now. The consequences are real, tangible and wide-reaching.

Negative interest rates in Europe have crippled the banking sector, squeezed the profits and have already forced many banks to pass on the costs of the ECB’s policy to their clients. Some of the largest German banks, like DB and Commerzbank, explore the possibility of withdrawing their deposits from the ECB and storing them in physical cash, in their own vaults, while the world’s biggest reinsurer, Munich Re, has turned to gold, to avoid paying fees on their deposits. QE, a policy meant to stimulate economic growth, has backfired by crushing pension schemes and thereby arguably hurting the weakest the most.

In the US, we see the Fed walking a difficult tightrope, trying to balance the need of raising rates against economic realities and the expectations of Wall Street. As the promised rate hike is postponed from month to month, the institution’s credibility suffers from its procrastination and hesitation. As for the markets, they are so addicted to loose money, that we see absurd reactions to fundamentally bad news, like weak job reports, as these are taken as signs that fiscal tightening by the Fed would be once again put off.

It is clear that our financial and monetary system, supported and propped up by unprecedented money-printing and governmental promises, is beginning to crack at its foundations and the central banks are losing control.

On a political level, what are the major challenges that you believe could pose potential threats to investors in coming months?

There is much political and economic uncertainty ahead. One thing that does seem certain is that, with all the central bank tinkering and growing debt, Americans and Europeans can expect to see more taxes, more financial repression and more market volatility going forward. It is therefore important to manage the risks and build a good portion of legal and financial protection into your wealth plan.

Europe for one thing has been dangerously close to its boiling point for months and after Brexit, the dynamics within the Union have become much more complex, making it even harder to predict what this new day for the EU will look like. One can only hope that the leadership in Brussels come to accept that a de-centralized, confederate system would work much better for member-states and for their citizens and relax its grip on central planning and bureaucratic disincentives. Unfortunately, given the EU’s track record, this does appear to be an unlikely scenario, but still, it remains to be seen. Political risks are also emerging from the grassroots, with anti-EU movements and parties gaining traction and support throughout the continent, and the possibility of further “exit” referenda becoming stronger.

Whichever way Europe decides to take, it will have an impact on the economy and on the markets, both in the short and the long term, and it is important to keep a close eye on the relevant developments.

As for the US, the country is experiencing an election season like no other in recent memory. The US has serious fiscal and structural problems. We all know that. Change is needed. Polls show Hillary Clinton in the lead and so-called smart money is betting on her winning the race. In my view, her presidency is certain to result in no change, no improvement, more debt, continued decay. Wall Street and so-called smart money seem fine with that. However, Brexit made smart money look pretty stupid.

The forecasts on Donald Trump’s candidacy have been off-target all along. So, I would not rule out a Trump presidency quite yet. He might still have something up his sleeve. Will he be a good president? Is real change and betterment regarding America’s foreign policies, fiscal sanity and its taxation system possible under Trump? Who knows. American voters are stuck with choosing the devil they know or taking a chance on the newcomer they don’t know.

In reality, I believe the challenges will persist, and likely worsen, even after November’s vote, irrespectively of the outcome of the election.

How about Switzerland? Is the country still the “exception to the rule” and does it still provide the traditionally unique opportunities for investors who seek stability and reliability?

In short, yes, it is. Switzerland, while not an EU member, is right at the center of Europe and exposed to the health issues of the EU for sure, and of course it is not immune to the changes in the global financial environment, but it is better insulated and better equipped than most other countries, to respond and to tackle the challenges in time.

In Switzerland, we still believe that the state is a servant to the people and that a state can only be trusted as long as the state trusts its people. There is no realistic way or mechanism for the state to transgress or to overreach. Our confederate system and direct democracy, calling Swiss citizens to vote on legislative and constitutional decisions every three to four months, limits central government power and reigns in actions that go against our constitutional rights.

This is a major advantage and guarantor of future stability, both political and economic, as Swiss citizens vote directly on government decisions via initiatives and referenda. Thus, we actually have the right to accept or reject specific ideas and laws proposed, instead of relying on representatives, and that translates to a whole different level of control and accountability.

Finally, we must remember that Switzerland has a long tradition of respecting and protecting individual property rights. Our values, both in theory and in practice, are focused on personal responsibility and individual and financial sovereignty. The country, and most importantly its voting citizens, still remain loyal to those principles, as demonstrated by its legal system, its foreign relations and its taxation practices, that set it apart from other Western democracies.

How does your firm, BFI Capital Group, resist the pressures and overcome the challenges of our current financial system? Tell us a bit more about your strategic approach and the wealth management tools and products you have at your clients’ disposal?

At BFI, our focus has always been on providing our clients with investment strategies and structures that will afford them the benefits of privacy, asset protection and security, as well as tax efficiency, while still remaining compliant with the rules of their home country. Our strategy, activities and services, are largely driven by big-picture thinking and our somewhat conservative viewpoints; we put great emphasis on stability and wealth preservation. Our aim is to protect our clients from the consequences of decades of loose money policies, growing regulatory complexities and the resulting financial repression.

To do that, our group offers a collection of wealth preservation oriented services and solutions, ranging from asset protection planning and portfolio management services to adequate, physically allocated, precious metals storage solutions

Given the increased restrictions and the legal and regulatory obstacles that Americans face in their financial planning decisions, do you think Switzerland can provide a real solution to these challenges? What are your observations and advice, given BFI’s long experience with working with US clients?

Indeed Switzerland offers unique opportunities, particularly for American investors. A spike in regulatory restrictions and scrutiny in recent years has somewhat discouraged many potential investors from exploring this option, as well as some international banks or asset management firms from working with Americans. We at BFI decided to stay our course and keep going into the opposite direction: We’ve stayed dedicated to our US clients and offer an array of specialized, tailored products to serve the individual needs of our US clients.

Apart from the stability that Switzerland offers, it is always important to keep part of your wealth outside of the jurisdiction you live in, particularly if that jurisdiction has too much debt and shows manifold signs of increasing financial repression, which is clearly the case in the US. Jurisdictional diversification is one of the main planning pillars we help our clients achieve, and it’s also the basis for a new solution called ONE Trust that we have specifically designed with our US clients’ needs in mind.

ONE Trust is a global asset protection and investment structure, which provides a straight-forward solution for American investors and savers alike, by demystifying and simplifying the jurisdictional diversification of their wealth offshore, without the usual complexities and costs. It is completely compliant with the relevant US laws, while it also offers the benefit of tax deferral and access to international investments that Americans would find hard to achieve without the proper setup.

In closing, what would be your advice for a sustainable investment strategy in the current financial climate?

In these times of monetary excess, distorted incentives in the market and unsustainable state interventionism in the economy, prudent strategies, focused on wealth preservation and asset protection, have the best chances of success.

Currently, our investment strategies concentrate on the integration of capital protection and risk management elements, while still staying invested in the markets. While we expect this financial system on life support to come down, we don’t know when. I’m surprised at how long this monetary inflation game has been sustained. And, frankly, there are some initiatives – for instance central bankers have now suddenly joined the bandwagon of digital currency supporters (!) – that could extend it further. So, you have to stay invested.

But, our plans focus on a diversified set of investments. They include equities, real estate and, since the low-yield environment has rendered bonds more and more unattractive and risky, we have carefully chosen to invest in actively managed hedge funds, with a strategy that is not correlated to the stock market.

Apart from our other investments, we also place emphasis on precious metals, and in particular, gold, as a store of value and as a strong protection from market fluctuations and governmental excesses. Unlike fiat currencies, gold is a limited resource that cannot be created out of thin air or manipulated at will. Gold has passed the test of time as a reliable store of value and I believe that it will fulfill that role once again in the period ahead. Through our subsidiary, Global Gold, we secure the physical ownership of precious metals, in private, high security storage facilities, outside of the traditional banking system.

In the uncertain times that lie ahead, planning for the best case scenario is as important as being adequately prepared for the worst case. This is what drove us to organize the BFI Plan B Briefing, that will be held in Austin, Texas on September 21st and 22^nd. There, Claudio Grass, Managing Director of Global Gold, and myself will take the opportunity to discuss in depth the current challenges that investors face, especially in the US, and to offer our own insights and practical solutions.  I believe we still have some open spots. I suggest those interested get in touch with us for details.

Register now at BFI’s “Events” page for the plan B briefing >>

The post A Swiss-eye View on Global Wealth Protection appeared first on Gold And Liberty.

Bloomberg Money just released below interview with Harvard University Professor Ken Rogoff, author of “The Cure of Cash.”

Mr. Rogoff propagates “less cash”, not necessarily “no cash.” This is a quote from his book:

The simplest way to start would be for governments to cease printing new large-denomination notes … paving the way for unfettered and fully effective negative interest rate policy … a major collateral benefit.

Interestingly, and this definitely does not come as a surprise, the same old argument as the “black market economy” is coming back as an argument to support the “cashless” idea. Even more interesting, Mr. Rogoff refers to the government “making money when printing money”. Now that is an interesting statement. Right at the 2 minute time stamp in the interview, he confesses that he spoke to the Treasury in April where he got that confirmation.

The rest of the interview is a classic conversation about European policy on the cashless society, the global “misuse of currency”, etc.

Listen to the interview:

The post Eliminating Paper Money? Not That Fast, The Government Earns Money On Money Printing! appeared first on Gold And Liberty.

We all want our children to grow up investing intelligently, protecting and preserving not only what we have passed on to them, but also what they’ve earned. We know how important having gold and precious metals in your portfolio is, but how do you convince them?

It’s impossible not to write about gold and/or precious metals without always wanting to remind the reader why you need it: as a hedge against fiat currencies, preserver of value, counter-weight to the markets, etc. There are certainly many reasons to own precious metals, and intellectuals much smarter than me have poured over those reasons again and again.

How about this reason that many are too proud to include: they’re gorgeous!

I saved a little pride by not calling them “pretty”. But have you ever seriously looked at Lady Liberty’s golden hair on the gold American Eagle, or the detail inscribed on the Maple Leaf of the Canadian coin’s namesake? What it is about a finely inscribed bullion bar that just exudes power and majesty?

I think with all of the “harsh crisis scenarios” we can think of that make holding metals a necessity, precious metals tend to be labeled as being for us “old men”, and not savvy, young, hot-shot investors. We are the only ones worrying about monetary history, pouring over the gold confiscation by Roosevelt in 1933, or hoarding metals by burying them in their backyard.

Based on this knowledge, we try to convince our children why they should consider metals. But why should someone younger invest in gold when there is no interest or dividend you can see grow every year? If I had a 1ozt silver Austrian Philharmonica for every time I heard one of our clients say, “I wish I could convince my children to invest in metals”, I would be rich!

Which begs the simple question: Have Your Children Seen Your Gold?

For those that don’t know me, I was born, raised, and lived two-thirds of my life in Milwaukee, Wisconsin, before moving to Switzerland to be with my Swiss wife 15 years ago. My son, Benjamin, was born in 2007, and our small family has carved out a nice existence in Switzerland.

When I was growing up, investing in my family was the occasional CD or US government bond held at the corner bank where you knew all of the names of the tellers. Maybe we’d really go out on the ledge when we invested $500-$1000 in a stock. I didn’t open my eyes to precious metals until around the mid-to-late 00’s, when I was by then well-rooted in Switzerland and Benjamin was born.

As I accumulated bullion gold and silver coins and bars like my son accumulated his younger years, I started to wonder how I could get him interested in this valuable form of investment someday.

It came recently, and unexpectedly, when I sat down in front of the safe to pull out some documents. He was with me and asked what the tubes, small boxes and bars were on the 2^nd shelf. I’m embarrassed to admit it, but I’m the guy that likes to pull out the metals to admire them on occasion, like a kid reviewing his trading cards, so I happily obliged to his questions.

We looked closely at the small collection: the Swiss Vreneli’s he got for his birth, the 1ozt silver collectors coins we bought at the Canadian mint in Winnipeg, and the Maple Leafs, Armenian Noah’s Arks, and Eagles I purchased through our own Global Gold program here in Switzerland.

He was amazed how shiny they were, and was intrigued by how they were stored. I explained why we wouldn’t touch the silver directly, why coins were grouped in tubes of 10, and which countries each coin was minted in. He admired the detail and the weight. He admired the “pictures”.

I appealed to his young greed when I told what one gold coin was worth on that day. “This one coin is worth how much?” he asked twice, as if he hadn’t heard it the first time. We practiced math too: if we bought this coin at $800, and it is now worth $1300, how much would we make on it?

I explained how people will always find value in these metals and how they have been used for hundreds of years as a means of trade. How even if we didn’t have paper money, we could still use these to get what we need. He understood keeping metals in a safe place meant we didn’t need to rely on anyone else if we needed them. Still, what struck him most was how pretty they were.

We closed the safe, and much in the same way he doesn’t tell anyone what he has in his “piggy bank” in his room, he promised to keep our secret. But a “Ta Da!” moment came when he asked what will happen to those metals over time, and I told them they will be passed on to him. Someday, he’ll get the code to the safe, and those contents will belong to him. He learned his “old man” was watching out for him.

It’s been months since that happened, but the subject comes up regularly. He knows that part of his dad’s work revolves around precious metals and when we talk about the prices jumping, he automatically knows what that means to each item in the safe.

So, have your children seen your gold?

Yes, it was a purely elementary exercise with a 9-year old child.  But when I say “child” or “children”, they could be 5, 10, 20, or 50 years old…it doesn’t matter. It took me until my mid-30’s to see a silver Canadian Maple Leaf for the first time, but I was hooked…just from seeing it! After a while, it didn’t matter what the prices were: I knew I needed to purchase some here or there and keep adding to my holdings. My parents didn’t teach me, so I had to learn the hard way. Now I’m the little kid at 45 that likes to look at my coins every couple of months.

If your children haven’t seen some of your metals yet, they haven’t had them in their hands admiring their beauty, it’s about time you let them in on it.

For my son, seeing was believing. No, he’s not worried about gold confiscation or the collapse of the monetary system, but he knows those pretty, shiny coins and bars are worth a lot. They just aren’t worth a lot to me…but they will be to him as well!

This article is written by Scott Schamber originally appeared on Mountain Vision.

The post Have Your Children Seen Your Gold? appeared first on Gold And Liberty.

I never write about gold standard money without singing the praises of gold bills. At GSI, this ‘preaching to the choir’ has included remarking on bills’ humane origins, their low entropy, and their elasticity as the first layer above base money in the capital reserve structure of a free economy. Since first grasping their significance in 2005, I’ve been aware how deeply unloved these instruments are; and I’ve begun confronting how legally and practically difficult it is to circulate such securities in legal-tender-driven, regulated, economies. I think that since both views – loving and hating the Real Bills Doctrine – have become fashionably anti-establishment conceits, the topic needs more clarity.

It was the 2005 flame war greeting Prof. Antal Fekete’s attempt to move Austrian economics beyond Mises which reignited the long dormant issue of the Real Bills Doctrine and began my current inquiry into the nature of money. It surfaced again as I was examining Scott Sumner’s case that ‘the’ gold standard caused the Great Depression. Economics professor Richard Timberlake Jr., the eminent University of Chicago economist, seemed to join the 2005 fray when he wrote about “the role of the Real Bills Doctrine in Federal Reserve policy as the primary cause of the Great Contraction of 1929-1933.” His paper has now been cited and reprinted often enough that it seems worth revisiting. Page references below are to the version at Econ Journal Watch Vol 2, No 2, Aug 2005, pp 196-233. His opening sections on gold standards are excellent! The historical facts recited throughout are all apt and accurate.

Gold bills found at the scene of the crime?

AN ACT

To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish more effective supervision of banking in the United States, and for other purposes. (Preamble to Federal Reserve Act: Public Law 63-43, 63d Congress, H.R. 7837)

“Nothing in this act . . . shall be considered to repeal the parity provisions contained in an act approved March 14, 190” The Gold Currency Act.

It’s true that gold bills, cast as ‘commercial paper’ along the lines of Adam Smith’s ‘social circulating credit’, were a powerful tool of persuasion in the establishment of the U.S.’s Federal Reserve banking system. At the start of 1914, Charles Hamlin, protégé of President Grover Cleveland and soon-to-be first chairman of the F.R. board, summarized the official motives for adoption when speaking to the NY Chamber of Commerce. But there were also ulterior motives: the goals of establishing the legal framework for a banking cartel, and furnishing an ‘elastic currency’ took higher precedence. Bill-acceptance was only offered next as a carrot dangling from the stick of ‘effective supervision’ of the cartel’s participants.

[A] Reserve Bank was supposed to discount only ‘eligible paper,’ which the Federal Reserve Act defined as “notes, drafts, and bills of exchange arising out of actual commercial transactions … issued or drawn for agricultural, industrial, or commercial purposes” (1961, 43). ‘Eligible’ also meant short-term and self-liquidating. (Timberlake 2005)

That’s a roughly accurate description of so-called ‘real’ bills, and it’s directly quoting from the 1913 Act. So what doctrine do we find here? Could it be the devilish details? The act made distinctions between forms of credit and their eligibility for:

1. Posting as collateral when ordering the U.S. Treasury to issue new Federal Reserve Notes,
2. Supporting the gold-convertibility of said notes, or for
3. Holding as assets on the balance sheet of a Reserve bank.

The categories are couched in early twentieth century legalese which, while clear enough about the monetizing purposes, leave the precise definition of real bills a bit vague. Vague enough that it took nearly a year of internal debate by the foxes guarding the hen house bankers to settle on a working policy. When the dust settled, the definition looked a bit ‘unreal’: it then included ‘single-name paper’, unendorsed by any counter-parties, promising only that the proceeds may be utilized for some commercial purpose.

A bill does not get to be a gold bill just by being denominated in gold. The other necessary property is that it circulate with a liquidity rivaling gold.

Is it Real, or is it Doctrine?

Timberlake’s characterization of this issue is problematic, but ultimately revealing:

A gold standard monetizes gold on fixed legal terms, i.e., so many dollars for so many ounces of fine gold, no matter what the season, the state of business, the needs of the government, the direction of international trade, or any other real life variables. Significantly, no one has ever had to define ‘real gold’ or decide which ‘real gold’ was ‘eligible’ to be monetized. Bank monetization of real bills, however, cannot be done on fixed terms. (Timberlake 2005, 206)

Calling gold real or fine makes little difference, the effort to physically refine monetary gold is comparable to the due diligence required to select clearing instruments worthy of being social-circulating capital. In each case, the solvency of the miner/refiner or of the bill-monger/acceptance-house depends on the quality of their work. Each is selling a key service (physical assay or fundamental analysis) which a buyer could probably repeat but which she won’t, if the seller’s reputation counterbalances the risk of buying the wrong metal content or credit liquidity.

The doctrinal problem arises when one tries to fix the terms of monetization formally so that a government monopoly’s minions can do the due diligence. The ‘real’ problem is that a malleable legal doctrine distorts the incentive structure around the actors (federal reserve agents). The effect of legal tender laws and monetization doctrines is to socialize the cost of a real default. Once monopolized and socialized, any product’s quality always diminishes. Circulation of securities is an emergent property in free markets. It can be observed and exploited, but not commanded into existence.

Despite President Woodrow Wilson’s campaign promise to stay out of a European war, Congress knew this would soon bring along immense operational debt, an influx of refugee gold, and a more-intense than usual desire for monetary expansion. The US stayed nominally neutral long enough to collect the fleeing gold. So when Congress committed to war in 1917, the Federal Reserve death star was fully operational: FRN base money swiftly quadrupled from $300M to $1,350M. From the day war was declared, the gold reserve ratio dropped from 95%, with no eligible commercial paper posted as collateral, to 59% at year end with collateral now able to include US government war bonds. The doctrine then was expansionary monetary policy, and bills were not especially implicated in its realization. In fact, Timberlake admits that re-discounting was considered only as an adjunct to the Fed’s role as lender of last resort; he cites A. Barton Hepburn:

Fed Banks were to keep their re-discount rates higher than general market rates, so that they would become financially active only in a liquidity pinch (Hepburn 1924, 531-534).

Standardization of the money markets seems to have given the over-stimulated economy a swift transition to its wartime stance. Real bills may have underpinned further leverage at the commercial banks, but they never were a significant support for the supply of Federal Reserve Notes. Bills themselves didn’t cause that inflation, however much they baited the hook of the 1913 Act.

Timberlake’s critique of activist RBD hardly resembles what we learned about gold bills from Prof. Fekete.

[Some in the 63rd Congress] believed that commercial banks’ and, especially, Reserve Banks’ faithful adherence to the real bills doctrine would make the monetary system self-regulating, with or without the gold standard. . . . Although supporters of the Federal Reserve Act who subscribed to the real bills doctrine did not acknowledge it, their stated beliefs made the gold standard appear superfluous. (Timberlake 2005, 206)

Discarding the gold standard may indeed have been tempting to the 1913 Congressmen or their paymasters, but it is abhorrent to genuine believers in the self-regulating properties of a volunteered supply of circulating, selfliquidating, gold bills. Timberlake is right to target any saboteurs of the gold standard, but New Austrian school ideals should not be the collateral damage. In any case, the U.S. remained on its faux-bills, gold-exchange, standard until 1934, despite what anyone in 1913 intended.

Let’s endeavor to keep the terminology clear. Gold bills are not produced by legislating a real bills doctrine. Doctrine does not make selected bills more real; only voluntary circulation confers that status. Bad doctrines arise from trying to monopolize or freeze inherently competitive business practices, including even the issuing of banknotes.

So who dunnit?

Clearly, the open-market operations and other activist policies that the Fed Banks and Board undertook between 1923 and 1928 had little to do with maintaining an elastic currency or serving as a lender of last resort. They confirm that the Fed had become a constant force in financial markets—manipulating gold flows, and negotiating with foreign central banks to control gold movements, while conducting open market operations to keep prices stable. (Timberlake 2005, 211)

Sumner, Timberlake, Fekete and dozens of other authors agree that NY Fed Chair Benjamin Strong dominated Fed policy in this era and diverted it to the benefit of price stability, Wall Street margin speculators, and a creeping wealth effect we now call the Roaring Twenties. Also that his demise in 1928 brought to the fore many of the original demagogues.

This shift in control was decisive. In accordance with the precedent Strong had set in promoting a stable price level policy without heed to any golden fetters, real bills proponents could proceed equally unconstrained in implementing their policy ideal. System policy in 1928- 29 consequently shifted from price level stabilization to passive real bills. (Timberlake 2005, 214)

But the keyword here is ‘passive’. The doctrine of the day was that no real bills would be re-discounted into the Fed until all the speculative margin loans had been called. Ironically, the allegedly inflation-prone Real Bills Doctrine is here being shot down for being … too contractionist! Hamlin speaking in June, 1929 confesses to it all, even quoting the Manchester (U.K.) Guardian Commercial of March 28, 1929 to say:

There appeared at least some slender hope that the Federal Reserve authorities were meditating action drastic enough to precipitate the crisis in Wall Street which, in the opinion of most monetary students, must come sooner or later. (quoted in Hamlin 1929)

There once were Fed officials who proudly popped bubbles! According to Scott Sumner, passivity might even have seen them through it all had President Roosevelt not thrown the kitchen sink of government programs at the Depression. Does this make gold bills the villain? They don’t even get a speaking part. To synchronize such investment errors into a bubble takes a central bank’s authority.

The relative certainty of death vs taxes

The idea that money should exist in quantities that suffice to clear the most-certain core transactions which ensure the survival of the human race, and should vary its volume and velocity with the seasonal rhythm of the earth’s economy, seems like an ideally Good arrangement. Perhaps its immediate appeal to mid-west agrarian business concerns made it yet another regional dispute in U.S. monetary history. But to anyone convinced that free markets can identify these most urgent core exchanges the prospect of doing so seems much more reliable, not to mention life-affirming than the currently favored alternative.

Which alternative? The one where the government’s power to tax is leveraged beyond credibility to pay interest on bonds which fund a collectively authorized Progressive shopping list of future benefits, interventions, hot and cold wars and lots of speculative make-work programs disingenuously peddled as job-creation. Sure government bonds are safe havens. Any bond seems safe when every central bank in the world is pledging to keep buying them until things improve.

The question is which would you rather see end: that taxation, or the economy that sustains human life?

[R]eal bills are only meant to work in a truly free-market banking system. Real bills (and any other form of credit/clearing) are going to be abused in a government run system. That’s a given. In order for real bills to really be safely utilized requires the absence of any central bank as a lender of last resort. (Hultberg 2005).

by Greg Jaxon. Originally appeared on the Gold Standard Institute (subscribe here).

Greg Jaxon is an American software engineer who has been studying New Austrian School economics for over a decade, in part by factchecking Professor Antal Fekete’s revisionist historical claims.

The post A ‘Values Clarification’ Regarding The So-Called Real Bills Doctrine appeared first on Gold And Liberty.

Last week, Claudio Grass, Managing Director at Global Gold Switzerland, was interviewed by Bubba over at Libertytalk.fm. The topics in this fascinating interview range from central banking monetary policies, the refugees crisis, libertarian issues, and political trends. In this article, we highlight 8 questions/answers, and we recommend readers to download the interview (bottom of this article) to listen to the full version.

Key insights and quotes from the interview

Bubba: I believe that this huge monetary experiment can only fail. I think the longer they allow it to exist in its current structure, the worse it will be when it finally does fail because this is destined to fail. This is not destined to succeed.

Claudio Grass: I fully agree with you. If the only question we have to ask ourselves: is it possible to create wealth out of nothing and I think that’s exactly what Central Banks are basically telling us, but we all know that this is impossible because otherwise the Central Banks could give us each $1 million on an annual basis and we can all live a happy life. We all know that this is not working. No, really, the bubble gets bigger. We know from history that, the bigger it gets, the deeper the fall. I think we can already see the cracks in the system everywhere.

Bubba: There is a lot of cracks. You are involved in a lot of things. Where are you starting to see some of the cracks?

Claudio Grass: Let’s take for example the refugee crisis we are facing over in Europe driven by huge flows out of the Middle East and Africa. Basically the people are fleeing their regions. They want to come to Europe. That’s one of the cracks. That’s an outcome of a failed policy over the last decades. Then we see all the anti-establishment movements we have in Europe, but also in the United States, on a global scale like AfD in Germany, Britain and U.K. (with the Brexit). We have secession movements in Germany, secession movements in Italy, secession movements in Spain. We have the divide and conquer election campaign in United States, for which we don’t know what the outcome will be and what kind of impact we will have. Moreover, there are the uncertainties when it comes to China, when it comes to Far East. These are all cracks which are visible for everyone who is willing to see. People don’t feel that secure any longer. They are not sure what the future might bring. And slowly, they are standing up against the establishment and fighting off what’s going on right now.

Bubba: It’s a shame because they think that they’re hiding something from us and it’s like they’re a kid trying to get away with something. And look, we’ve watched this in my opinion since Alan Greenspan. Alan Greenspan was the first great bubble creator followed by Ben Bernanke and of course now followed by Janet Yellen. And Janet Yellen seems to have the willingness of all the rest of the Central Banks around the world to play in her arena with her. And it seems to me they are all taking turns at manipulating their own currency and, as you like to say, creating money out of thin air.

Claudio Grass: I think Greenspan has been the guy who injected liquidity like crazy. He used to know exactly what money is and what gold is when he wrote the famous essay back in I think in`67. In it, he basically said that only gold is money, and that it would always stay money. Central Banks are doing what they always have been doing. First of all, they’re trying to keep up the illusion that they will raise interest rates again in the future. I don’t see it will happen with the actual total debt we have in the system. We stood at 140 trillion back in 2008 while today we are standing at 200 trillion. It’s just huge. I basically believe that from now in the near future, we will see much more negative interest rates because that’s the only way how you can punish the savers and favor the debtors to decrease total debt in the system.

Bubba: This whole theory of a Central Banking fiat currency model is ugly. I think that they have gone a little bit too far okay with the ability to print money. I think that they have overstepped the true boundaries of what was designed for a Central Bank.

Claudio Grass: Absolutely. Let’s look at the U.S. as an example. You know that the official debt stands at 20 trillion roughly and the unfounded liability stay standing as per Kotlikoff already. He came up with a study about 2 years ago. In it, he said we are standing at 220 trillion. And when we look at the official debt for example 98.5% has been created since 1971. So basically, when Nixon went off the Gold Standards, he shut it down on the 15th August, we have been witnessing a huge credit orgy up to today.

Bubba: And of course, that means that there can only be a disaster waiting down because eventually your debt gets so big that you can never get enough to get out of that debt. Even the printing has to stop at some point because there will be no support underneath it, whatsoever. We’ve already got enormous problems.

Claudio Grass: At the end of the day, we are living in a centralized system. We have Central Banks, we have centralized governments ruling over the people in most countries on this planet. What we are witnessing right now is that the centralized system is centralizing even further. Marc Faber once said that the Central Banks can buy all the bonds and they can buy all the stocks and the shares. And once the real estate market is going down, they even can buy all the houses and then we are living in a full-scale socialistic world. I don’t see that this is happening because still I believe they are two different interests. And at the same time, I also see the power of the internet, which is from my point of view the kind of good and bad press because it allows every person on this planet to have all the information he is looking for. In the past, you had to go to the library or you had to watch government media or government-controlled media or channels, TV, and radio stations. And today, basically, you have a possibility if you’re really interested that you can look it up, do your own research, create your own opinion. And I think this is really a game changer. At the same time, I believe the internet cannot be censorized because it has been growing in an anachronistical art.

Today, you can do a radio show and you can stream it and put it on YouTube, whatever, and then you can reach out to thousands of people. In the past, that wasn’t possible. So, I think information is key. In the past, we were basically following only the mass media, which, when you look at the United States, you have 6 companies controlling the whole media landscape and they always have been. Mark Twain said once: if you don’t read the newspaper, you’re uninformed, if you read the newspaper, you’re misinformed. And I think people can gain their own or can put together their own opinion by just doing their own research on the internet.

Bubba: We are 80 years into Keynesian economics and I’m not saying that any system is perfect. I think they all have some flaws somewhere and there’s probably a great combination of a better system between them all. But as I have watched the destruction over the last 10 years now, I have become from a fence sitter saying. In fact, they are destroying the capitalistic system of free markets and price discovery with every step that they take.

Claudio Grass: I fully agree with you. I mean, the central banking system. If you know the 10 commandments of communism or of Marx, one of them is basically centralization of credit in the hands of state by means of a national bank with state capital and an exclusive monopoly. Power corrupts and absolute power corrupts absolutely. Therefore, I don’t believe in the centralized monetary system. What we basically will need is a free banking and let the people decide themselves what they want to accept as money. And as soon as we will have competition when it comes to that, the people will realize quite fast what they want to use a medium of engage, what they will want to use as a store of value or a combination of both.

Bubba: One of the big problems obviously is the government itself. They do not have the right to print on their own. They go through the Federal Reserve, but the Fed is so tied in to the big banks and the big banks have an agenda on their own. So, where is it that there becomes the fair and equal for everybody? It really is a one-sided affair for: the Fed is basically to feed the wealthy.

Claudio Grass: Absolutely. When we look at how the banking system came into existence, basically bank was a place where you were able to bring. For example, in the past, it was gold of course or silver. They brought it to a bank because they were looking for a safe place. And in return, they received a paper receipt that they had deposited so and so much ounces of gold for example. And then we have the first case, I think 300 B.C. in Greece where there was one. These old bankers who basically handed out more paper receipts because they realized that not everyone is picking up the gold, so he thought, well, I can fake it a bit and earn an interest on that. That guy was brought to court and he was forbidden to do that. And today, basically, that’s a system. That’s also when we look into fractional reserve banking. When you deposit US$1 million on the bank account and that bank is into fractional reserve banking system, basically if they then have to keep say 1% as a down payment on their stocks, they basically can create 100 million of new credit out of thin air and they can charge an interest rate, decide who is going to receive it. This is really insane. This just gives a lot of power to the financial system, which is not based on real goods. It’s not on hard assets, so they really can create something out of nothing. If we would do it on a personal basis, we would go to jail.

Bubba: Do you see the fiat currency system cracking out, and failing, and going back to some sort of a back system of something?

Claudio Grass: We had in the last century 50 hyperinflations. This is something which can happen on a regular basis. I see that the fiat money is going back to its intrinsic value, which is zero. That’s why at Global Gold, the bullion company I am managing, we are operating very conservatively. I think it’s the purest way to invest in physical precious metals. We do not allow online trading. We don’t pre-finance. We don’t hedge. We are really made to go through and also to perform especially in a harsh crisis scenario when everything is coming down. And so, my personal opinion of course, no one knows the future. We’re not even knowing the truth. We can think for it. But I’m coming from the monetary history side, I’m also looking at the world through the Austrian School of Economics. And then we can see that gold and silver always fulfill those criteria. And that will also perform as an insurance in the next hyperinflation or deflation area or collapse that we are going to witness in the future. No one knows exactly when, but the trends are visible and the trends are extremely negative, especially when you see how civil liberties are under pressure.

Download or listen to the full interview

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This article originally appeared on Mountain Vision.

The restaurant business was one of the few economic sectors to remain relatively unscathed by the 2008 recession. When most investors and business owners were feeling the sting of the economic crisis and the painfully slow recovery thereafter, Americans kept spending a significant portion of their shrinking pay checks on eating out. That shielded the restaurant industry from the effects of the recession.

Eating out, after all, is a common, long-standing spending pattern in the US, with the average American eating out 3 times a week and the average household spending 42% of its food budget in restaurants, according to figures from the US Bureau of Labor Statistics. The restaurant industry itself represents a considerable force in the US economy, with 14.4 million employees, or 1 out of 10 Americans, and industry sales of 745.61 billion USD in 2015, according to the National Restaurant Association. Today, the restaurants’ share of the food dollar stands at 47%, a long way from their 25% share in 1955.

The canary in the coal mine

When one considers the size of the US restaurant sector and the big role food spending plays in a consumer-driven economy, it is no wonder that economists and analysts have long studied its performance in relation to the wider economic environment. They have identified downturns in the industry as a historically significant indicator of overall economic weakness and a possible harbinger of a recession. Restaurant sales are considered to be a reliable measure of the real economy’s robustness, or lack thereof, as they provide a direct insight into shifting spending habits, and often reflect the financial pressures on the average consumer’s real disposable income.
Especially in the US, where eating out expenses are closely correlated with job growth, as seen in the chart below, and where even low-income households spend a significant amount on away-from-home meals, a decline in the restaurant sector may be a signal of things “not going according to the plan”. Since US economic growth relies heavily on consumer spending, a slowdown in restaurant spending translates into slowing growth, or even a looming recession.

The sector’s strong performance in previous years was widely attributed to the Millennials’ obsession with experiential consumption, as opposed to conventional, material spending. The rise of foodie-ism, of specialty cuisine restaurants and of fully customizable offerings, was also used to justify largely optimistic projections of the sector’s growth. Despite this, the National Restaurant Association’s Restaurant Performance Index (RPI), a monthly composite index which reflects the health and the outlook for the U.S. restaurant industry, revealed a worrying trend that demolished these great expectations. The RPI, which tracks restaurants’ same-store sales, traffic, labor, and capital expenditures, uses the level of 100 to indicate a steady state, while any value above this is considered to indicate the sector’s expansion, and, conversely, values below 100 signal contraction. Starting in December, the RPI fell to 99.7, from 101.3 in November. After a short positive interlude, in its latest update in July, the index declined again for the second consecutive month. It is worth mentioning, that since the beginning of 2003, the first time the RPI entered below-100 territory was in the late-summer of 2007, shortly before the great recession.

Aggravating factors

Restaurants across the US have been struggling to adapt and to keep up with numerous changes and hurdles, both in their consumer base and the regulatory environment. One of the most commonly cited problems faced by the industry, is the increase in labor costs. The widespread and much-publicized demand for a legislated increase of the minimum wage, as well as stricter overtime regulations, are putting pressure on profit margins. As more states are expected to adopt these new laws, the impact will be significant, in an industry where out of the 14.4 million employees, 7.1 million work for minimum wage.

Efforts to attract Millennial customers, and to keep them, which has proven even more challenging, have also affected production costs. According to a report by Morgan Stanley, the 18-to-33 year olds prefer companies with a record of “good social ethics”, while 53% of them go out to eat at least once a week, compared with 43% for the general population. Another study by the Hartman Group, a consumer research firm, revealed that 40% of this demographic group order a different dish every time they visit a restaurant, while they are twice as likely as Baby Boomers to eat foods that are certified organic and 80% of them want to know details about how and where their food is grown. Additionally, they also like customizable food options, and “the 87,000 possible drink combinations that can be had at a single Starbucks unit, are seen as a need, not a luxury.”

Increased public awareness and media scrutiny regarding food production processes, industry practices and ethics have also contributed to the sector’s concerns. Chipotle’s case was a worst-nightmare-scenario for many in the restaurant business, as the company lost over $11 billion in market capitalization after a series of food safety scares from July through December of last year.

The list of factors that industry insiders and CEOs blame for poor results is long and sometimes surprising: Recently, Wendy’s CEO Todd Penegor, explaining the decline in the company’s earnings, said that the presidential election, and the sense of political and economic uncertainty it has instilled in consumers, has made them less likely to eat out. As he put it: ”When a consumer is a little uncertain around their future and really trying to figure out what this election cycle really means to them, they’re not as apt to spend as freely as they might have even just a couple of quarters ago”.

The big picture

Even though the short-term challenges and the various localized obstacles have played an important role in aggravating individual companies’ or restaurants’ struggles, the industry-wide downturn suggests a fundamental shift in spending patterns and a larger cause for concern for the wider economy.

Thus, the reason behind this sector-wide decline, could be quite intuitive and straightforward: When money is tight, eating out is one of the first things to go, and Americans are instead opting for packed lunches and eating their dinner at home.

Recently released earnings results have reinforced these concerns. As shown in the chart below, sales stagnated in June, marking the lowest point in sales growth since 2013. 15 of the 16 major chains’ second-quarter earnings either showed that sales were down from last year, or that growth had slowed down from the previous quarter. Ruby Tuesday suffered losses and announced the closure of 95 locations, both McDonalds’ and Burger King missed estimates, Wendy’s and Shake Shack announced disappointing results as well, while troubled Chipotle’s sales still have not recovered, despite a substantial boost in marketing spending. In general, the decline in spending has forced most of these chains to offer high discounts, and to fight for customers with new promotions and free food offers- a strategy that seems to pay off in the short term but raises doubts about its sustainability and its impact on profits.

Paul Westra, a senior analyst at Stifel Financial Corp., has turned “decidedly bearish” and downgraded the entire restaurant sector, according to research notes to clients circulated in July. He warned that his analysis indicated that the sector’s troubles are also a sign of hard economic times ahead. Westra wrote: “The catalyst for the current weak pre-recessionary restaurant spending trend is likely multifaceted – U.S. politics, terrorism, social unrest, global geopolitics, economic uncertainty. But, if history is a guide, we warn investors that restaurant-industry sales tend to be the ‘canary that lays the recessionary egg.” He also pointed out that the sector’s performance this year, particularly in the second quarter, bears striking similarities to trends that emerged in 1990, 2000 and 2007, in the 3-6 month periods that preceded the last three U.S. recessions; a fact that may sound the alarm for what we might expect to see in 2017.

The take-away lesson

Overall, the troubles of the restaurant industry in the US, as an isolated factor, do not necessarily suffice to conclusively determine whether a wider recession indeed lies ahead in coming months. It does however send a signal that the state of the real economy is not as robust as the Federal Reserve or the media currently maintain. In any case, we will continue to monitor developments in the markets, while bearing in mind signs like this, to be in a better position to understand and to anticipate the future direction of the economy and financial markets.

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The US Congress has passed a bill that would allow families of the victims of the 9/11 attacks to sue Saudi Arabia over the assaults that left almost 3,000 people dead.

The House approved a bipartisan so-called voice vote on Friday, two days before the 15th anniversary of the attacks by Al-Qaeda militants.

Leaders of the House called it a “moral imperative” to allow victims’ families to seek justice. But the White House has indicated that it will veto any such bill.

Saudi Arabia has stridently denied that its government officials or intelligence operatives were in any way linked to the Al-Qaeda attacks on New York and Washington

The US Senate passed the Justice Against Sponsors of Terrorism Act, or JASTA, unanimously in May. Opponents of the bill said it could strain relations with Saudi Arabia and lead to retaliatory laws targeting US citizens or corporations in other countries.

In April, it was reported that Saudi Arabia had warned the US that it would hit back economically at Washington if the bill proceeded. Adel al-Jubeir, the Saudi foreign minister, said his country would be forced to sell up to $750bn in treasury securities and other assets in the US before they could be frozen by American courts.

The vote’s timing was symbolic, passing two days before the 15th anniversary of the hijacked-plane attacks on New York and Washington. Its passage was greeted with cheers and applause in the House chamber, Reuters said.

Yet while the bill may have considerable support, it carries with it huge sensitivity. Saudi Arabia is not just a major supplier of oil to the US, it is also one of its most important regional allies. The US and Saudi are currently involved in efforts against Isis, while the US is supporting Saudi Arabia military operation against rebels in Yemen.

Fifteen of the nineteen men who hijacked four planes and flew them into targets in New York and Washington in 2001 were Saudi citizens, though Riyadh has always denied having any role in the attacks.

The White House on Friday reiterated that President Barack Obama would veto the bill. “This administration strongly continues to oppose this legislation, and, you know, we’ll obviously begin conversations with the House about it,” White House Spokesman Josh Earnest said in May when the Senate passed the bill.

If Mr Obama carries out his veto threat and the required two-thirds of both the Republican-majority House and Senate still support the bill, it would be the first time since his presidency began in 2009 that Congress had overridden a veto.

The House passed the measure by voice, without recorded individual votes, which is not technically considered unanimous. That could make it easier for Mr Obama’s fellow Democrats to uphold his veto later without officially changing their positions.

“This is more important than campaigning,” Terry Strada, who lost her husband in the attacks and is national chair of the victims’ families’ organization bringing a lawsuit against Saudi Arabia.

She told the Washington Post: “You can campaign after, you will never have a chance to pass [the bill] again. This is the priority.

This article originally appeared in The Independent.

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It is normal for countries to owe debt, but there is major reason for concern when looking at today’s debt situation. The numbers are outrageous. It’s hard to believe that the US debt is currently at trillion levels ($19.5)?  This is just like the popular quote that even the rich also cry if US is to be compared to other countries of the world. And, for the debt to escalate when politicians are working towards its reduction, calls for attention.

This infographic by Visual Capitalist helps to break the calculation down to everyone’s level of understanding.  So, in achieving this aim, the content used visual representations of plotted data from managed assets to annual production of gold among other yardsticks. The following gives these yardsticks used in measuring the level of the national debt of the US.

• The debt is larger than the 500 biggest companies (public) in the US

Some of these numbered companies used in measuring the height of the present US debt are Microsoft, Apple, Alphabet, Johnson & Johnson, Exxon Mobil, Facebook among others. The values of each of these companies were tracked using market capitalization. Put together, in the summer of 2016, their value added up to $19.1 (trillion) and this is still lower than the calculated debt.

• It is more than all managed assets by the top 7 money managers of the world

Some of these money managers include companies like Vanguard, J.P Morgan, UBS, Allianz, State Street Global Advisors, Blackrock and Fidelity that manage assets worth $3.37T, $1.68T, $2.71T, $1.98T, $2.30T, $4.74F and $2.11T respectively. In all, these companies have the sum of $18.9 (trillion) for the assets being managed by them; a sum far lower than the calculated debt.

• It is 25 times larger than globally exported oil in 2015

Countries like Russia, Kuwait and Saudi Arabia among others are globally known for exporting oil. And, for all their exports in 2015, the said US debt is far larger than the total sum generated. Saudi Arabia will continuously export oil for 145 years before attaining the level of the current US debt.

• It is 155 times larger than all globally and annually mined gold

The rough estimate of annual gold production worldwide is about 96 million oz. To cover the current sum of money being owed by the US, countries of the world will have to produce same quantity of gold for 155 years continuously.

• It is more than the combination of all global and physical gold, currency, bitcoins and silver

All currencies of the world (different countries put together), gold, bitcoins and silver are 5 trillion dollars, 7.7 trillion dollars, 11 billion dollars and 20 billion dollars respectively. These give a sum of 12.73 trillion dollars. This is just about 65 percent of the current national debt of the US.

The question now is what is the way forward; knowing its effect on our economy?

All details in this infographic

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