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Pater Tenebrarum

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  • The Inflationary Road to Perdition We're On, Part 1 [View article]
    1. No, they are not. It is not possible to 'measure' anything with precision in the economy. This is the central conceit of modern day macroeconomic theorists, that they believe one can press the individual actions of billions of human beings into facile equations. The economy is not machine. 'money lags are always the same length'? What is that supposed to mean?
    2. I'm not sure what you mean by that, but the central point about reserve requirements is that sweeps have largely eliminated them since 1995.
    3. The Fed uses interest rate targeting, this is true, but the topic of excess reserves is pertinent to the current situation and to QE, especially since there seems to be a lot of confusion out there about how the pyramid scheme actually works (I have detailed this in another post here: )
    4. He DID tighten monetary policy. In judging whether monetary policy is or isn't tight, it is irrelevant what legal reserves have done, since they do not form part of the money supply. This is why I showed the long term chart of the true money supply. One can see there that money in the economy actually exhibited a negative growth rate until the reins were loosened again in 1982. Nonetheless, I'm certainly not a member of the Volcker adulation club. In my opinion he saved a system not worth saving.
    Feb 10 12:20 PM | Likes Like |Link to Comment
  • The Inflationary Road to Perdition We're On, Part 1 [View article]
    As Frederic Bastiat famously said:
    "If goods don't cross borders, armies will"
    Feb 9 01:32 PM | Likes Like |Link to Comment
  • The Inflationary Road to Perdition We're On, Part 2 [View article]
    1. yes, you are of course correct that this is not a truly comprehensive description of what has occurred. However, I have addressed these points in great detail in past posts (on the blog) and this specific article was not the place to rehash it all in such detail.
    2. I would definitely agree in principle. We only need to consider that even the Marxian system survived for seven decades, in spite of the impossibility of economic calculation under such a system (of course the communists used prices formed in the capitalist West to guide their planning, so they were not completely in the dark).
    Our economy by contrast has a fairly large free market component, and even during the worst boom episodes real wealth is created alongside the waste of scarce resources. When we say 'the boom impoverishes us' it does not mean that we will necessarily be poorer at the end of the boom than on its eve. The term 'impoverishment' is only applied in a relative sense, i.e. we would have been better off absent the credit boom. The fact remains though that capitalism has created increasing wealth over time, and we may be able to 'muddle through' for a long time yet. In part however this also depends on how policy makers will act going forward. Like I said in the article, they may create a very problematic situation simply by mistake, and we can not entirely rule out that things will come to a head faster than expected.
    Consider in this context the case of post WW1 Germany and its famous hyperinflation episode. In 1919/20, the UK foreign office sent a few observers to Berlin to ascertain the state of the German economy's health. These observers reported back that 'Germany's economy is solid and Germany appears to be rich' (I am paraphrasing). So on the surface, an imminent economic catastrophe seemed nigh impossible. Alas, it only took two more years of reckless monetary policy to visit utter destruction on Germany's economy. So a lot will depend on things that are at this stage still unknowable.
    Feb 9 01:26 PM | Likes Like |Link to Comment
  • The Inflationary Road to Perdition We're On, Part 2 [View article]
    Inflation redistributes wealth to the first receivers of newly created money from the later receivers (who will have to pay higher prices, i.e. their savings will lose purchasing power). No preceding production is necessary to achieve this redistribution of wealth - it essentially consists of exchanges of nothing (newly created money from thin air) for something (the real resources that are getting bought with said money).
    If it is not theft, then what is it?
    Feb 9 01:10 PM | 1 Like Like |Link to Comment
  • The Inflationary Road to Perdition We're On, Part 2 [View article]
    I will address this point in detail in a future post. Let us just say for now that money is NOT a creature of government - it originally arose in the free market (see Carl Menger, and von Mises' regression theorem - here:
    The main point here is however that nowadays, most economists agree that the free market is superior to central economic planning (it would be difficult to deny this even for empiricists given the collapse of the Soviet system) - but curiously, they deny that this truism extends to the sphere of money. They are mistaken.
    Feb 9 01:07 PM | Likes Like |Link to Comment
  • The Inflationary Road to Perdition We're On, Part 2 [View article]
    This does not alter the fact that the total amount of money in the US economy has increased by over 30% since August of 2008. So far, the public sector has done a very good job of replacing the private sector's retrenchment in credit. Note here that you must differentiate between money and credit. Although the two are linked in the fractionally reserved fiat money system, they are NOT the same thing. For some background information please read:
    Money and Credit - There is a Difference:
    I would also note, market forces are clearly exerting a deflationary pull since the credit crisis broke out. It is definitely POSSIBLE for genuine deflation - this is to say, a decline in the money supply - to occur, if the monetary authority lets the market do what it wants to do. Alas, it has not happened yet, and Ben Bernanke is on record that he will do whatever it takes to avert it. Of course we can not know the future. As I mention in this article, Bernanke may no longer be the one deciding these things in the future, if a strong enough political backlash were to occur. However, at this point this is just speculation - we will have to wait and see.
    Feb 9 01:01 PM | Likes Like |Link to Comment
  • Gold Outlook 2011: Irreversible Upward Pressures and the China Effect [View article]
    Since about 700 - 900 tons of gold trade on the LBMA alone every single day and the world's total stock of gold is about 165,000 tons, your worries about an ETF that has bought 2000 tons in 6 years seem way overblown.
    Jan 12 12:21 PM | 3 Likes Like |Link to Comment
  • Smaller Explorers vs. Major Miners [View article]
    Rubicon and Fronteer both are among the brightest prospects in the exploration sector. Another one that looks good to me is Tower Hills (THM on the AMEX).
    Dec 23 12:51 PM | 4 Likes Like |Link to Comment
  • Smaller Explorers vs. Major Miners [View article]
    Agree with you that African m&a in the gold mining space is going to heat up further. Another one worth checking out in this context is KGN (Keegan Resources) in Ghana.
    Dec 23 12:48 PM | 3 Likes Like |Link to Comment
  • Turbulent Times Dead Ahead? [View article]
    As of yet, they have not happened, but 3 month LIBOR has recently (in late November) begun to creep up slightly and now resides at a higher level than in the previous months. It could well be the initial move of a greater dislocation yet to come. It is in fact quite odd that market data currently display a strange mixture of rising and falling confidence, depending on what data one looks at. My suspicion is that the inflationary policies of the central banks are a major reason for this dichotomy.
    Dec 20 09:25 PM | Likes Like |Link to Comment
  • Gold Is Poised for a Big Correction [View article]
    I actually think a blow-off rally in gold is more likely in the near term than a correction. We already had the correction, and it looks like a bullish, upwardly slanted running correction to my eyes.
    Dec 20 01:30 PM | Likes Like |Link to Comment
  • ECB Board Members Throw Cold Water on ‘QE’ – For Now [View article]
    The problem as I see it is actually this: there can be no free market capitalism without failure. By saddling tax payers with the losses of banks that have gotten into trouble due to their misguided speculations, governments have thrown out the capitalist rule book. This can not possibly improve future behavior by credit market participants - socialization of risk is a repudiation of free market principles.
    This has been done everywhere, not just in Ireland of course. Contrary to the assertions of many politicians, the world would not have stopped turning if a few big banks had gone under and their share- and bondholders had suffered losses. The difference should be very clear: these investors took a voluntary risk when they bought said securities. Tax payers on the other hand are forced to pay up. They didn't get any of the profits, but they sure are being saddled with the losses.
    What's more, the losses are no less real because of it - the question is only who shall bear them: those responsible, or everyone else?
    Dec 14 02:03 PM | 1 Like Like |Link to Comment
  • ECB Board Members Throw Cold Water on ‘QE’ – For Now [View article]
    I strongly doubt that the voters in the European nations most strongly affected by the bust will just hold still and accept that they will have to shoulder all of the costs. This seems a political impossibility, just as it appears politically impossible that the stronger nations such as Germany will accede to open-ended bailouts. A period of strong economc growth could perhaps allow for the can to be kicked further down the road, but at the moment a further escalation of the crisis seems almost foreordained.
    Dec 13 05:20 PM | 1 Like Like |Link to Comment
  • ECB Board Members Throw Cold Water on ‘QE’ – For Now [View article]
    It will imo be very difficult to prove fraud in most cases, for the simply reason that the system as such is basically a fraudulent operation enabled by means of a legal privilege.
    To see what I mean by that check the articles on 'fractional reserves banking' at my blog. The first article on the topic concerns itself with the legal questions surrounding modern banking practice from a historical and ethical perspective.
    Given the current legal status, it will in most cases be very difficult to hold people accountable for the part they played in the credit bubble, even though many people would probably agree that ethically questionable activities have taken place and that moreover, society at large has suffered untold economic damage as a result.
    A very profound reform effort will be needed to return the system to traditional legal principles. If we are to avoid future credit bubbles and their long term negative effects, then the system must be changed on a very fundamental level (the recent reform attempts have not really changed anything I fear).
    Dec 13 05:15 PM | Likes Like |Link to Comment
  • Gold Is Poised for a Big Correction [View article]
    it is actually quite funny how many gold bears have come out of the woodwork in recent days after a one percent correction off a new all time high in gold.
    GFI, which the writer mentions, has just broken out to a new high for the move. It remains quite a cheap stock actually, given how well things have begun to go on an operational level.
    meanwhile, I can confirm that most fund managers have missed the boat and still don't hold any gold. whenever you ask at a hedge fund conference how many of the people present hold gold, as a rule about 3% of the hands go up.
    from a sentiment perspective i would call the current sentiment 'very cautiously optimistic'. there are no major signs of froth. from a chart perspective, while one can never rule out a short term pullback (probably it would be healthy if one occurred), the chart does not look bearish at all. what most people seem to forget is that gold simply does not top with waning momentum. it always tops in spike moves (this is so because gold is mostly driven by fear).
    Sep 13 11:51 AM | 3 Likes Like |Link to Comment