Archive for gold

The Myth of the Unchanging Value of Gold

6858Mises Daily Friday by Joseph Salerno:

Many economics textbooks claim that a function of money is to measure the value of goods. In fact, the value an individual attaches to a given sum of money or to any kind of good (including gold) is based on a subjective judgment and is without physical dimensions.

Jim Grant: “The Federal Reserve Has So Little Self-Awareness…”

…it un-ironically wonders aloud who’s been suppressing volatility and compressing yields. “Who could it be who’s been doing that?” Grant asks.

Grant notes there are some investment opportunities in Russia and then says “One form of investment that is almost as thoroughly hated as Russia is gold and gold mining shares.” He then explains that gold “is a sound inoculation against the harebrained doctrine of modern central bankers,” and important when dealing with “the likely crackup” of modern monetary arrangements.

Gold, Silver, and the Future of the Dollar

6822Mises Daily Weekend by Mark Thornton:

In this interview, Mark Thornton discusses the future of the US dollar as the world’s reserve currency and how both gold and silver and can be part of a return to sound money.

Germany Reneges on Request for its Gold

7361342500_a62d22db19_zGermany has now decided that its gold is safe in the hands of the Federal Reserve after all. The budget spokesman for Angela Merkel’s Christian Democratic Union party, Norbert Barthle, said “The Americans are taking good care of our gold.” Germany initially made the request in January of 2013 after attempts to inventory the gold in 2012 were rebuffed. Juergen Hardt, also from the Christian Democratic Union party told reporters in May that there was no concern that German gold in the New York Fed has been tampered with. “It’s my view that the gold reserves should be stored wherever they might be needed in an emergency.” Of course Germany has never seen or possessed its gold. It obtained the gold in exchange for its surplus dollars in international trade prior to the breakdown of the Bretton Woods system. So I guess there really is no cause for concern.

Ron Paul Discusses the Future of the US Dollar

In this audio interview, Ron Paul touches on recent developments affecting the value of the dollar, the potential for currency collapse, gold, war, Russia, and more.

The Ron Paul portion begins at 2:30 and ends at 17:30.

(Note: My posting of this video is not an endorsement of any of the advertised products that appear on screen in the course of the interview.)

Video: Hollenbeck on Exchange Rates and the Big Mac Index

Frank Hollenbeck sends along this video explaining in further detail his discussion from the weekend’s Mises Daily.

Interview with Richard Ebeling

220px-Gold_BarsThe Daily Bell features a wide-ranging and engaging interview with Richard Ebeling, Professor of Economics at Northwood University.  Ebeling is one of the leading scholars in the history of Austrian economics, especially the works and thought of Ludwig von Mises. and has written voluminously in the area.  Ebeling is also a key figure in the development of modern Austrian economics and was present at the South Royalton conference in 1974, which marked the rebirth of the Austrian school.   He will be participating in the celebration of the 40th anniversary of the South Royalton conference that will be held in March at the Austrian Economics Research Conference.

Here are two sample passages from his interview.  The first is on the operation of a gold standard under free banking:

A gold standard works on the “rule” that any currency outstanding is meant to be a circulating substitute and claim to a quantity of gold deposited in a bank or other financial institution for safekeeping. Any additions to the paper currency in circulation (or other bank deposits representing that currency in exchange) are only supposed to come about as a result of net additional deposits of gold into the banks of that country. And any net withdrawals of gold deposits are to be accompanied by a decrease in the number of currency notes in circulation. Money substitutes in the form of checking and other similar banking accounts are to expand and contract only as a parallel reflection of changes in the quantity of gold (or silver) money kept in the banking system. This, in principle, precludes the government from just arbitrarily changing the quantity of paper money in circulation to serve its own political policy purposes.

Thus Ebeling adopts the Currency School-Mises  position on free banking.  This holds that freedom of entry into the banking business and freedom to issue bank notes and deposits without the imposition of a legal reserve ratio will result in a situation in which banks will only emit additional notes and deposits in exchange for the receipt of an equivalent amount of gold coin and bullion from depositors.  This in effect means that free banking will tend toward the suppression of all further issue of fiduciary media, that is, unbacked notes and deposits.

Ebeling also defends Mises’s position on cyclical price deflation, pointing out that it is a necessary part of the readjustment of the economy after an inflationary boom:

When the inflationary boom phase of the business cycle ends, it is inevitable that some if not many prices may have to fall “back down to Earth.” That is, price may have to correct to that post-boom reality of actual non-inflationary supply and demand conditions. Thus, when the housing bubble burst, many housing prices inescapably went bust. This, too, should be understood as part of any healthy self-correcting market rebalancing and readjustment. Thus, a degree of price “deflation” is always likely to be part of the recovery period of the business cycle.

The interview is chock-full of such lessons and richly rewards a careful reading. CEO talks Bitcoin, Austrian School’s CEO Patrick Byrne explains some reasons why Overstock now accepts Bitcoins:

Fortune: Do you own any bitcoins?

Patrick Byrne: No. I own gold.

Really, how much gold?

A lot. Let’s just say enough that if zombies walked the Earth I will have enough gold that me and mine are taken care of.

But you’re obviously a bitcoin fan. Why?

There are business and philosophical reasons. First, the business reason: I think there are a legitimate number of consumers who want to be able to shop with bitcoin. They like the anonymity of the currency. So far, the market has only served them with shady websites, like Silk Road. Also, it saves us about 2% from interchange fees. It’s no secret that our net margin is about 2% now. And so the savings would be a very substantial improvement to our bottom line.

As far as the philosophical reason: I am from the Austrian School of Economics, which means we’re the guys who hate fiat money. The long-run value of all fiat money is zero. If you believe in limited government, you want to have a monetary system that is based on something where no government mandarin can just create money with a stroke of a pen. Gold is a solution, we’re not going to bring back the gold standard any time soon. We’re not going to get rid of the Federal Reserve any time soon, so bitcoin is a step in the right direction.

Gold Flows to China

ChineseGoldCoinsBloomberg reports that gold is flowing from some Western vaults to China: “The Chinese don’t want US dollars anymore, they want gold.

In 2011, Dan O’Connor wrote on “China’s Hard-Money History: 

So deeply rooted in the culture were gold and silver that the Chinese people upheld a metallic currency longer than all Western nations, even though their currency was consistently destroyed, manipulated and confiscated by governments up until the 1940s, when they ultimately reverted to paper. In fact, a major factor for the runaway inflation that took place at the very end of Cheng Kai Shek’s rule in the 1930s was triggered by the silver coins that had been soaked off the Chinese market. The silver was brought over to the United States under President Franklin Delano Roosevelt’s “Silver Purchase Act.” The ensuing paper currency system was untenable and led to widespread economic instability that undermined Shek’s legitimacy as ruler and caused many of his supporters to shift allegiance to Mao Ze Dong and the Communist Party.

Read the rest.

Mises Institute South Africa

There is now a Ludwig von Mises Institute in South Africa. This interview with Chris Becker describes the Austrian scene in South Africa and the purpose of the Institute. However, it also has a good discussion about the decline of South Africa, the rise of Subsaharan Africa, gold and much more.