Analysis, investment ideas and strategies to encourage intelligent dialogue about the global economy involving gold and silver, energy and monetary issues based solely upon the logic of the Capitalist discipline, and remaining true to the business of gold.....


 


Previous Reports                                                          Receive Larry Myles Reports
 

Larry Myles Reports - Special Report January 2010


The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living.
 

Gold is the Currency of Capitalism

We are currently being entertained by a dollar recovery that will succeed as well as the "Battle of the Bulge" during WWII.  Depending on which side of the line you are on, you are either sharing in the euphoria that Washington's hideous health reform plan has been at least temporarily crushed; or you are not.  What is concrete to both sides is the thwarted health care news is helping impact the new-found buoyancy of the US dollar. At the same time, the price of an ounce of gold remains in the four figure category, but is rumored to be heading back under $1000.  When it comes to gold I see a prolonged buying opportunity - so once again, stay the course. Continue to consider, buy gold on the dips

I repeat: Stay the course!  Unless of course you are of the opinion that some way, somehow a return to fiscal responsibility in the US will become reality. My suggestion is to ignore the words that come out of the current administration in Washington - and concentrate on their actions.  Unless America stops printing money and walks away from incredibly unpopular and uber-expensive entitlement programs (ObamaCare and Cap and Trade), the bleeding and the madness will continue. Play it safe - own physical gold.  

I have not changed my position on the dollar - continue to invest in dollar denominated asset products and over time, you will certainly beggar yourself.  Forget about ‘hyper-inflation’, although Jimmy Carter style galloping inflation will be a certainty in our near-future….the new word that will soon be on everyone’s lips: hyper-taxation.  

As a growing number of people lose confidence in fiat currency as a store of value; physical gold and silver will become scarce and demand will continue to accelerate. I firmly believe there is a growing recognition of gold as first one of a handful of legitimate top tier assets and inevitably, the single most important asset in the world.


We are in a whole new financial environment; where every 'brand' of faith-backed fiat currency (paper money) is under pressure. Not helping is the theory that "quantitative easing' will somehow save us. Reason: The more the governments of the world print money and monetize debt, the easier it will be government to keep printing and monetizing ever escalating amounts of government debt to cover government budget deficit gap.

No matter how carefully disguised the laws of supply and demand must be obeyed.  As the population of the world increases, the supply of goods needed to sustain the global population must increase. As the supply of goods will increase, it will take more and more of your pieces of fiat currency to obtain goods and services. If you start to look upon gold as a ‘goods’ (commodity) and understand that the value of overprinted fiat currencies will continue to decline, does it not make sense to swap out mere paper for gold? And beware of "paper gold", as there will become a day of reckoning for the naked and reckless manipulation of the value of a paper ounce of gold.

Remember:  As long as the central bankers continue to increasing “quantitative easing” (printing money), the price of gold and other commodities will rise – and then rise again when (not if) inflation kicks in. 

Eight Things Everyone Should Know About Gold





Gold is one of the world’s most misunderstood assets. There are many reasons for this unfortunate situation, but one stands out. Gold exists in an environment in which there are many powerful forces fiercely hostile to it. Most notable among these are governments and the myriad of vested interests that feed from the public purse or rely upon some government-issued license or privilege.



 

Governments have confiscated gold, taxed it, propagandized against it and even outlawed it.

Gold does not have any powerful sponsor championing its cause. In fact, the opposite prevails. Apologists for central banks as well as government toadies clamoring for continued state control of money have worked hard to discredit gold where possible, for example, by blaming it for things it was not responsible – like the Great Depression – and by denigrating gold as a fondling of speculators or a superstition better suited for primitive economies.

In short, conventional economic wisdom and monetary thinking has one aim; it is to justify and perpetuate today’s monetary system. It does not undertake a critical review of the system nor take an unbiased, unprejudiced look at alternatives such as gold.

Yet despite this hostile environment, gold continues to be valued throughout the world. Stripping away the misinformation and half-truths about gold, it is clear that gold continues to serve an important role. Why is that?

It is because gold is useful, and as a consequence, it therefore has value. And how does gold’s usefulness arise?

Here is a basic primer highlighting eight essential features of gold that everyone should know. By evaluating them, it is possible to determine whether gold’s usefulness could be of value to you, just as it already is of value to countless millions of people around the world.

1) Gold is a special, unique commodity

Gold is a special, unique commodity because it is the only commodity produced for accumulation; all other commodities are produced to be consumed. Essentially all of the gold mined throughout history still exists in aboveground stocks. Nevertheless, gold is rare.

The entire above-ground gold stock is only about 155,000 tonnes. If all this gold were put into one lump, its size would be 8,000 cubic meters, the volume of which is equal to the bottom one-fifth of the Washington Monument or 3¼ Olympic size swimming pools. It is also astonishing to note that in one day twenty-times more steel is poured than the total weight of gold mined throughout history.

2) Gold’s supply is its above-ground stock

Because it is accumulated and not consumed, gold’s supply is its aboveground stock. This fact changes everything in terms of how to analyze gold.

Gold’s price is still a function of supply and demand, but the supply that matters is not the relatively modest amount mined each year, which history shows only increases the above-ground stock year after year by a relatively consistent 1.7% per annum. Rather, gold’s supply is the total weight accumulated in its above-ground stock for the simple reason that a gram of gold mined today is no different from a gram of gold mined by the Romans two-thousand years ago. In other words, gold in the above-ground stock is perfectly substitutable for newly mined gold.

In the short-term gold’s supply is relatively unchanged because new mine production cannot be meaningfully increased quickly. As a consequence, gold’s price is principally a function of demand.

While it is common to hear that gold’s price is determined by jewelry demand, that belief is misguided. Just like wet streets do not cause rain, the price of gold does not depend upon jewelry demand. The important point is not the form gold takes when it is fabricated, but rather, the use to which it is put. Most jewelry is high-karat gold acquired because of gold’s monetary characteristics, not for reasons of adornment.

Therefore, the price of gold – or more precisely because it is money – gold’s rate of exchange to national currencies depends upon monetary demand, or what some people mistakenly call its investment demand. It cannot possibly be otherwise, given that gold’s supply is its above-ground stock and that some 80% of this amount is held for monetary reasons, and not for fashion, adornment or other factors.

3) Gold is money

This observation about monetary demand means that gold is money. In other words, gold is hoarded because its greatest usefulness arises from those attributes that make it money.

Gold’s advantages as money are numerous. Perhaps most important in our present age marked by the perennial inflation of national currencies, gold is money that cannot be debased by creating it ‘out of thin air’ by government fiat.

Another important factor in gold’s favor is the mountain of debt and financial derivatives that overhang the world economy. Gold is the only money that is not contingent upon anyone’s promise, an attribute that explains why gold is called “sound money”.

4) Gold will soon be an alternative to the US dollar

The US dollar is in trouble because it is being debased – it is being inflated by newly created dollars that are used to fund the growing federal government budget deficits and other public and private debt. This insidious inflation erodes the purchasing power of the dollar month after month. Consequently, more and more people are turning to gold as their preferred money.

It used to be that the dollar was “as good as gold”. The dollar achieved that distinction because it was formally defined as a weight of gold under the rule-based system known as the gold standard. Under that system, which ended in August 1971, gold and dollars were interchangeable and essentially the same. But no more, to the detriment of those who hold dollars. By some estimates, the dollar has lost more than 90% of its purchasing power since then.

Despite the dreadful deterioration the dollar has suffered, it continues to circulate as a global currency. Those same inexorable forces that create a hostile environment for gold are at the same time promoting and propagandizing the dollar to talk-up its demand. The Federal Reserve’s pro-dollar, anti-gold propaganda is aimed to maintain the illusion that the dollar is reliable money. Consequently, in contrast to their interdependent and complimentary role under the gold standard, gold and the dollar have become competitors. In fact, gold is the dollar’s only serious competitor. They compete for holders, and it is their relative demand that determines their rate of exchange, or what we call the ‘price’ of gold.

The relative demand for gold and dollars also explains the importance of dollar interest rates, which need to be raised from time to time to entice people to accept the risk of holding dollars instead of gold. But remember, only real (i.e., inflation adjusted) interest rates matter. Nominal interest rates are not important. For example, if dollar interest rates are 10% and the inflation rate is 10%, real interest rates are zero, and low or negative real interest rates are bullish for gold.

5) Gold preserves purchasing power

Gold preserves purchasing power, but there’s another way to describe this essential feature of gold. Don’t view gold’s price to be rising. Rather, recognize instead that the purchasing power of the dollar is falling. This conclusion can be made clear by looking at the price of goods and services in terms of dollars as well as gold.

For example, the price of crude oil in dollars and goldgrams from December 1945. Since then crude oil prices have experienced a 64-fold price increase in dollar terms. A different picture emerges though when crude oil prices are viewed in grams of gold. A barrel of crude oil today costs about the same amount of goldgrams as it has at any other time shown on the above chart. So even though the dollar is no longer defined as a weight of gold as it was under the gold standard, this chart clearly illustrates that gold remains the most useful standard by which to measure the price of goods and services.

6) Gold’s true value is determined by the market

Unless of course it is "paper" gold. Physical gold’s value comes from its usefulness, not from central banks. It is important to understand that the market gives gold its value, though central banks would have you believe otherwise. Central banks tell you what they want you to hear. They would like you to think that they control gold’s price, as that perception makes it easier for them to bolster the demand for the dollar. But the reality is quite different. The market determines gold’s price, just like it determines the price of a Picasso or a loaf of bread.

Central banks intervene in the gold market – just like they intervene in many other markets. The reason for their attempts to manage the gold price is simple. By keeping the gold price low, central banks make the dollar look better. With their interventions central banks are trying to make the dollar look worthy of being the world’s reserve currency when in fact it is not.

The gold demand is a barometer that measures whether a national currency is being managed well (i.e., no inflation). So by trying to keep the gold price low, central banks artificially make the demand for dollars higher than it would otherwise be. Intervention is also consistent with the statist philosophy of many governments these days, namely, that they will usurp whatever power is needed to try maintaining the status quo that preserves the privileged position politicians enjoy at the expense of taxpayers.

Though central banks do not control the gold market, they can influence gold’s price. Importantly, their influence is diminishing. Central banks have been dishoarding much of the gold in their vaults, so they now hold a relatively small part of the above-ground gold stock. After the Second World War, about 68% of the above-ground gold stock was in the vaults of central banks. It’s now about 10%, but that will soon reverse as banks will soon cease to be net sellers of physical gold.

Less gold within their control means that central banks have less influence on its price, which is one of the reasons central banks are no longer the factor they once were. To learn more about central bank involvement in the gold market, you need to know what GATA knows. The Gold Anti-Trust Action Committee has published the combined research of many analysts, including several articles by me, and it is all available for free at www.gata.org


7) Gold is in a bull market

Demand for physical gold has been rising since 2001, and the many problems national currencies are suffering mean gold demand is headed higher still. How much higher?

No one of course knows because there is never any certainty when it comes to markets. It takes about $12 today to purchase what $1 purchased in the 1970s, which saw the gold price rise that decade from $35 to more than $800 in 1980. History will repeat, achieving the same mathematical ratio in gold’s gain, but with the dollar result being 10-times greater to account for its loss of purchasing power. Thus, I expect gold will climb from $350 in 2003 to over $2500 within a decade’s time - or even higher if the demand for gold continues to acclerate.

It is not unreasonable to expect that gold will once again command the purchasing power it once did, particularly given the ongoing inflation and debasement of the dollar. One should never underestimate the capacity of central banks to destroy the purchasing power of a currency. In other words, gold is not rising, it still purchases the same amount of crude oil it did 60 years ago. Rather, the dollar is weakening.

8) Buy physical gold, not paper ‘gold’

It is prudent to buy gold because of the alarming problems facing the dollar and other national currencies. Gold offers a simple means to diversify and therefore hedge the risks inherent in national currencies, but make sure you buy physical metal, not paper. There is a big difference between owning metal and just a promise to pay metal to you. Sometimes the promise is not worth the paper it’s written on.

Examples of physical metal that you can own are coins, bars, high-karat jewelry and the gold offered by my company, GoldMoney, which stores the gold you own in a specialized and insured bullion vault near London, England. Examples of paper ‘gold’ are gold certificates issued by banks and mints, pool accounts, futures accounts and the NYSE listed exchange-traded fund. With these products you own a piece of paper rather than gold itself. These paper products give you exposure to the gold price, but they come with the risk of default, namely, that you won’t be able to get your metal when you need it.

Gold should be viewed as the bedrock asset in your portfolio, so do not take any risks with it. As a consequence, own physical metal instead of just someone’s paper promise. Gold may not be for everyone, but a fresh look at the facts never hurts. The 8 facts presented here should be carefully considered to better understand gold, which is the first step in determining whether gold may be useful to you.




















Do I really have to comment on the above graphic?  I think not....other to ask - why are you holding dollars when you could be holding gold?

Become Participant in the " Business of Gold"

Ben Bernanke does not know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head.


I wonder, though, just how far we have really come in the past 200-odd years. To give modernity its due, the dollar has cut a swath in the world. There's no greater success story in the long history of money than the common greenback. Of no intrinsic value, collateralized by nothing, it passes from hand to trusting hand the world over. More than half of the $923 billion's worth of currency in circulation is in the possession of foreigners.

In ancient times, the solidus circulated far and wide. But it was a tangible thing, a gold coin struck by the Byzantine Empire. Between Waterloo and the Great Depression, the pound sterling ruled the roost. But it was convertible into gold— slip your bank notes through a teller's window and the Bank of England would return the appropriate number of gold sovereigns. The dollar is faith-based. There's nothing behind it but Congress.



But now the world is losing faith, as well it might. It's not that the dollar is overvalued—economists at Deutsche Bank estimate it's 20% too cheap against the euro. The problem lies with its management. The greenback is a glorious old brand that's looking more and more like General Motors.

You get the strong impression that Mr. Bernanke fails to appreciate the tenuousness of the situation—fails to understand that the pure paper dollar is a contrivance only 38 years old, brand new, really, and that the experiment may yet come to naught. Indeed, history and mathematics agree that it will certainly come to naught. Paper currencies are wasting assets. In time, they lose all their value. Persistent inflation at even seemingly trifling amounts adds up over the course of half a century. Before you know it, that bill in your wallet won't buy a pack of gum.

For most of this country's history, the dollar was exchangeable into gold or silver. "Sound" money was the kind that rang when you dropped it on a counter. For a long time, the rate of exchange was an ounce of gold for $20.67. Following the Roosevelt devaluation of 1933, the rate of exchange became an ounce of gold for $35. After 1933, only foreign governments and central banks were privileged to swap unwanted paper for gold, and most of these official institutions refrained from asking (after 1946, it seemed inadvisable to antagonize the very superpower that was standing between them and the Soviet Union). By the late 1960s, however, some of these overseas dollar holders, notably France, began to clamor for gold. They were well-advised to do so, dollars being in demonstrable surplus. President Richard Nixon solved that problem in August 1971 by suspending convertibility altogether. From that day to this, in the words of John Exter, Citibanker and monetary critic, a Federal Reserve "note" has been an "IOU nothing."

To understand the scrape we are in, it may help, a little, to understand the system we left behind. A proper gold standard was a well-oiled machine. The metal actually moved and, so moving, checked what are politely known today as "imbalances." Say a certain baseball-loving North American country were running a persistent trade deficit. Under the monetary system we don't have and which only a few are yet even talking about instituting, the deficit country would remit to its creditors not pieces of easily duplicable paper but scarce gold bars. Gold was money—is, in fact, still money—and the loss would set in train a series of painful but necessary adjustments in the country that had been watching baseball instead of making things to sell. Interest rates would rise in that deficit country. Its prices would fall, its credit would be curtailed, its exports would increase and its imports decrease. At length, the deficit country would be restored to something like competitive trim. The gold would come sailing back to where it started. As it is today, dollars are piled higher and higher in the vaults of America's Asian creditors. There's no adjustment mechanism, only recriminations and the first suggestion that, from the creditors' point of view, enough is enough.

So in 1971, the last remnants of the gold standard were erased. And a good thing, too, some economists maintain. The high starched collar of a gold standard prolonged the Great Depression, they charge; it would likely have deepened our Great Recession, too. Virtue's the thing for prosperity, they say; in times of trouble, give us the Ben S. Bernanke school of money conjuring. There are many troubles with this notion. For one thing, there is no single gold standard. The version in place in the 1920s, known as the gold-exchange standard, was almost as deeply flawed as the post-1971 paper-dollar system. As for the Great Recession, the Bernanke method itself was a leading cause of our troubles. Constrained by the discipline of a convertible currency, the U.S. would have had to undergo the salutary, unpleasant process described above to cure its trade deficit. But that process of correction would—I am going to speculate—have saved us from the near-death financial experience of 2008. Under a properly functioning gold standard, the U.S. would not have been able to borrow itself to the threshold of the poorhouse.

Anyway, starting in the early 1970s, American monetary policy came to resemble a game of tennis without the net. Relieved of the irksome inhibition of gold convertibility, the Fed could stop worrying about the French. To be sure, it still had Congress to answer to, and the financial markets, as well. But no more could foreigners come calling for the collateral behind the dollar, because there was none. The nets came down on Wall Street, too. As the idea took hold that the Fed could meet any serious crisis by carpeting the nation with dollar bills, bankers and brokers took more risks. New forms of business organization encouraged more borrowing. New inflationary vistas opened.

Not that the architects of the post-1971 game set out to lower the nets. They believed they'd put up new ones. In place of such gold discipline as remained under Bretton Woods—in truth, there wasn't much—markets would be the monetary judges and juries. The late Walter Wriston, onetime chairman of Citicorp, said that the world had traded up. In place of a gold standard, it now had an "information standard." Buyers and sellers of the Treasury's notes and bonds, on the one hand, or of dollars, yen, Deutschemarks, Swiss francs, on the other, would ride herd on the Fed. You'd know when the central bank went too far because bond yields would climb or the dollar exchange rate would fall. Gold would trade like any other commodity, but nobody would pay attention to it.

I check myself a little in arraigning the monetary arrangements that have failed us so miserably these past two years. The lifespan of no monetary system since 1880 has been more than 30 or 40 years, including that of my beloved classical gold standard, which perished in 1914. The pure paper dollar regime has been a long time dying. It was no good portent when the tellers' bars started coming down from neighborhood bank branches. The uncaged teller was a sign that Americans had began to conceive an elevated opinion of the human capacity to manage financial risk. There were other evil omens. In 1970, Wall Street partnerships began to convert to limited liability corporations—Donaldson, Lufkin & Jenrette was the first to make the leap, Goldman Sachs, among the last, in 1999. In a partnership, the owners are on the line for everything they have in case of the firm's bankruptcy. No such sword of Damocles hangs over the top executives of a corporation. The bankers and brokers incorporated because they felt they needed more capital, more scale, more technology—and, of course, more leverage.

In no phase of American monetary history was every banker so courageous and farsighted as Isaias W. Hellman, a progenitor of an institution called Farmers & Merchants Bank and of another called Wells Fargo. Operating in southern California in the late 1880s, Hellman arrived at the conclusion that the Los Angeles real-estate market was a bubble. So deciding—the prices of L.A. business lots had climbed to $5,000 from $500 in one short year—he stopped lending. The bubble burst, and his bank prospered. Safety and soundness was Hellman's motto. He and his depositors risked their money side-by-side. The taxpayers didn't subsidize that transaction, not being a party to it.

In this crisis, of course, with latter-day Hellmans all too scarce in the banking population, the taxpayers have born an unconscionable part of the risk. Wells Fargo itself passed the hat for $25 billion. Hellmans are scarce because the federal government has taken away their franchise. There's no business value in financial safety when the government bails out the unsafe. And by bailing out a scandalously large number of unsafe institutions, the government necessarily puts the dollar at risk. In money, too, the knee bone is connected to the thigh bone. Debased banks mean a debased currency (perhaps causation works in the other direction, too).

Many contended for the hubris prize in the years leading up to the sorrows of 2008, but the Fed beat all comers. Under Mr. Bernanke, as under his predecessor, Alan Greenspan, our central bank preached the doctrine of stability. The Fed would iron out the business cycle, promote full employment, pour oil on the waters of any and every major financial crisis and assure stable prices. In particular, under the intellectual leadership of Mr. Bernanke, the Fed would tolerate no sagging of the price level. It would insist on a decent minimum of inflation. It staked out this position in the face of the economic opening of China and India and the spread of digital technology. To the common-sense observation that these hundreds of millions of willing new hands, and gadgets, might bring down prices at Wal-Mart, the Fed turned a deaf ear. It would save us from "deflation" by generating a sweet taste of inflation (not too much, just enough). And it would perform these feats of macroeconomic management by pushing a single interest rate up or down.

It was implausible enough in the telling and has turned out no better in the doing. Nor is there any mystery why. The Fed's M.O. is price control. It fixes the basic money market interest rate, known as the federal funds rate. To arrive at the proper rate, the monetary mandarins conduct their research, prepare their forecast—and take a wild guess, just like the rest of us. Since December 2008, the Fed has imposed a funds rate of 0% to 0.25%. Since March of 2009, it has bought just over $1 trillion of mortgage-backed securities and $300 billion of Treasurys. It has acquired these assets in the customary central-bank manner, i.e., by conjuring into existence the money to pay for them. Yet—a measure of the nation's lingering problems—the broadly defined money supply isn't growing but dwindling.

The Fed's miniature interest rates find favor with debtors, and disfavor with savers (that doughty band). All may agree, however, that the bond market has lost such credibility it once had as a monetary-policy voting machine. Whether or not the Fed is cranking too hard on the dollar printing press is, for professional dealers and investors, a moot point. With the cost of borrowing close to zero, they are happy as clams (that is, they can finance their inventories of Treasurys and mortgage-backed securities at virtually no cost). The U.S. government securities market has been conscripted into the economic-stimulus program.

Neither are the currency markets the founts of objective monetary information they perhaps used to be. The euro trades freely, but the Chinese yuan is under the thumb of the People's Republic. It tells you nothing about the respective monetary policies of the People's Bank and the Fed to observe that it takes 6.831 yuan to make a dollar. It's the exchange rate that Beijing wants.

On the matter of comparative monetary policies, the most expressive market is the one that the Fed isn't overtly manipulating. Though Treasury yields might as well be frozen, the gold price is soaring (it lost altitude on Friday). Why has it taken flight? Not on account of an inflation problem. Gold is appreciating in terms of all paper currencies—or, alternatively, paper currencies are depreciating in terms of gold—because the world is losing faith in the tenets of modern central banking. Correctly, the dollar's vast non-American constituency understands that it counts for nothing in the councils of the Fed and the Treasury. If 0% interest rates suit the U.S. economy, 0% will be the rate imposed. Then, too, gold is hard to find and costly to produce. You can materialize dollars with the tap of a computer key.

Let me interrupt myself to say that I am not now making a bullish investment case for gold (I happen to be bullish, but it's only an opinion). The trouble with 0% interest rates is that they instigate speculation in almost every asset that moves (and when such an immense market as that in Treasury securities isn't allowed to move, the suppressed volatility finds different outlets). By practicing price, or interest-rate, control, the Bank of Bernanke fosters a kind of alternative financial reality. Let the buyer beware—of just about everything.

A proper gold standard promotes balance in the financial and commercial affairs of participating nations. The pure paper system promotes and perpetuates imbalances. Not since 1976 has this country consumed less than it produced (as measured by the international trade balance): a deficit of 32 years and counting. Why has the shortfall persisted for so long? Because the U.S., uniquely, is allowed to pay its bills in the currency that only it may lawfully print. We send it west, to the central banks of our Asian creditors. And they, obligingly, turn right around and invest the dollars in America's own securities. It's as if the money never left home. Stop to ask yourself, American reader: Is any other nation on earth so blessed as we?

There is, however, a rub. The Asian central banks do not acquire their dollars with nothing. Rather, they buy them with the currency that they themselves print. Some of this money they manage to sweep under the rug, or "sterilize," but a good bit of it enters the local payment stream, where it finances today's rowdy Asian bull markets.

A monetary economist from Mars could only scratch his pointy head at our 21st century monetary arrangements. What is a dollar? he might ask. No response. The Martian can't find out because the earthlings don't know. The value of a dollar is undefined. Its relationship to other currencies is similarly contingent. Some exchange rates float, others sink, still others are lashed to the dollar (whatever it is). Discouraged, the visitor zooms home.

Neither would the ghosts of earthly finance know what to make of things if they returned for a briefing from wherever they were spending eternity. Someone would have to tell Alexander Hamilton that his system of coins is defunct, as is, incidentally, the federal sinking fund he devised to retire the public debt (it went out of business in 1960). He might have to hear it more than once to understand, but Congress no longer "coins" money and regulates the value thereof. Rather, it delegates the work to Mr. Bernanke, who, a noted student of the Great Depression, believes that the cure for borrowing too much money is printing more money.

Walter Bagehot, the Victorian English financial journalist, would be in for a jolt, too. It would hardly please him to hear that the Fed had invoked the authority of his name to characterize its helter-skelter interventions of the past year. In a crisis, Bagehot wrote in his 1873 study "Lombard Street," a central bank should lend without stint to solvent institutions at a punitive rate of interest against sound collateral. At least, Bagehot's shade might console itself, the Fed was faithful to the text on one point. It did lend without stint.

If Bagehot's ghost would be chagrined, that of Bagehot's sparring partner, Thomson Hankey, would be exultant. Hankey, a onetime governor of the Bank of England, denounced Bagehot in life. No central bank should stand ready to bail out the imprudent, he maintained. "I cannot conceive of anything more likely to encourage rash and imprudent speculation...," wrote Hankey in response to Bagehot. "I am no advocate for any legislative enactments to try and make the trading community more prudent."

Hankey believed in the price system. It might pain him to discover that his professional descendants have embraced command and control. "We should have required [banks to hold] more capital, more liquidity," Mr. Bernanke rued in a Senate hearing on Thursday. "We should have required more risk management controls." Roll over, Isaias Hellman.

So our Martian would be mystified and our honored dead distressed. And we, the living? We are none too pleased ourselves. At least, however, being alive, we can begin to set things right. The thing to do, I say, is to restore the nets to the tennis courts of money and finance. Collateralize the dollar—make it exchangeable into something of genuine value. Get the Fed out of the price-fixing business. Replace Ben Bernanke with a latter-day Thomson Hankey. Find—cultivate—battalions of latter-day Hellmans and set them to running free-market banks. There's one more thing: Return to the statute books Section 19 of the 1792 Coinage Act, but substitute life behind bars for the death penalty. It's the 21st century, you know.

Powerful commentary to remain in the business of gold!

What is the Gold Standard? (4 minutes)



 Larry Myles
 
Larry Myles Reportss


Receive Larry Myles Reports
 

Larry Myles is neither a geologist nor a financial analyst. I do not purport to offer personal investment advice nor recommendations. While all statements of fact are derived from reliable sources, an dare believed to be accurate, I make no warrant that they are so. You must do your own research and check statements of fact for yourself. My opinions are precisely that, my opinions. I do not accept any responsibility for any gains or losses you may experience resulting from actions taken based on my opinions. If not otherwise qualified, you should consult with your own personal financial advisor before engaging in any investment activities. Larry Myles Reports does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Larry Myles may actively trade in the investments discussed in this publication. Larry Myles may have a substantial position in the securities recommended and may increase or decrease such positions without notice.Larry Myles is neither a geologist nor a financial analyst. I do not purport to offer personal investment advice nor recommendations. While all statements of fact are derived from reliable sources, an d are believed to be accurate, I make no warrant that they are so. You must do your own research and check statements of fact for yourself. My opinions are precisely that, my opinions. I do not accept any responsibility for any gains or losses you may experience resulting from actions taken based on my opinions. If not otherwise qualified, you should consult with your own personal financial advisor before engaging in any investment activities. Larry Myles Reports does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Larry Myles may actively trade in the investments discussed in this publication. Larry Myles may have a substantial position in the securities recommended and may increase or decrease such positions without notice. I do not know your personal financial circumstances. I am not your personal financial advisor. You must do your own due diligence. By entering this web site, or reading LMR reports, you acknowledge and accept the foregoing.