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The End of the Gold Standard. Fifty Years of Monetary Insanity

This year marks the fiftieth anniversary since Nixon suspended the convertibility of the US dollar into gold. This began the era of a global fiat money,…

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This article was originally published by Mises Institute

This year marks the fiftieth anniversary since Nixon suspended the convertibility of the US dollar into gold. This began the era of a global fiat money, debt-fueled economy. Since then, crises are more frequent but also shorter and always “solved” by adding more debt and more money printing.

The suspension of the gold standard was a catalyst for massive global credit expansion and cemented the position of the US dollar as the world’s reserve currency, as it de facto substituted gold as the reserve for the main central banks.

Thus, since the breakdown of the gold standard, financial crises are more frequent but also shorter than before.

The level of global debt has skyrocketed to more than 350 percent of GDP, and what is mistakenly called “the financial economy,” which is actually the credit-based economy, has multiplied.


The gold standard supposed a limit to the monetary and fiscal voracity of governments, and suspending it unleashed an unprecedented push to increase indebtedness and the perverse incentive of the states to pass on the current imbalances to future generations.

By substituting gold for the US dollar as a global reserve, the United States has been able to borrow and increase its money supply massively without triggering hyperinflation, because it exports its monetary imbalances to the rest of the world. Other currencies follow the same monetary expansion without the global demand that the US dollar enjoys, so the rising imbalances always end up making those currencies weaker versus the greenback and the economies more dependent on the US dollar.

This race to zero pursued by most central banks has also resulted in there being no real alternative to the US dollar as a reserve, because the rest of the countries abandoned the monetary and fiscal orthodoxy at the same time, weakening their ability to be a world reserve alternative.


In the 1960s, any currency from a leading country could compete with the dollar if its gold reserves were sufficient. Today, no one among the fiat currencies can compete with the dollar either in financial capacity or as a reserve. The example of the yuan is paradigmatic. The Chinese economy is almost 17 percent of the world’s GDP and its currency is used in less than 4 percent of global transactions, according to the Bank of International Settlements.

With the suspension of the gold standard, Nixon cemented and guaranteed the financial and monetary hegemony of the United States for the long term while unleashing a global credit-fueled economy where financial risk disproportionately exceeds the real economy.

The defenders of the suspension of the gold standard contend that financial crises are shorter and that the global economy has strengthened in the period. However, it is more than debatable that massive debt expansion is the cause of progress. Nonproductive debt has soared and the tax wedge on citizens is elevated, while the severity of financial crises, which are always “solved” by adding more debt and more risk taking, has also increased.

A debt-fueled economy and massive money creation disproportionately benefit the first recipients of money and credit, which are government and the wealthy, creating a larger problem for the middle classes and the poor in accessing better standards of living, given that asset prices are artificially inflated but real wages rise slower than the price of essential expenses like housing, healthcare, and utilities, while taxes rise.

Economics

US stocks march on, lifted by business optimism

Benchmark US indices closed higher for the second consecutive day on Thursday September 23 lifted by positive sentiments from Fed s economic outlook…

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Benchmark US indices closed higher for the second consecutive day on Thursday, September 23, lifted by positive sentiments from Fed’s economic outlook.

The S&P 500 was up 1.21% to 4,448.98. The Dow Jones rose 1.48% to 34,764.82. The NASDAQ Composite rose 1.04% to 15,052.24, and the small-cap Russell 2000 was up 1.82% to 2,259.04.

Traders ignored the weak unemployment data released by the Labor Department on Thursday, which showed new jobless benefits claims rose by 16,000 to 351,000 in the week ended Sep 18.

Economists consider the rise in benefits claims to be because of Hurricane Ida and forest fires and not due to flawed policy action. On Wednesday, the Fed said that it might start withdrawing stimulus support from November. The statement raised confidence in the economic recovery.

Financial stocks were among the top movers on S&P 500 Thursday, while energy and real estate stocks declined. Stocks of BlackBerry Limited (BB) rose 12.08% a day after reporting quarterly results. Its revenue rose to US$175 million in Q2, FY21, from US$174 million in the year-ago quarter.

Accenture plc (ACN) stock jumped 2.63% after reporting its fourth-quarter results. Its net income was up US$1.43 billion from US$1.30 billion in the same quarter of the previous year.

Salesforce.com, Inc. (CRM) stock rallied 7.38% after it raised the full-year revenue guidance. It expects its FY 2022 revenue to be US$26.35 billion, up from its earlier forecast of US$26.3 billion.

In the energy sector, Exxon Mobil Corporation (XOM) rose 3.58%, Chevron Corporation (CVX) gained 2.51%, and ConocoPhillips (COP) gained 2.45%. Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) advanced 2.51% and 2.76%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) increased by 1.26%, Starbucks Corporation (SBUX) gained 1.25%, and General Motors Company (GM) rose 2.24%. Ross Stores, Inc. (ROST) and Hilton Worldwide Holdings Inc. (HLT) ticked up 1.62% and 4.30%, respectively.

In financial stocks, Berkshire Hathaway Inc. (BRK-B) rose 1.65%, JPMorgan Chase & Co. (JPM) jumped 3.35%, and Bank of America Corporation (BAC) rose 3.79%. Wells Fargo & Company (WFC) and Morgan Stanley (MS) jumped 1.58% and 2.86%, respectively.

Also Read: Top five communication stocks that rode the Q2 rebound

Also Read: ONTX stock dives 16%, DVAX stock in green after clinical data

US stock indices closed higher on Sep 23 on positive economic outlook.

Also Read: Crypto exchanges Binance vs Kraken: Where would you like to trade?

Futures & Commodities

Gold futures were down 2.05% to US$1,742.40 per ounce. Silver decreased by 1.71% to US$22.515 per ounce, while copper fell 0.48% to US$4.2317.

Brent oil futures increased by 1.38% to US$77.24 per barrel and WTI crude was up 1.37% to US$73.22.

Bond Market

The 30-year Treasury bond yields was up 5.04% to 1.941, while the 10-year bond yields rose 7.71% to 1.434.

US Dollar Futures Index decreased by 0.39% to US$93.100.

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Economics

Culture As An Asset

#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…

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#CKStrong

Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls?

This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.

In general, there are two types of assets,

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or Baseball cards or
  2. They can generate cash flows over time  – GaveKal

Creating An Illusion Of Scarcity

Scarcity relative to the money stock is what its all about now, folks. 

It probably won’t be long before the Fed has to bailout the baseball card market, no?

Full disclosure,  I do own a Mike Trout rookie card

Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to rationalize and drive speculation. 

Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain, and super charge the price ramp by snapping a pictures of each sample and converting them to NFTs?

Then again, maybe all this is signaling the start of a big, big inflation cycle?  

Can you believe it, folks? 

 

 

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Precious Metals

“It All Depends On One Word – Trust” – John Rubino Warns “Worst-Case Scenario Too Horrible” To Consider

"It All Depends On One Word – Trust" – John Rubino Warns "Worst-Case Scenario Too Horrible" To Consider

Via Greg Hunter’s USAWatchdog.com,

It…

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"It All Depends On One Word - Trust" - John Rubino Warns "Worst-Case Scenario Too Horrible" To Consider

Via Greg Hunter’s USAWatchdog.com,

It looks like we are on track for yet another global financial meltdown.  This time it is coming out of China in the form of a failed property development company called Evergrande.  It’s five times bigger than Lehman Brothers, whose failure cratered the global economy in 2008.  Will central banks, including the Fed, just let it all fail or will they print massive amounts of money trying to stop the fall?   If history is a guide, we should get ready for the most money creation ever. 

In May, financial writer John Rubino said, “This is beyond the ability of any individual to fix.  We can’t save the system.”

We sure can print a lot of money to try though.

Massive global money printing is what is coming, and it will come with huge consequences for all fiat currencies.  Rubino explains,

“Stocks are tanking, cryptos are tanking, currencies of the world are getting volatile, politics are volatile and gold is going up while all this is happening, which it is supposed to do.  Gold is supposed to be the safe haven where you hide out when nothing else seems trustworthy...

That hasn’t been the case in prior bear markets.  When stocks tanked, they pulled down gold and silver...

It’s a good sign when markets start to behave rationally again.  When high risk assets don’t seem worth it anymore, capital flows into real assets that hold their value no matter what the government is doing to the currency.  That’s the way it’s supposed to work, and that is the way it is working...

Trust is probably the key word in this whole discussion.  Fiat only exists because we trust the people who are managing them to maintain their value.  You take the trust away and there is nothing there.  A fiat currency is not a real thing.  It doesn’t actually exist other than little pieces of paper that have no intrinsic value or computer code, which also has no intrinsic value.  So, you take away the trust that we had in the Fed, Treasury, Congress and the President to do the right thing, and be honest, when it comes to the financial markets, you take that away and there really isn’t anything there.  Nobody would want to hold a currency managed by people they can’t trust.  Pay attention to that because the less we trust the guys in charge, the less we trust the currency. 

The less we trust the currency, the less we trust the financial markets and the less valuable these financial assets are.  So, it all ties together, and it all depends on that one word—Trust.”

What’s Rubino’s biggest fear?  Rubino warns,

My biggest fear is that we screw up our finances, we screw up geopolitics, and we get into a big war because we are close to that now.  

The U.S., Russia and China are bumping up against each other, and we are like scorpions in a bottle on this little planet with all these high tech weapons. . . . My biggest fear is we take it well beyond the world of finance to no holds barred military action. 

There’s no way to predict anything when you start doing something like that.  The worst case scenario is too horrible to even think about.”

Join Greg Hunter as he goes One-on-One with John Rubio, founder of the popular website DollarCollapse.com. 

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Tyler Durden Thu, 09/23/2021 - 16:25
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