Gold moves from investment to money (Forbes)

Though many would be tempted to say better late than never, this does not detract from the absurdity that the specialized press as, indeed, professionals in finance and economics, should finally be coming around to the mathematical reality of our monetary system.

Status Change: Gold Moves From Investment To Money

Why the movement to gold per se? It is an emphasis on asset-based rather than debt-based money. As Stoferle puts it, “The possession of gold is tantamount to pure ownership without liabilities.”” […] “The pump priming meant to nudge the economy out of the early 2000s recession spawned the housing bubble and its disastrous endgame. No central bank action, and virtually every possible one has been tried, has turned things around. The Erste report acknowledges a system failure: interest rates cannot go any lower, government debt has saturated the economy, and the misery index (the sum of the unemployment and inflation rates) in the U.S. is close to its average in the 1970s. Indeed, the real economy in addition to the financial system is deeply flawed. Forty-four million Americans are on food stamps and the effective unemployment rate is closer to 20 percent than the reported 9 percent.

Stoferle deftly links the rise in inequality in the U.S. to its monetary policy. Today, a CEO earns 425 times the average worker’s wages; in 1980 the disparity ratio was 24:1. “Monetary dispersion is not neutral,” he writes. “Market participants who receive the new money early and exchange it for goods benefit in comparison with those who get the newly created money later. We can see a transfer of assets from late money users to early money users.”” […] price inflation is relative and staggered as “newly created is distributed neither equally nor simultaneously among the population.

I will take only minor issue with the statement by the writer (not excerpted above): “Investors and central bankers have woken up to the reality that paper currencies decline over the long run because governments cannot resist pump priming in the face of economic slowdown.

The problem is not that governments cannot resist pump priming. The problem is woven in the monetary fabric. Debt Based Fiat Money can only exist in a world of constant pump priming. If that were not the case, then any other monetary system would do. The reason banks propose the system and politicians impose it on society is exactly because the system mandates constant pump priming (so banks make profits and politicians can fund their pet projects) AND BECAUSE those entities that have access to the newly created money first (banks and politicians) gain disproportionally more than entities that have access to it further down the line like the consumer… i.e. you and me.

Do any of you reading this blog still harbor any doubt that the particular variety of monetary system that has been imposed in the West is a deliberate policy of impoverishment of the many for the benefit of the few?

If so, I submit you truly need to revise your elementary arithmetic skills.




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7 Responses to “Gold moves from investment to money (Forbes)”

  1. Pat Donnelly Says:

    Also, the FIRE sector can comprise more than 25% of the Stock Exchange, yet all they do is transfer “things”: they are penpushers!

    With the demise of the disease, we get more production, as these people get the chance to work for themselves, creating wealth rather than merely consuming. We lack the velocity, but as we know, fast cars often get out of control….. The system is designed to be crashed.

    The possibility exists that we will have an information based commodity based money system. A country takes an excise of production instead of taxation. Selling the material means revenue to pay for the minimum amount of pen pushing. The private sector gets to create more genuine markets where the bank does not choose who is a winner by making loans to that enterprise. Gold silver etc will still be money, just joined by energy etc!

  2. Manor Mouse Says:

    Guido, could you give us some details of the ‘nuts and bolts’ of the non-DBFM world? Do we still have banks, savings and pensions? Are there still professional ‘investors’, stock exchanges, money markets etc.? Do ordinary people take out loans on the assumption that the economy will be bigger tomorrow than it is today?

    • guidoamm Says:

      Of course. Everything you mention will still exist.

      Why do we need a central bank to create money? Why couldn’t the privilege to create money be kept in the hands of Treasury? Why should the Treasury of the USA ask for money from the Fed? The Fed conjures money. The Treasury could conjure it too. Anyway, the Treasury creates coins. So why not allow treasury to create Dollar bills and credit?

      No valid reason. The only reason is that money being upstream of all human endeavor bar none, when you control the creation of the currency you control the entire socio-economic political construct.

      We do not need central banks. We do not need DBFM.

      Individual banks are fine. Treasury should have full control of the currency. The expansion of the economy is not dependent on the amount of money in circulation.

      • Manor Mouse Says:

        Thanks for that, but I’m still hazy on the nuts and bolts of this. You say:

        “Treasury should have full control of the currency. The expansion of the economy is not dependent on the amount of money in circulation.”

        What mechanism, then, does control the amount of currency in circulation? If the Treasury is doing this centrally, are they attempting to create (or remove) currency in response to market conditions, just as the BoE sets interest rates now? If so, how do they get the currency into (and out of) the economy? And if they are not explicitly trying to match the amount of the currency to the size of the economy don’t we get inflation or deflation which prevents people from planning for the future?

        (As you can tell, I am most certainly not an economist!)

        • guidoamm Says:

          I’m not an economist either and my grasp is purely empirical. When I get into discussions with economists I am easily overwhelmed by their fancy foot work that to me has all the hallmarks of sophistry.

          But I have run companies and have had to budget for real life situations. Regardless of what Ambrose Evans Pritchard may say, I cannot contemplate that a central bank can transcend the laws of arithmetic by virtue of being a central bank. This is tantamount to the absolutist obscurantism prevalent during the dark ages.

          Ask yourself this.

          If money can be created by decree, why do we need an entity other than Treasury to create it?

          Society needs a medium of exchange. This much is undisputed. What remains to be decided is how this medium of exchange should be managed. In open societies predicated on democratic principles, there is no reason why this choice should arbitrary and imposed.

          Finally, there is no need of a “mechanism” to control the currency in circulation other than economic actors using said medium of exchange and their preference to hold cash or goods. If economic actors should favor to hold cash over goods, the value of the existing money stock will be revalued upwards. If economic actors should favor buying goods, the existing stock of money will be revalued downwards. Done. No need for the man behind the curtain.

          The nuts and bolts would remain pretty much the same. The difference is that if interest should be paid on the stock of money, it would not be paid to a third party but it would be paid back to the state itself.

          • Manor Mouse Says:

            OK, I fully see that there is no need to have a third party that skims a cut off the economy in return for simply issuing new currency, and that giving that power only to ‘special’ private individuals does seem against the spirit of what should be a fully self-regulating floating system.

            But you seem to be saying something more perhaps: that we have a fixed stock of money, and that prices naturally rise and fall in response to economic conditions..? I like its simplicity, but I guess I need to read some beginners’ guides to economics, because you see, I don’t know what the implications of that are compared to the system we have now. I have always naively assumed that there must be a sound reason for dynamically varying the amount of money in circulation, even if the exact implementation we have is flawed.

            • guidoamm Says:

              The reason to dynamically vary the amount of money in circulation is profit and transfer of wealth. Why else would a system that is of primary and vital consequence to society be chosen arbitrarily and imposed upon a nation? If you haven’t yet done so, you may want to read “The Creature From Jekyll Island” as a good primer.

              Inflation robs by stealth. Crucially, inflation does not rob proportionally all economic actors. Inflation robs proportionally more as the newly created money makes its way through the economy. By the time the money reaches you and me, it is at its lowest purchasing power. Thus the entities that have first use of newly created money will gradually and mathematically accumulate all profits thus all productive capacity. In the USA, when requested by the Treasury, a Dollar bill is created by the Fed and delivered to Treasury. In step one, the Dollar bill is already devalued by the prevailing interest rate. The Treasury delivers the bill to the Primary Dealers to inject into the economy. The Primary Dealers deliver the bill to the commercial banks… and here the magic begins….

              In the first three steps of the life of the Dollar bill, the Primary Dealers get paid twice for their work. The first time they get paid because they are members of the Federal Reserve and they have created the Dollar bill. In step three they get paid by the commercial banks for supplying them the same Dollar bill.

              But where the money really start to roll in is in step three. Here the Primary Dealers upon receiving the Dollar bill from Treasury, are allowed to make loans to the commercial banks worth ten times the amount of the original Dollar bill… this is the magic of Fractional Reserve Banking… One Dollar bill supports credit nominally worth $9 for a total $10 now circulating in the economy… So, upon delivering the new money to the commercial banks, the Primary Dealers get paid first and third; but in the third step they receive interest from the commercial banks calculated on $10 … of which only $1 really exist…

              Good work if you could get it do you not think?

              So not only is money conjured without any corresponding cost structure, but the banks are allowed to arbitrarily multiply the amount they lend thus their profit is immediately multiplied ten fold before this Dollar bill can even be put to any use at all in the real economy.


              I suppose that an example of how productive capacity gets transferred to the financial sector would be General Motors (and many other companies like GE or AIG). GM stopped making a profit on their vehicles a long time ago. GM sells each vehicle at a loss. However, their profits have become purely financial as they transitioned many years ago from a car manufacturer (GM) to a financing company(GMAC) to the extent that they were also involved in mortgages.

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