Keynes Was a Vicious Bastard, Report

By Keith Weiner

My goal is to make you mad. Not at me (though I expect to ruffle a few feathers with this one). At the evil being wrought in the name of fighting inflation and maximizing employment. And at the aggressive indifference to this evil, exhibited by the capitalists, the gold bugs, and the otherwise-free-marketers.

So, today I am going to do something I have never done. I am going to rant! I am even going to use vulgar language (which is totally justified).

In researching several recent articles, I re-read old passages from Keynes. Consider these snippets:

Continue reading Keynes Was a Vicious Bastard, Report

Hurdles for Gold Stocks

By NFTRH

One problem for the gold stock sector was highlighted here and here evidently a little too obnoxiously for the liking of some bugs. The problem was the aggressive bullhorn sounds emanating from every orifice of the gold community the minute the charts broke upward into an obviously bullish technical state.

But while the HUI/Gold ratio has been a distinctly positive technical indicator and many bullish gold stock charts populated the sector, we had noted back in December that gold’s hysterically overbought performance vs. broad stocks was due to pull back, hopefully in an orderly consolidation. Well, the relief has dragged on and the ratio of gold to SPX and its global fellows has been consolidating alright.

Continue reading Hurdles for Gold Stocks

Is Capital Creation Beating Capital Consumption?

By Keith Weiner

We have written numerous articles about capital consumption. Our monetary system has a falling interest rate, which causes both capital churn and conversion of one party’s wealth into another’s income. It also has too-low interest, which encourages borrowing to consume (which, as everyone knows, adds to Gross Domestic Product—GDP).

What Is Capital

At the same time, of course entrepreneurs are creating new capital. Keith wrote an article for Forbes, showing the incredible drop in wages from 1965 to 2011. There was not a revolution, because prices of goods such as milk dropped at nearly the same rate. The real price of milk dropped as much as it did, because of increased efficiency in production. The word for that which enables an increase in efficiency is capital.

Or, to put it another way, capital provides leverage for productive human effort. We don’t work any harder today, than they did in the ancient world (probably less hard). But we are much richer—we produce a lot more. The difference is capital. They had not accumulated much capital. So they were limited to brute labor, to a degree which we would find shocking today.

Continue reading Is Capital Creation Beating Capital Consumption?

Is Lending the Root of All Evil?

By Keith Weiner

Ayn Rand famously defended money. In Atlas Shrugged, Francisco D’Anconia says:

“So you think that money is the root of all evil? . . . Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?”

There needs to be a similar defense of the loan.

Continue reading Is Lending the Root of All Evil?

Gold’s Fellow Travelers Refute its Higher High

By Tom McClellan

Gold prices versus Japanese yen

Gold prices recently swooped up to a rather spiky looking top, and on Feb. 21 a big drop started the work of unwinding that blowoff.  It was a good looking spike upward as far as gold itself was concerned.  But it did not come with confirmation from other prices which tend to move in sympathy with gold.

This week’s chart compares gold futures prices to the Japanese yen.  Most of the time the two of them move together.  But occasionally they disagree, and that is when things get interesting.

Continue reading Gold’s Fellow Travelers Refute its Higher High

Central Planning is More Than Just Friction

By Keith Weiner

It is easy to think of government interference into the economy like a kind of friction. If producers and traders were fully free, then they could improve our quality of life—with new technologies, better products, and lower prices—at a rate of X. But the more that the government does, the more it burdens them. So instead of X rate of progress, we get the same end result but 10% slower or 20% slower.

Some would go so far as to say, “The free market finds ways to work even through government restrictions, taxes, and regulations.” We won’t address cardboard straws emerging where plastic straws are banned. Or gangs selling illegal drugs on the black market, when they are prohibited by law.

As usual, we want to talk about the most important kind of government intervention. And it happens to be the one kind of government intervention that is accepted by nearly everyone. The intervention supported by the otherwise-free-marketers.

Continue reading Central Planning is More Than Just Friction

What They Don’t Want You to Know About Prices, Report

By Keith Weiner

Last week, in part I of this essay, we discussed why a central planner cannot know the right interest rate. Central planner’s macroeconomic aggregate measures like GDP are blind to the problem of capital consumption, including especially capital consumption caused by the central plan itself. GDP has an intrinsic bias towards consumption, and makes no distinction between consumption of the yield on capital, and consumption of the capital per se. Between selling the golden egg, and cooking the goose that lays golden eggs.

One could quibble with this and say that, well, really, the central planners should use a different metric. This is not satisfying. It demands the retort, “if there is a better metric than GDP, then why aren’t they using it now?” GDP is, itself, supposed to be that better metric! Nominal GDP targeting is the darling central plan proposal of the Right, supposedly better than consumer price index and unemployment (as Modern Monetary Theory is the darling of the Left).

Continue reading What They Don’t Want You to Know About Prices, Report

Who Knows the Right Interest Rate, Report

By Keith Weiner

On January 6, we wrote the Surest Way to Overthrow Capitalism. We said:

“In a future article, we will expand on why these two statements are true principles: (1) there is no way a central planner could set the right rate, even if he knew and (2) only a free market can know the right rate.”

Today’s article is part one of that promised article.

Let’s consider how to know the right rate, first. It should not be controversial to say that if the government sets a price cap, say on a loaf of bread, that this harms bakers. So the bakers will seek every possible way out of it. First, they may try shrinking the loaf. But, gotcha! The government regulator anticipated that, and there is a heap of rules dictating the minimum size of a loaf, weight, length, width, depth, density, etc. Next, the bakery industry changes the name. They don’t sell loaves of bread any more, they call them bread cakes. And so on.

Continue reading Who Knows the Right Interest Rate, Report

Financial Center and Reserve Currency

By Bob Hoye

Click image for full PDF…

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Gold Rewards Bulls in January as Fed’s Message Wounds Dollar

By Anthony B. Sanders

Gold Vol Remains Subdued

The Federal Reserve’s “maybe we will, maybe we won’t” regarding further shrinking of its balance sheet coupled with keeping its target rate at 2.50% was celebrated by equity investors … and gold investors (including SPDR Gold Shares).

goldspiders

(Bloomberg) — Gold is poised to close out January with a fourth straight monthly gain after the Federal Reserve signaled it’s done raising interest rates for a while, hurting the dollar, and as investors sought a haven against slowing growth and U.S.-China trade disputes.

Continue reading Gold Rewards Bulls in January as Fed’s Message Wounds Dollar

Papa Powell and the Narrative Fallacy

By Charlie Bilello

“My purpose is to make my narrative as truthful as possible.” -George Armstrong Custer

Nothing like a huge rally in a month’s time to make everyone stop talking about a recession.

Remember that December collapse?  Felt like so long ago given just how violent the upswing has been since.  The end of 2018 was dominated by prognosticators saying a recession was imminent, or already underway.  Strangely enough, no one seems to be saying any of that now.

What changed?  One thing and one thing only: price.  At the end of the day, always remember that price dictates emotions, emotions dictate narrative, and narrative results in poor decision making.  Now I know that nearly everyone sees the unleashing of dovishness from Fed Chair “Papa” Powell as the reason for equities closing out the month of January so strong.  But none of this should be a surprise whatsoever given just how severely flat the yield curve has gotten as the Fed has hiked short-term rates.  Nor should it be a surprise whatsoever when inflation expectations have been in a solid downtrend since the middle of last year, largely due to Oil prices faltering.

Continue reading Papa Powell and the Narrative Fallacy

The Dollar Works Just Fine, Report

By Keith Weiner

Last week, we joked that we don’t challenge beliefs. Here’s one that we want to challenge today: the dollar doesn’t work as a currency, because it’s losing value. Even the dollar’s proponents, admit it loses value. The Fed itself states that its mandate is price stability—which it admits means relentless two percent annual debasement (Orwell would be proud). So there is no question that the dollar loses value. The only mainstream debate is whether this is good or bad.

Our focus today is whether this is why the dollar doesn’t work, why it’s failing.

Prices have been rising for 100 years. There is no reason why they couldn’t go on rising for another 100. Or 1000. The inflation argument, as we call it, does not reach anyone other than those who already think the dollar is failing. The rest shrug it off. Most people really care only if their income goes up slower than prices go up.

Continue reading The Dollar Works Just Fine, Report