How Banks Create Money Out Of Thin Air

By John Titus – Re-Blogged From Silver Phoenix

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The Economic Road Ahead

By GE Christenson – Re-Blogged From Gold Eagle

Rules help guide us through uncertainty.

THOSE WHO MAKE THE RULES

For perspective on Washington D.C. and Wall Street, we listen to wisdom and wit from Bill Bonner:

“We look at the passing parade in Washington through a cynical lens…

No situation is so hopeless… so absurd… or so disastrous that the feds can’t make it worse. No policy is too stupid… too counterproductive… or too corrupt that it can’t become the law of the land.

And no man is too craven… too degenerate… or too much of an imbecile to be disqualified from public office.”

The public officials described above make the rules.

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A Reverse Bucket List

By Gary Christenson – Re-Blogged From Gold Eagle

Jack Nicholson and Morgan Freeman starred in the 2007 movie, “The Bucket List.” A “bucket list” defines things we want to do before we die, before we “kick the bucket.”

A reverse bucket list—as used here—is a list of things already occurred, but we wish had not happened.

The Reverse Bucket List:

  • The Federal Reserve Act authorized the central bank of the United States. That act allowed a privately owned bank—The Federal Reserve—which is neither federal nor a reserve—to control the nation’s money supply. Politicians and bankers are pleased The Fed exists because it enhances their power and wealth. However, the Fed devalues the dollar and creates price inflation for consumers and stocks. This weakens the economy and transfers wealth to the political and financial elite.

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Apocalypse, Or Not?

By Alasdair Macleod – Re-Blogged From Silver Phoenix

Members of the American libertarian movement, particularly extremist preppers, are often associated with a belief that a complete breakdown in society is the only outcome from government economic policies and will lead to complete social disintegration. At the centre of their concerns is monetary destruction, with other issues, such as the erosion of personal freedom and the right to bear arms, important but peripheral. They cite history, particularly the hyperinflationary collapses, from Rome to Zimbabwe, and now Venezuela. They draw on Austrian economic theory, which fans their dislike of government and their expectation of total chaos.

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John Law – 300 years On

By Alasdair Macleod – Re-Blogged From Gold Eagle

Most people are aware that historically there have been speculative bubbles. Some of them can even name a few – the South Sea bubble, tulips, and more recently dot-coms. Some historians can go even further, quoting the famous account by Charles Mackay of the South Sea bubble, the tulip mania and the Mississippi bubble, published in the mid-nineteenth century.

The most valuable bubble empirically for the purpose of our elucidation has to be the Mississippi bubble, whose central figure was John Law. Law, a Scotsman whose father’s profession was as a goldsmith and banker in Edinburgh, set up an inflation scheme in 1716 to rescue France’s finances. He proposed to the Regent for the infant Louis XIV a scheme that would be based on a new paper currency.

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The Relevance Of Hayek’s Triangle Today

By Alasdair Macleod – Re-Blogged From Gold Money

Most of us are aware of the inflationary pressures in the major economies, which so far are proving somewhat latent in the non-financial sector. But some central banks are on the alert as well, notably the Federal Reserve Board, which has taken the lead in trying to normalise interest rates. Others, such as the European Central Bank, the Bank of Japan and the Bank of England are yet to be convinced that price inflation is a potential problem.

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“Price inflation” Is Not The Biggest Problem

By Steve Saville – Re-Blogged From The Speculative Investor

All else remaining equal, an increase in the supply of money will lead to a decrease in the purchasing-power (price) of money. Furthermore, this is the only effect of monetary inflation that the average economist or central banker cares about. Increases in the money supply are therefore generally considered to be harmless or even beneficial as long as the purchasing-power of money is perceived to be fairly stable*. However, reduced purchasing-power for money is not the most important adverse effect of monetary inflation.

If an increase in the supply of money led to a proportional shift in prices throughout the economy, then its consequences would be both easy to see and not particularly troublesome. Unfortunately, that’s not the way it happens. What actually happens is that monetary inflation causes changes in relative prices, with the spending of the first recipients of the newly-created money determining the prices that rise the first and the most.

Changes in relative prices generate signals that direct investment. The further these signals are from reality, that is, the more these signals are distorted by the creation of new money, the more investing errors there will be and the less productive the economy will become.

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