The Monetary Lessons From Germany

By Alasdair Macleod – Re-Blogged From GoldMoney

Germany suffered two currency collapses in the last century, in 1920-23 and1945-48. The architect of the recovery from the former, Hjalmar Schacht, chose to cooperate with the Nazi successors to the Weimar Republic, and failed. In that of the second, Ludwig Erhard remained true to his free market credentials and succeeded. While they were in different circumstances, comparisons between the two events might give some guidance to politicians faced with similar destructions of their state currencies, which is a growing possibility.

Introduction

Let us assume the next credit crisis is on its way. Given enhanced levels of government debt, it is likely to be more serious than the last one in 2008. Let us also note that it is happening despite the supposed stimulus of low and negative interest rates, when we would expect them to be at their maximum in the credit cycle, and that some $17 trillion of bonds are negative yielding, an unnatural distortion of markets. Let us further assume that McKinsey in their annual banking survey of 2019 are correct when they effectively say that 60% of the world’s banks are consuming their capital before a credit crisis. Add to this a developing recession in Germany that will almost certainly lead to both Deutsche Bank and Commerzbank having to be rescued by the German government. And note the IMF recently warned that $19 trillion in corporate debt is a systemic timebomb, and that collateralised loan obligations and direct exposure to junk held by the US commercial banks is approximately equal to the sum of their equity.

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GDP-B Doesn’t Cut It Either

By Alasdair Macleod – Re-Blogged From Gold Eagle

GDP is hyped-up to be an all-important measure of economic activity. It does not measure economic activity, instead recording meaningless money-totals spent in unsound currency over a given period. A bad statistic such as GDP is wide open to official manipulation, and there is always a desire to enhance it. GDP-B, which includes an estimated consumer surplus, appears to conform with this desire. If it is successfully introduced, GDP would be substantially increased, making governments look good, and reducing their debt to GDP ratios. However, it is no more than a statistical cheat.

Gross Domestic Product-B attempts to capture the added value of things we don’t pay for, such as Facebook, WhatsApp, Google and other digital services free to the user. B stands for benefits; the benefits consumers receive from free and subsidised services. It was devised by Erik Brynjolfsson, a professor at MIT, and is a work-in-progress. He points out that according to the US Bureau of Economic Affairs, the information sector in GDP statistics has been stuck at between four and five per cent of GDP for the last twenty-five years. Yet, the importance of this mainly digital sector now dominates both work and leisure activities, benefits not recorded in GDP.

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Preparing for the Possibility of Hyperinflation

By Anthony Gilbert – Writer at http://www.realfx.com/blog/

Hyperinflation is a rapid increase in inflation where the prices rise so drastically that calling it inflation becomes meaningless.  While there is no set percentage for hyperinflation, it is often used to describe price increases of 50% or more over a short period.  The sharp increase is what separates hyperinflation from other types of inflation.

What Causes Hyperinflation?

Hyperinflation can occur when the government begins printing larger amounts of money to pay for spending.  As the amount of money being printed increases, the prices of goods and services will increase.  Typically the government would lower the supply of money to curb inflation, but when they continue to print more, there can be an imbalance in supply and demand of currency.  Prices will then skyrocket, and currency will begin to lose its value.  This results in hyperinflation.  Hyperinflation can occur at any time but historically has often happened as results of war economies.

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How Gold Can Rescue Pensions

By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com

The World Economic Forum, in conjunction with Mercers (the actuaries) recently estimated that the combined pension deficit currently stands at $66.9tr for eight countries, rising to $427.8tr in 2050. The eight countries are Australia, Canada, China, India, Japan, Netherlands, UK and US. Of the 2016 figure, $50.5tr is unfunded government and public employee pension promises. Yes, we are now talking in hundreds of trillions. Other welfare-providing states missing from the list have deficits that are additional to these estimates.

$66.9tr is roughly 1.5 times the GDP of the eight countries combined, and $427.8tr is nearly ten times. Furthermore, if we take out the non-productive government element, the figures relative to the private sector tax-paying base are closer to twice productive GDP today, and thirteen times greater in 2050. That 2050 deficit assumes a 5% compound annual growth rate. This is a linear projection, but the deterioration in finances for unfunded government pensions may turn out to be exponential, in line with the accelerated increase in the broad money quantity since the great financial crisis.

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Safety In Banking

By Alasdair Macleod – Re-Blogged From http://www.Silver-Phoenix500.com

There was a time when banks acted as custodians of their customers’ money. Indeed, keeping a person’s money and using it as if it belonged to you without their agreement is fraud in common law. A banking license legally exempts banks from charges of criminality in pursuing the normal course of fractional reserve banking business, by making it clear that you, the customer, agree to being a creditor of the bank instead of the bank acting as custodian for your money.

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The Fractional Reserve Banking Sideshow

cropped-bob-shapiro.jpg   By Bob Shapiro

I have seen a recent flurry of articles, including one by Austrian School Economist, Frank Shostak, of the Mises Institute, discussing the evils of Fractonal Reserve Banking (FRB) regarding the Boom-Bust Cycle.

While I also am a Free Market guy, subscribing to the Austrian School, I think the critics of FRB are allowing themselves to fight the wrong fight – to be diverted by a red herring.

Let us consider three countries. Each one has a Money Supply of $1 Trillion, which has remained constant for several years. Country 1 has as its money a Gold Standard. Country 2 uses a 100% paper currency. And Country 3 has a basic, unchanging money supply made up of 1/10th base money (either Gold or paper money – take your pick), plus 90% bank credit of the FRB type, totaling $1 Trillion.

Image result for fractional reserve banking

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