"It [Nixon closing the gold window on a Sunday evening in 1971] was one of the most dramatic economic events ever, a very big deal and I was at the epicentre of it on the floor of the New York Stock Exchange… He [Nixon] was spinning political speak, but what he was saying was that the U.S. has defaulted on its debts. And it got me thinking about what money is. What are dollars if they are not tied to gold?I saw how the government lied or certainly spun things in a certain way. I had all these philosophical questions, like ‘Whom do you believe? What is actually truthfully going on?’ All of this pulled me into the global macro markets. The currency markets would be important to me for the rest of my life."Ray Dalio"Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."Bernard Baruch"The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper money, as when they travel about upon the solid ground of gold and silver.Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."Adam Smith, Wealth of Nations, p. 262
Above are the thoughts from three giants in the world of finance, spanning a long period of time.
I tend to deeply discount the mistaken observations of the stock touts and sell side carnies of the day. But when the economic 'names,' the very serious pundits such as Willem Buiter, Ben Bernanke, and Paul Krugman start squawking loudly about how they do not 'understand' gold, and how it seems ridiculous to them, I get a clearer perspective by standing on the thoughts of these giants quoted above.
There was intraday commentary about the lack of serious reform in the financial system here.
Stanley Fischer noted today that Q1 was bad, but sees the economy rebounding according to the CNBC headlines, and that the Fed cannot wait forever to raise rates.
As you may recall I think we will get a symbolic raise from the Fed sometime this year, maybe even a second. And then they will take that back when it finally occurs to everyone that The Recovery™ is more of a public relations event than an economic reality for the general public.
Bonds and the precious metals were immediately slugged.
Stanley's speech was a trigger for a major market move. Whether he knew about this in advance, or his text had been given out in advance, or the news algos are that much in control now of the markets, it is hard to say. The financial news certainly spun it the way they wanted. But there it is.
We ought not to be surprised. After all the precious metals are priced in a bucket shop in the States, so that is no great surprise. But Treasuries? Now that is some scary flash crash scenario concern.
I do think that his saying that 'rates cannot stay this low forever' is a tautology. Obviously they cannot stay there, and that is how his remarks were eventually couched by the end of the day.
Speaking of bucket shops, we had some deliveries taken on the gold contracts as noted below with nothing happening in silver, except the usual shoving of bullion around the plate in the silver warehouses.
The amount of 'delivery' action on the Comex is a rounding error on the Asian exchanges. That is a phenomenon worth noting.
I would like to reiterate what I said last night, that it is highly unlikely that a hedge fund initiative to change the charter of the Central Gold Trust to allow for bullion redeemability is unlikely for the Central Fund, CEF. CEF's shares that trade are non-voting and the voting shares are closely held by management. I do not know why the Gold Trust was arranged differently, but there it is.
I was interested to see an essay published in American Affairs by the NY Fed Head Beardsley Ruml in 1946 that contended that Taxes For Revenue Are Obsolete. The author asserts that with a fiat money system a country needs only print the money it requires to support their spending needs, although they must keep the value of the currency in mind. Taxes are only used for shaping and engineering social and economic goals.
Now doesn't that sound like what some are calling Modern Monetary Theory? As I have said, I find it amusing that this notion is presented as some new discovery, but even moreso, it is something that the obtuse bedfellows of a group of social spending Liberals and Libertarian 'less government' austerians both agree. Although the libertarians that I have discussed this with think that the notion that the printing can be limitless because sovereign states cannot default is ludicrous.
Apparently the beauty of not having to bother with taxation to raise money to support spending is in the eye of the beholder. And believe me when I say that the beholders have some very different objectives in mind.
I wonder how the von Miserians feel about trillion dollar platinum coins?
The point of this being that before one concocts and begins promoting arrangement that give men enormous discretionary power, you might want to think very, very hard about who will be wielding that power, and the ends to which they may put it.
Have a pleasant evening.
