Perspectives on the global economic changes

[Neshant]

This is why gold is great.

Ultimately one can never trust bankers & politicians to keep their hands off the money printing press - which is to say you can't trust them not to steal the wealth of those who have worked to earn it.

The fancy buzzwords like "flexible monetary policy", "stimulus", "promoting macro-economic stability" are just con words. It all comes down to who to steal from.

One thing is for sure - If these central bankers were running a real business, they would be bankrupt by now.

The fact that they have to print money is testament that they don't have a clue what's going on. They claim to have deep insight into predicting supply & demand and how best to fix prices (i.e. "set" interest rates) and pick winners & losers with bailouts and money printing (counterfeiting). But the reality is they are as ignorant as the guy on the street as to what ails the economy at any given time.

The longer this charade persists, the worse the outcome will be.

My prediction is in the next crash, many will see their bank accounts wiped out. Its already happened when MF Global robbed the investment account holders and the chief thief John Corzine did not spend a day in jail for that fraud - protected by the banking oligarchy which now owns the Justice Dept. It suggest many other financial institutions (especially investment brokers) and no doubt banks are doing the same and no depositor's funds are safe.

[vina]

a fee on paper currency holdings is not something really new. When Chidambaram was the finance minister in one of his earlier avatars, he introduced what is known as Banking Cash Transactions tax

That is one of the most egregious idiocies that Chidambaram who tried being too clever by half perpetrated. The other notable one was in one budget to make angel funds /angles in the VC/Start up ecosystem go get an NBFC license. If anything is like dropping a neutron bomb on that ecosystem, that kind of idiocy was precisely that.

Mercifully, someone at the finance ministry saw sense and that NBFC license requirement was rolled back in the next budget.

[vina]

This is why gold is great.

With that you have no monetary policy with that and you are dead as a dodo. You will be collectively dirt poor, and the peace you will have is the peace of the grave.

[Austin]

This is why gold is great.

With that you have no monetary policy with that and you are dead as a dodo. You will be collectively dirt poor, and the peace you will have is the peace of the grave.

How did economy did when Gold was the standard so called Brenten Wood Agreement ?

A fiat currency like Euro and USD would give these countries limitless ability to screw the Rest with limited impact to them , all they need to do is start the printing press and come with prophetic terms to let others know how they are the saviours with little sense of discipline enforced if at all.

[vina]

How did economy did when Gold was the standard so called Brenten Wood Agreement ?

Great. And that was because the US put a peg to gold of it's currency. The US at the end of WWII produced above 50% of the world's manufacturing output and had the bulk of the reserves and could underwrite the global growth and reconstruction and management for the next 20 years or so.

After that , when the US itself needed an expanded monetary base, the system fell apart. So moral of the story, you can't put back a failed system based on gold standard in this day and age!

[panduranghari]

If you had so much debt personally that your income cannot pay for the repayment, you would be bankrupt. Why should be any different for a nation state.

Because that is precisely the difference between you and a nation state with it's own currency ? A nation state can print it's own currency , while you can't!

The trouble is when you put in a peg or go to a common currency like Euro, you lose the flexibility of monetary policy. Your business cycle has to coincide with that of the most powerful member of the Euro. If you are in deep do-doo (like Greece and the other PIGS) and Germany is doing fine, too bad, you won't get accommodative monetary policy. On the other hand if you are doing great and Germany is doing badly, you will get easy monetary policy, even if that will hurt you at that point in the business cycle!

That is an very poorly argued argument. I am not comparing nation state and an individual. I am comparing the economics of nation state and the economics of an individual.

What makes you feel whats happening in Greece and what is happening in Germany is any different?

This was written in 2011. It is as succinct as it can be.

Don't believe all the noise, and there's a tonne of it right now. They don't know what they are talking about. The euro survives and thrives regardless of how the European debt crisis is ultimately resolved, and no countries will leave the euro. In fact, there are countries trying to get in, and none that will leave short of a coup, revolution or state failure, which isn't even a consideration right now. And even if that happens, the euro will still survive and thrive while the country that leaves will suffer greatly, the local hyperinflation that will ensue being the least of their problems.
Spend some quality time with the Eurosystem's balance of payments and marvel at how remarkably balanced Europe is with the rest of the world. Then compare that with the US balance of payments. As just a quick example, in April (one month) the Eurozone imported only €4.1 billion more goods than it exported. The US, on the other hand, imported $58 billion more goods than it exported, and April was the lowest month yet this year for the US. Of course that's just goods. For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.
So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in! So how can that be? As a currency representing a community of more than 300 million people, the euro is quite healthy compared to the dollar!
Of course there is a huge imbalance inside Europe between the states running a large surplus and those running a large deficit. But with a shared currency the adjustment pressure for such an imbalance is foisted elsewhere, not on the currency. It lands squarely on the politicians, who, like Costata said, couldn't be a more deserving bunch of Aholes. For the dollar, the structural deficit and debt of the US places a massive devaluation pressure directly on the dollar. But for Europe the currency is balanced with no (or very little) adjustment pressure.
The economic flow of goods and services within Europe will of course have to contract as the imbalance retreats. If the euro weakens on the global currency stage Europe will start running an overall trade surplus again, like China, which will soften the blow of a contracting internal economy. If the euro strengthens, things like cheaper oil will help soften the contraction. Internally the politicians have their hands full. No doubt! Externally, the euro is just fine. To the euro, just like FOA said, the politics of the PIIGS and Germany are little more than a sideshow.
And notice I didn't even mention gold yet. Anything that would appear to seriously threatens the euro, like an outright sov. debt default, would explode the price of gold which would simultaneously rescue the euro balance sheet and kill the dollar.
Sincerely,
FOFOA"

[panduranghari]

ZERO HEDGE comment

note, on the FT of today, Wolfgang Münchau's "please ECB, do QE, plenty of it" piece on the commentary section (real title: "eurozone: a strained bond", then he still smarts for not getting his EuroBond)

he writes there "If the ECB, as I expect, opts to keep the risk on the national balance sheets..."

another completely misguided and whacky narrative. the ECB has nothing to say about the national balance sheets. Each EU country has it's own parliament for that. That's fiscal policy, and it's a completely no-go for national banks

what the members of the ECB have, is own balance sheets, the national banks balance sheets

take the Banque of France, as example. it has it's own gold, it's own FX reserves, it's own operations as a fully fledged national bank, it even issues two currencies for African countries and manages their pegs to the EUR, it has it's own SDRs and relations to the IMF and it's own accounts at the ECB

the funniest thing about commentaries on the EuroSystem is how many assumptions are made based on the "it's the same as the FED"

do you know what could prevent the Banc of France or any other member of the ECB to buy national debt, it's own or that of their EuroSystem partners? nothing

do you know what could prevent them to issue a national currency on the side, with or without collaboration of the national treasuries? nothing

nothing except for how flabbergasted many investors, speculators and other market participants would be, after many years of being lulled by the "dogmas of the FED", lulled by neo-liberal practices of the FED of giving "forward guidance" and "trust the FED", which started actually as "don't fight the FED"

------

the EUR is now a mature currency fit for the global currency war. what if - caution, here starts speculation - ECB partners decide to float a new French Franc or a new Italian Lira? Imagine the chagrin, the gnashing of teeths in the pits of the FX world... until possibilities are back in their minds

imagine a Bank of Italy buying up some of the Italian sovereign debt using it's own balance sheet or even with freshly issued... Italian Lira. temporarily pegged to the EUR, similar to the French African currencies. Imagine someone selling this EUR debt and wanting the new/old currency, up to the situation we just had with the CHF. Remember that the whole financial computer landscape is even still programmed for those currencies. If the kids... pardon me, FX market participants want more balls to play... well, the old national hags... pardon me, NCBs are perfectly able to provide for balls

what is the best way to prevent some moves? preemption. watch the Germans suddently realizing they are the one of the "major three" without a national currency on the side. Watch them discussing their need for one, and how a national currency in this globalized world would have to be a currency by nationals for nationals, set up in a national frame of needs. perhaps up to EU polities restarting that old discussion of gold-backed national currencies which was thrown out of the window on August 15th, 1971

[chanakyaa]

After that , when the US itself needed an expanded monetary base, the system fell apart. So moral of the story, you can't put back a failed system based on gold standard in this day and age!

So, Vinaji, in you opinion how much of expansion was warranted and do you believe current expansion of the fiat currency is enough, not enough thus more needed, or excessive expansion?

[nandakumar]

US suffered high inflation during the Vietnam war years. This was also the period when the US accelerated its welfare spending. The high fiscal deficit and consequent monetary expansion from the twin factors of war and social spending broke camel's back as it were of the US economy. It is easy to see that when prices of meat and potato were rising it is unrealistic to keep an official peg on the price of gold as it provided an arbitrage opportunity. Not that people actually took a circutious route (via gold) to buy meat and potatos at the same price as in pre war years. But the conditions were simply unsustainable. Even today, if you can keep a check on prices in the economy, it is perfectly feasible to have gold standard. The villain of the piece was not gold per se, but the inability to rein in prices which was in turn due to war and expanded social safety net.

[vina]

Even today, if you can keep a check on prices in the economy, it is perfectly feasible to have gold standard

In Inglees, what you are saying is that if you manage to keep a lid on inflation, you don't need to have the gold standard at all! However, the folks here are arguing , that if you have the gold standard, you will NOT have inflation.

Trouble is, that there are episodes in history (Spain for e.g.) had inflation even under gold standard when they got a big booty of gold from their South American conquests. So in Espana, Gold es non guarantee para inflacione!

In the end, Gold standard too is a means to an end, not an end in itself. The basic economic policy should be to have stable growth and low inflation. From all accounts, given the growth of the economy (and also inflation), the Gold standard won't work int his day and age. The argument for gold standard is that because of limited supply , you can't run inflation mildly. For that ,you don't need gold at all. The bit coin is exactly that! A very limited supply of monetary base that is tightly controlled. You can run a bit coin economy as a substitute for gold standard!

But what if you DO need to run an expansionary policy ? During wars for e.g., during economic crisis for eg. You can't do those things very well on gold standard.

[Gyan]

On a side note, I thought that crash of commodity prices would cause mayhem on Wall Street but how come everything seems so calm?

[Theo_Fidel]

BTW USA inflation since 1900.

Note that the worst inflation episodes occurred under the gold standard. Not only that, the most destructive deflationary episodes happened under gold standard as well. You can see why the thing was kicked to the curb like a rotten tomato.

[Theo_Fidel]

Meanwhile….

Sometime in 2015 the Richest 1% of the world will own 50% of global wealth and continuing to rise at ~ 2%-4% per year. Anyone can see that this is not sustainable.

BTW you are that 1% if you have assets over $2.6 Million+/- .

http://www.cbsnews.com/news/the-1-perce ... h-by-2016/

[Vamsee]

Meanwhile….

Sometime in 2015 the Richest 1% of the world will own 50% of global wealth and continuing to rise at ~ 2%-4% per year. Anyone can see that this is not sustainable.

http://www.cbsnews.com/news/the-1-perce ... h-by-2016/

I am not so sure about that. The point is as long as basic necessities of large fraction of people are met (food/clothing/shelter etc) the zeal for revolution will not be there.
Hence all western nations have some form of basic support. There is internet anyway to distract people
Also you need a significant fraction of young & restless population who have nothing left, to risk taking on the state.

Until those conditions occur, 90% or 99% or 99.99% are just numbers and do not mean anything.
People will grumble but carry on.

Only when there is a huge crisis, it will matter.

Western elite have learned their lessons from French revolution. They will not let the situation deteriorate to that extent.

JMHO.

[nandakumar]

Vina
I am putting down the key part of your response.
Quote:
In Inglees, what you are saying is that if you manage to keep a lid on inflation, you don't need to have the gold standard at all! However, the folks here arguing , that if you have the gold standard, you will NOT have inflation. Unquote.


No, I don't mean that there is no need for a gold standard. My point was a bit more nuanced. I say that the existence or otherwise of gold backing to a fiat currency is irrelevant to the larger question of delivering growth and equitable distribution of such growth to the populace in the economy. If there is rule of law, quick and proper enforcement of contracts by the State, intervention by the State where the market forces can not be expected to deliver good public outcomes, growth with equity is possible. Fiat currency, viewed thus, is a mere facilitator of commerce. You mentioned bitcoin in this context. You are right. It (fiat currency) is a bit like bitcoin. Except that bitcoin is a crowd sourced money creation. But fiat currency is centralised. Even gold for that matter is crowd sourced. I mean if there is gold to be found under the ground, in your backyard, by the rules of the Wild West in the 19th century in the US, it was yours for the taking.That is crowd sourcing, too. The principle of bitcoin is that you must ensure that you come up with a number that has not been already accounted for. So that put a natural restraint. Gold too by its very nature posed its own limitation. I mean look at the Periodic Table. Eliminate all gases (difficult to contain and be used as a store of value), elminate poisonous substances, those that are voluminous (iron, copper etc.), you are left with little else but gold. The common feature to all the three is that for something to be recognised as valuable either nature (gold) or the rules of the game (bitcoin) must impose a restraint or public authority (fiat currency) must exercise it.
I hadn't put the numbers on US inflation in the 60s. But Theo Fidel's chart posted earlier, is instructive. Inflation was a problem in the second half of the 60s and early 70s, the peak years of US involvement in Vietnam. By August 1971, dollar conversion to gold was gone.

[Satya_anveshi]

Pukistan is exporter of Terror(ists). Mexico (along with Colombia) is exporter of drugs. Similarly, Shitzerland is exporter of Corruption. This is their primary identity and their civilizational contribution.
Don't go by the facade of suited/booted banker nor the so called "export economy with world leading companies."

Because of shitzerland's entry into EURO thru backdoor (via peg), the worth of their corrupt clientele went down by as must 20% as reported in $s. This was bound to impact its core offering of providing 'safe heaven' of the corrupt money and hence the move to restore their marketshare as corruption supplier.

Secondly, given the absence of any (negative) reaction from any of the EURO zone leaders, it is possible that they were on-board with SNB's decision, which can also be thought of as retaining the dirty business in EUROPE is better than losing it to USA. So, at the fundamental level the real battle is between big entities that are separated by the pond.

Europe is twice the USA in terms of population and Euro area is almost equal to that of USA. If there is a risk of de-dollarization of world economy, we will see that EURO will first feel the shocks. From USA's perspective, this will provide a good distraction at best or at worst, bites the dust before dollar. Most likely, both will continue the free loading in absence of a robust alternative (which has to come from Asia).

[vina]

Gold too by its very nature posed its own limitation. I mean look at the Periodic Table. Eliminate all gases (difficult to contain and be used as a store of value), elminate poisonous substances, those that are voluminous (iron, copper etc.), you are left with little else but gold. The common feature to all the three is that for something to be recognised as valuable either nature (gold) or the rules of the game (bitcoin) must impose a restraint or public authority (fiat currency) must exercise it.

Ah.. You say all this in Yindee, In Inglees, I said.

Gold standard == Bit Coin Standard!

. So Yindee == Inglees onree. I have no quibble with that.

I hadn't put the numbers on US inflation in the 60s. But Theo Fidel's chart posted earlier, is instructive. Inflation was a problem in the second half of the 60s and early 70s, the peak years of US involvement in Vietnam. By August 1971, dollar conversion to gold was gone.

Doing very selective reading ain't we ? What about the first half of the century , when it was ON the gold standard and we saw massive spikes in inflation and deflation ? The roaring 20s and the great depression etc ? What about the Spanish experience about being on Gold and experiencing huge inflation?

I also said in Inglees

Gold stand != Low Inflation always

[Gyan]

Why only "Gold Std"? Why not call it asset back currency standard? Any nation can be free to issue:-

1. Gold notes/currency of say 10 grams each

2. Silver notes/currency of say 10-100 grams each

3. Platinum notes/currency of say 10-100 grams each

4. Palladium notes/currency of say 10-100 grams each

5. Same way for Copper, nickel, aluminium, titanium etc

Instead of multiple currencies, we will have multiple type of asset backed IOUs. Actually every bank note is an IOU but now the note will say that it is promissory note to supply x weight of some asset at y point. This will reduce some "cons"of only having Gold or Silver standard.

[vina]

Why not call it asset back currency standard

Welcome back to 25000 B.C sirji. This is what was called in Inglees as "Barter Trade".
And why not indeed ? if you can solve the basic kweschun of barter trade . How do you decide the Yucks change rate of two commodities, say between gold and copper ?

[panduranghari]

US suffered high inflation during the Vietnam war years. This was also the period when the US accelerated its welfare spending. The high fiscal deficit and consequent monetary expansion from the twin factors of war and social spending broke camel's back as it were of the US economy. It is easy to see that when prices of meat and potato were rising it is unrealistic to keep an official peg on the price of gold as it provided an arbitrage opportunity. Not that people actually took a circutious route (via gold) to buy meat and potatos at the same price as in pre war years. But the conditions were simply unsustainable.

The funny thing was from 1933 to 1971 people outside the US could exchange their USD for gold. However, it was not permitted within. USD went from a peg to a dirty float to a managed free float. This year, I believe, the managed free float will give way to a truly free float. Even today the gold held for the US at the Fed is valued at 42.44$.

Even today, if you can keep a check on prices in the economy, it is perfectly feasible to have gold standard. The villain of the piece was not gold per se, but the inability to rein in prices which was in turn due to war and expanded social safety net.

How? There will never EVER be a gold standard. Period. If there will be one, then the country running a gold standard will soon run out of gold.

[Theo_Fidel]

Why only "Gold Std"? Why not call it asset back currency standard? Any nation can be free to issue:-

1. Gold notes/currency of say 10 grams each

We have talked about this before. The moment you give any commodity an artificially inflated value the urge to divert all human effort to mine that commodity becomes irresistible. There is no shortage of Gold on the planets crust and oceans. Just in the oceans there are many Millions of tonnes IIRC.

The more human effort is diverted to non-productive efforts like digging for gold the less is dedicated to growing food, making cars, etc. Ergo Inflation. I’m talking Venezuela style 100% paralyzing inflation. Dutch Disease….

[panduranghari]

I believe SNB was running short on gold.

On 16th I thought Swiss were short of gold. And now Koos Jansen agrees with this.

link

If any country knows about the flow of gold it is Switzerland. They are the refining hub. Did the SNB look at the data and realize that the physical offtake was reaching levels where it could no longer be ignored?

[vina]

Well a nice "economic" and "social" and "political" perspective from Ajai Shook Law's blog on Avinash Chander . The DRDO head and scientific advisor to the defence minister who was let go recently.

It was an unceremonious end to the distinguished career of a child from a refugee family from Mirpur, now in Pakistan Occupied Kashmir. Recounting his personal story to Business Standard after taking over as DRDO chief in June 2013, Chander described his family’s harrowing journey to India and a childhood in a one-room home in Old Delhi. After a succession of government schools, Chander was selected to join IIT Delhi, from where he went straight into the DRDO in 1972. His M.Tech and Ph.D. came later in his career.

I guess like many folks from western parts of Punjab, Sind and Jammu and Kashmir who came with literally nothing except the clothes they were wearing (that would include our former PM, Dr Manmohan Singh), their cultural capital and hard work and acumen and the environment of India saw many of them rise to highest offices and positions of power and prestige by dint of their contributions to the country.

The contrast between an Avinash Chander from Mirpur, who moved to India and went to a govt school and a Paki from Mirpur who moved to Bradford in Inglistan cannot be more stark. The Paki would have been a day labourer or at best a low level grunt at a mill in Bradford who because he got paid in UK Pounds would have probably been richer initially than Chander. But fast forward some 60 years, Chander had a great education a brilliant career and is successful and his children upwardly mobile and looking at the world positively, while the Paki is probably broke,unemployed for 25 years, living on dole, his kids probably with a proclivity for gangsterism and borderline criminal activity at best and looking to take UK back to the 6th century by bring in Sharia. I am sure there is a moral in the story somewhere.

The dhoti wallahs and turban wallahs and their families kicked from their ancestral lands are a success (sometimes stunningly) in India, while the Paki s who kicked them out moves en masse to a far richer country and are miserable failures there

[SaiK]

IMF dhoti shibbers on all economy for 2015 except USA

[Neshant]

This is why gold is great.

With that you have no monetary policy with that and you are dead as a dodo. You will be collectively dirt poor, and the peace you will have is the peace of the grave.

As I said and I repeat, words like "monetary policy", "stimulus", "easing", "promoting macro economic stability" describe nothing more than a con job. It all comes down to who gets robbed.

Its good that there is no "monetary policy" led by thieves who are printing money to benefit their cronies and transfer their losses onto the backs of the productive economy.

Since the banking "industry" produces absolutely nothing of value (except fiat paper scams), they are obviously going to put up great resistance to anything that ends their thievery.

That's the whole reason for gold. It keeps the thieves out and preserves the productive people.

[johneeG]

Even today, if you can keep a check on prices in the economy, it is perfectly feasible to have gold standard

In Inglees, what you are saying is that if you manage to keep a lid on inflation, you don't need to have the gold standard at all! However, the folks here are arguing , that if you have the gold standard, you will NOT have inflation.

Trouble is, that there are episodes in history (Spain for e.g.) had inflation even under gold standard when they got a big booty of gold from their South American conquests. So in Espana, Gold es non guarantee para inflacione!

I don't about this particular inflation episode but based on your description it seems like the inflation in spain must be due to the sudden increase in gold due to the south american conquests. So, increase in currency leads to inflation.

Sudden increase in gold or silver supply for a country is rare(only happens when a big conquest happens). On the other hand, paper/fiat currency leads to more chances of increased currency supply whenever the govt(or central banks) feel the need.

The supply of gold or silver is not in anyone's control. And therefore, there is a certain fairness in the system. The supply of paper/fiat currency is in the hands of govt/central banks. Govt/central banks will not necessarily do what is in the best interests of the people.

If the govt can print currency and spend it for wars or to fund social welfare schemes, they will do it. But, it will lead to inflation(i.e. prices rise or the value of currency drops). The inflation is like an invisible tax. So, instead of increasing taxes to fund wars or social welfare schemes, Govts will find it attractive to print currency which will lead to inflation.

If taxes are issued, then people become aware that the govt wars or social welfare schemes are taxing people. But, if govt simply prints money, then people are unaware that its leading to inflation and invisible tax.

In the end, Gold standard too is a means to an end, not an end in itself. The basic economic policy should be to have stable growth and low inflation. From all accounts, given the growth of the economy (and also inflation), the Gold standard won't work int his day and age. The argument for gold standard is that because of limited supply , you can't run inflation mildly. For that ,you don't need gold at all. The bit coin is exactly that! A very limited supply of monetary base that is tightly controlled. You can run a bit coin economy as a substitute for gold standard!

But what if you DO need to run an expansionary policy ? During wars for e.g., during economic crisis for eg. You can't do those things very well on gold standard.

Well, you can't spend the money that you don't have whether its wars or not. Gold or silver is good as currency precisely because it demands fiscal responsibility by the govts instead of taking the easy route of printing the money. Printing currency leads to lessening the value of currency which leads to inflation.

Why only "Gold Std"? Why not call it asset back currency standard? Any nation can be free to issue:-

1. Gold notes/currency of say 10 grams each

We have talked about this before. The moment you give any commodity an artificially inflated value the urge to divert all human effort to mine that commodity becomes irresistible. There is no shortage of Gold on the planets crust and oceans. Just in the oceans there are many Millions of tonnes IIRC.

The more human effort is diverted to non-productive efforts like digging for gold the less is dedicated to growing food, making cars, etc. Ergo Inflation. I’m talking Venezuela style 100% paralyzing inflation. Dutch Disease….

Gold is still valuable even if its value is kept artificially down. The present inflation seems to be caused by printing fiat currency.

Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year.

That seems like the tax paid to Pax Americana by the world.

----
I think only Gold may not be a good idea because a few individuals can hoard the gold to corner the market. So, I think gold should be supplemented with silver. I think gold+silver is enough to work as currency.

[panduranghari]

JohneeG
You are correct. Gold should not be currency. It can be hoarded. Money is meant to be spent. Not hoarded. Unlike a Gaitonde or a Menon, which you keep in your family and give it to your children as heirloom. Now not many can afford a Gaitonde. However, gold which is fungible, divisible can be converted into a smallest denomination as a wealth reserve can be held by you, me every aam abdul.

22 Jan is going to be fun.

[johneeG]

How did economy did when Gold was the standard so called Brenten Wood Agreement ?

Great. And that was because the US put a peg to gold of it's currency. The US at the end of WWII produced above 50% of the world's manufacturing output and had the bulk of the reserves and could underwrite the global growth and reconstruction and management for the next 20 years or so.

After that , when the US itself needed an expanded monetary base, the system fell apart. So moral of the story, you can't put back a failed system based on gold standard in this day and age!

The question is how did US get hold of all the gold to peg its dollars to gold in Bretton wood system?

During war, US state under Roosevelt had actually confiscated gold from its people.

The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury.[1][2]

The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it was stored in United States Bullion Depository at Fort Knox and other locations. The act also changed the nominal price of gold from $20.67 per troy ounce to $35. This price change incentivized foreign investors to export their gold to the United States, while simultaneously devaluing the U.S. dollar in an attempt to spark inflation. The increase in gold reserves due to the price change as well as the confiscation clause resulted in a large accumulation of gold in the Federal Reserve and U.S. Treasury. The increase in the money supply lowered real interest rates which increased investment in durable goods.

A year earlier, in 1933, Executive Order 6102 had made it a criminal offense for U.S. citizens to own or trade gold anywhere in the world, with exceptions for some jewelry and collector's coins. These prohibitions were relaxed starting in 1964 – gold certificates were again allowed for private investors on April 24, 1964, although the obligation to pay the certificate holder on demand in gold specie would not be honored. By 1975 Americans could again freely own and trade gold.

Wiki Link

In 1934, US had no gold and had to confiscate the gold of its citizens. That shows that US had gold crunch just before and during the war. But, suddenly after the war, US had enough gold to peg its currency to gold for next 30 years. How and where did it get hold of this gold?

The Secret WWII Gold Hoard That Changed the World
March 18, 2012 dave No comments
Gold Warriors: America’s Secret Recovery of Yamashita’s Gold

By John Tiffany

During World War II, Japan conquered a large swath of the globe, including most of the Pacific islands and all of eastern Asia. Emperor Hirohito, portrayed as an innocent “marine biologist,” in reality directed the looting of the national treasures found throughout this large chunk of the world. These include the wealth of Britain, Netherlands and France, which had moved their gold to Asia “for safety’s sake,” and the national treasures of 13 Asian nations invaded by Japan.

Why they call it Yamashita’s gold is anyone’s guess. In reality, it was the treasure of Hirohito. Yamashita merely worked for Hirohito.

The royal family was put in charge of supervising the whole process, and as much booty as possible was taken to Japan. Many treasure ships were scuttled in Tokyo Bay, with an eye to salvaging the loot when the war was over.

Some of the treasure was first taken to the Philippines. But the Americans began sinking Japanese ships left and right, so the emperor and his family decided to hide much of the treasure in caves in the Philippines, expecting and hoping that the islands would remain in Japanese hands at the end of the war and the loot could then be recovered.

The routine was to select a good cave, fill it with treasure, and then blowup the entrance to the cave, with the workers sealed inside where they would soon die.

After the war, many secret deals were made by the United States government to let Japanese war criminals, especially the top criminal, the emperor, and the royal family, off the hook. In exchange, much of the stolen gold, silver, gems, antiquities etc was secretly taken by U.S. government insiders, particularly the Office of Strategic Services (OSS)/Central Intelligence Agency (CIA) and various generals in the military. This is where the secret agency got its first big financing—under the table of course. This secret dealing was itself one of the greatest crimes of the 20th century.

Noted historians and respected investigative journalists Sterling and Peggy Seagrave, in their book Gold Warriors: America’s Secret Recovery of Yamashita’s Gold, documented the multibillion dollar World War II loot, valued at perhaps over 120 billion 1945 dollars.

In December 1937, Japan declared war on China and surrounded the capital city, which at that time was Nanking. Prince Chichibu, younger brother of Hirohito, had been chosen to direct the ultra-secret treasure-looting team. This team was given a code name of “the Golden Lily” after a poem the emperor had written, and 6,600 tons of gold were recovered from Nanking alone, plus silver and precious stones. That was just the beginning of the emperor’s loot-the-world operation.

On December 7, 1941, Pearl Harbor suffered a “surprise” attack from the empire of Japan, delivering a crippling blow to U.S. military forces.

The “island fortress” of Singapore soon fell to General Tomoyuki Yamashita (February 1942), and with General Douglas MacArthur pulling out of the Philippines, abandoning his men, the last American and Filipino troops surrendered to Japan’s General Masaharu Homma. The infamous Death March began.

Japanese victories on all fronts were heady. Burma was in Japanese hands by March, 1942. Plans had been drawn up to invade Australia. Southeast Asia and most of the islands in the Pacific were as good as Japan’s.

Yasuhito, Prince Chichibu of Japan’s royal family, in Singapore, was very pleased when his men found the treasures of Britain stored in Asian banks. Another pleasant surprise experienced by Prince Chichibu was the discovery that the Dutch had moved their treasures to the East Indies. Not only did Japan have the wealth of the Asian continent, but they were now rewarded with much of the European treasures as well.

Collection of wealth throughout the conquered lands continued. With over 5,000 years of Asia’s antiquity to pillage, the amounts collected were astronomical. With Shanghai in their hands, the Golden Lily team found themselves stretched to the limit keeping up with the collection and melting down of precious metals.

Japan’s luck, however, started to run out by May, 1942. Their first setback was the Battle of the Coral Sea, where the Allies had forced Japan to turn back her invasion fleet, which Hirohito had planned to land in New Guinea and the Solomon Islands. The following month they suffered another big setback with the Battle of Midway, where Japan lost four carriers and the cream of her aviators. These were the very ships and pilots that had attacked Pearl Harbor five months earlier. In August, the U.S. landed an invasion force on Guadalcanal. Japan tried for months to dislodge the American Marines but eventually had to concede this island base. After that, Japan was unable to launch another major offensive anywhere.

The war would drag on for three years, while the Japanese gradually lost the lands that they had conquered. Hirohito’s dream was ending, and his nightmare had begun.

By mid-1942 Prince Chichibu was faced with the challenge of where and how to hide the treasures so that they could not be discovered after the war. He decided the loot would have to be hidden in caves and tunnel systems.

As the Seagraves explain, a pivotal event in the recovery of the Golden Lily caches was the torture of General Yamashita’s driver, who eventually confessed the whereabouts of some of the repositories.

After the war, much of the hidden gold and treasure was gathered up by Severino Diaz Garcia Santa Romana, an OSS and CIA agent, known as Santy. Santy worked with U.S. General Edward Lansdale and other corrupt U.S. generals and politicians, to secrete the gold in foreign bank accounts. The stolen loot was utilized for a variety of purposes, in particular the financing of U.S. cloak-and-dagger operations.

The booty was combined with more treasure stolen from the Nazis to create a vast slush fund called the Black Eagle Trust, which ultimately became a source of enormous corruption, luring many individuals into temptation and, sometimes, death.

This bloody gold gave the Truman administration access to virtually limitless unvouchered funds for secret, and usually unconstitutional, operations.

It also provided an asset base that was used by Washington to beef up the treasuries of its allies, to bribe politicians and to manipulate elections.

It is a vast story and in this space we can only point out some highlights. But the purpose of Gold Warriors, by the Seagraves, is to reveal why so little is known of the massive Japanese looting of the world, and the devious and unconstitutional role Washington politicians and bureaucrats played in the taking over of much of this booty and glossing over horrible Japanese atrocities, especially by the emperor and royal family, and the cover-up of all of this, which continues to this day. They have backed up their book with extensive research, and it is a very important contribution to the field of authentic, Revisionist history.

John Tiffany is assistant editor of THE BARNES REVIEW magazine of revisionist history and nationalist thought and has been interested in diverse ethnic groups and ancient history around the world. He holds a Bachelor of Science degree in biology from the University of Michigan and is the copy editor for AMERICAN FREE PRESS.

Link to post

wiki link: Yamashita's gold

This seems like a likely explanation of how US suddenly obtained the gold to peg it to dollars. It seems that all this wealth was spent away by US in the next 30 years without much productivity. So, in 1970s, US had to unpeg its dollar from gold and thus started the era of free currency for the US.


----

You are correct. Gold should not be currency. It can be hoarded. Money is meant to be spent. Not hoarded.

Hoarding and spending go hand in hand. You can't spend it, if you can't hoard it atleast for sometime. You won't hoard it, if you can't spend it. Gold and silver are good because they can be hoarded and transported thus easy to spend and save.

[nandakumar]

Pandurangahari
I missed your response to my earlier post. Let me respond to the quoted portion your post below.
Quote
How? There will never EVER be a gold standard. Period. If there will be one, then the country running a gold standard will soon run out of gold.
Unquote
Let me put it this way. For quite some years now, Indian had the freedom to demand dollars of the RBI, for the amount of rupees they surrendered to it. They could even import right royally, gold for the value of rupees they surrendered to the RBI. True, there was a nominal customs duty (it had been hiked, more lately) but that can be likened to a seignorage of the realm. In other words, we can define 'gold standard' as the ability of the nation to offer alternatives of store of value for the national currency. Even the words, "I promise to pay the bearer the sum of rupees..... " in a currency note implied pretty much implied that. If you have a prosperous, growing economy with stable prices even as currencies elsewhere are weakening would translate, through exchange rate adjustments, into a fixed parity for gold relative to the rupee. The concept would apply to any other national currency in relation to gold. Gold standard thusp doesnt have to be dogmatically defined as yellow metal stored in some cavernous vault down below that is equivalent to the notes on circulation. I define gold as people's propensity for search of stable value in the face of policies of debasement by governments. If governments don't run riot with their fiscal and monetary policies, rigid gold pegs becomes a non-issue. If gold is sought by people for its own sake, then of course, all bets are off.

[chanakyaa]

Paging panduranghariji....ECB talking about QE. WTF???

[Austin]

Finally we have a BIG QE from ECB , I think its just ECB taking over from Fed ...unless we see QE4 from Fed sometime this year.

Money Printing is here to stay

[TSJones]

Per ECB QE:

Copycatting is the most sincere form of flattery.

And nothing inspires it more than success.

[ldev]

QE increases asset prices. It does not increase incomes. Only the 1 percenters have assets in meaningfully large amounts to benefit from QE and hence they control more and more of global assets/wealth as the Federal Reserve and now the ECB QE programs are implemented.

The problem today is that Government's and Central Banks in the G7 realize that they cannot increase real incomes anymore to service the mountains of debts. Therefore the only option is inflation to decrease the real value of debt. Hence the obsession with causing inflation and the fear of deflation.

Demand in the G7 is low because real incomes are stagnant, high paying jobs are stagnant or being slashed. Employees rely on incomes to generate savings, the 1 percenters rely on an increase in asset prices to increase wealth. It does not take a genius to figure out who are the beneficiaries of QE programs and the reason for the zeal with which they are being implemented.

[TSJones]

All QE does is to buy sovereign debt. That's it. It makes no further distinctions. If a socio-economic stratum does not benefit, then the nations tax laws, government policies, etc., must be changed to level the playing field so to speak. Banking is merely one tool out of many to achieve economic equality. Milton Friedman, a monetarist and libertarian (and designer of the paycheck income tax with holding process during WWII much to his mortal regret), advocated a negative income tax for various income levels that could be adjusted yearly instead of the hodgepodge welfare schemes that we presently have. I think he was on to something and may have been correct although there will always be a certain segment of society that is beyond help, for instance the severely mentally ill street people and those who are chemically dependent. They will always need active welfare and charity work by various agencies. I am of the opinion to let's leave banking to what it does best: financing. just my thoughts.

[ldev]

TSJ,

I would fully agree with you if:

1. Governments had any room to lower taxes for those disadvantaged sections of society without further borrowing and increasing debt.

2. Banks were financing to create jobs and thereby increase incomes as opposed to trading.

3. Borrowers were borrowing to create new capital assets as against buying back equity. If borrowers are not interested in taking on new loans inspite of the low rates of interest ever since 2008, there is a serious problem.

Unfortunately none of the above is happening.

[vina]

I don't about this particular inflation episode but based on your description it seems like the inflation in spain must be due to the sudden increase in gold due to the south american conquests. So, increase in currency leads to inflation.

Ah, so like I said, you can't trust Gold either. A sudden big mine discovery in say Antartica (what if there is a mountain of gold there, some million tons), will crash the price of gold and pauperise you . So, a gold standard doesn't protect you!

What you should do is what I said. GO BUY BITCOINS. You cannot inflate away bit coins. Mathematics is inviolable!

[vina]

QE increases asset prices. It does not increase incomes. Only the 1 percenters have assets in meaningfully large amounts to benefit from QE and hence they control more and more of global assets/wealth as the Federal Reserve and now the ECB QE programs are implemented.

Get real. The QE put millions of Americans back to work after the meltdown post 2008 . US is now back to nearly full employment and wake hikes seem to be happening now, there is not much slack left in the US labor market.

The QE fashioned by Ben Bernanke was fully worth it. I do hope that the US does the sensible thing and recognises Ben Bernanke and his "unorthodox" economics and gives him a Medal of honour or something.

This fetish with Gold and tightening and this and that is the flip side of the St Stephens/JNU/DSE/ISI ding-dongism. Missing the wood for the trees and being doctrinaire even in the face of real experiential evidence.

[vina]

The trouble with the Eurozone is that it is a macro economic nightmare. It is time to call the Euro monetary union experiment a failure I think. You cannot have a monetary union without a Fiscal Union. For a monetary union to work, you need free movement of goods, services, people and of course income transfers. That didn't happen in the Euro area, with each country running it's own fiscal policy.

Net result, a net exporter like Germany gets a massive free ride. No contrary to what the Mango German thinks, it is not due to some super duper German engineering/technology/ calvinistic work ethic and habit of thrift that Germany is doing well, but rather, Germany is getting a free ride from a cheap Euro that makes it's exports far cheaper than it actually should be if Germany had an independent currency like earlier. Look at the experience of the Franc. Germany has been amassing massive surpluses and rather than spending it in the troubled southern countries in the EU, it is "saving" it for whatever. Nothing can be dumber. It is killing it's own golden goose.

Similarly, the PIIGs and other struggling countries are being shellacked by a currency that is far stronger than what their economies would warrant if they had their own one. That makes their exports uncompetitive, their employment dismal and they are locked in a death spiral of austerity and stubborn high unemployment, while all the same, the sceptre of Eurozone is DEFLATION. The ECB buy back announced yesterday is a good start , but rather late. Of course, better late than never, but it is not enough.

This is simply not sustainable. If Germany wants the benefits of Euro , it needs to pay up to stabilise it and start spreading the benefits beyond it's national boundaries. There really is no incentive for Greece etc any of the PIIGs to shackle themselves up to Germany in the absence of true integration at a fiscal level and then bear the cross for that. The countries that stayed out of the Euro did the smart thing (UK, Nordics , Swiss). Look at Finland, it has been devastated by tying itself up to the Euro, especially when it was a largely one giant company (Nokia) country which collapsed.

[Singha]

>> you need free movement of goods, services, people and of course income transfers

but arent all EU citizens now able to freely move around and work within that zone (with no need for work permits?) and there are easy and cheap transfer of goods via road and rail?

[chanakyaa]

QE increases asset prices. It does not increase incomes. Only the 1 percenters have assets in meaningfully large amounts to benefit from QE and hence they control more and more of global assets/wealth as the Federal Reserve and now the ECB QE programs are implemented.

Get real. The QE put millions of Americans back to work after the meltdown post 2008 . US is now back to nearly full employment and wake hikes seem to be happening now, there is not much slack left in the US labor market.

The QE fashioned by Ben Bernanke was fully worth it. I do hope that the US does the sensible thing and recognises Ben Bernanke and his "unorthodox" economics and gives him a Medal of honour or something.

This thing is similar to a story my friend told me over few drinks.

One day two robbers enters common man's (we will call him Joe) house who has decent savings, a house and a car. After entering the house, one of the robbers steals Joe's money and declares that he, the robber, is also taking possession of his house and the car; thus leaving Joe with nothing. Joe gets upset and about to leave the house, realizing he has been completely robbed of all his belongings including house and the car. While he is about to leave the house, the 2nd robber stops Joe and makes a very strange proposal. He says that "Joe, I 'm a good robber. I feel bad that you have nothing left. I've a proposal for you. I would like to rent this house and car to you for a decent monthly payment. I'll also lend you some cash with a very low interest rate. What do you think?". Joe, surprised by this proposal fires back at the 2nd robber "hey, all that you are offering me is mine, who are you to rent me?". To which the 2nd robber replies, "all these things WERE yours until 30 mins ago before me and my friend robbed you. Now they are not your. Look what will happen to you if we leave you, Joe. You will be left high and dry. But I'm not doing that, instead I'm renting cash, house, and the car to you for a small fee. Aren't you glad that you have a job, house to live, and car to drive to work? Am I not good and deserve to be appreciated"?

In the meantime,

Draghi's prepared remarks on QE