Month: July 2022

Back in the 1970s, the New York congressman and later vice-presidential nominee Jack Kemp was a fierce critic of President Jimmy Carter’s policies that produced soaring prices. Kemp said that the Carter administration was so clueless that its officials apparently thought “inflation was caused by many, many, different things, all of which are acting and interacting in strange and mysterious ways.”

Carter and his minions pointed fingers at oil sheikhs, credit cards, store clerks, etc. Joe Biden’s list of inflation causers is just as tedious and laughable: Putin, oil companies, price gougers, Republicans, and the failure of Congress to pass all his monstrous, inflationary spending bills. The objective is the same: to coax you to look in all the wrong places as their policies bite you in the rear end.

If St. Patrick really drove the snakes out of Ireland, we should make him President so he can do the same thing in Washington.

Economists Ludwig von Mises and Milton Friedman, though they certainly had their differences, offered much wiser observations about inflation. Mises defined it as “an increase in the quantity of money without a corresponding increase in the demand for money, i.e., for cash holdings.” Friedman said it was “always and everywhere a monetary phenomenon.”

Think of it this way: Whoever is in charge of money and credit (the government and the banking system it orchestrates) expands the supply. Interest rates fall at first and an economic bubble begins. If the expansion of money and credit is big enough, and goes on long enough, then prices in the economy will eventually rise. Rising prices are not the inflation; they are a consequence of the inflation. Then when the authorities try to rein in the soaring prices that their money and credit creation caused, they jack up interest rates and bring on a recession or depression.

It’s the same with the weather. It rains and then the streets get wet. Wet streets don’t cause the rain any more than rising prices cause inflation. They are a consequence, not the source.

The stupid quotes from officialdom keep on coming. Just last month at a central banking forum in Portugal, the chairman of the Federal Reserve, Jerome Powell, said this with a straight face: “I think we now understand better how little we understand about inflation. This was unpredicted.”

Unpredicted? What’s the address of that cave Powell lives in? This bout of price hikes was forecast by a boatload of economists, including me in this piece for El American 16 months ago.

Error, deception and havoc are plagues on the long history of money, but not because of the stuff itself. Money, after all, is a remarkable and indispensable invention of the marketplace—a medium of exchange that facilitates commerce in complex ways that mere barter could never do. It’s the abuse of it that creates problems, as John Adams noted in a letter to Thomas Jefferson in 1787:

All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.

For interested readers who want to explore the fascinating tale of money, see the suggested readings below this essay. Meantime, allow me to present a few of the most instructive comments ever made on the subject.

I rarely quote the British economist John Maynard Keynes. He was prolific but often wrong. Nonetheless, he knew that government could cause chaos by inflating the money supply:

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

To “debauch” means to corrupt and degrade the value of money. Governments do it by printing too much, or reducing the precious metal content of coinage, or other means of debasement. A particularly interesting example comes from 17^th Century Europe, during the Thirty Years’ War. You can learn about it here.

One of the enduring fallacies about money is that it must be a duty of the government to provide it (despite government’s sorry track record). We will never be free of destructive inflations or deflations until we toss that bit of flim-flam into the bonfire. Economist Murray Rothbard expressed the alternative succinctly:

Freedom can run a monetary system as superbly as it runs the rest of the economy.

Imagine if bread were provided the way our money is. We would have a government bread monopoly supervised by a Federal Bread Board. Its members, appointed by the President, would decide how much bread should be supplied. It would be a central planner’s playground but every consumer’s nightmare. Shortages, surpluses, and political shenanigans of every stripe would ensue.

But as it is, thankfully, bread is supplied by the market—by multiple, private, competing enterprises. It comes in numerous shapes, sizes, and recipes. If bakers offer too little or too much, they’ll get the message by way of rising or falling prices. No pompous, presumptuous central planners are needed.

Historically, when free markets governed our money, precious metals arose as its most reliable form. World history’s greatest advances of wealth creation occurred during the times of price stability that gold and silver provided. Economist Henry Hazlitt wrote eloquently in defense of such sound money:

It is the outstanding merit of gold as the monetary standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pressure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.

Of course, power-focused politicians are not much interested in sound money. It restricts their ability to spend. Have you ever wondered if they really know what they are doing when they throw other people’s money around like wastrels? In a moment of remarkable candor, former Missouri Senator John Danforth told a newspaper in 1992:

I have never seen more senators express discontent with their jobs…I think the major cause is that, deep down in our hearts, we have been accomplices to doing something terrible and unforgivable to this wonderful country. Deep down in our hearts, we know that we have bankrupted America and that we have given our children a legacy of bankruptcy….We have defrauded our country to get ourselves elected.

This article was written by Larry Reed and appeared at El American.

Image credit: Liz West

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Fears of further Fed tightening continue to weigh on metals markets.

On Wednesday, the Federal Reserve released the minutes from its most recent policy meeting. As CNBC reported, central bankers remain fixated on inflation.

CNBC Reporter: The minutes of the latest Fed meetings show that officials agreed that another rate hike of 50-75 basis points would likely be appropriate at its meeting later this month. Officials also acknowledge that there could be an even more restrictive stance that could be appropriate if inflation remains high. Now, the minutes show that Fed officials were worried about inflation becoming entrenched, that was debated several times in this document. Many participants viewed that as a significant risk.

The Fed has abruptly pivoted from insisting inflation is transitory to scrambling to prevent it from becoming entrenched. But worsening economic conditions may force it to pivot abruptly again to try to stave off a recession.

FOMC policymakers didn’t mention the “R” word in their latest statements. But markets are now pricing in an 85% chance of a recession. Data to come may confirm that we are already in one.

But as usual, the Fed will find itself behind the curve and late to act.

Among the indicators flashing recession warnings is the copper price. Often referred to as “Dr. Copper,” the industrial metal tends to have a better forecasting track record than most Ph. D economists.

Copper prices have plunged more than 30% from their spring highs. Although they did rally strongly on Thursday, the magnitude of the decline suggests that industrial demand and therefore economic output is heading down.

As for gold, it tends to be much less economically sensitive than base metals. It can even move in the opposite direction during recessions.

For now, though, the gold market is struggling to find support. The monetary metal currently checks in at $1,755 an ounce, down 3.5% for the week.

The silver market was unable to hold above the $20 level this week. Silver is off 2.6% since last Friday’s close to being spot prices to $19.57 per ounce.

Platinum is essentially unchanged to trade at $909. And finally, palladium is putting together a near $200 or 9.5% gain for the week to come in at $2,204 an ounce as of this Friday morning recording.

Despite strong, sustained demand for physical bullion, the paper trading markets for precious metals continue to be dominated by institutional short sellers. The ongoing suppression of gold and silver prices is causing physical investors to feel frustrated – perhaps even cheated.

These markets have often been the targets of organized manipulation schemes. But some of the bad guys have been caught red handed and now face being brought to justice.

This week brought some major developments in metals market manipulation cases.

On Wednesday, a U.S. appeals court upheld the 2020 fraud convictions of two Deutsche Bank futures traders. The traders had placed “spoof” orders for precious metals contracts, generating phony market action to manipulate prices in their favor.

And on Thursday, the trial of one of the most powerful players in the paper gold market kicked off. Former JPMorgan Chase managing director Michael Nowak stands accused of generating hundreds of millions of dollars in profits from fraudulent precious metals trades.

Using spoofing and other tactics to manipulate futures markets, Nowak allegedly helped enrich J.P. Morgan’s top clients at the expense of small traders. Prosecutors charge him and two colleagues with running a criminal enterprise.

The trial could expose some of the banksters’ most closely guarded secrets. They have a long history of engaging in shady practices to dominate futures markets.

According to Bloomberg, J.P. Morgan controls three times as many precious metals derivative contracts as the next biggest player. If the mega bank were forced to relinquish its market dominance, it could be a game changer for price discovery in metals contracts.

But for now, J.P. Morgan continues to throw its weight around in gold and silver markets on a daily basis. And it continues to fuel suspicions that it is keeping an artificial lid on prices.

Gold and silver investors would be wise to steer clear of futures markets and derivative products that are controlled by large financial institutions. There are no paper substitutes for physical metal. And the fewer people who play in the rigged financial casinos, the less control the big banks will be able to exert on prices.

Turning to current market conditions in the U.S. retail bullion market, premiums have not yet risen in response to overwhelming demand over the past week triggered by the latest market correction – but that could change soon if the bargain hunting persists. With only a couple exceptions, there are no shipping or processing delays at Money Metals.

Meanwhile, bureaucrats at the dysfunctional U.S. Mint have again fallen flat on their faces, this time with respect to 2022 Gold Eagle production. Poor planning at the government institution will lead to shortages of nearly all types of gold Eagle coins – and higher premiums as well.

Money Metals continues to encourage customers to steer clear of gold and silver Eagles and choose from the many other more cost-effective ways to accumulate precious metals. There’s really no good reason to tie up good money in high premium items when there are so many other great options available – whether it be coins minted by other sovereign mints, or privately minted rounds and bars.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

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