Fiat money and gold

It is time to revisit the Fiat Money Quantity (FMQ), which totals US dollar money deposited in the banking system, the commercial banks’ money on deposit at the Fed and physical cash.

Besides alerting us to how the expansion of fiat money is progressing, an objective of this exercise is to give some guidance on the price relationship with gold. It is particularly appropriate at a time when banking analysts have turned generally bearish, believing that the rally in gold is now over. Continue reading Fiat money and gold

How not to manage a currency

Make no mistake, sterling’s collapse is a very serious development, and has serious consequences for sterling interest rates.

While it is becoming apparent that interest rates are going to have to rise possibly for all currencies on a one-year view, sterling’s problems are the consequence of bad judgement, and perhaps intellectual arrogance on the part of the Bank of England’s Monetary Policy Committee. The MPC in turn is not and cannot be independent from the influence of Mark Carney, the Bank’s Governor, who made the expensive error of intervening in the Remain campaign. Continue reading How not to manage a currency

Trade deals – a global issue

The annual Conservative Party conference commenced last Sunday, and the media focus was mostly about the Government’s stance on Brexit.

This is hardly surprising, because Mrs May is being secretive, avoiding stoking a public spat with the EU by negotiating in public. The only hard news to emerge was that Article 50, formally giving notice of Britain leaving the EU, would be triggered by the end of March, in other words before the end of this tax year.

Brexit is mostly about trade deals, which is why big business is lobbying furiously, and EU functionaries are winding up their punitive rhetoric. In the US, Donald Trump has also wound up the rhetoric over trade, threatening to tear up NAFTA and refuse to ratify the trans-Pacific partnership. He also attacked China, accusing her of stealing American production and jobs. We should never believe anything a politician says on the stump to gain votes, but if nothing else Trump does seem to have identified electoral resentment on the trade issue.

This article looks at the theory behind trade, and finds that free trade, not the promotion of vested interests, should be the clear economic objective. But it also concludes that differing approaches to this thorny subject could accentuate the split between world trade into two separate streams, between fast-growing emerging economies and an increasingly sluggish old order. Continue reading Trade deals – a global issue

America is on a slippery slope

It hadn’t happened before, at least not since US presidents started visiting foreign countries after the Second World War.

In early September, when President Obama landed at Hangzhoi for the G-20 summit in early September, the CIA security men were told in no uncertain terms by the Chinese that they were not in charge of landing arrangements, and that the President would disembark by the rear exit. It had the hallmarks of a calculated snub, as did the obligatory photograph of the world’s leaders, where the President was placed firmly on the far left, and not near the centre, which is customary. Continue reading America is on a slippery slope

The root cause of monetary confusion

Arguments about sound and unsound money often degenerate into a them-and-us dispute, with the supporters of unsound money casting sound money proponents as impractical out-of-date libertarian weirdos.

Supporting one side or the other as if they were opposing football teams does not represent constructive debate, which must be approached with an open mind.

This has now become crucial, because conventional and even unconventional monetary policies have demonstrably failed in their objectives, so it is time to look at the problem from another angle. This article does this by drawing on the implications of Gibson’s paradox, its recent resolutioni, and its apparent absence in the post-Volcker years. Continue reading The root cause of monetary confusion