Economics is often referred to as the ‘Dismal Science.’ The moniker is alleged to have originated in the nineteenth century when historian Thomas Carlyle responded to the writings of The Reverend Thomas Robert Malthus, who had grimly predicted that starvation would result as projected global population growth exceeded the rate of increase in the food supply.
For the past one hundred and fifty years, give-or-take, the mainstream has scoffed at Multhus and his dire predictions; but to be honest, I’m now wondering if he might have simply been early with his call.
Let me explain:
For the bulk of the last one hundred and fifty years [up until 1971] much of the world’s money systems were backed by, or at least, ‘teathered’ to gold.
Above all else and in case anyone ever forgets: A gold standard enforces monetary discipline. It does so because under a gold standard participating countries commit to fix the prices of their domestic currencies in terms of a specified amount of gold. In other words – under a gold standard the amount of money being created was governed by the amount of precious metal being mined from mother earth.
Under such a disciplined regime, like the gold standard, one might very well be led to believe that grim Malthusian predictions are unlikely if not outright impossible.
Many learned economic scholars contend that monetary discipline went ‘out the window’ back in August 1971 when President Nixon repealed the gold standard, claiming,
“We are all Keynesians now.”
While the closing of the gold window ‘sealed the deal,’ one might consider that monetary discipline was abandoned at a much earlier date – circa 1964 when Lyndon Baines Johnson cut taxes to expand purchasing power and boost employment. After all, there was a war of questionable making to fund and fight then, too.
When the Long Run Creeps Up On You
Ironically, it was John Maynard Keynes who had no patience with responsible, disciplined economic theorists who assumed that, if monetary discipline was maintained, everything would work out in the long run:
"This long run is a misleading guide to current affairs," Keynes wrote early in his career. "In the long run we are all dead."
Over the past 40 or so years, our adherence to Keynesian monetary principles has necessitated and fueled the “redefinition” of how inflation is measured, and how national accounts are concocted; even the sanctity of the interest rate mechanism has been ‘neutered.’
If you believe the yeomen’s work of John Williams of Shadow Gov’t Stats – this helps explain how we get bogus inflation reports from officialdom in the 2% range when, in reality, it is running “double-digits.”
Historically, bond vigilantes would have spotted the ruse and sold bonds raising rates of interest to levels commensurate with real inflation rates at 10% plus the historic premium of 250 points or 12 – 14% nominal market rates.
If you’re wondering where the bond vigilantes have gone:
They have all lost their jobs. Long ago, the last of the true bond vigilantes sold bonds – intuitively correct I would argue – not realizing that J.P. Morgan’s Swap Book was a “black hole” of stealth artificial demand. They lost their shirts along with their jobs.
Nowadays, bond traders who have chosen to remain employed resemble trained monkeys and play the game the way their masters intend them to. Monetary authorities have long been pursuing expansionary monetary policies while attempting to cloak their actions by suppressing the gold price, redefining inflation on numerous occasions along with the suppression of other natural market reactions.
This has completely perverted our whole banking and monetary system. The evidence is EVERYWHERE and staring us all in the face.
Despite all of this, this past week the U.S. Senate conducted hearing with such celebrated luminaries as George Soros and Jerry Ramm [president of the Inland Oil Co. of Ephrata, Wash.] who proclaimed,
"Excessive speculation on energy trading is the fuel that is driving this runaway train in crude oil prices."
Ladies and gentlemen, excessive speculation is a BYPRODUCT of too much money creation.
From a forensic perspective it appears that the Malthusian and Keynesian paths have merged into one – or perhaps, were they one-and-the-same path all along.
Fiat money has been debased on a grand scale. Ownership of precious metal[s] has historically insulated one from the ravages of fiat currency debasement.
Have you adequately protected your assets? Haven’t we all been fleeced enough?
Today’s Market
Overseas equity markets began the week on a sour note with Japan’s Nikkei Index losing 308 points to close at 14,181. North American markets ended the day mixed with the DOW up 70.50 to 12,280.30, the NASDAQ off 15.10 to 2,459.46 and the S & P up 1.05 to 1,361.75. NYMEX crude oil futures lost 3.91 to finish the day at 134.63 per barrel.
In the interest rate complex the benchmark 5 yr. gov’t bond ended the day at 3.40% while the 10 yr. bond ended the day at 4.01%.
On foreign exchange markets the U.S. Dollar Index gained .63 on talk the Fed was going to be “tough” on inflation – closing at 72.94.
Precious metals ended the day mixed with COMEX gold futures ending the day at 892.90, off 10.10 per ounce on the day while COMEX silver futures lost .39 per ounce to end the day at 17.14 per ounce. The XAU Index gained 1.45 to 185.15 while the HUI Index added 1.39 to 433.01.
On tap for tomorrow at 8:30 a.m., April Trade Balance data is due – expected - $58B vs. prior - $58.2B.
Wishing you all wonderful thoughts and a pleasant evening!
