Money

No Limit to Kuroda’s Monetary Easing?

Bank of Japan governor Haruhiko Kuroda two weeks ago stated that there is no limit to the Bank of Japan’s monetary easing measures. “There aren’t any such things as a quantitative limit or anything, any numbers we can’t overcome,” he was reported to have said. Kuroda must apparently adhere to the Weimar School of Economics or perhaps its more recent neo-Weimarian offshoot, the Zimbabwean School of Economics. Can Kuroda actually believe that there is no limit to what the Bank of Japan can do?

Central Banks, Fiat Money, and Barter

There have been many monetary cranks over the course of the centuries who have thought that creating more money would benefit society, and have sought to do so by creating money backed by assets. John Law’s Mississippi Bubble and its creation of money backed by land is one prominent example, and despite his failures such movements towards asset-backed money backed by real estate, copyrights, and other tangible or intangible assets still exist today. While the faults with such schemes are readily apparent to Austrians, they stem from a well-meaning desire that money should be backed by something of value.

Gold and silver coins used to be used as the currency of everyday transactions but they were replaced by banknotes, those being easier to handle and exchange. Banknotes were promised to be exchangeable for gold and silver, but banks and later central banks started to create more notes than they had gold or silver backing. Eventually the promise of exchange for gold and silver went by the boards and we were left with what we have today, a system of unbacked paper fiat money that can be printed ad infinitum. The only reason this fiat paper money has any value is because enough people trust that the government will not erode its value too much and because they believe that enough other people will accept it in exchange for goods that they will be able to use it to make purchases with it. If that trust ever erodes, however, all bets are off.

Patrick Byrne and the Blockchain

The Cato Institute yesterday held a cryptocurrency conference whose keynote speaker was Patrick Byrne, the CEO of Overstock.com. His speech came in the wake of his announcement that he is stepping down as CEO for an indefinite leave of absence due to health reasons. Byrne looked a little disheveled, had a noticeable cough at times, and mentioned that this speech marked the end of his professional career. It would be a shame, because his talk focused on settlement systems, an important aspect of any sort of trading. It isn’t the sexiest topic, but it has relevance to money and banking.

Sound Money and Fiscal Policy

The week before last marked my first time attending the Austrian Economics Research Conference, an annual meeting of economists of the Austrian School hosted by the Ludwig von Mises Institute in Auburn, AL. While many of the presentations were interesting, one that I found particularly helpful was that by Patrick Barron of the University of Iowa. What was especially useful was how he tied together monetary and fiscal policy. The connection between the two might seem self-evident to many Austrians, but it wouldn’t seem self-evident to the man on the street. Yet by tying the two together it should be possible to bring more people to support sound money.

India’s Gold Monetization Scheme Continues to Falter

Image: BOMBMAN

Image: BOMBMAN

Remember India’s gold monetization scheme, the one that tried to get Indian temples and other goldholders to turn over their gold to the government in exchange for regular interest payments? The scheme was so poorly constructed that in the first month only about 30 kilograms out of an estimated 20,000 tonnes of gold was turned over to the government. Then the Indian government threatened direct intervention if it failed to entice temples into turning over their gold hoards. And just a month ago the Indian government decided to reintroduce an excise tax on gold imports in order to stifle gold imports, resulting in a strike by Indian jewellers. So what is the Indian government doing now? It is promising medium- and long-term gold depositors that they can receive their deposits paid back in gold, whereas before they would only be paid back in rupees. Interest payments will still be paid in cash, while receiving gold deposits back at the end of the term will incur a 0.2 percent fee on the value of the gold. Will this be enough to entice India’s temples to deposit their gold with the government?

It all comes down to whether or not the temples trust the government to do what it claims it will do. It would be hard to trust a government that views private gold holdings as a barrier to its monetary policy operations to return deposited gold. Once that gold is out of private hands and in government coffers, there is no way to get it back if the government reneges on its promise. Only three tonnes of gold have been turned over to the government so far, so it is hard to see how this latest change to the scheme will result in any increase in trust or any huge boost in gold deposits. It is probably time for the Indian government to scrap this failed scheme, stop trying to set monetary policy, and allow the Indian people to decide for themselves what they use as money.

Today in History: April 5, 1933

TMH4
On April 5, 1933, President Franklin D. Roosevelt issued Executive Order 6102, requiring all gold coin, gold bullion, and gold certificates to be surrendered to the Federal Reserve Banks or to banks that were members of the Federal Reserve System. With very limited exceptions, it was now illegal for Americans to own gold. This state of affairs lasted until 1975. It was the movement to legalize gold ownership in the United States that influenced a young doctor in Texas to make his first forays into politics. That young doctor is known and beloved by millions today: Dr. Ron Paul. Even out of something as evil as outright gold confiscation, something good came about.

Full text of the Executive Order is below.

German Response to Negative Interest Rates: Safe Deposit Boxes

Image: -JvL-

Image: -JvL-

The Japanese response to negative interest rates was to buy personal safes. The German response is to pull money out of bank accounts and stick it in safe deposit boxes. Both are perfectly understandable reactions to the prospect of having to pay interest to a bank for holding deposits. It is particularly interesting in Germany, where the Bundesbank a few years ago admitted that the average real rate of return on savings deposits has been negative for nearly the past 40 years. Now that nominal rates have turned negative too, the facade of savings accounts as a safe place to park money to earn a little bit of income has finally been ripped away.

The European Central Bank Has Gone Full Retard

ECB Full Retard
Just when you thought central banks couldn’t get any nuttier, the European Central Bank (ECB) has gone and done it. One of the ECB’s new programs may actually pay banks to borrow from it. Take away all the accounting sleights of hands and the net result would be an outright payment to those banks. It’s a direct subsidy, so why all the subterfuge? Just set up a direct pay-for-loan system, the more the banks loan the more the ECB pays them. That’s what most likely will happen eventually. It would be much simpler and much more honest, which is probably why they’re not doing it right now.

A Brief Monetary History Of The United States: Part VIII

Today we bring you Part VIII of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:

  • Part I – Colonial Money and the Coinage Act of 1792
  • Part II – The Banks of the United States, McCulloch v. Maryland, and Private Coinage
  • Part III – Government Begins to Monopolize Currency
  • Part IV – The Legal Tender Cases and the “Crime of ’73”
  • Part V – The Rise of the Fed
  • Part VI – The Great Depression, Gold Confiscation, and the Gold Exchange Standard
  • Part VII – The Dollar Reigns Supreme: From Bretton Woods to Stagflation
  • Part VIII – The 1980s to the Great Recession and on to the Future
  • The 1980s to the Great Recession

    Economic conditions became so bad by the late 1970s that calls to return to the gold standard increased. Congress established a Gold Commission in 1980 to examine the possibility of a return to gold. Although President Reagan was publicly sympathetic to the gold standard, he did not restrain the anti-gold members of his administration. As a result, the Gold Commission was packed with supporters of the existing unbacked fiat monetary system. Despite the Commission’s ultimate endorsement of the fiat paper money system, the Commission’s work did provide some impetus towards the eventual adoption of legislation to authorize the minting of Gold Eagle coins by the U.S. Mint—the first gold coins minted by the United States since 1933.

    Quote of the Day: Ludwig von Mises

    The role played by ingots in the gold reserves of the banks is proof that the monetary standard consists in the precious metal, and not in the proclamation of the authorities.

    -Ludwig von Mises, Theory of Money and Credit

    This still holds true today, as governments, central banks, and the IMF continue to hold onto thousands of tons of gold. They know that once the experiment with irredeemable fiat money ends, it will end badly. And when that happens, they will still be sitting pretty with their vaults full of real money, loath as they are to admit it publicly.