Archive | Background RSS feed for this section

The Quantitative Beatings will Continue Until Economy Improves

The Fed’s purpose, when it comes down to it, is to buy bonds. Under their various “Quantitative Easing” (QE) programs, they sure have bought a lot of bonds. This pushes up the price of the bonds. Since the yield is basically the inverse of the bond price, this means the rate of interest falls. These [...]

Continue Reading Comments { 0 }

We Have Gold Coins: Why Don’t They Circulate?

The question asked by the title of this article is not rhetorical. It came up in the debate about Arizona Senate Bill 1439, which recognized gold and silver as legal tender. The bill passed in both the Senate and the House but was vetoed by Governor Jan Brewer, who was concerned the state would lose [...]

Continue Reading Comments { 0 }

In the Gold Standard, How Are Interest Rates Set?

The answer is profoundly important as we debate what sort of role gold ought to play and evaluate the various gold standards being proposed. If people are free to own gold coins directly, then the mechanics of setting the rate of interest are simple. Let’s define a term. The marginal saver is the saver who [...]

Continue Reading Comments { 1 }

When Gold Backwardation Becomes Permanent

The Root of the Problem is Debt Worldwide, an incredible tower of debt has been under construction since 1971, when President Nixon defaulted on the gold obligations of the US government.  His decree severed the redeemability of the dollar for gold and thus eliminated the extinguisher of debt.  Debt has been growing exponentially everywhere since [...]

Continue Reading Comments { 2 }

Contagion Defined

I have not really preferred the word “contagion.” When an effect happens, even in the monetary system, it has a cause. This is generally not merely that a similar thing is happening across a nearby border. The word contagion has connotations that because something is happening in Country X, then that by itself means it [...]

Continue Reading Comments { 0 }

Fractional Reserve Banking: the Real Story

There is an erroneous view of fractional reserve banking that claims all fractionally reserved banks are de facto insolvent. A variant asserts that if a bank takes in $100 of deposits then it can make $1000 of loans, creating money out of thin air. This view is false. To understand why, let’s look at the [...]

Continue Reading Comments { 0 }

The Loan: An Exchange of Wealth for Income

As the title of this essay suggests, a loan is an exchange of wealth for income.  Like everything else in a free market (imagine happier days of yore), it is a voluntary trade.  Contrary to the endemic language of victimization, both parties regard themselves as gaining thereby, or else they would not enter into the [...]

Continue Reading Comments { 0 }

Irredeemable Paper Money, Feature #451

Kondratieff, among several others, have observed that rising prices lead to rising interest rates and vice versa.  And the opposite case is also true, falling interest rates go with falling prices (all else being equal).  I plan to write a separate paper on this topic. One of the most important ideas proposed by Professor Fekete [...]

Continue Reading Comments { 0 }

Falling Interest Rates Destroy Capital

I have written other pieces on the topic of fractional reserve banking (Fractional Reserve is Not the Problem) duration mismatch, which is when someone borrows short-term money to lend long-term and how falling interest rates actually encourages duration mismatch.  Falling interest rates are a feature of our current monetary regime, so central that any look [...]

Continue Reading Comments { 3 }

Inflation: An Expansion of Counterfeit Credit

The Keynesians and Monetarists have fooled people with a clever sleight of hand. They have convinced people to look at prices (especially consumer prices) to understand what’s happening in the monetary system. Anyone who has ever been at a magic act performance is familiar with how sleight of hand often works. With a huge flourish [...]

Continue Reading Comments { 2 }