The Four Challeges In Reforming Economic Governance

“It's easier to fool people than to convince them that they have been fooled.”

Mark Twain

This is an interesting discussion by Jeff Sachs, about where we are and why we are there.

It is from Jeff Sachs talk at the Martin School at Oxford.  I join it in progress. 

I have come to believe that nothing will change until the financiers blow up the system for a third time.  And then the variables will start filling in, and falling into place.  

I am especially interested to see what the 'outliers' do in response to this, they being the large actors outside the domestic system, primarily the BRICS.   China and Russia in particular, but also the rest of South America and East Asia and the subcontinent.  Africa not so much as of yet.

But to some extent a bellwether will be Europe, which will have a key choice to make.  And of course the Anglo-American public, but the poor souls are being let down badly and led astray by their leaders.

 

Gold Daily and Silver Weekly Charts - Option Expiration Next Week

As a reminder, next Tuesday the 26th will be an option expiration on the Comex.

There is intraday commentary about a South African bond denominated and paid for with gold.  This is the first issuance of a real gold bond in many a year.

I would expect most of official shilldom and the financial status quo to ignore this. Until another country or entity does the same thing, and then they will speak out against such flagrant barbarism.

The rest of the world (ROW) seems to have noticed that the Fed has a printing press, and that they are willing to create vast amounts of money, and distribute it to whom they please.  And they may not believe in the theory that says that such behavior by a sovereign monetary authority has no consequences. 

Add an almost blatant criminogenic financial system organized and controlled by its serial offenders, and those with the means and the will start to seek alternatives, wherever they may.  Sovereigns do not appreciate being bullied and cheated like the run-of-the-mill domestic customers.

We will be getting a bit more economic news next week.  A listing is included below.

So far this month about 593,400 ounces of gold have been 'stopped' at the Comex.  Nothing ever seems to leave their warehouses, however.  It has the character of a speculative shell game.  Wagers are made, and things are moved around the table, but nothing much changes hands except the bets.

If the BRICS have a mind to do things with their gold reserves, they may have to create a more robust and responsive system of price discovery than the Liar's Poker on the Hudson called the Comex.  So let's watch for developments there.

Remember the poor, the infirm and suffering, those who are tempted to despair, and those who have no one to care for them.  And when you cross paths with your fellows, keep in mind that they also may be having a hard time of it, and try to bring a little joy and consolation into their lives.  "Clothe yourself in light, the Lord's glory shines upon you,”

Have a pleasant weekend. 

 

SP 500 and NDX Futures Daily Charts - Jackson Holes, Hunger Games

Janet Yellen made her Fed debut at their Jackson Hole conference today.

Her remarks moved the markets back and forth a bit, and in light volumes with littler other geopolitical and economic news the markets did a sideways consolidation.

Well, there was some news. Various government figures have started warning about a large scale terror attack by ISIS. One can only wonder what time the next building falls down.

Not to worry one might think, at least judging by the VIX which continues to fall to relatively complacent levels, lulled by the Fed, with a milky smile on its lips.

The discussions are primarily useless on most financial television shows. They typically present the viewer with a false dichotomy.  Either the Fed must have done exactly as it has done, or it would have done nothing, with a 1930's Depression as the result. Take your pick of a purely binary choice, just like the US elections.

Perhaps there are a broader range of policy alternatives to consider? Not on the Capitol District's bubblevision.

Have a pleasant weekend.

A Bond Paid For and Denominated In Gold: A Rhyme From the Past

I don't think that we have seen such a thing since the gold bonds which went the way of the twenty dollar gold piece in the early part of the 20th century.

There is a Bloomberg story on this today that is not generally available so I do not have a link as yet. It will be added as it becomes available.  An astute reader sent it my way.

 

(Later) Here is the story as it has come out on the web as Gold Bonds' Glittering Future.

Here is the actual bond announcement on the JSE site.

As you may recall, South Africa puts the 'S' in BRICS.

Most Americans will struggle with the notion of using any other measure of value than the US dollar, because they have had so little exposure to foreign exchange, except for the occasional trip to Canada or Mexico.    But the rest of the world seems more keenly aware that notional currencies are various forms of measurement of value, and the 'referees' can move the goalposts if they will.

I am not so sure whether it is a good investment or not.  After all, a bond is a bond, and represents the credit risk of the issuer, no matter what yardstick is used to measure it. 

 

When thinking about this bond it is important to remember that the krugerrand is legal tender in South Africa.  The bond is denominated specifically in krugerrands.

As I see it, all the uses of gold in traditional ways have a common weakness.  Price discovery is too driven by the bucket shops and carney games of the Banks, where price can be whatever they wish it to be, at least judging by the rigging scandals in nearly everything. 

The US dollar had a nice long run as the post WW II under Bretton Woods I & II because, as Fed Chairman Greenspan put it, the dollar emulated the stability of a gold standard.  

Alas, that has given way to the more fashionable "Liars's Poker Standard" which has become de rigueur with the Banks.  National sovereigns eventually chafe at being cheated and abused, in the manner of domestic customers.  So I expect the changes to show up first in the international payments arena.  Oh yes, they already are.  Mirabile dictu.

I assume there are plans to change that for a more 'delivery based' supply and demand price discovery mechanism, most likely centered in Asia where the transactions and exchanges of bullion seem to be located.

But it is certainly an interesting development to see a real bond denominated in both purchase and payout with gold as its underlying 'currency' once again.  As the force and fraud of the status quo increases, those who have the means and the determination will seek their alternatives, one by one at first. 

And to all the banking cartel trolls, shills, and performance artists,  remember that you have brought this on yourselves.  It is not due to any plot by those who are jealous of your great success.  It is because you were too greedy and dishonourable to stop yourselves from destabilizing the financial system, once again.  Winning...

What will we remember next?  

Gold Bond Harks to Gilded Age and Presages Future

By Mark Gilbert

Aug. 22 (Bloomberg View) -- In these post-credit-crisis days, true innovation in the shell-shocked world of money is a rarity. Mistrust of the financial industry, central banks and fiat currencies, however, is ubiquitous. So a new breed of security that combines innovation and mistrust is noteworthy.

FirstRand Bank Ltd., South Africa's second-biggest lender, has created what seems to be the world's first fully gold-denominated bond, borrowing 2 billion rand ($188 million) for five years. Investors have to pay for their bonds in krugerrands, gold coins minted by the South African government with one troy ounce of the metal.

One of the charges leveled against gold -- the "barbarous relic" in the sweeping judgment of John Maynard Keynes -- is that you don't earn interest or dividends on the precious metal; the FirstRand bond offers 0.5 percent:

At its expiry the value of the bond is determined by the current gold price, the Dollar/Rand exchange rate and the interest earned. This interest is calculated in terms of ounces of gold as represented by Krugerrands. Investors may take physical delivery of the Krugerrands on maturity or opt to get settled in cash...

Elizabeth Warren: What Happened to the Middle Class?

You cannot possibly fix it if you don't know what happened.

A Warning From 1995 About the Repeal of Glass-Steagall

Here is a reprint of a warning that was published in the NY Times in 1995 about Robert Rubin's and Alan Greenspan's misguided attempts to overturn Glass-Steagall.

Any reasonably informed student of economic history ought to have understood this argument.

 

There was a well-funded, decade long campaign led by the Banks to overturn Glass-Steagall.  A lot of propaganda was written, and lot of political connections were made, and a lot of money was spent.

Too many were willfully blind. Some through their devotion to utopian ideology.  Others through devotion to their careers.  And even more just kept their heads down and hid their noses in their books and reams of irrelevant data.

And for the most part they still are, with many caught in a credibility trap. 

Until the music stops. 

 

Related:   The Long Demise of Glass-Steagall

NY Times
End Bank Law and Robber Barons Ride Again

 Sunday, March 5, 1995

To the Editor:

Re "For Rogue Traders, Yet Another Victim" (Business Day, Feb. 28) and your same-day article on Treasury Secretary Robert E. Rubin's proposal to eliminate the legal barriers that have separated the nation's commercial banks, securities firms and insurance companies for decades: The American Bankers Association, Senator Alfonse M. D'Amato, Representative Jim Leach and Treasury Secretary Rubin are gravely misguided in their quest to repeal the Glass-Steagall Act.

Their contention that insurance companies, commercial banks and securities firms should be freed from legislative obstructions is predicated on fallacious, historically inaccurate statements. If the Baring Brothers failure does not give them pause, a history lesson is our only hope before the Administration and bank lobby iron out their differences and set the economy back 90 years.

The argument that American financial intermediaries will become "more efficient and more internationally competitive" is false. The American financial system is the most stable, most profitable and most dynamic in the world.

The notion that Glass-Steagall prevents American financial intermediaries from fulfilling their utmost potential in a global marketplace reflects inadequate understanding of the events that precipitated the act and the similarities between today's financial marketplace and the market nearly a century ago.

Although Glass-Steagall was enacted during the Great Depression, it was put in place because the Aldrich-Vreeland Act of 1908, the blue-sky laws following 1910 and the Federal Reserve System of 1913 failed to keep the concentration of financial power in check. The investment climate that ultimately led to Glass-Steagall was one filled with emerging markets, interlocking control of productive resources and widespread bank ownership of securities.

Ever since railroad securities began driving secondary capital markets in the late 1860's, "emerging markets" have existed for investors looking for high-yield opportunities, and banks have been primary agents in industrial development. In the 19th century, emerging markets were scattered throughout the United States, and capital flowed into them from New York, Boston, Philadelphia and London. In the same way, capital flows from the United States, Japan and England to Latin America and the Pacific rim -- today we just have more terms to define the market mechanisms.

The economy and financial markets were even more interconnected in the 19th century than now. Commercial and investment banks could accept deposits, issue currency, underwrite securities and own industrial enterprises. With Glass-Steagall lifted, we will chart a course returning us to that environment.

J. P. Morgan and Andrew Mellon made their billions through inter locking directorates and outright ownership of hundreds of nationally prominent enterprises. Glass-Steagall is one crucial piece of a litany of legislation designed to place checks and balances on the concentration of financial resources. To repeal it would be tantamount to bringing back the days of the robber barons.

The unbridled activities of those gifted financiers crumbled under the dynamic forces of the capital marketplace. If you take away the checks, the market forces will eventually knock the system off balance.

MARK D. SAMBER

Stamford, Conn.

Feb. 28, 1995

The writer is a management consultant specializing in business history.