Why Gold Is Still The Best Basis For Money

Image result for Why Gold Is Still The Best Basis For MoneyAs we continue to enjoy the “Yellen gold standard,” now in its Powell phase — who knows how long it will last — let’s look at why the gold standard system worked so well for so many centuries, including nearly two centuries of U.S. history before the rupture in 1971, during which time the United States became the wealthiest country in the history of world.

In 1971, the economist Arthur Laffer — he was the chief economist of the Office of Management and Budget at the time — was asked what he thought the consequences would be of Nixon’s “closing of the gold window,” which effectively ended the Bretton Woods period when the dollar’s value was fixed at $35/ounce of gold.

“It won’t be as much fun to be an American anymore,” Laffer reportedly replied. And he was right.

But why? Why is it that the collective intelligence (let’s be generous) of today’s central bankers, and indeed all the central bankers since 1971, cannot outperform a yellow rock? This probably strikes some as bizarre, but it has always been thus. Way back in 1928, in a book called The Intelligent Woman’s Guide to Socialism and Capitalism, George Bernard Shaw declared:

“You have to choose … between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

It’s the same today. These things never change. Ninety years ago, intelligent women understood these things.

To understand why gold works, as a standard of monetary value, you have to understand what makes good money. Today’s cryptocurrency enthusiasts are rediscovering what monetary thinkers have always known: that the best money is stable money, or, as I like to term it, Stable Money — money that is stable in value. After learning that Bitcoin and its ilk make splendid devices for gambling (the continued popularity of places like Las Vegas and Macau show that there remains a large interest in such things), but a rather poor currency — exactly as I said would happen some years ago — the cryptocurrency engineers are now focusing their energies on developing “stablecoins.”Image result for Why Gold Is Still The Best Basis For Money

Ideally, a currency would be perfectly stable in value. The market economy is organized via prices, profit margins, returns on capital and interest rates. Changes in the value of the currency derange this process, creating chaos and havoc. John Maynard Keynes described in 1923:

“[Markets] cannot work properly if the money, which they assume as a stable measuring-rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls to individuals, the speculator, the profiteer–all proceed, in large measure, from the instability of the standard of value.”

In The Scandal of Money (2016), George Gilder updated this insight, using the tools of modern information theory:

“Casting a shroud of uncertainty over all valuation, monetary manipulations shorten the time horizons of the economy. In information theory, the dominant science of our age, when a medium sends a message of its own–static on the line–it’s called noise. Noise in the channel reduces the channel’s capacity to transmit accurate information.”

In practice, such idealized perfection is not quite possible, so we have to go with the next best thing. The next best thing is gold: the thing that most closely approximates this ideal of stability of value. President James Madison summed up succinctly:

The only adequate guarantee for the uniform and stable value of a paper currency is its convertibility into specie [gold]–the least fluctuating and the only universal currency.

James Madison understood this.

And the United States became one of the most successful countries in the history of the world because people like James Madison understood it, and adhered to this principle from 1789 to 1971.

In this single sentence, Madison touched on some important political truths. You might argue that, ideally, “smart people” could get together and create some better — that is, more Stable — foundation for money than gold. But, you might also notice that nobody actually does this. They don’t even try, and never have, in the past five decades of floating fiat money. One reason for this is that they are human: consequently, they crumble to political pressures, while gold does not. Even if you could invent some statistical concoction that is a better measure of Stable Value than gold — although no human ever has — arguably, no human institution could ever implement it for any length of time. Just look at how statistical concoctions like the Consumer Price Index have been continually altered, each time in response to political pressures, and to serve political ends. This is one reason why, as Madison asserted, gold remains “the only adequate guarantee for the uniform and stable value of a paper currency.”

Related to this is the fact that gold is the “only universal currency.” It is the only thing (along with its adjunct silver) that all people have agreed to use as the basis of money, which then allows fixed exchange rates between countries, vastly simplifying trade and investment. In the pre-1914 era, most major governments participated in the world gold standard, which was simply the extension of many centuries of gold and silver coinage used throughout the world. This system was reassembled during the 1920s, and again in 1944, at Bretton Woods. We have had no difficulty establishing world monetary systems based on gold.

Contrary to popular belief, most countries today do not have freely-floating currencies. According to the International Monetary Fund, about half of all countries actively “anchor” their currencies to something else, usually a major international currency like the dollar or euro. In other words, they have fixed exchange rates. Another 25% of all currencies are “stabilized” against a major international currency, which remains the reference although exchange rates are allowed to drift somewhat. Either “anchored” or “stabilized,” most currencies today are part of the dollar or euro currency blocs. The only significant difference between the euro currency bloc, and the prior world currency bloc based on gold, is the standard of value: gold, or the floating fiat euro.

Despite this enthusiasm for fixed exchange rates (a form of Stable Money), there is little interest today in establishing a unified world currency bloc. We could, for example, form a world currency bloc around the euro, and the IMF has long promoted such solutions. Then, the world would be free of the difficulties of floating currencies. The dollar/euro exchange rate would be fixed, along with the pound/euro, yen/euro and other exchange rates.

The simple reason is that nobody would trust the European Central Bank. I wouldn’t — because the ECB is subject to political pressures, or other agendas, to which gold is immune. The ECB can also serve as a means of imposing political pressures.

Actually, the world did have a system like this. It was called the Bretton Woods arrangement. The British pound, German mark, Japanese yen, French franc and all other world currencies were nominally linked to the U.S. dollar. The reason why they agreed to this is that the U.S. dollar was also linked to gold, at $35/oz. When the dollar left gold in 1971, nobody was interested in remaining linked to the dollar, and currencies floated. They still float today.

Gold’s performance as a standard of Stable Value has been exemplary. It is, actually, a lot better than one might rationally expect. The things that the gold standard made possible — such as the extraordinary stability of bond yields during the nineteenth century — have never been replicated under fiat currencies. Just look at those results (achieved without market manipulation), and tell me which central bank wiseguy — give me a name of a real person — that you think could accomplish this; and then explain, if that is true, why they haven’t done so already.

Yields on long-term government bonds: U.S. (1970-2017) and Britain (1830-1880)NATHAN LEWIS

Economies work best when currencies are stable in value. Once we know what the goal is, we then look for a way to achieve it; and the best way has always been to base a currency on gold. Nobody has found a better way, even in the form of a proposal; and nobody has ever needed to find a better way, because gold has always worked very well.

[“source=forbes”]

A Murky Flood Of Money Pours Into The World’s Largest Election

Prime Minister Narendra Modi’s party has spearheaded moves to loosen campaign finance laws in India, generating criticism that businesses—and foreigners—could potentially wield unprecedented influence over the election starting next month.

The new rules let corporations, including those partly owned by foreign entities, fund elections anonymously. They also permit businesses to bankroll political parties through opaque instruments called electoral bonds and enable shell companies to be conduits for election funding.

A Murky Flood Of Money Pours Into The World’s Largest Election 

The changes, which Modi’s party has said were designed to at least partially account for undocumented cash long used during India’s elections, may actually make it easier—and legal—for anonymous donors to support political parties. Spending on the election ending May 23 is set to rise 40 percent to 500 billion rupees ($7 billion), according to the New Delhi-based Centre for Media Studies.

“It won’t be an exaggeration to say our elections will never be the same again,” said N. Bhaskara Rao, the group’s chairman, who has advised previous Indian governments. “What is this if not the auctioning of our democracy to the highest-paying corporation?”

Modi swept to power in 2014 promising a business-friendly administration that would transform India’s image on the world stage. He remains the favorite for many investors, despite more recently introducing populist policies to boost support in rural India and tightening rules against corporate defaulters.

The biggest innovation in India’s campaign finance laws is the anonymous electoral bond. Despite the name, they bear little resemblance to the promissory notes investors are familiar with: Buyers aren’t paid any interest.

Anyone can buy an electoral bond at the government-owned State Bank of India in denominations ranging from 1,000 rupees to 10 million rupees ($14 to $140,000). Afterward they are delivered to a political party, which can exchange them for cash. They don’t carry the name of the donor and are exempt from tax.

A Murky Flood Of Money Pours Into The World’s Largest Election 

“Electoral bonds have made political parties completely beholden to unaccounted money, which could even be foreign money or money from dubious sources,” said Jagdeep Chhokar, the former head of India’s top business school and the founder of the Association for Democratic Reforms, a group that researches elections. “Corporate agendas can run the show.”

Finance Minister Arun Jaitley, who first announced plans for the electoral bonds in 2017, argued last year that they actually help improve transparency because they are banking instruments and every political party has to disclose how much it received. If full transparency is required, donors would go back to cash, he wrote in a January 2018 Facebook post.

For those in India worried about anonymous money in politics, the process for changing the laws has offered little reassurance that the new measures are an improvement.

System Overhaul

India’s campaign finance overhaul began in 2017, when parliament approved an amendment that made it easier for companies to donate to campaigns, including removing a cap on corporate donations (the maximum used to be 7.5 percent of a company’s average net profits over three years). Now new firms can also donate to political parties, opening the door for shell companies to be set up expressly for the purpose.

Also eliminated were requirements for companies to disclose how much they donated and to which party.

A Murky Flood Of Money Pours Into The World’s Largest Election 

The changes were introduced in parliament via a money bill, a measure that only needs to be passed by the lower house controlled by Modi’s ruling coalition and not the opposition-led upper house.

A similar tactic was used to pass with little debate rules that changed the definition of a foreign company. Previously, all subsidiaries of international entities were treated as overseas donors and not allowed to make political contributions. Now if a foreign firm has a stake of less than 50 percent in a company operating in India, that unit can fund Indian elections.

While several lawmakers protested the moves, analysts said the amendments will benefit both Modi’s Bharatiya Janata Party as well as the main opposition Congress party.

“Nobody from the opposition spoke up,” Rao said. “Maybe everybody realizes they stand to gain if they come to power?”

In 2014, the Delhi High Court found both major parties guilty of violating foreign-exchange laws when they accepted a donation from London-based commodities giant Vedanta Resources Plc.

(The suit, filed by a former top bureaucrat and the Association for Democratic Reforms, was against the political entities and Vedanta wasn’t a party. The company didn’t respond to request for comment. The BJP and Congress argued the donations weren’t foreign because the Vedanta units that channelled the money were registered under Indian law.)

The law passed last year changed the definition of a foreign company all the way back to 1976, effectively nullifying the court’s verdict because Vedanta’s overseas parent owned less than 50 percent of the Indian unit.

The government has defended the revisions, saying they were intended to align the definition of “foreign source” with the nation’s foreign direct investment policies, and other laws bar political funding from abroad. GVL Narasimha Rao and Nalin Kohli, representatives of Modi’s BJP, didn’t respond to requests for comment.

The latest official data show that Modi’s ruling party won the bulk of financing in the year ended March 2018, both through corporate donations and electoral bonds.

A Murky Flood Of Money Pours Into The World’s Largest Election 

In 2018, electoral bonds worth about 10.6 billion rupees ($150 million) were purchased, according to data obtained under India’s Right to Information Act by Factly, a data journalism portal in India. About 90 percent were of the highest denomination available, which is out of reach for the average citizen.

India’s rules governing political contributions are looser than other major democracies. In the U.K., companies aren’t directly allowed to make donations to political parties. The U.S. allows unlimited funding through political action committees called super PACs on federal election campaigns, but requires them to disclose the names of donors. Milan Vaishnav, Washington-based senior fellow at the Carnegie Endowment for International Peace, who’s edited a book on Indian political funding, said he hasn’t seen an instrument like electoral bonds in any other country.

“In most advanced democracies, transparency is a core principle,” Vaishnav said. “Few advanced democracies legitimize opacity in the way India has done.”

[“source=bloombergquint”]

The Money School Created By A Financial Guru & Bestselling Author Who Triumphed To Build Wealth

New York Times bestselling author and financial guru Nicole LapinIMAGE COURTESY OF NICOLE LAPIN

Long-term goals, budgeting, saving, and enjoying small indulgences are a some of the key things you will often hear explored by financial guru and New York Times bestselling author Nicole Lapin. Lapin founded The Money School after a role as an anchor on major television networks where she noticed a large gap in populations that gained access to financial literacy knowledge. The population Lapin desired to support was the former version of her self. The one, the founder describes as: “that girl who was smiling, nodding, and not joining basic money conversations because she was too freaked out and too scared to do it.”

As a first-generation American, Lapin was raised in a household where financial literacy was not primarily taught or spoken of. Growing up, at age eleven, she encountered the loss of her father due to a drug overdose and a lack of guidance from her mother. During this time, Lapin describes seeing her parents primarily make money moves that were not the most ideal. This sparked her desire to write a new trajectory for her future.

By starting from the ground up, Lapin expresses taking any job she could from working at a low salary to accumulating credit card debt, and more. Finally, with determination and grit, she landed a job as a business reporter and it just happened that the role was in the field of finance. While feeling clueless and freaked out about the language of money, Lapin explains that she had to learn the language of money the hard way because her job demanded that she spoke it to the world.

Learning The Language of Money

At the “school of hard knocks” the financial expert, who then was the process of acquiring greater knowledge, details that she encountered a plethora of funny affirmable moments along the way. Through her work, Lapin shares these experiences to challenge others to embrace being comfortable with learning and growing through unfamiliar spaces.

For example, while Lapin was on the floor of the Chicago Mercantile Exchange she gathered her belongings to head to an interview with a few founders. On her way out she recalled her manager asking: “Do you have the P&L?” And she responded: “No” staring with a puzzled grimace. “No, I don’t have to pee,” she thought to herself. In another instance, Lapin describes thinking that a former boyfriend was a garden “hedge manager” given his role at a hedge fund.

To Lapin, money has served as a language to be learned and one that we often don’t realize can serve as the biggest hurdle for bridging avenues to opportunities in our financial lives.

Pervasive Disparities in Financial Education 

Learning the language of money has become instrumentally important due to an ongoing widespread dialogue surrounding the financial literacy education gap in America. Currently, two-thirds of American adults are said not to be able to pass a basic financial literacy test, 54% of Millennials express worry that they will not be able to pay back student loans, and only 16% between the ages 18-26 feel very optimistic about their financial futures.

To counter these disparities at a national scale, Lapin advocates for lobbying for more financial education in our governmental system to bridge what she notes as “a personal budget deficit.” However, in addition to lobbying at the national level, she advocates helping others explore a fundamental piece of the puzzle that they truly can control, which begins with themselves. She articulates this by sharing:

People say all the time I’m freaked out by the stock market; I’m freaked out by all of these things. And all we really have control over is ourselves. This is a deeper component of the conversation because how we each interact within these markets permeates all aspects of our lives.

By founding The Money School, Lapin has created opportunities to support each individual learner where they are in their financial growth journey. Given that so often financial learning exists within traditionally broad topics explored in school such as macroeconomics, by meeting the individual learner where they are in the process Lapin shares practical hands-on tips and tricksfrom writing checks to completing taxes or making a budget.

IMAGE COURTESY OF NICOLE LAPIN

One Solution: The Money School

The Money School is an online community Lapin created where she shares a 12-step plan for helping others get their financial lives together. This plan has been tested in both of her books and the third book due to hit shelves soon. Traditionally, readers and students have found the guides to be easy to follow and iterate upon.

The financial guru and New York Times Bestselling author shares that the first step at The Money School is:

…Admitting you have a problem—and we all have problems—so that you can do something about it. From there, I wanted to create interactive video lessons, worksheets, and quizzes for the school community. Then bring in some cool experts and friends that I know from the business world to help along the way.

Overall, a key goal for the Money School is to rethink the way education around this topic looks. To do so Lapin has broken down finance into a language we often would use daily, like in a meeting with a circle of friends. Similar to friendships, she compares starting a new financial guide to embarking on a long-term endeavor. During the journey, Lapin says it’s “beneficial to set benchmarks and opportunities for small outings and/or indulgences so that you stay on track.”

How to Start Achieving Your Money Goals Today

To start achieving your money goals today, Lapin shares: “We really need to focus on our endgames and goals.” To cover these two areas, she recommends breaking down: 1) a spending plan into three E’s—essentials, endgame, and extras, and 2) goals into three F’s—family, finance, and fun. The Money School founder uses these alliterations to explore how we can look at our goals holistically due to our work lives and personal lives overlapping in numerous ways. In order to achieve true happiness, “we must achieve happiness in all areas,” she shares.

Additionally, when it comes to creating plans for money matters Lapin encourages those who wish to become financially fit to pursue money from a place of aspiration versus deprivation—mentality plays a crucial role in the process. For example, a person aspiring to build wealth settling to clip coupons and digging in the couch for coins may have greater adverse effects than one focusing on creating a savings plan.

As Lapin highlights:

…Figure out where you aspire to go and then reverse engineer your actions. The more I’ve been able to be real, the closer I’ve gotten to reaching my goals and you can too! For me, I had to get to a place where I was super vulnerable, authentic, basically naked, sharing all the stories I wanted to whiteout in the past when I tried to pretend I was perfect. Doing the internal work, only I could do for myself, made all the difference.

[“source=forbes”]

The impossible Cricket World Cup selection puzzle that looms

Steve Smith and David Warner are fully expected to be included in the 15-man World Cup squad.

It’s becoming increasingly hard for selectors to find the weak links in Australia’s ODI line-up as they stew over who to tap on the shoulder when Steve Smith and David Warner return.

The two, whose year-long suspensions expire later this month, are fully expected to be included in the 15-man World Cup squad that must be submitted by April 23.

Australia travel to the UAE for a five-match ODI series after Wednesday’s decider against India.

[“source=foxsports”]