During the 1992 presidential campaign, former President Clinton's rallying cry was "It's the Economy, Stupid." He sang it to perfection and won the election. Today, the smart politicians (and economists) should realize that "It's the Money Supply, Stupid." One doesn't have to delve deeply into the mysteries of money to realize that money matters. But, you wouldn't know it from reading the deluge of polemics on whether a fiscal stimulus is, or is not, the proper prescription for most of the world's economies. Most of the doctors are misdiagnosing the real cause of the world's economic ills because they often fail to take the patients' monetary pulse. It's as if the diagnosticians were unaware of the connection between money growth rates and economic health.
This wasn't always the case. In the late summer of 1979, when Paul Volcker took the reins of the Federal Reserve System, the state of the U.S. economy's health was "bad." Indeed, 1979 ended with a double-digit inflation rate of 13.3%.
Chairman Volcker realized that money matters, and it didn't take him long to make his move. On Saturday, 6 October 1979, he stunned the world with an unanticipated announcement. He proclaimed that he was going to put measures of the money supply on the Fed's dashboard. For him, it was obvious that, to restore the U.S. economy to good health, inflation would have to be wrung out of the economy. And to kill inflation, the money supply would have to be controlled.
In this article about sound money, gold and silver, Will Bancroft takes a look at the current financial crisis and an issue that receives very little media air-time. We see how money backed by gold and silver bullion, weights or measures, is not just better money but also more conducive to liberty and social progress. Read on to learn how our current financial crisis is at heart a monetary issue.
There is much debate in the mainstream today about the apparent reasons for the on-going financial crisis. Unfortunately, little focus has been given to the very basis of economic activity; money. The money that we depend on to trade and save in is the most important foundation of an economy.
Money needs to be two things: a means of exchange, and a store of value. We need to use it to trade and then save.
Monetary history sounds boring and dull, but as a race predisposed to social interaction and trade, it is the most important historical appreciation we should have. Yet the classical views on sound money are still under-represented in the media, in politics, and certainly in finance.
TRAVELLING round America one can only be struck by the vibrancy of the media market. Yes, we can all shudder at the wilder shockjocking, but there seems to be plenty of intelligent programming around if you know where to find it. Last night, I found myself on the talk show of the venerable Milt Rosenberg in Chicago, together with Ann Lee, an academic, who has rather bravely launched a book called What the US can learn from China, calling for a less hostile approach towards the rising Asian power. It was a 2 hour discussion (albeit with a number of commercial breaks). There is NPR, of course, and intelligent podcasts too; there were some smart questions on both Invisible Hands and Planet Money. The phone-ins are more daunting; one caller raised the subject of internet pornography in public libraries which was a bit off-topic for your blogger.
Sad though it is to see newspapers in decline, the richness of this online and on-air information does rather make up for the decline in readership. After all, if you were in a one-paper town in, say, the 1970s, your news was filtered through one source. Now you have the potential for a much more diverse range of views; albeit that people seem to seek out those sources that confirm their own biases.
Venezuela has received its first shipment of gold bars, after President Hugo Chavez ordered the repatriation of 85% of the country's bullion reserves.
The gold was unloaded from a plane and taken under heavy guard to the Central Bank in the capital, Caracas.
President Chavez has explained the move as an act of sovereignty that will protect Venezuela's reserves from global economic turbulence.
However critics say it is expensive and unnecessary.
Venezuela plans to bring home around 160 tonnes of gold, worth more than $11bn (£7bn).
"The gold is returning to where it was always meant to be: the vaults of the Central Bank of Venezuela," Mr Chavez said.
Hundreds of troops lined the route to Caracas as a convoy of armoured security trucks escorted by military vehicles carried the bullion to the bank.
Officials said the gold had come from European countries but did not say how much was in the first shipment, citing security concerns.
Central Bank chief Nelson Merentes said the return of the gold to Venezuela was a "historic act".
"It has historic value, it has symbolic value, and it has financial value," he said.
"The country's finances will be backed by autonomous wealth, so we are not subject to pressure from anyone."
Opposition groups have criticised the move as a populist measure aimed at boosting Mr Chavez's popularity ahead of next October's presidential elections, when he is seeking another term in office.
Some critics have suggested that Mr Chavez is acting out of fears Venezuela's overseas assets could one day be frozen by sanctions, as happened to his friend and ally, the late Libyan leader Col Muammar Gaddafi.
Most of Venezuela's foreign gold reserves are held in London.
Central banks are once again major buyers of gold, a dramatic shift that will buoy prices at their elevated levels and sow doubt about the future of an international monetary system based on the U.S. dollar.
Official net purchases of gold exploded in the third quarter, totalling 148.8 tonnes, more than double the entire amount of government buying in 2010, the World Gold Council, a London-based industry association, said in new report Thursday.
The surge is startling because until last year, central banks had been net sellers of gold for two decades. But this year they are adding to stockpiles at what the Gold Council reckons is a record pace, reflecting deep concern about the longer-term viability of the U.S. dollar and the euro as stores of value.
With the European debt crisis roiling financial markets, the continent’s central banks, which typically are incremental sellers of gold, now are keeping their vaults shut to buyers. But Asian and Latin American nations, which for years have plowed their excess cash into U.S. Treasuries, are suddenly looking to diversify.
The result: net gold purchases by central banks of about 350 tonnes over the first nine months of the year, compared with 76 tonnes in 2010. In 1988, the last year governments bought more gold than they sold, net purchases were 180 tonnes.
“We are seeing what now looks like unprecedented levels of central bank buying,” said Marcus Grubb, managing director, investment, at the Gold Council. “We do believe this is a long-term trend. This is not just short-term, tactical buying.”