DOCTORATE – THE CONTEMPORARY MONETARY SYSTEM

(english version still not available, sorry)

Da quando nel 1971 Nixon diede il via al primo regime monetario globale irredimibile, togliendo la foglia di fico che a Bretton Woods vi avevano piazzato sopra, il mondo ha già conosciuto dei crack ups.
Questo è il terzo.

Finora nessuno ha portato al boom!
Certo, l’entità degli squilibri attuali non è comparabile a quelli passati, oggi le grandezze in questione sono molto maggiori.
Ma sul fatto che la cosa sia rilevante in un regime fiat globale, molto più scafato rispetto a 20-30 anni fa tra l’altro, ho i miei dubbi.

Lo scrivevo in un mio pezzo di 2 anni fa, e lo ripeto adesso: in un contesto siffatto, è un errore ragionare di cartamoneta e debiti come se si trattasse di qualcosa cui siano applicabili leggi fisiche.
Non esiste un limite oltre il quale non si può andare.

Il dollaro ha perso il 95% del suo valore in meno di un secolo, ma può perdere un altro 50%, e poi ancora ed ancora, senza mai arrivare a zero.

Quello che oggi viene chiamato denaro è solo un concetto, e lo è in tutto il mondo. Non è legato a nulla di fisico, e non lo è in nessuna parte del pianeta.
Le valute si paragonano l’un l’altra, contrariamente al passato, quando esperimenti di cartamoneta non redimibile erano racchiusi in un dato spazio, e al di fuori di quello spazio erano costretti a confrontarsi con la Moneta vera.
E la cosa aveva allora l’effetto dello specchiarsi negli occhi della Gorgone.

Oggi non è così.
Anche la denuncia che ne fa l’oro non è necessariamente foriera di un crollo del sistema, perché l’oro è stato escluso dalla circolazione monetaria. E pur conservando la sua natura di Moneta, non ha alcuna rilevanza nel sistema dei pagamenti.
Il sistema può continuare tranquillamente qualunque prezzo reclami l’oro, o qualsiasi altra cosa.

La logica economica comanderebbe il boom dopo crack ups di questa portata, ma il problema è che quella logica pensa di stare ancora parlando di denaro, quello cui era abituata a considerare.
Ma oggi siamo di fronte ad un’altra cosa, completamente diversa.

Il boom avviene solo se salta la convenzione ad opera di qualche componente del sistema, che è UNICO e GLOBALE.
Ed al contrario di qualsiasi altro fissatore di prezzi, ha la padronanza esclusiva ed assoluta della cosa di cui ordina il prezzo, della cosa che tutti credono ancora essere denaro.

Ma nessuno dei componenti del sistema lo farà, perchè nessuno di loro, neanche quelli che ricavano i minori vantaggi, desiderano la continenza e il ridimensionamento che la Moneta imporrebbe loro.
Sbraitano e scalciano ogni tanto, ma solo per sistemarsi meglio di posto all’interno del sistema, che ogni tanto provvede a fagocitare qualche sua appendice periferica, ma continua implacabile, forte dell’assoluta ignoranza in materia del 98% dei figuranti che operano al suo interno e delle armi sempre più potenti che possiede in ordine all’induzione dei comportamenti e della percezione delle persone.

Un sistema siffatto non salta per cause endogene!
O almeno, questo è il mio parere.
Diciamo subito che non si vuol sostenere che il sistema possa andare avanti all’infinito. Di infinito esiste solo la stupidità umana.
Questo sistema è una creazione umana, e come ogni creazione umana è destinato a finire e ad essere oblìato.
Io ritengo semplicemente che la sua caduta non sarà generata da qualcosa di intrinseco al sistema, tipo l’espansione senza fine di quello che chiamano denaro, e quindi dei debiti.

Il richiamo alla natura c’entra come l’aglio prima di un appuntamento galante.
Qua non si tratta di signoraggio, e di valore legale imposto in misura non corrispondente a quello intrinseco. Si tratta del valore intrinseco che non c’è più, in nessuna parte del mondo.
Non c’è più il denaro, insomma.
C’è un concetto e dei numeri, che con la natura e le sue leggi non hanno nulla da spartire. Sia l’uno che gli altri non hanno limiti!
E pertanto, è quasi imbarazzante che si continui a ragionare economicamente come se quello che usiamo per i pagamenti fosse ancora un bene, un qualcosa che la natura dispensava.

Altrettanto incomprensibile è questa attesa dell’iperinflazione, o il benvenuto alla stessa, che sarebbe oggi finalmente arrivata.
Occorre svegliarsi! L’iperinflazione è qui fin dalla dichiarazione di fallimento di Nixon. Andate a controllare quanto costava un pezzo di pane o un chilo di carne nel 1971, e confrontatelo con i prezzi di oggi. Oppure, controllate l’entità dei vari aggregati monetari e creditizi di allora con quella odierna.
Essa semplicemente non è percepita come tale.
E la ragione principale è quella che ho esposto in precedenza: manca il termine di paragone! Esso (la Moneta) è bandito, posto al di fuori del sistema dei pagamenti. Conserva la sua nobiltà, ma è irrilevante nella sua funzione storica, perchè dappertutto è stato reciso il suo legame con i mezzi di pagamento. E dappertutto la cosa è accettata.
Vi sono poi anche altre cause secondarie, come l’aumento dei beni prodotti e la fortissima presa che il governare moderno ha sulla percezione ed i comportamenti delle persone.
E come il bollire a fuoco lento: non lo si percepisce, ma comunque finisci bollito (impoverito). A meno che tu non conosca la faccenda.

Anche il richiamo all’esaurimento delle risorse naturali è completamente fuori luogo. Il problema permarrebbe in ogni caso, anche se le pagassimo in Moneta. Se finiscono, finiscono; non è un problema del sistema dei pagamenti.

 

In quello che dico non c’è alcun giudizio di valore. Sono solo riflessioni sulla natura del sistema monetario odierno, da cui cerco di ricavare delle conseguenze logiche.
Non elevo nulla a postulato.
Ma non si può pretendere di smontare un ragionamento logico con la semplice osservazione che non posso escludere che siano sbagliate le conclusioni che ricavo.

L’obiezione principe ai miei assunti è il richiamo alla natura. E non ha senso perché il denaro di oggi non è più un bene naturale.
Ho il piacere di informare inoltre che anche i debiti non sono più qualcosa di reale, come non lo è più il denaro.
Nel sistema attuale, c’è un’equivalenza quasi perfetta tra le due cose. E questa è peraltro l’obiezione mortale per chiunque abbia cianciato di deflazione in questi anni, soprattutto per quelli che dalla deflazione ricavavano addirittura la conseguenza di un rafforzamento della valuta in questione.
In ogni caso, se si può estinguere il debito con qualcosa che non è reale, nel senso che non è prodotto tramite un processo economico e non è legato ad alcunché di tangibile (l’attuale cd. denaro), come fa il debito ad essere qualcosa di reale?

Il dollaro ha perso un’altro 10% del suo valore nell’ultimo mese, dopo averne perso il 95 da quando la Fed cominciò a difenderne il valore.
Ci sono serie probabilità che ne perda un altro 25-30% in un futuro non lontano.
Non arriverà mai a zero. Quando una valuta si avvicina pericolosamente a quella soglia, basta fare come i turchi: cancellare sei zeri, ed assistere ad una corsa all’acquisto dei propri bond.

Dopo quel massacro, 95% e passa di valore perso, mentre un sacco di gente continua imperterrita ad aspettare l’iperinflazione che bussi alla porta, i dollari continuano ad essere accettati, e con molto piacere.
Vengono semplicemente valutati di meno.

Oggi c’è una certa apprensione perché pare che il declino stia conoscendo delle accelerazioni preoccupanti.
Ebbene, è già successo, ed in maniera ancora più grave, negli anni ‘70 e nella metà degli ‘80, ma siamo sempre qui.
Il sistema va in fibrillazione, gli attori principali strepitano, si azzuffano, complottano, qualcuno esce di scena, altri entrano, altri ancora si cambiano di posto, qualche appendice viene sacrificata e sostituita con una nuova di zecca, e poi tutti pronti per un nuovo giro.
Con l’oro a 2.000 $? Perché no?
Tanto per trovare quei 2.000 $ non debbono fare altro che schioccare le dita.
Quello che intendo quando dico del bisogno che salti la convenzione affinché il sistema vada a ramengo è che la gente cominci a rifiutare la moneta legale.

Solo che io escludo che le persone siano in grado di farlo. A prescindere da una pressoché completa mancanza di consapevolezza, tranne che in alcune èlites, e di volontà, il “legal tender” è un obbligo che vige dappertutto.

Posso immaginare solo uno Stato che denunci quella convenzione, ammesso che abbia la forza per implementarla.
Ma non posso immaginare dei governanti che rinuncino scientemente ai privilegi che comporta il loro monopolio sulla produzione e la vendita di quello che viene ancora chiamato denaro.

Di solito, denunce e strepiti vari hanno avuto l’unico scopo di rinegoziare rapporti di forza, ma sempre all’interno del sistema.
E’ d’uopo chiarire che il paradosso di Zenone è portato solo a titolo di esempio, ed il fatto che la somma di quegli infiniti intervalli sia finita (tra l’altro è finita solo se si assume una velocità costante della cosa che li attraversa) non significa nulla in ordine al filo logico che lega le mie riflessioni.
Qual’è il numero delle somme che porta a quel risultato finito? Dal basso della mia ignoranza matematica, azzardo che contenga tante di quelle cifre da risultare quasi impossibile da pronunciare, a meno di non usare l’elevazione a potenza.
E quante sono le probabilità che si arrivi a quella fine, senza che intervenga prima un fattore esogeno a terminare il sistema?
Credo che si approssimino allo zero.

Questo per quanto riguarda l’ambito puramente teorico-speculativo.
Venendo a quello economico, entra in scena il fattore umano.
L’economia è scienza delle azioni che gli umani compiono per soddisfare i loro bisogni, veri o presunti, in un ambiente con risorse qualificate dalla scarsità.
E gli umani hanno comportamenti la cui logica non è semplice come quella matematica.
Questo è il motivo per cui l’economia non è arte dei matematici.
Il fattore umano non ha alcuna difficoltà nel mandare a peripatetiche le risultanze del calcolo infinitesimale.
E lo può fare in un sacco di modi: può imitare i turchi (ed un sacco di altri), può adoperare foglie di fico tipo un nuovo agganciamento alla Moneta (ve ne sono di tipi che permetterebbero comunque ai padroni del vapore un grande lassismo), può stabilire cambi fissi tra i vari coriandoli, e si può continuare.

Oppure può semplicemente continuare ad assistere alla svalutazione di quello che oggi chiamano denaro, consapevole che essa può andare avanti indefinitamente (che non vuol dire all’infinito) in mancanza della cartina di tornasole (la Moneta) all’interno del sistema dei pagamenti.

Senza preoccuparsi che arrivi la fine delle infinite suddivisioni possibili del valore di qualcosa espresso in numeri.
E’ probabile che arrivi prima il giorno del giudizio!
Certo, se alla parola “boom” si dà il significato di semplice fibrillazione o crisi del sistema, allora siamo d’accordo: un sistema monetario come quello odierno non può non soffrirne in continuazione, con gradazioni ed ambiti diversi.

Ma non è in questo senso che essa viene usata classicamente..
Tradizionalmente essa indica la fine, data come inevitabile, di ogni sistema monetario non redimibile, e cioè la distruzione della cartamoneta redimibile solo in sé stessa che lo fonda.
Principalmente tale conclusione si basa sui precedenti di sistemi siffatti, ma ha il difetto di non considerare le due novità che riguardano il sistema attuale, che sono legate fra loro, e che ho indicato:
1) non esistono confini spaziali al sistema fiat contemporaneo, e
2) la Moneta non ha più posto tra i mezzi di pagamento, cosa che impedisce il confronto tra le due forme di media exchange; confronto che storicamente ha sempre decretato la fine del coriandolo di turno, e che analiticamente non potrebbe avere una conclusione diversa.

Riguardo la fine del mondo, non intendo certo sancirne l’impossibilità per cause endogene.
Io parlo del sistema monetario.
E se il mondo finisce, la cosa si pone nei confronti di quel sistema come fattore esogeno.

(anche se bisogna ammettere che essa potrebbe benissimo essere correlata al sistema monetario, ma con le correlazioni bisogna necessariamente andarci cauti; in fondo, si potrebbe correlare tutto al Big Bang, o a qualunque cosa sia successa ai primordi)
Qualsiasi paragone con il 1929, infine, paragone che viene spesso portato come paradigma delle conseguenze di un’espansione creditizia eccessiva, è privo di senso.
Ed il motivo è molto semplice: a quel tempo, il dollaro era una certa quantità d’oro (1/20 di oncia, portato poi ad 1/35 da Roosevelt dopo la rapina).

Non c’era un sistema monetario fiat in poche parole.

Gli effetti dell’inflazione sulla società e le sue regole sono risaputi; c’era un magnifico pezzo di Cantor che li illustrava magistralmente.
Lo scontro con la realtà denuda il nulla che sostiene il denaro politico, e facendosi beffe di ogni sforzo, non importa quanto grande, di chi lo impone, lo condanna ad una svalutazione senza soluzione di continuità verso il costo della sopravvivenza.

Ma sul fatto che questo possa portare ad una ribellione verso quell’imposizione, ed al ripudio del denaro irredimibile, da parte delle persone (è questo il significato classico del “boom” dopo il “crack up”), che la convenzione salti perché rifiutata da quelli cui era stata imposta (unico fattore configurabile come endogeno), io ho serissimi dubbi.
C’è una grandissima differenza tra l’oggi e quel tempo: nel 1929 la Moneta persisteva e concorreva nel sistema dei pagamenti.
Prima direttamente, poi indirettamente quando Roosevelt la tolse dalla circolazione, mantenendone però l’aggancio.
Già anche solo con l’aggancio, le risultanze mutarono drasticamente. Fino alla rapina, la Moneta richiamò all’ordine prezzi ed eccessi creditizi, e coloro che li avevano commessi. Dopo la confisca, anche l’aggancio non potè impedire l’inizio dell’aumento senza sosta del costo della sopravvivenza in termini di quei dollari che avevano la pretesa di sostituire la Moneta con pari dignità, e l’espansione creditizia da allora non ha più avuto richiami all’ordine degni di nota.

Nel 1971 ci si è liberati anche dell’ultima foglia di fico, e solo da allora vige il sistema monetario odierno: un sistema di cartamoneta irredimibile, autoreferenziale, e senza limiti spaziali sul pianeta.
La Moneta è completamente bandita, non ha alcuna rilevanza nel sistema dei pagamenti, neppure indirettamente.
Del resto, il meccanismo di creazione di eccessi creditizi è sempre lo stesso, più o meno.
Quello che cambia è che una volta che la fiducia venga scossa, se la Moneta è comunque nel sistema, l’espansione creditizia rotola su sé stessa, poiché il cash (il pagamento in pieno) in tal caso rappresenta una base non inflazionabile.

Una volta bandita la Moneta dal sistema, ed eliminato addirittura ogni riferimento ad essa nei mezzi di pagamento, il pagamento in pieno non esiste più.
L’espansione creditizia, che ha ormai differenze solo sfumate con quello che si pretende ancora chiamare cash, è sorda a qualsiasi richiamo, perché sa che la base adesso è inflazionabile tramite semplici atti di volontà umana. E sa che quella volontà ci sarà sempre!
Ed infatti, da allora non ha più conosciuto soste, con accelerazione esponenziale dopo che l’ultimo freno è stato rottamato nel 1971.
Un freno che per quanto malandato fosse esercitava pur sempre la sua funzione, e sia pure imperfetta quella è sempre una funzione oltremodo fastidiosa per un governante.

Tutto ciò rappresenta una novità assoluta, un qualcosa che non s’è mai verificato prima, e questo per me è abbastanza per imporre una revisione ai canoni dell’analisi economica classica, almeno per quanto riguarda la cosa di cui si discute.

May 22, 2006 Castrese Tipaldi

GRADUATION THESIS – HOMAGE TO THE MASTER

ECONOMIC   GOODS   AND   MONEY   AS   A   GOOD

Lately, in the www.usemlab.com forum its members have undertaken a lively and pleasant debate with the goal of ascertaining whether investing in gold was to be considered – logically speaking – a real investment or not. I took part in this debate, and maintained that the question should be answered in the affirmative. My argument has been criticised in reference to a number of quotations from the works of Rothbard, and especially by recalling the well-known definition of money as a sui generis good, neutral and nonproductive. Those who criticized me have particularly stressed the fact that my affirmative answer to the question should imply the acceptance of the arguments supported by Barnett and Block in a recent writing of theirs (see: http://www.gmu.edu/rae/archives/VOL18_2_2005/4_Barnett.pdf).

The arguments supported by Barnett and Block (“All action is either consumption or production, and exchange is but a form of production. Consequently, all goods are consumers’ goods or producers’ goods; there is no third possibility. And among these two money is a producers’ good, not a consumers’ good“) are to be refuted, but this does not undermine the legitimacy of my assumptions in the matter. I shall then try and explain my own reasons.

Considering exchange as a form of production would be straining the logic. Exchange is an economical action of the instrumental type, and serves both the consumption and the production. It is, in itself, the instrument that allows the interaction between the actions that the different economic agents carry out in the pursuit of their goals; goals that can be both consumption- and production-oriented. One cannot think of exchange as a mere production factor; if it were so, one should also consider it a consumption factor. Exchange, therefore, is definitely a production factor, but not only that. We could eventually emphasize the one, but not rule out the other entirely. Exchange permeates with itself the consumption too. It is the how, the mean through which both production and consumption occur in actual facts; an instrumental function that is inalienable for both the fundamental economic activities. The two Authors’ assumption that Money should be considered a consumers’ good only when not used as such, when not used as money then, cannot be shared. From the perspective of the acting human, money used in order to buy consumers’ goods is quite simply used.

These are the logical basis on which the irreproachableness of Mises’ definition of Money as a sui generis good, a good that is unique in itself, is founded.

That being said, I do believe that the Misesian definition needs more innovative developments than those approached so far by his own successors. Rejecting the conclusions of Barnett and Block does not mean relegating the good that forms the basis of that essential function (exchange) in a limbo of neutrality, of indifference towards the economic development. Stating this would be to state that abandoning the use of the barter has had no influence whatsoever in the economic development.

Let me make one thing clear: there are no capital goods and consumers’ goods as such, goods that hold said qualifications in themselves. What we have is goods! Their qualification, in one way or another, is based on the human action. The same good might have different functions, in different times, based on the preferences of the economic agent. A potato can be used as such, or used as an asset in the production of more potatoes. A house can be used as a shelter, and therefore consumed, but it can at the same time become a place of production. Or again, it can become an asset, if it is turned into an hotel, or a bed&breakfast. The same gold can be used by my wife, who wears it in the form a present of mine, or it can be an asset in the hands of a goldsmith who uses it in order to make jewels. But gold in itself has one more use, which is its own (and the silver’s – other metals have only sporadically participated of this function), that is when the economic agents use it as Money. That is, they use it as an exchange tool, as the instrumental good. But it must also be noticed that this function, in itself, a function that is both absolutely peculiar in respect to the other two, and analytically different too, is a function based on the will of the economic agent in a given space and time. This being true, the qualification of a certain good as capital, consumers’ or exchange good is always based on the different choices, and preferences, of the human action.

Could then the action of buying the good called Money (and the market itself – that sublimated human action – has decided that it has to be gold) be considered a form of investment? The answer is: there can be no doubt whatsoever about that!

We have ascertained that this good is capable of taking another function, quite peculiar and essential, when used as a means of exchange: in this role it carries the name of Money and it becomes the vital nourishment in the satisfaction of the human needs!

It is the universally acknowledged representation of wealth. Anyone can turn all of his/her resources in that good, and make them quantitatively intelligible to anyone, and quite possibly turn them again into goods and resources decades later, and in doing this lose not one iota of its original value.

It is the litmus paper, the cornerstone, the term of comparison to which any other good, be it in existence or in fieri, and every economic agent must refer to in their calculations. It is the only existing good that can instantly turn itself into capital good or exchange good, without further ado, as soon as the owner’s preference becomes manifest.

All these qualities, peculiar and unique to the good itself, give it a further meaning, one that no other good will ever have . And whoever should choose to allocate his/her own resources in this good by buying it, he/she is investing on it. There can be no doubt about it!

This investment centers around the same qualities of this good that I mentioned before, qualities that make it most desirable at almost all times. These qualities allow the investor to postpone his/her own choice between the two forms of the economic action, production and consumption, and still not be damaged by the passing of time (with the possible exception of out-of-the-ordinary events, like the Spanish conquest of the Americas, or the Roman exploitation of the Spanish silver deposits). In itself, this would be quite a feat. But in the meantime the same good could be made available to others that have already made their choice, getting a compensation out of this. After all, we are not talking only about Money here. Every postponed consumption is a saving. Therefore, it is an investment!

Talking about liquidity preference as opposed to time preference takes us nowhere, from a conceptual point of view. A misunderstanding, as it is. The so-called liquidity preference has no conceptual dignity of its own. It is all about time preference. Giving up on an immediate consumption of the personal assets in exchange of the possibility (the investment could go wrong) of a better and greater consumption in the future.

The problem is really quite simple: either saving is a form of investment, or such an equivalence must be refused . Accepting the latter means to assume that saving equals to investing only when Money is not involved, because otherwise it would become that mythical liquidity (which would bring with it the Keynesian damnation). For my part, I believe this conclusion to be highly debatable, since I could think of a liquidity that is all but saving (a part of it, allocated in a given good or form) only in a non-redeemable monetary system, thus meaning a system in which money comes to light through an arbitrary political-bureaucratic process. After all, whoever might want to support such a conclusion should at least explain what is this liquidity, why it ceases to be savings whenever the acting human decides to buy the good known (and that works also) as Money.

The production factors, the same ones that could guarantee more and better future consumptions, are not possibly identifiable beforehand. We just do not know them! They become what they are only through the action of the economic agent, through the uses and calculations this agent assigns to them.

The only logically possible solution therefore has to be that every allocation of saved resources is in itself a form of investment. And by investing said resources in Money (and here i would like to thank Enrico M. di Francia for the suggestion), the economical agent is implicitly, and possibly also unconsciously, investing in the economic development. It is, in fact, only the realization of such a development that will allow him/her a better future income through more goods produced and acquired thanks to the quantity of resources he/she has turned into Money. But a higher, further income could also come out of a good price he/she might get for the use made of that money by another agent, who might want to use of it as per his/her immediate desires and assumptions. Such a further income might as well shape itself in the possibility that the temporary allocation of one’s own resources in Money gives one time to better ponder on one’s ideas, setting aside all anxieties related to the conservation of the same resources, also in terms of value, in the time-lapse during which a decision is not taken.

I have so far tried to explain why we consider the allocation of resources saved as Money as a form of investment ex se, and why such a conclusion does not mean that Money is to be considered a capital good.

From that reasoning i believe we can gather some consequences. And here we enter dangerous ground, and every caution must be used since we are about to give new meaning to a Misesian position, in itself the backing of a theory by Adam Smith: ” from this point of view the goods used as money are none others than the same ones that Adam Smith called “dead stock”, since they… do not produce anything.”

Let me say immediately that I am quite happy to challenge anyone, but when we talk Mises, whom i revere deeply, I always think I am wrong whenever I find myself disagreeing with what he has written (which happens quite rarely). But in this instance I believe I have sound reasons to challenge that particular definition, and besides I think that my conclusions at last do not differ from his teaching.

But first I shall establish a few fixed points, since i don’t want to be remembered as a monetarist: to increase the monetary resources in a given economic system does not imply that the wealth and welfare of those who share that system will get any better.

One more thing. The reasoning is to be applied to Money as determined by the Market. That is, a good whose production has costed toil, sweat and blood in order to wrench it from the bossoms of the Earth. The whole logical construction is based – lest it might fall – on the fact that the production of the good used as Money is the result of an economic process which does not differ in any way from any other economic process destined to produce goods. It is therefore quite unclear whatever it is that makes the result of that economic process something unable to increase the wealth in the system, as any other good would.

Could it be said that putting in the market more and more quantities of this good is totally irrelevant to the welfare of the economic agents? Let me stress once again that this does not mean that the very injection will in itself increase the wealth of the system. But saying that the production of this good, whose peculiar importance I have tried to demonstrate, does not bring any benefit with it, appears to me to be beyond the mark.

The concept of Money as the one essential mean to make exchanges possible is of the utmost importance for the economic development, and for increasing and spreading wealth and welfare. And this is based on the aforementioned qualities of the good, which is the one instrumental good.

These very qualities identify it as all but nonproductive, all but “a dead stock”.

If we wanted to get to the heart of this logical process, we would have to come to the conclusion that no good in itself can increase the wealth of the system. Rather, it is the use that the human action makes of it that can make that increase happen (as much as it is the same action that qualifies it as a consumers’ good, a capital good, or Money).

Every good, and every economic resource, produces wealth only if used in the right way, i.e. only if guided by the economic agent’s correct assumptions in determining his/her own and everybody else’s preferences.

Without the human action, the one real directive good, any good would be nonproductive.

The importance of exchange in the economic process, in any case, demands that to the good presiding over this function (and that makes it come true universally and in clear terms) should be acknowledged a (potential) enrichment value not different from that of the other production goods, therefore proportionate to its growth in the system, and subject to an adequate use made by the human action.

Gary North’s assumption, whereby “the sources of the economic profit of the goldmines’ owners are the economic losses suffered by last buyers of the newly obtained gold”, is flawed. The only reason I can think of for the last owner of the new Money to be faced with having to sustain economic losses is the increase in prices that the very introduction of said Money in the system might have resulted in. And yet, this is not necessarily so. If that new Money has been used in the appropriate way, it will have contributed to the building of new factories, which will in turn have produced new goods. And these same new goods will compensate for the new Money.

The gold producers’ profits cannot be logically separated from any other profit gained by any other goods’ producer. It is not an arbitrary profit, therefore it takes nothing from no-one. Any profit coming from the production of a good cannot possibly be considered as gained to someone else’s loss. If it were not so, any producer of goods would be taking away something from the “last buyers”. Those who produce gold do so through a process that, from an economic point of view, is exactly the same to that used to produce any other good. The inflow of the good (that works also as) Money does not imply any inflationary process on the prices ex se; such an inflationary process will in its stead be determined only by the inadequate use of the same good, or by an abnormal inflow, and this makes it no different to any other good. At the same time it does not produce any increase in wealth by itself. The consequences are determined by the human action on that good, just like in the case of any other good. Some people will never acquire that new Money, since they do not produce anything of value. But this cannot be blamed on the producer of the good. Only the silliness of Marxism and its historical twisting could come to such a conclusion. In an economical system there is always someone richer than someone else, but this is not only legitimate, it’s natural. Whoever is richer owes this to the fact that he/she is a better producer, or produces in greater quantities. His/her profits are therefore to no-one’s detriment. The gold producer is not benefiting from any privilege, nor is he/she acting arbitrarily. He/she is only doing his/her enterprise job.

Nor is it possible to separate the inflow into the market as Money; the gold producers introduce in the market a good, just like any other producer. It is up to the economic agent to decide the use that good is destined to, as it would be for any other good. The only difference being that in this case the agent has a further use for it, which in turns gives proof of what I am saying.

But let me make one thing clear: I am not at all into arguing with Mises when he states that any quantity of Money is sufficient to make an economic system work properly. But such a theory surely is not in contrast with the one whereby an increase in the production of this particular good, if obtained through a productive process similar to that needed by any other good, could potentially bring a further wealth to the economy, at least the same that any other produced good would. Not in itself, let me add once more, but as a result of the human action, and only if the said action is based on correct assumptions and economic calculations.

If the exchange is an essential factor in the productive process (and not only in the productive process, as Barnett and Block would imply, but also in the consumption process), it’s illogical to talk about a neutrality of the good that would substantiate it for the purpose of the economical development. Such a good becomes part – and rightly so – of the productive processes, of the productive structure and of the Capital, not only as the gold in the hands of a goldsmith, but also in its role of exchange good. It therefore shares with the other production factors the ability to generate economic wealth.

By not consuming, I still put goods and resources at the disposal of a productive process, and this has nothing to do with the fact that said goods and resources are correctly used for that process. The lack of adequacy would still hold true, as a matter of fact, if the said resources were used to build a factory that ended up producing goods that nobody wants. There is no difference! Through saving, thus giving the time factor the upper hand, I am investing! The result of this investment, and its procedure, are but secondary aspects, irrelevant to the strictly logical qualification of my actions.

I started this piece of writing by refuting the thesis that sees Money as a capital good, but I have tried to demonstrate that the thesis has to be refuted given that it lessens the importance of this good. The thesis of the two Authors could only be supported if the phrase “form of production” (referred to the exchange) is considered as equivalent to “production factor” In this case the intuition is correct, and very important indeed. Exchange is without doubt the most important of all production factors. What cannot be supported is limiting its importance to the production alone. Exchange has no lesser importance in the purpose of consumption. How could we consume without being able to exchange?

Every action is not either production or consumption. Rather, every action either aims at production or at consumption. Well, in the economic field without exchange there would be neither of the two things. Only through exchange can an economic system come to life! Therefore, within a theory of a teleological qualification of the economic goods, the one good that governs such an essential function surely deserves a sui generis category, in order to understand it in its own function.

And it would be really odd if the increase in the production of said good was not to be considered potentially augmentative of the common welfare, at least as it is true in the case of the increase in the production of any other good.

What must be stressed is the fact that the process that makes the augmentation of Money possible in the economic system is in itself an economic process. It is by no means different from any other processes that produce other goods. And just like the other goods, it can be used as a production factor, or consumed. Such a good, though, unique among all other economic goods, can be given one more qualification by the human action: that of means of exchange, universal and homogeneous. And it can be part of the production or consumption processes also when given this further meaning. It therefore holds within itself one more quality when compared to any other good, a greater economic utility.

Even if we were to evaluate it only under this respect, that of means of exchange, it is really difficult to state that Money is to be thought of as a dead, nonproductive good.

Clearly the fulfillment of the human needs comes through the production of something that, once used, satisfies those very needs. Production and consumption are the logical basis of the economic activity. But it is also just as clear that both production and consumption would be impossible without the essential function of exchange. Everyone would have to use only that which he/she can produce. In other words, without exchange we could not even talk about a human society. Of course, Money is no exchange. The exchange was there first. But Money has made it universally possible, and in homogeneous terms too, making it incredibly easy, thus making production and consumption that much easier. The fact that comparing one good to another every time, every good to every other every single time, is no longer a necessity, has accelerated the economic development and the creation of wealth to the nth power.

Then how could we deny the good that has made all this possible the same dignity that we acknowledge to every other good?

Copyright © 2006 – Castrese Tipaldi

FAREWELL TO BACHELORHOOD

AN ANSWER FOR THE MOGAMBO
by Castrese Tipaldi
May 19, 2005

“So, now, YOU answer the question: Did they have deflation or inflation?”

Well, Powerful Mogambo, the answer is quite simple: they had Inflation!

Rectius: they had Hyperinflation!!

In a fiat-money regime you can get deflation just in theory. Twenty-four centuries ago, Aristotle understood that very well already: “A paper money would not be a bad idea, at condition that you have a God ruling the printer”.

” …..if all those derivatives go bad, and houses deflate in price, and stocks deflate in price, and bonds deflate in price, and debts are bankrupted, then money will simply disappear.”

To tell the true, the value of the houses, of the stocks and bonds do not belong to any monetary quantity, neither the broadest one. So if their value collapsed, just a POTENTIAL money would disappear, a money already drawn out from M1, M2 or M3.

About the derivatives I refrain from any comment, because the matter by then belongs rather to the metaphysics than the economics.

“……if I bankrupt out of the debt, doesn’t the money disappear, too?”

Probably, the most of the borrowed money is not money anymore because it’s been used to do or to buy something, but sure the fiat-money can disappear at once in many cases. This happens continually, because of its intrinsic nature: from nothing it come, to nothing it goes.

But please remember, you have a MAN, not a GOD, ruling the printer.

As soon as money disappears, the MAN running the printer………. you guess what!

In any case, in a fiat-money regime, I would adopt a more correct definition of the deflation, that is: an increase in the purchasing power of your money towards everything you need to live and survive!

So you can forget a deflation!

In such a regime, the value of the so-called money is tied to the value of the debt; ergo, a debt collapse ends in a collapse of the money, apart from the moves in the quantity of money in the system. You can have a falling money supply, and a demand for that money falling more. Ask to Russians or Argentines how much they wanted their money during their debt/monetary collapse! And yet, it could very well be that the supply of that money was falling at that time.

Their bonds, stocks and houses’ value collapse meant a decrease in the purchasing power of their money of about 70% in a blink.

Maybe, the deflationist should ponder better these things, don’t you think?

Sure, with a senior monetary currency in a global fiat-money regime the things could be different. There has been at least one exception.

For example, in Japan a stocks and houses’ value collapse did not result in a bonds’ value collapse; au contraire, the bonds’ price soared to absurd level, and so their currency did not collapse, notwithstanding their central bank and government pumping money as there was no tomorrow.

A decade later we have the United States with a terrific increase in debt at all level, private, public and commercial. And yet, their bonds’ value is still near its apex, and their currency suffers, but sure it does not collapse. You can be sure that every Country with a trade deficit approaching 6% of its GDP (GDP grossly overstated in the case of USA) would be facing a financial Hell.

But, in both cases we sure can’t say that their currencies’ value has increased towards the necessities of life. Both have held, the yen has done better because Japanese have a huge pool of savings and they don’t need foreigners to borrow some bucks, but finally you need more of that money to live and survive, in Japan as in the United States.

Therefore, I’d conclude that with a fiduciary money the most important thing is the public trust, and in the case of the Big Boys (senior fiat-currencies) acting in a world of fiat-money this public trust can resist even debt and assets’ price collapse.

By the rest, if you think how big and pervasive governments have become in our days, and how great is their power to control and to direct people’s perceptions, the thing should come as no surprise.

Even if the child today would scream that the Emperor is naked, newspapers and TVs would be prompt to lull everyone: “How nice! It’s just a child!”

And everybody will smile on his way to the bank to buy a governmental bond yielding a little more than 4% for thirty years.

Just please, tell them to stop chattering away deflation because of the low yields on the governmental bonds of the Big Boys. That is a symptom of inflation, not deflation.

Coming to its purchasing power, however, this fiduciary money is doomed. It will decrease ever more, ad infinitum, excepted to cancel some zeroes now and then.

Sure, in the next years you could buy more stocks or more houses with your money in the States, maybe even more governmental bonds (I’d not bet on that anyway), but do you think you’ll pay less of it for what you need to live and survive? No, I’m sure you don’t think so!

You can call it deflation, if you like, but you have to remember the outcome of this strange deflation: your money is worth less against the necessities of life.

Some final words about the value of your senior currency on the Forex.

Well, my friend, I think its value against other currencies will keep on falling, even if it’s produced from the Big Boy One.

Some observers of financial market history could learn it the hard way, because their sights on that history is superficial, and they continue to compare apples with oranges failing to realize that a senior FIAT-currency is something completely different, and will require a different outcome.

About the value of a fiat-currency in a global fiat-money regime, the rule is just one, and it’s very simple: its value depends exclusively on the trade, current account and budget balance situation of the Country producing it, in order of importance!

In other words, its value depends on the quantity of debt tied to it. More the debt, above all the external one, less the value of the currency.

Even a senior currency will have to submit to that rule, in time!

A senior currency will not collapse in a blink, but its value will go down anyway compared to other currencies.

Sure, when the credit bubble burst in Japan, as I’ve said, the value of their bond jumped to the sky and the yen did not collapse; opposite, that currency soared greatly against every other currency in the world. But this is the exception that confirm the rule!

Their debt problem was entirely an internal one. Differently from South East nations, Russia, Mexico, Argentina, Brazil (and United States today), they had no foreign debt, their trade balance was instead positive big way, and the Japanese had the equivalent of trillions of dollars in saving. That’s the reason why the yen soared in a post-bubble environment which saw a massacre in the value of real estates and stocks, and a never-ending series of bankruptcies.

Besides, today we have several currencies suitable to act as reserve currency. Euro for example has all the features to act as such, and also the yen to a lesser extent. When the Chinese will decide to get a real currency you could have another competing. You see, several Big Boys endowed with Senior Currencies.

What is the role of Gold in all this? Its role remains the same since the beginning of the human civilization: a store of value!

My educated guess is that in time gold will always appreciate against every fiat-currency, because the printer which produce it is ruled by a God, instead of a Man.

By the rest, in a world awashed in debt and funny money, you want to have an asset class with no debt attached.

And don’t forget to pick some good gold shares, above all now that the Gold/XAU ratio is around 5,4.

Excuse me for my funny accent (anyway I wish to see you speaking italian), and……………………

God save the Mogambo!

© 2005 Castrese Tipaldi

ADOLESCENCE CERTAINTY

DE   PECUNIAE   NATURA

In the last days I’m seeing a new counterattack from the deflationist camp, probably helped by the USD index showing some uptick. This camp is formed by smart and educated people, so I find quite amazing that they fail to realize an empiric evidence which dismantles the very heart of their arguments.

Those arguments are enclosed in an interview made to Bob Hoye by Jay Taylor.

In this interview Mr. Hoye argues his case for deflation essentially looking at the outcome of the precedent economic and financial bubbles. Every time the bust of those bubbles saw the increase in the value of the senior currency and gold at the same time. Mr. Hoye also refreshes and in fact claims the paternity of the theory of “the debt as a synthetic short position against the dollar”, and finally declares the difference between cash and credit as the impediment for the Fed to inflate at its will.

All of those arguments were true; unfortunately they are not valid anymore!

I wish to submit to Mr. Hoye and all the other gentlemen’s attention the fact that today we live in a world with a senior FIAT-currency. Those four more words change everything!

It was quite natural in the past that the senior currency and gold surged at the same time in the aftermath of a bubble, because they were substantially the same thing. In the past, the senior currency at last was a certain weight of gold. Therefore, the debt was then really a short position against the currency, because it was something different from the currency, the cash. At that time cash was gold, and it was not possible to inflate it at will. The cash was payment in full, a base which could not be expanded to meet the necessities tied to the debt repayment. It’s clear that the collapse of the precedent credit bubbles saw the increase of the value of that base. In a commodity-money regime (with a fractional reserve banking system) the cash is really different from the debt/credit.

Today we live a different story. Today the senior currency is nothing else that a piece of paper representing a promise of payment, and it has nothing to do with gold anymore. And there is no difference at all between money and debt in a fiat-money regime!

In such a regime money is created by the will of the Central Banker (and a bunch of His delegates), and it’s born just as debt/credit. With these premises, the theory of the debt as a synthetic short position against the dollar is a colossal misunderstanding.

In the current monetary regime every collapse of a debt conglomerate will translate in the destruction of the currency tied to that debt conglomerate. That’s because there’s no difference between them, no difference between the debt and the so-called money.

We have seen it already before (Mexico, Russia, South-East Asia, Brazil, Argentina, et cetera), and those are the correct historic precedents to look at. Things are not much different for a senior currency, a reserve currency. It can get helped from its status, but that status means at the same time an enormous offer of that currency impending over the market.

In a fiat-money regime the value of a currency depends just on the trade, current account and budget balance of the Country producing that currency, in order of importance. In other words, it depends just on the quantity of debt tied to it. More the debt, above all the external one, less the value of the currency. All the rest is just tedium, rumors, some kind of governmental intervention and some privileges in the case of a senior currency.

In a fiat-money regime every economic recession or depression is always inflationary. Again, we have historic evidences in this sense. That’s simply because in a fiat-money regime deflation is not possible. It’s conceivable in theory, but it’s impossible in practice. At least, we are still waiting for it to manifest in the real world since money became a different thing that gold.

Deflation is not a thousand points loss in the Dow Jones Industrial index; deflation is not a negative variation in the Consumer Price Index (mis)calculated by government (a real joke!); deflation is not a drop in the Gross Domestic Product (a very misleading way to calculate the wealth of a nation); deflation is not a decrease in the price of mass-produced goods in China or Vietnam.

Neither is correct to call for deflation in the presence of low yields on governmental bond. Opposite to the common opinion, in our age of money-confetti and its corollary of wildcat finance, that testifies rather inflation.

Since the Moloch called Central Banking has been set free, the interest rates level has lost any meaningful relation with the market, and it’s now completely untied from the interaction and the choices of the economic forces and agents. It’s now nothing else that a marxist overstructure arbitrarily let down on the society.

To understand this, it’s enough to think about the way how an ocean of liquidity has been injected in the global financial system in the last years. That is, by means of an enormous jump of the US deficits (private, commercial and public), primed by an incredible cut of the Fed funds, and financed for the most part by the asiatic branch of the Federal Reserve through the purchase of Treasuries all along the middle and the final part of the curve. The carry-trade has financed the rest.

It’s enough to think that the almost non-existent yield on Japanese governmental bond has been the only thing to keep solvent a lot of banks in that country.

The ultimate meaning of the deflation is an increase in the purchase power of your money against everything is needed to live and survive. That is, food, energy, house, education, every kind of taxes and tariffs and fees for every type of compulsory service, every type of mandatory insurance, health care and medicines. I’m sure I’m forgetting something. Well, I’ve never experienced something of similar during my whole life!

Sure, I’m not so old. I was born just four years before the default declaration signed by R. Nixon. But I’m sure nobody have experienced something of similar since the Roosevelt’s armed robbery of the Americans’ gold. Nobody in the whole planet, neither in Japan!

I agree with Mr. Hoye about one thing anyway: Keynes was a flaming idiot!

Castrese Tipaldi                                                                                                 February 26, 2005

CHILDISH PRANKS

GET YOUR FACTS STRAIGHT
by Castrese Tipaldi
January 27, 2005

1982 was not the start of the greatest bull market ever seen in human life.

In 1982 the markets just realized that a completely fiat-monetary system could survive, on a global scale for the first time, after a decade full of doubts about this surviving. So they acted consequently. They adjusted for the new monetary unit, and its corollary: a never-ending debasement!

Therefore, what you see every day looking at your charts is something virtual, a sort of plastic surgery to reshape reality. If you want to know with a fair approximation what the real story is, take a look at the first two chart below. They are the charts of Dow Jones and S&P 500 since 1959, adjusted for the increase in M2. They have been elaborated by Enrico M. Di Francia. We choosed Fed data not seasonally adjusted, because we’ve never paid our bills in a seasonally adjusted way.

Are you seeing the real story? Actually, Dow and S&P 500 today are worth less than in the 1959!

Let’s see if these charts can tell us something more.

It looks like we stepped in another decade full of doubts about the surviving of the current monetary system or, at least, we are witnessing a general reset in the system.

Be sure! The system can still survive, because of its global nature, and because never Governments have had such a pervasive power on the choices and perceptions of the people. Even if a currency has lost 95% of its purchasing power, it can very well lose another 95% of that power in the future, and then another 95% again. The Zeno paradox here applies!

Forget any comparison with 1929! It would lack any sense! In 1929 the dollar was a certain weight of gold; today it’s just a piece of colored paper with some funny writings on it.

In a fiat-money system, every economic depression will be inflationary, and every debt collapse will involve the destruction of the fiat-currency tied to that debt. There have been precise and recurring historical evidences about this!

Even if the system will survive, I’m certain it will not be anymore completely US dollar-centric. At the very least, it will have to share the privilege with another currency (euro is the only suitable from a quantitative point of view). The Chinese currency could be a viable alternative too, when Chinese will decide to get a real currency. Remember: I’m talking about fiat-currency here, not Money (i.e. Gold).

If the system survives and as far as the stock market indexes are calculated in a nominal way, those of you willing to short those markets are urged to use extreme caution, unless you can get some puts M2-adjusted. The rules of the game are set against you, as much as going long Gold and Silver at the Comex (but without the physical constraint that could destroy Comex at any moment). If the system survives, Dow at 36.000 nominal could be a conservative assumption.

The third chart below is a chart of Gold adjusted for the increase in M2.

From this chart you can draw two alternative conclusions:

1. either the Powers-that-be have succeeded in eliminating the monetary component from Gold, through bad press, obscene lies and a scientific price cap.
2. or they have not such a power, because every human being knows unconsciously that in 5000 years of history Gold has always been the only thing to stand when everything else was falling apart, and now it is surging like a tremendous Nemesis against the counterfeiters.

I would opt for the second conclusion. In this case, Gold at present is the second cheapest asset class available in the world (the cheapest is Silver, whose heavy industrial use and consume, however, fades somewhat its monetary component).

Let me now end up with a wish.

I hope that the last release of the US trade deficit will wipe out that idiocy stating a weak currency is the best thing for your trade balance.

I hope that two years of battered dollar and soaring trade deficit will be enough to silence all the simple minds stating such a foolishness.

As everyone can see, a falling dollar has done nothing to correct the trade deficit; it’s the trade deficit crushing the dollar instead!

The trade balance is the difference between a nation’s import and export. A weak currency will make you pay a lot more for the goods you import, offsetting every (supposed) increase in the goods you export. In fact, the price is not always the key selling point in a decision to buy: if you produce filthiness, I will not buy it even if it is damn cheap.

But above all, you must have something to export! You must produce goods if you want to export them. It’s quite difficult to export a haircut or other fashionable services.

And as US manifacturing is facing extinction, USA produces very little suitable for export!

That’s because the real and only culprit of the US trade deficit is the indecently high consumption/GDP ratio. It’s a vicious circle!

US producers, either quantitatively and competitively, can’t satisfy this abnormal consumer demand, which of course then shifts towards foreign products. Every dollar going to a foreign producer is a dollar subtract to an American producer, who in turn will invest and produce even less, and will employ fewer US workers, and so on and on.

And it does not matter if the foreign producer is a branch of an American company. American companies operating in a foreign country enrich almost totally THAT country, and belong to that country’s trade balance.

To balance the trade, US consumer should consume a lot less and save a lot more. It’s the only way!

Otherwise, it’s going to be the weak dollar itself to stop their orgy of consumption, in a bad way: a so worthless dollar and so few and low wages that they can’t allow anything at all.

© 2005 Castrese Tipaldi

CRYING LOUDER

Denuding The Emperor
by Castrese Tipaldi
May 4, 2004

Various comments I received (many thanks to everybody for the kind words, comments and criticism) in relation to my precedent essay compel me to face those questions one more time, hoping to better clarify my view.

I have to start again with the definitions of inflation and deflation. In economy, both are just monetary phenomena, even if the common language uses them in a wide range of meanings, all of them flawed. So, I repeat once again, the proper economic definition of inflation is an increase of the money supply in the system, while deflation is the exact opposite.

A collapse in the price of financial and real assets is not deflation, but liquidation. This event would have no effect on the level of money stock in the economic system. Bonds, shares, houses are not components of the money stock present in the system, even considering the broadest measure of money supply. In fact, they represent money already drawn out from the system. Paradoxically, their liquidation even at always lower prices would result in an increase of money in the system.

At the same time, an unwillingness of the banking system to lend or of the public to borrow, like a preference of people to save and hoard cash, is not deflation, because it would not affect the level of money present in the system, but just its circulation inside it.

Again, an economic stagnation would not be a deflation, but just the outcome of the severe misallocations and imbalances in the productive system, which may be consequences of monetary phenomena, but never their essence.

In a fiat-money regime, inflation and deflation depend exclusively on the will of the Central Banks. It’s just for this reason that I affirm deflation to be impossible under such a regime. It’s not that it could not happen in theory, but depending only on that it cannot happen in practice. This is because it’s inconceivable that men could want less money to spend or that the banking and political gang could give up this incredible and base privilege. Twenty-four centuries ago, Aristotle was aware of this.

In fact, we have never experienced a deflation since this fiat-money regime came in existence, never. The increase in the money supply has been unbroken with accelerations and slackenings, but inexorable. And history has never witnessed a deflation in the precedent fiat-money experiments. And very probably we’ll not witness it in the future.

Don’t you believe me? But maybe you’ll believe them, the creators of “money”:

“We are creating money…..on whether there is a limit as to how much we can create – in central banking there is no limit as to how much domestic currency you can create. Now the domestic balance is a little over HK$ 3 billion – it can be HK$ 4 billion, it can be HK$ 30 billion if there were a need. There is no limit at all.”
– Joseph Yam of the Hong Kong Monetary Authority)

“The aim of monetary policy is higher inflation…..it is appropriate to be particularly vigilant in monetary policy when inflation does not increase as projected.”
– Executive Board of the Norges Bank

There’s no need to cite Bernanke of the Federal Reserve, because its vision is universally known.

The only deflation possible in practice in a fiat-money regime is the Final One. That happens when people withdraw their trust and cease to recognize paper as money. And that has been the outcome of all the precedent experiments with a fiat-money system. However, there is a thing to consider: all the precedent experiences were limited in the space, while today that regime is applied in every part of the planet. So, today we have a peculiarity. Perhaps this could involve a different outcome. However, for the moment, the pattern developed is quite the same; that is, a constant depreciation of the fiat-currency, accelerating as the time goes by.

In such an environment to talk about an appreciation of the value of this paper-money is a sort of self-deception. Considering that there is just a human will to preside at its creation, the doom of this money is to become always more abundant in the economic system and therefore to be increasingly worth less in comparison with the resources, goods and services. Again, you have just to observe the evolution of the purchasing power of this money all along its history in this last, global experiment with a fiat-money. Your dollars, my euros, and his yen have bought ever less things going through the years. We can experience a fall in the price of some products thanks to competition or innovation or overproduction, but the cost of living–the money you need to buy what’s necessary to survive–is always more. Don’t expect anything different in the future in whatever scenario, economic expansion or recession, assets appreciation or liquidation, whatever; just the magnitude will be different, more or less marked.

You can very well define the enormous debt level in US as a “synthetic short position” against the US dollar, but you have at the same time to specify a couple of things.

First, this thing would concern just the American household. To carry on its debt, the US government needs just to issue more debt. If nobody wants it, the Fed will provide for it with just printed money of course. On the other side, foreigners own a quite impressive “synthetic long position” of the US dollar and therefore don’t have such a worry, but rather the contrary.

Second, on the other side of that “synthetic short position” there are shares, houses, bonds, SUVs and the last type of electric bean-shelling. There are no foreign currencies and there are no gold or silver holdings, but in a negligible amount. There are gold and silver shares, but again in a negligible percentage.

So, that is not suitable to construct a case for the appreciation of the US dollar on the Forex or against the precious metals. In fact neither against the cost of life, because a debtor can certainly renegade his debt, while he cannot cease to eat or to warm himself. The only things more cheap would be common stocks, houses, probably bonds, and maybe some kind of products.

Therefore, the notion that the recent carnage in precious metals finds its cause in the fear of a coming deflation goes close to nonsense. The only deflation possible in a fiat-money regime is that determined by the distrust of people, who deny at a certain moment the status of money to the paper imposed as such by the political power, turning towards real money or other paper-money recognized more trustworthy. And its outcome would be the destruction, the final one, of the current paper-money. In any case, honest money is the ultimate winner.

By the rest, this fear of a coming deflation has struck with a particular violence just in the precious metals. The thing is suspect. Above all, it has struck silver. Last Wednesday its price has fallen 78 cents (more than 11%) in just one session and almost 30% in less than two weeks. In short, it has struck just the metal whose current price is the most “deflated” since the last Glacial Age, if you factor in the increase in the cost of living. And which offers the most bullish picture on the demand/supply side. RISUM TENEATIS!

It’s quite possible that we are going towards a dramatic liquidation of assets. It’s quite possible that we are on the verge of a severe economic contraction, with consequent negative outcome for commodities’ price. And it’s quite possible that the majority of people don’t perceive silver as money but every speech pretending to establish the actual value of silver, in whatever scenario, without addressing the:

paper manipulation at the COMEX;
a structural productive deficit lasting a decade and half;
above the ground inventories decreasing without a break; and
a price flat to negative during these events, and independently from the economic cycle
is just a waste of breath.

Each of these factors are tied and each of them finds its evidence in the others.

And when I say to address them, I mean to address them seriously. Not the way some folks do periodically, showing an incomprehension of the meaning of the word “deficit” or chattering about above ground inventories more than abundant failing every time to inform us where those are. And I warn you: “in China” is not an acceptable answer, because it’s not verifiable.

I wish now to turn to the small investors in silver and I know they are several thousands. I urge you to don’t try to face the gang at the COMEX on their paper game, because in that case you are doomed to be defeated. Those people are professionals. They have close to an infinite availability of paper money. The rules of the game are set to their advantage. The arbiters is on their side always. And anyway, they enjoy ample political protection. It’s not possible to unfold a crime for a so extended period of time without having pervasive political protection. In fact, I think their fraud answers to precise political dictates. So, don’t put much hopes on some intervention by Mr. Spitzer or other Procurors, because it’s quite possible they are too strong even for Mr. Spitzer.

I will show you their unique weak point, their Achilles heel: that is Silver, the physical, the real stuff. If you are a small investor, just go to the COMEX if you want to buy real silver. There are currently less than 51 million ounces of silver in the registered category at the COMEX to support their endless paper selling. Take them at this subsidized price! Let’s denude the Emperor!

It will be the cheapest insurance you ever bought in your life.

The advice is good for large investors and speculators too, at least if they are finally tired of subsidizing the gang as they have done until now. Forget charts, technical analysis, and moving average. They are just the paraphernalia they use to rob you. Don’t think you can win at the paper game with them as neither of you can! No matter how much paper money you have, they sit at the right of the paper money creator. No matter how much paper silver contracts you buy, they will always sell more than you can buy, because you have limits while they have not. Amazing, isn’t it? You can’t buy more than 1500 contracts even if you have all the money needed, while they can sell all the silver they want to, notwithstanding the fact that they possess just a tiny percentage of the metal. So much for the free market. Therefore, they will always overwhelm you at their paper game. But if you take delivery every active month for some of your positions, even for a small percentage of them, say 2-5%, their fiction will be over in less time than you may imagine. Let’s denude the Emperor!

At the same time, if you are investing in some silver stocks, urge the management not to sell their whole production, but to retain a good part of it. As much as possible, but not less than 10%.

If the management don’t accomplish it, sell those shares. It’s time those people understand who feeds them and their family and cease to deplete the precious and not renewable resources of the Company for an obscene price, fruit of an obscene scandal.

And avoid as a plague the hedgers at current price. They are your worst enemy!

© 2004 Castrese Tipaldi

MY FIRST CRY

Inflation and Deflation: These Strangers
by Castrese Tipaldi
April 20, 2004

Whoever had the misfortune to hold investment money in gold and silver could not be more happy that the last week finally got an end. Indeed, what a week it was!

Silver sank at one point more than 1,5 $ lower in just two days, something of absolutely amazing that has never happened before, except in the post-Hunts era. The action in gold was not much different, except for the magnitude.

This carnage in PM arena was preceded and accompanied by several articles and comments from people who was (and are, I suppose) among the strongest supporters of the precious metals’ merits. As such, their latest words, as always, had an enormous impact towards the investors in this category, I guess. And these words, this time, urged caution, with various degrees of authoritativeness.

Dismissing the minor degrees, which could be synthesized with “nothing goes just up, and in 1975-76 gold had a 45% correction” (forgetting to specify that in the few years before gold went up 471%, a not so little difference with the state of art at present), I wish to focus on the remarks from Richard Russell, for the sake of the arguments I want to point out with this article: that is, inflation/deflation and silver. His comments are the following:

“Silver is a chameleon. In a inflation, silver becomes a “precious metal,” and a monetary metal, and silver goes up with inflation. But in a deflationary situation silver is viewed as an industrial metal. In a deflationary environment, silver is not, as in the case of gold, viewed as money.

If we’re going into a deflationary economic collapse, holding gold doesn’t worry me. But holding silver would worry me.”

First of all, some clarifications: it’s not possible to get a deflationary environment living in a world completely plunged in a fiat-money regime.

I think that inflation and deflation are the most abused words in the economic camp, with a lot of people who use them in an improper way, creating so much confusion.

What is inflation? Inflation is an increase in the supply of money released in the system. Period!

And deflation is the contrary, that is a decrease in the supply of money infused in the system.

From this, I’d be daring to draw the following corollary: in a fiat-money regime a deflation is something that can not exist! At least in the real life. And in fact that’s never happened in such a regime, and never it will.

Many refers to Japan to argue the contrary, but again it’s just a confusion of terms and concepts. In Japan we have witnessed a collapse in the price of the assets, and a minor retreat in the consumer and producer price. But the release of money in the system has been relentless. And that is inflation!

There were two things a little strange in such a context: a substantial firm yen and the interest rates decreasing. But this can be explained with the fact that Japan had not foreign debt, its citizens had a huge pool of saving and its trade balance showed a cronic surplus. All things that US today can’t boast of, and that’s the reason why the outcome there will probably be different under this aspect.

So what Mr. Russell really meant with his expression “deflationary environment” was probably just this: an environment where the price of the financial and real assets go down dramatically, an environment where the economy recede and where the untenable debt’s level is like a stone tied to the feet of the society.

But even in such an environment, that will not be deflationary in a proper sense, I repeat, because the Fed will keep on doing the only thing it knows and for which it was created, that is to pump ever more money and credit in the system, will the silver be a poor choice of investment, an asset to worry about if you hold it? I don’t think so!

Even if people don’t realize that silver is money, the only real money with gold, and in fact the most circulated money at all in the mankind history, I would consider it anyway the safest investment to hold also in this scenario.

This scenario would be characterized by a desperate and growing need of cash (rectius: legal tender) for people and corporations to meet their obligations, so that they’d get rid of all their other assets to obtain it, with a dramatic effect on the price of those assets. Mr. Russell talks about something similar with his remark about debt as a “synthetic short position against the dollar”. So everybody will dump stocks and bond and real estates and everything under the pressure of the enormous debt. This theory surely has got sense, but will it affect the precious metals? Will the people sell even gold and silver to get an ever more scarce (for them) legal tender? Maybe! Maybe they would, but how much gold and silver american people have now as asset? The answer is very, very, very little! Very, very, very little of gold, and maybe even less of silver. The percentage of those metals in the total of their assets in this moment is absolutely negligible. So we can reasonable conclude that the effect of their hunger for legal tender can’t be significant for precious metals.

Things could be different for gold and silver stocks maybe. They are first common stocks, and in a general demise of the stock markets they could certainly suffer. But I’d conclude that finally the public will come to realize why they should buy them: because of their assets! The rule in this camp is that universal one: do your own due diligence, examine the goodness of their reserves and resources and projects, and the competence and trustworthiness of the managment, so to avoid the garbage that abounds here as everywhere, the “hot-stories” full of nothing.

Even less significant, I think, that will be for the value of US dollars on the Forex. The foreigner have not obligations denominated in USD, opposite: they have a lot of rights denominated in USD. To talk about an appreciation of the US dollar, therefore, is to go a little astray; the US dollar may appreciate in relation to stocks, bonds, houses, et cetera, but I don’t see how that “synthetic short position” could make a case for its appreciation against foreign currencies.

In such a scenario, Mr. Russell warn us that silver would not be perceived as a precious metals, as money, but rather as an industrial metal. And sure, in an economic recession any commodity would suffer, at least according to the common economic thinking. But I confess I’m not so comfortable with this conclusion. In general, I would strongly argue that the monetary affaire should not be eliminate when coming to determine what could be a fair price for the commodities. What do I mean? I mean this:

U.S. Debt – All households, governments, business
1980	$ 4 trillion
2002	$ 31 trillion
Economic expansion of 80’s and 90’s questionable.
Dow  + 1,000%	Debt  +  700%
Energy Consumption (barrels of oil consumed) only +34% in 20 years
U.S. money supply:
1787 – 1970	2 centuries	$600 billion
1971 – 2003	32 years	$6 trillion
1. Globally, money being printed at alarming rates. (In last 3 years: Japan +50% (M1); U.S. +25% (M2)

They are just a few quotes to realize the monetary orgy that has happened in the world in the last few decades. I could go on for a long time, but I hope I was able to make my point. But if someone wants some really strong emotions about this, he has just to check the archive of Doug Noland on Prudentbear website. Just, if you are easily affected, avoid it!

At this point, I urge everybody to confrontate the price of gold and silver, but even just that of the other commodities, then and now; after that is done, I think I can save further words.

But in the case of silver that view is even more flawed, as I see it. First, if commodities’ prices go up and down just according to economic expansion or recession, could someone please explain me why silver price has been flat at best in the last two decades, a period of time where powerful economic boom took place?

Anyway, even leaving this simple question apart, the major flaw in applying that view in the case of silver, even considering it just an industrial metal, is that it fails completely to consider the paper manipulation going on the Comex, the supply/demand equation with a productive structural deficit lasting by then a decade and half, and known inventories above the ground approaching to zero. I will not dwell on this, because these things have been exposed and examined much better than I could ever do by Ted Butler, and you have just to go on his website to know the details. I’m still waiting to find someone or something contradicting seriously the resulting of Mr. Butler researches. True, a certain individual has appeared recently, trying to do that; unfortunately for him, the only thing he has accomplished is to insult Mr. Butler with no restraint, because nothing supports his conclusions but his apodictic assertions. A lot of silver all around? Just a question, baby: WHERE???

Maybe in the dreams of the Silver Users Association!

So what’s happened the last week in gold and silver markets? Nothing special indeed. Just the usual flood of paper gold and paper silver sold on the markets to scare away the public and the brainless technical funds; just the usual avalanche of paper gold and paper silver hurled in the market by the usual subjects to manipulate it, gold and silver which do not exist, which they do not possess, and which in the case of silver the world will not produce in a whole year; just the usual killing of the commodity law with the speculators setting the price, with the paper setting the price for the physical. In a word: just the usual Fraud, exposed in all its glory, shameless and unpunished, under the pleased and benevolent sight of the CFTC and the Comex. Nothing special indeed.

Just the usual ambush! And every time it happens, we get of course “experts” and “economists” ready to rationalize the irrational. This time the gag was centered on the last CPI release, which showed a monthly increase of 0,5%. You would expect that such a new would boost the precious metals’ price, wouldn’t you? But alas you are not an “expert”, neither an “economist”. Because if you were, you’d realize that such increase means that maybe the Fed could be less available to keep the interest rates to the emergency level where they are now, and that would kill tangibles and would make the US dollar a “must own”.

With an incommensurable effort to stay serious, I am ready to concede that the Fed will raise the rates of a quarter, half or even a full point in the coming months. I’m not so sure, but I will concede it. Will that mean a reversal in US dollar fortune, and an unsuperable shock for gold and silver? If you think so, you could go towards a lot of surprises in the future.

The Fed should increase the rates to 6% just to match the increase in the CPI (CPI is then a joke in itself; I consider it just to show how much I am temperate), 6% just to get zero real return on money. And a zero real return on money is still not a credible challenger for gold and silver. So give me a break here, please.

The true is that any increase in interest rates made just to catch up the increase in producer or consumer prices will not really harm gold or silver. As Jim Siclair points out, that would require a substantial change in the spending habit of the government, and a serious effort of monetary policy, to effectively address and reverse the monstrous deficits which now affect the US dollar system. Do you see something of similar in the near or even intermediate future? If you do, your sight is much, much better than mine!

Therefore, the usual subjects at the Comex can continue to deceive themself thinking that the fractional reserve way-of-life can be effective even in the gold and silver realm, but time will come when they will be forced to wake up, realizing that it’s impossible to inflate gold and silver supply with the simple pressure on a computer keyboard. To achieve that, it’s needed a lot of money, a lot of time, a lot of hard work and know-how, sometimes even human lifes are rquired, all along the production chain. And the people, the general public will realize that too. That will be a very interesting time.

I don’t know if last week we have seen the last gasp of those usual subject trying to cap gold, and I don’t know if we have now the very last possibility to get silver at a price so cheap. I just know that all the above the ground known silver inventories has almost gone by then, and that ever less gold is available to continue the fiction. My only humble conclusion is that in our future ever increasing amount of legal tender will be required to get some weight of real, honest money, to get some real wealth on which you can rely without to depend on the willingness and trustworthiness of nobody, i.e. gold and silver.

© 2004 Castrese Tipaldi