Make America Gold Again: Calls for A Favourite [Controversial] Standard Are Back
Here is the opening of this interesting article from Bloomberg:
When times are tough, new economic theories get a better hearing. Maybe some old ones, too.
The gold standard is one of the oldest ideas about money, but the hardest of hard-money hawks sense an opening to breathe new life into it. Decades ago, the amount of cash circulating in a country was often limited by the stash of bullion held in its coffers. Especially since 2008, developed-world policy has headed in the exact opposite direction, expanding the powers of central banks to stoke growth. Helicopter drops of money, potentially the next new thing, would be a giant leap further.
For those in the U.S. who see much risk and little benefit in the current course, gold is still a rallying point. And their audience may be growing.
“The fringe has become the mainstream,” said Jesse Hurwitz, a U.S. economist at Barclays Capital in New York. He sees the gold standard as a bad idea but “something we’ll increasingly talk about.”
Of course, full restoration of the system that reigned in the U.S. for a century through the 1970s is almost inconceivable. Even many gold bugs say it can’t be done, and there’s near-unanimity among economists that it shouldn’t be attempted: the U.S. would be in much worse shape, they say, with a Federal Reserve stripped of its ability to freely tinker with the money supply.
But the backdrop to this well-rehearsed debate is changing. Rumbling discontent with the economy has left the establishment under siege, and you can’t get more establishment than the Fed. So, in a curious twist, it’s becoming easier for supporters of hard money -- historically a policy favored by the rich -- to give the idea a populist slant. The money conjured up by central bankers after the crisis, the argument goes, all went to bankers, leaving most Americans no better off. It’s time to tie the Fed’s hands, if not to gold, then at least to something.
David Fuller's view
Should the USA and other countries go back on a gold standard? No, although I am interested to see that this topic is back in circulation.
Advocates of a gold standard will point to times throughout human history when it has worked reasonably well, at least for a while. The last period of gold standard success was during the Bretton Woods Agreement established in 1944, following WWII. It worked for a number of years because the USA was the world’s strongest economy, by far, and it also held over half of the available gold reserves at the time. Consequently, it was able to supply readily exchangeable US dollars to European countries and Japan, which needed this liquidity to rebuild their economies.
However, Bretton Woods began to unravel because countries led by Japan and Germany were increasing their percentage of global GDP. US Dollars were not only no longer essential to economic recovery, but also seen by other nations as a system which mainly favoured the USA. After all, the Fed could print £100 bills at will, but other countries had to provide the equivalent in goods and services to acquire them. Meanwhile, the US economy was becoming weaker and the Dollar more overvalued due to this monetary inflation and growing public debt caused by the Vietnam War.
Yes, the IMF and 200-Plus Economists Can Be Wrong
Here is the latter section of another informative column by Roger Bootle for The Telegraph:
In the current debate, the EU’s single market is the focus of much attention. Allegedly, if we are not members, we will not have “access” to it.
This word “access” is extremely misleading. And so is its derivative, “full access”. Every country has access to the single market.
To sell into it, non-members normally have to pay EU tariffs, submit their goods for inspection at border controls, together with the associated paperwork, and comply with rules concerning the origin of goods and their components.
There is no doubt that not having to bear these various costs and inconveniences is an advantage. So, if this advantage came without any costs, you would of course want to have it.
But that is precisely the point – it comes with umpteen costs: having to impose EU rules across the whole of your economy; having to pay the EU’s annual membership fee; being unable to negotiate trade deals with other countries around the world; having to impose the EU’s external tariffs on imports into your country; and being obliged to take any number of EU citizens to live and work in your country.
So the issue is about weighing up costs and benefits – and how these might change over time.
But it is more of a judgment call than a totting-up of numbers. In trying to make it, I suggest that you ponder three key questions.
First, if the benefits of the single market are so enormous, then why is it that over recent years countries all around the world have increased their exports into the single market at a faster rate than most single market members?
Second, if the single market is of such overwhelming importance, why are so many of its members in a terrible state? Why is the Greek economy not carried forward on a wave of prosperity unleashed by the absence of form-filling and checking at borders?
Third, if trade deals are so important, why does the UK do such a huge amount of trade with countries that it doesn’t currently have a trade deal with – including America?
Even though I believe that we should leave, I concede that there are some good arguments for remaining in the EU. But the fact that various economic bodies with a less than distinguished record of foreseeing the future warn us against leaving is not one of them.
David Fuller's view
I think Roger Bootle is right on all of the points in this instructive article. The main reason for voting Remain, I believe, is to remain ‘a good European’ in the eyes of all who fear for the EU, and also wish it well. As such, the UK can hopefully offer stability and remain a constructive influence. The risk is that it will remain a costly and frustrating exercise, on an undemocratic and increasingly divisive journey.
The Markets Now
Monday 11th July at London’s East India Club
David Fuller's view
I am looking forward to discussing market opportunities with subscribers and their friends at this post-Brexit seminar, held in the comfort of the East India Club. David Brown will provide new material of considerable interest to long-term investors. Iain Little will also have some new material, in addition to his review of interesting investment trusts.
Presentations commence at 5:30pm and usually end around 8:30pm, followed by further conversation and refreshments at East India’s cash bar.
Musings from the Oil Patch May 17th 2016
Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:
The appointment of a much younger al-Falih to replace the aging al-Naimi, is in keeping with the generational leadership change underway in Saudi Arabia. Producing more oil as Saudi Arabia is doing will act to keep oil prices from soaring even as U.S. and various OPEC member outputs fall. The current rise in oil prices is supported not only by evident production declines around the world, but also by the rise in unscheduled outages such as Canada’ oil sands and oil output from Nigeria’s Delta region. The latter outages are temporary, but they are helping to more rapidly correct the oil inventory glut. That trend is leading to more optimistic outlooks for a quicker balancing of global oil supply and demand. Saudi Arabia will certainly welcome the additional income from higher oil prices, but it is equally concerned with generating more rapid oil demand growth. Until demand growth accelerates, Saudi Arabia will remain locked in an intense battle for market share, especially in Asia, with Russia and the expanding output from a recovering Iranian oil industry.
The market shock of the replacement of al-Naimi as Saudi Arabia oil minister has worn off. We suggest, however, that people should not be surprised by further policy and leadership changes in the Kingdom. The urgency for royal leadership to put in place the policies and leadership that it believes can successfully navigate the transition of the Saudi economy and its society from one totally dependent on oil to one based on a more diverse industrial and financial foundation is intense. The ability to make that transition will provide greater assurance that Saudi Arabia will not become another failed Middle Eastern state. The world should be rooting for a successful transition even it means moderate oil prices for many years into the future, which will challenge the economies of oil exporting countries around the world.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The oil market remains in a state of flux but the rally has recently been supported by outages at major production geographies which have acted as a bullish catalyst. Nevertheless, none of the outages are permanent in nature and the higher prices move the greater the incentive to speed up repairs. At the same time Saudi Arabia is waging a three fronted war against Iran and the last thing the kingdom wants is to lose market share to its regional nemesis.
Global Lenders on Edge as Cyber Attacks Embroil More Banks
This article by Michael Riley, Jordan Robertson and Alan Katz for Bloomberg may be of interest to subscribers. Here is a section:
While Swift has for decades made sure its own financial messaging network was secured, less attention was paid to the security surrounding how member banks -- each with their own codes and varying levels of technology -- were connecting. Even today, when it discusses the cyber attacks, Swift emphasizes that its own network wasn’t breached and says its members are responsible for their own system interfaces.
Some U.S. banks are pushing to open discussions with Swift about whether it should have responded more quickly to the breaches and should now help member banks better secure their systems, according to one of the people familiar with the thinking within a large U.S. bank. BITS, the section of the Financial Services Roundtable aimed at combating cyberfraud and other technological issues, could be tapped to broker those discussions, the person said.
More broadly, some U.S. banks expect Swift to come up with a technological solution that could apply to all connected institutions and would help reduce these risks, another person said.
Eoin Treacy's view
As more banking is conducted online the need for all counterparties to beef up security, and on a global basis, is no longer about choice but necessity. Cyber criminals both private and government-backed have ample resources to probe the global financial infrastructure for weaknesses they can exploit. Therefore it is necessary to insist on greater security across the network to ensure the thefts seen in Bangladesh and now Vietnam do not become common place.
El Nino-Hit Brazil Doubles Cocoa Imports as Harvest Tumbles
This article by Isis Almeida and Gerson Freitas Jr. for Bloomberg may be of interest to subscribers. Here is a section:
"The drought we suffered starting at the end of last year and the first month of this year, it has really, really hurt not only the main crop, which came in much smaller than was expected, but mainly it will hurt the mid crop that’s starting right now," Hartmann said.
Brazil is being forced to import cocoa to keep processing factories running. Processors need to work with 240,000 tons of cocoa to ensure capacity is utilized and to prevent costs rising, he said. Beans come mainly from Ghana, the second- largest producer, as shipments from top grower Ivory Coast are banned along with those of Indonesia, which ranks third.
"The only permitted cocoa to come to Brazil is from Ghana, which is the most expensive stuff," Hartmann said.
Eoin Treacy's view
Cocoa prices have been subject to some quite abrupt volatility over the last couple of months with the result that the sharp peak to trough swings, evident within the two-year range, remain in place. With prices falling back towards the lower boundary a clear upward dynamic will be required to signal a return to demand dominance which would pressure shorts.
The Chart Seminar 2016
Eoin Treacy's view
Thank you to everyone who has expressed interest in The Chart Seminar this year. Our plans are to hold a webinar sometime in June and I will share details of this as we firm up how best to conduct it. The timing of the seminar will be catered to where the majority of delegates sign up from but we’ll try to pick a time when the most possible people can tune in live.
We also plan to hold two seminars in physical locations this year. From some subscriber feedback I was thinking of holding one in Los Angeles during the summer and another in London during the fourth quarter. If you would like to express interest in any of our events please message Sarah Barnes at [email protected]