Counter to Ben Bernanke's The World on a Cross of Gold

Extract from Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy by Richard Timberlake. The references to "Bernanke 1993" are to Ben Bernanke's 1993 article "The World on a Cross of Gold" in the Journal of Monetary Economics.

Ben Bernanke, in a laudatory review of Golden Fetters, agrees with its main thesis. “Eichengreen,” Bernanke states, “has made the case that the international gold standard, as reconstituted following World War I, played a central role in the initiation and propagation of the worldwide slump” (Bernanke 1993, 252). “In this masterful new book,” he notes approvingly, “Barry Eichengreen has gone well beyond his previous work to marshal a powerful indictment of the interwar gold standard, and of the political leaders and economic policy-makers who allowed themselves to be bound by golden fetters while the world economy collapsed.” The United States, especially, absorbed and sterilized gold, “largely reflecting conscious Federal Reserve policy. . . . Monetary policy became tight in the U.S. in 1928. . . . High returns on both bonds and stocks attracted gold into the U.S., but the Fed, intent on its domestic policy goals, sterilized the inflows” (Bernanke 1993, 253-258).

Bernanke’s words, much like Temin’s and Eichengreen’s, contradict his argument. If central banks could absorb and sterilize gold, “reflecting conscious Federal Reserve policy,” the central bank, not the gold standard, was running the show.

...

Bernanke finally poses a very apt question that he leaves unanswered. “Why was there such a sharp contrast between the stability of the gold standard regime of the classical, pre-World War I period and the extreme instability associated with the interwar gold standard?” (Bernanke 1993, 261).

Here are two commentaries that may help answer his question. The first is from Lionel D. Edie, a prominent economist of the time. At a conference of economists in early 1932, he stated,

The Federal Reserve Act cut the tie which binds the gold reserve directly to the credit [money] volume, and by so doing automatically cut off the basic function of the gold standard . . . in an essential respect we abandoned [the automatic money supply function] some time ago. . . . We are not now on the gold standard . . . and we have not been for some time . . . it is time to recognize that the Federal Reserve mechanism does not constitute an automatic self-corrective device for perpetuating a gold standard. (Edie1932, 119-128)

And Leland Yeager in 1966 described the “gold standard” of the 1920s in these words:

The gold standard of the late 1920s was hardly more than a façade. It involved extreme measures to economize on gold. . . . It involved the neutralization or offsetting of international influences on domestic money supplies, incomes, and prices. Gold standard methods of balance of payments equilibrium were largely destroyed and were not replaced by any alternative. . . . With both the price and income and the exchange-rate mechanisms of balance of payments adjustment out of operation, disequilibriums were accumulated or merely palliated, not continuously corrected. (Yeager 1966, 290)

These commentaries provide the answer to Bernanke: “The” interwar gold standard was not a gold standard. It was an entirely different system than the pre-1914 gold standard that had existed for 100 years.

Also quoted in the article is the following from Joseph Schumpeter's 1954 History of Economic Analysis:

An ‘automatic’ gold currency is part and parcel of a laissezfaire and free-trade economy. It links every nation’s money rates and price levels with the money-rates and price levels of all the other nations that are ‘on gold.’ It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of [classical] liberalism. This is the reason why gold is so unpopular now [1950] and also why it was so popular in a bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.

War, gold and American Express

Surfing around I found this excerpt from the history of American Express interesting:

During the summer of 1914, approximately 150,000 American tourists were stranded when war engulfed Europe, many without access to funds. Banks had ceased to pay against foreign letters of credit or any other form of foreign paper. Panic-stricken travelers lined up inside and outside the offices of American Express in whatever city they happened to be visiting. American Express was able to cash all travelers cheques and money orders in full, enabling quick passage home for thousands. Many of those remaining were able to book passage home soon after a decision by American Express and a consortium of nine U.S. banks to ship $10 million in gold to Europe so that local banks could once again honor foreign drafts.

During 1938 and 1939, as the prospect of another world war loomed over Europe, there was still a sizable group of longtime American Express managers and employees who had worked for the company 25 years before, during World War I. Their past experiences – and their advance planning, in this instance – helped the company survive World War II. Even before the official declaration of war, American Express had mounted extensive preparations to protect its financial and real estate assets, including its principal offices in Berlin, London, Paris, Rome and Rotterdam. Throughout Europe, American Express offices continued operating until the last possible moment in countries about to be invaded – often long after American embassies and consulates had been ordered to evacuate.

The history is interesting not for the reminder that in war fiat is worth nothing, but that AMEX had an organisational memory of WW1 that enabled them to prepare for WW2. The two events were close enough that those who had experienced the first were still employed and had not retired.

I think that what is necessary for an organisation (which is really just a collection of individuals) to see the need for "advance planning" is not experience of a crisis, but experience of the period prior to a crisis. Only then can one see similarities between the period that preceded a crisis and one's current situation and thereby identify the potential for a future crisis.

I also think that what is important is direct experience. One has to have personally experienced the pre-crisis environment - it makes for a strong imprint on the mind. Indirect experience is not the same. Reading the history of a period that draws parallels to now does not have as powerful a call to action. Words on a page can also be rationalised away.

For example, do you think giving Paul Mylchreast's 4th May Thunder Road Report history of the US and Sterling crises during the Johnson and Nixon administrations in the 1960s and 70s (pages 24 to 35) to someone in their 30s raising a young family will result in them buying gold? It is too distant and academic.

I would also argue that the minimum age for direct experience of economic/financial events to really register would be no younger than say 20 years old. This means that the youngest person to have experienced the 1970s and punishing inflation and a real gold bull market is now 60 years old. Anyone younger than that would probably not really "get it", at a visceral, emotional level that only direct experience can give.

My only "economic awareness" memory of the 70s would be my father suggesting I invest the $200 worth of Christmas and birthday money I had squirreled away up to my then 10th birthday into State Rail Authority of New South Wales bonds at 15% (my father was a train driver and they were offered to staff first). Getting a $30 cheque each year for 5 years seemed like a good deal. I remember being disappointed that I didn't hold out longer, because subsequent bond series peaked at 18%, if my memory is correct.

That is the extent of my experience of inflation, as a 40 year old. It makes me reflect on where I would be now if I had not made that fateful decision in 1994 to take a job with the Perth Mint. It is likely that my economic literacy would be negligible, my awareness of the potential for inflation and the role of gold as a wealth preserver in an investment portfolio, zero.

I am interested in what is your story. Why are you reading this blog? Is your interest in gold because of direct experience of the last gold boom, because someone close to you passed on their experiences, or because you are simply an inquiring mind? Please leave a comment.

New Perth Mint LBMA Bar Mark

The new Perth Mint bar mark as registered with the LBMA. Smaller bars will have the same swan mark but words around it in a circle. The bar pictured is a 400oz bar, 9960 being the purity (99.6%) and the year and bar number (see Good Delivery rules). Weight is specified on a bar listing as per LBMA rules page 9:

"It is strongly recommended that weights should not be stamped on Good Delivery bars. The reason for this is that when bars are weighed in London by an LBMA approved weigher their weights, which may be different, will prevail, and also any adjustment to the weight of a bar caused by future handling or sampling would necessitate alteration to the mark. If bars are so stamped, the unit of weight must be shown."



Below is picture of a bar stack for you to drool over.

A smarter investment than gold

A couple of quotes from Andy Smith's Precious Thoughts commentary 19 April 2010 I like:

"the euro, still, arguably the most toxic structured product built by man"

"But this [SEC vs Goldman Sachs] is a never-ending story: The Inquisition -> Salem -> McCarthy -> Spitzer -> and here we are. It's about politics/power/control. Guilt/innocence bit players."

"Goldman were arguably the hub in the wheel [or at least the ball bearings; so this is not Lehman 2, but Lehman *2?]. Big Gov is about to put a boot in the hub. Watch what happens to the spokes: - 'Counterparty' a dirty word? We are closer to that Indian village end-game; extended families the only circle of trust, assets you can sleep nights over and on, in your mattress, the only rational investible products. The opposite of ‘synthetic’ is ‘real’."

If indeed counterparty becomes a dirty word, and people won't trust gold ETFs/GoldMoney/Perth Mint Depository or any other custodial facility, the problem is that the minting and refining industry as a whole does not have the production capacity to meet retail/mass market demand for coins and bars in my view. Look forward to high premiums and/or rationing of production. See my posts:

FUD. Fear, uncertainty, doubt. and
Why are there not enough coins?

Remembering that the ones who made money from the gold rushes were those selling picks and shovels to the prospectors, then if I am right the smartest investment will not be gold, but minters and refiners of gold.

London unallocated: Fractional Fubar or Benevolent Banking?

A number of readers of my blog have asked me to comment on the 100:1 comment by Mr Christian of CPM Group in his CFTC testimony and whether London unallocated metal accounts are fractional. Well short answer is no, they are only 10:1 fractional. Do you feel much better now?

The 10:1 statement was made by Mr Christian in a April 10 interview with Jim Puplava of Financial Sense. Mr Christian is interviewed at the 26 minute mark and explains his 100:1 statement at the 36 minute mark. However, it is the comments at the 44 minute mark that are most illuminating, which I have transcribed below:

If you are a bank in the United States and you take in a deposit the office of the controller of the currency says you have a reserve requirement of 12.5% or something which means that for every dollar you take in deposits you can lend out 8 and that's how the money in banking 101 works.

Now if you're a bank in the United States and you take in gold and silver deposits not on an allocated basis but on an unallocated basis the same way you take in dollars when you put them in – when people put money into a savings account or a chequing account that's an unallocated account and the bank is allowed to lend it out. If they put the money in their safety deposit box that money belongs to the investor and the bank can't lend it, the bank can't hypothecate it, it stays there, and it means nothing to the money in circulation.

In the gold market if you put your gold and silver in a safety deposit box or an allocated account the bank can't touch it legally but if you put it in an unallocated account that is now an asset on the bank's book, they have a liability to give it to you if you ever want it back but in the meantime they can lend it out. Now if you give the bank in the United states money the law, the office of the controller of the currency says the bank can lend it out 8 times. If you give it gold and silver the office of the controller of the currency says the bank can lend it out in a “prudent fashion” and the bank has the discretion to decide what's a prudent multiple for its credit lending. Most of the banks I know, commercial banks, 8, 10, maybe 12 as a leverage factor.

AIG was not a bank, was not a commercial bank, and under the US laws non-commercial banks don't come under the law, the guidance of the office of the controller of the currency. AIG used a leverage factor of 40, so if people gave them a million ounces of gold to hold for them, they could lend out 40. I mean, I have friends who are metals traders who were looking for job years ago and, you know, they went to AIG and AIG said “we use a leverage factor of 40” and the trader is a seasoned guy and he's worked at major banks and investment banks, he said “I can't operate at that level of leverage its just too risky more me” and AIG trading said “well this is what we do”, right, so there is a loophole in our regulatory system, its doesn't really have anything to do with gold and silver per se but it allows non-banks to participate in banking activities in a way that skirts banking regulations that are designed to promote stability in the banking system.

In the interview, Mr Christian recommended that listeners go to the CPM Group website where there was a free download Bullion Banking Explained. I took him up on the offer. Below are are some extracts that fill out his statements above.

This article may help to clarify the complex world of commodity banking, in which gold, silver, and other commodities are treated as assets, collateralized and traded against. When we explain these processes to clients, we often refer to the same mechanics as they are applied to deposits, loans, and assets by commercial banks in U.S. dollars and other currencies. Banks treat their metal deposits in much the same way as they do deposits denominated in money, as the reserve asset against which they lend additional money to borrowers. ...

Many banks use factor loadings of 5 to 10 for their gold and silver, meaning that they will loan or sell 5 to 10 times as much metal as they have either purchased or committed to buy. One dealer we know uses a leverage factor of 40. (Long Term Capital Management had a leverage factor of 100 when it nearly collapsed in 1998.)

A bank does not even have to be buying gold at a particular time to be able to use it as collateral against which it can trade, sell forward, and lend gold. If a bank has gold held in an unallocated account, or a forward purchase on its books committing a producer to sell it gold later, it can use these gold assets as collateral for additional gold trades.

Is London unallocated fractional fubar or just benevolent banking? Maybe this statement by Mr Christian in a presentation to the International Cotton Advisory Council in October 2002 will help you decide:

A producer should use an advisor such as CPM Group, which is not trading against the producer. Banks and dealers have a conflict of interest between their own trading positions and the hedges they advise their clients to take.

Or maybe Recent Lessons Learned About Hedging (January 2000):

Hedgers should not rely on their trading counterparts for hedging strategies. These entities take the opposite side of the hedge transactions, have inherent conflicts of interest, and always keep their own best interests in mind, even if these are the short-term best interests and arguably not in the banks’ own long term best interests.

King World News & Scotia Certificates

*Updated table on 14 Feb 2012 with 2011 figures*

In this interview, Lenny Organ (son of Harvey Organ who was at CFTC hearing) recounts how at a recent visit to the vaults of ScotiaBank they saw little physical precious metals and had to go to some trouble to get physical.

I analysed Scotia's annual report back in September 2009 after seeing a blog by ispeakofpeak on the issue. At that time the annual report revealed that Scotia only had 43% of its gold and silver certificate liabilities backed by physical metal. The table below updates that post with the most recent report (note: Scotia's financial year end is 31 Oct, figures in millions of dollars).

Year
Ending Liabilities Assets Physical cover
Oct 11 3,931 9,249 100%
Oct 10 5,153 6,497 100%
Oct 09 3,856 5,580 100%
Oct 08 5,619 2,426 43%
Oct 07 5,986 4,046 68%
Oct 06 3,434 3,362 98%
Oct 05 2,711 2,822 100%
Oct 04 2,018 2,302 100%

It appears that the physical backing was running down from 2006 but is now back to 100%+, with $5.58 billion of physical. This contrasts with Lenny Organ statement. Either Scotia have run down a lot of physical in 6 months or it is stored elsewhere.

I do find it interesting that the gold and silver certificate liability has declined from $5.619b to $3.856b in the past year, a year when most ETFs, GoldMoney and BullionVault and Perth Mint have shown increasing amounts of metal held.

I agree with Adrian Douglas' statement in the interview that many storage providers "are very vague about what is backing their paper certificates and if they are vague I think you should not give them the benefit of the doubt". Contrast this statement from Scotia about their unallocated:

"Scotiabank gold certificates are backed by the assets of The Bank of Nova Scotia. Unallocated gold is a claim on The Bank of Nova Scotia for the ounces entitlement to a specific quantity of gold bullion."

with the Perth Mint's:

"With unallocated storage, also known as a metal account, clients purchase an interest in a pool of precious metal held by The Perth Mint. The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients. Accordingly every unallocated ounce is 100% backed. ... The Perth Mint is not a bullion bank and does not provide project financing or bullion lending/derivative services to mining companies or other entities. It does not lend client's unallocated metal to support short selling transactions or other derivative activities. The unallocated metal is utilised solely to fund the Mint's operations."

You should always read the fine print.

The Mysterious Mr Maguire's Message of Metal Manipulation

"Since criminal prosecution is only a remote threat, and since the fines and damages are generally paid by the companies, not by the individuals, the question is: what’s to keep a Sumitomo from happening again, perhaps in precious metals?" - Modern Market Manipulation by Mike Riess, International Precious Metals Institute 27th Annual Conference, 16 June 2003.

The recent statements by Mr Maguire may well prove Mr Riess right. It is well worth reading Mr Riess' presentation. It is not long and neatly identifies the factors that contributed to the copper manipulation, factors that also apply to the metals markets.

For the young'uns, "a Sumitomo" refers to the case where, as the CFTC itself found: "the principal copper trader for Sumitomo engaged in a scheme, in conjunction with an entity operating in the United States, with the intent of manipulating the price of copper. In particular, during 1995 and 1996, Sumitomo, acting through its agent or agents, established and maintained large and dominating futures positions in copper metal on the London Metals Exchange ("LME"). In the fall of 1995, Sumitomo stood for delivery on a significant percentage of its maturing futures contracts. It thereby acquired a dominant and controlling cash and futures market position, which directly and predictably caused copper prices, including prices on the United States cash and futures markets, to reach artificially high levels. ... Sumitomo intentionally exploited these artificially high prices in order to profit on the liquidation of its large portfolio of futures contracts and holdings of LME warrants."

It is because of the Sumitomo case that I am not surprised by the revelations of Mr Maguire. However, the question for me is what sort of manipulation are we talking about? It is being spun as proof of GATA's claim that the gold market is manipulated by the US Government via bullion banks in an attempt to support the dollar. While I don't begrudge GATA some PR mileage, at this time all that Mr Maguire has is potentially another "rouge trader" case, only affecting the silver markets. He is not providing any evidence about gold market manipulations or Governmental involvement.

This may come in due time if the CFTC investigate further but that does beg the question of why rely on the Government. If they are ultimately party to the manipulation, will they not make the issue go away in a backroom deal? Alternatively, if the CFTC presses on and does find something initially in the silver markets, will it just be explained away as a rogue trader who will take the fall?

In this case it may be best to fight fire with fire, in a way. GATA would achieve more, and quicker, by doing a roadshow with Mr Maguire to hedge funds, sovereign wealth funds, etc and making its case that the market has been manipulated via the surreptitious leasing and selling of central bank gold that is now all used up and hence there is a large short position that can be squeezed. The standard of proof would be much lower, just enough to convince an investor that the odds are in their favour.

Would it not be better to use brawn rather than bureaucracy? Only if you're sure the bet your pitching won't turn bad, because then your buddies will be blue (to put it mildly).

Fake Tungsten Gold Story

The gold bars filled with tungsten story is getting another run - see Zero Hedge and RunToGold.

Nick from ShareLynx Gold passed on to me today the following from the producers of the video (all personal info was removed by him before forwarding):

vielen Dank für Ihre Anfrage.
MANY THANKS FOR YOUR ENQUIRY

Das Video ist tatsächlich bei Argor in der Schweiz aufgenommen worden, allerdings in einem ganz anderen Zusammenhang.

THE VIDEO WAS EFFECTIVELY TAKEN AT ARGOR IN SWITZERLAND, ALTHOUGH IN A COMPLETELY DIFFERENT CONTEXT

Unten eine englischsprachige Erklärung hierzu, die Ihnen einige weitere Hintergrundinformationen gibt. Der Barren wurde übrigens schon vor über 10 Jahren bei Argor zum Einschmelzen abgegeben; sofort entdeckt und aus dem Verkehr gezogen. Gefälschte Barren kommen extrem selten vor, unsere Kollegen in den Schmelzen können sich an keinen Fall in den letzten Jahren erinnern, in denen ein solcher bei Heraeus zur Aufarbeitung eingeliefert wurde.

BELOW AN EXPLANATION IN ENGLISH TO THIS ISSUE, THAT WILL GIVE YOU SOME FURTHER BACKGROUND INFORMATION. THE BARS, BY THE WAY, WERE DELIVERED TO ARGOR ALREADY MORE THAN TEN YEARS AGO FOR SMELTING; WERE IMMEDIATELY DISCOVERED AND WITHDRAWN FROM CIRCULATION. COUNTERFEIT BARS ARE EXTREMELY RARE, OUR COLLEAGUES FROM THE FOUNDRY CANNOT RECALL A SINGLE INSTANCE IN THE LAST YEARS IN WHICH SUCH A BAR WAS DELIVERED TO HERAEUS FOR PROCESSING.

Statement:

The video shown on www.youtube.com is an extract from the weekly German television broadcast Galileo that discusses scientific topics. This particular broadcast covered the topic of gold including testing the purity of gold bars.

The presentation of the scene of (gold) production at the Argor Heraeus refinery – that was put on youtube.com in another context – when seen together with the text could therefore give an incorrect impression.

The false bar shown in the broadcast was a bar not produced by Heraeus; it was sent to the company for refining and detected already at the time of delivery. Compliance Management at Argor-Heraeus is very important and plays an important role at the company. Among others, it has very stringent rules for handling and dealing with precious metals.

Therefore, and combined also with strong and effective quality controls, Argor-Heraeus is able to assure the authenticity of gold bars produced by the company itself at all times.

Internet: www.heraeus-edelmetallhandel.de
Heraeus Metallhandelsgesellschaft mbH
Heraeusstr. 12-14, 63450 Hanau, Germany

So the video is about ten year old fake bars. Another example of commentators jumping the gun and hyping a story without any fact/background checking. To be fair, it really is only someone like Nick who has a worldwide well-connected subscriber base who can do that sort of checking.

I also find it interesting that the video Zero Hedge linked is the only upload of YouTube user wolframgold who only joined on 28 Feb 2010. This leads me to a conspiracy I am surprised none of the more rabid commentators have come up with yet, namely that the source of the tungsten rumours since October 2009 is either a refinery/mint trying to scare people away from the secondary market and ebay and into only buying new bars and coins OR producers of testing equipment!

Nick also passed on to me a link to BullionAnalysis.com, which has some nice pictures of fake Englehard silver bars that their equipment would have detected. This does undercut RunToGold's conclusion from the tungsten scare that "if one is concerned about the quality of their gold then the other precious metals like silver and platinum are good alternatives". Ouch.

I would also disagree with RunToGold's statement that "detecting a high-quality fake tungsten gold bar would be extremely difficult. It would likely require significant and material alterations to the bar being tested and this would negatively affect the marketability if its hallmark veracity were vindicated."

Ultrasonic testers will do the job without having to damage a bar. I quote some techo stuff from KK&S Instruments:

The 1090 Flaw Detector allows you to look into the Bar for voids/defects as well as UT velocity which is determined the products elastic modulus i.e Tungsten Velocity is 5183-5460m/sec and Gold is 3,240m/sec. For example if you calibrate for Au then the testing Tungsten bar of the same thickness, the UT thickness would read approximately half the actual because of the speeding-up of the sound through the Tungsten.

Problem is that it does require some technical knowledge to use the machine, so out of reach of retail investors and small coin dealers. It is probably prohibitively expensive as well.

I also think that it is fairly likely that the unintended consequence of commentators pushing the tungsten story is to drive mom & pop newbie gold investors into the ETFs. Making the decision to buying gold is a big change for the average investor and you can be sure they are seeking reassurance. Sow doubts in their mind about the "dangers" of physical gold and you will push them into ETFs, because mom & pop see them as regulated and thus safe. The very opposite of what many (if not all) commentators would want. I doubt they think about these consequences when they are looking for their next headline.

Perth Mint to acquire full ownership of AGR Matthey

Last week the three partners in AGR Matthey decided to dissolve their partnership. The Perth Mint will acquire full ownership of the gold and silver refining business in Perth and Johnson Matthey will acquire full ownership of the platinum and silver brazing alloys business in Melbourne. Newmont will exit from these businesses entirely but will continue to have its Australian-mined gold refined at the Perth refinery. There are still some conditions precedent that need to be met before the deal is concluded, but the partners see no reason why these will not occur.

It is a move I am very excited about as it gives the Mint direct control over the refinery’s output, which is typically between 300 to 400 tonnes of gold a year. I’m reminded of the old adage, "He who owns the gold, makes the rules", but of course the Mint doesn’t own the gold, its clients do.

The substantial physical inventories needed to support this throughput, and the Mint’s own stock, have been backing Depository client metal for many years. All this acquisition will do is change the refinery’s inventory from being listed as a metal receivable in the Mint’s financials to being a directly owned asset. This should increase the comfort factor for many Depository clients even though it doesn’t really change the fact that their holdings have been, and always will be, backed by physical.

I will be interested to see how the Mint’s critics and competitors try to spin this news against us. It does make it hard to argue that a business that refines 300 tonnes of gold a year “doesn’t have any gold”.

Maybe they’ll argue that we had to get the refinery to plug the imagined short position that they think we have. Apart from exposing their woeful ignorance of how our operations and a refinery’s work, the logical conclusion of such a position would be that the supposed short position is now plugged, making the Depository a totally safe facility!

For those not aware, the AGR refinery operations were originally established by the Perth Mint in 1899 when it was founded as the Perth branch of the British Royal Mint. In 1998 the refinery was combined with the refinery operations of Golden West to form the AGR Joint Venture and then subsequently merged with Johnson Matthey’s Melbourne refinery in 2002. So in a way the refinery business is just coming back to its home.

Government incentives to inflate debt away

Two interesting quotes caught my eye in a recent Andy Smith note:

"We cannot stop terrorism or defeat the ideologies of violent extremism when hundreds of millions of young people see a future with no jobs, no hope, and no way ever to catch up to the developed world" Hillary Clinton, Remarks to the Center for Global Development at the Peterson Institute for International Economics

For a moment there I thought she was talking about the US - "when millions of young Americans see a future with no jobs, no hope, and no way ever to catch up to the Baby Boomers". Generational class warfare anyone?

"could seriously disrupt bond markets if it triggered concerns about creditworthiness or inflation because of concerns with government incentives to inflate debt away" Bank for International Settlements in invitation to top central bankers and financiers for a meeting in Basel

This doesn't need any further comment for readers of this blog, suffice to say I find it interesting that the BIS acknowledges that inflating debt away is an option.

PS - unfortunately Andy Smith's stuff is not publically released, because I rank him as the top precious metals analyst.