{"id":39709,"date":"2016-10-29T05:15:09","date_gmt":"2016-10-29T12:15:09","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=39709"},"modified":"2016-11-01T05:37:12","modified_gmt":"2016-11-01T12:37:12","slug":"black-coffee-smart-money-dumb-economists-and-the-gold-standard","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id39709-black-coffee-smart-money-dumb-economists-and-the-gold-standard.html","title":{"rendered":"Black Coffee: Smart Money, Dumb Economists, and the Gold Standard"},"content":{"rendered":"

\"black<\/a>It’s time to sit back, relax and enjoy a little joe<\/em> …<\/p>\n

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.<\/p>\n

Let’s get right to it this week …<\/p>\n

Economists create their own worlds. We’re like little gods with our artificial economics, wanting to see what happens.<\/em><\/p><\/blockquote>\n

— Edward C. Prescott<\/p>\n

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense that gold and economic freedom are inseparable.<\/em><\/p><\/blockquote>\n

— Alan Greenspan<\/p>\n

Credits and Debits<\/strong><\/p>\n

Debit:<\/strong><\/span> The US is supposedly in its 90th straight month of economic expansion, which is quite a feat when you consider that core durable goods orders in September fell for the 21st consecutive month<\/a>. That’s the longest non-recessionary contraction streak ever. Strange, isn’t it?<\/p>\n

Credit:<\/strong><\/span> I’m sure there’s a good explanation for the dichotomy between the economic data and the party line that says the economy is not in recession. Well … that is, if you consider fraud and deception<\/a> “a good explanation.”<\/p>\n

Credit:<\/strong><\/span> For his part, financial analyst Andy Hoffman claims “everything’s rigged<\/a> and everyone knows it.” You can bet the “smart money” knows it, Andy.<\/p>\n

Credit:<\/strong><\/span> In the world of finance, the bond market is recognized as the “smart money” because it’s almost always the first one to recognize changing economic reality. With that in mind, could rising interest rates<\/a> be signaling the end of the 30-year bond bull market is finally coming to an end? I’m just askin’.<\/p>\n

Debit:<\/strong><\/span> Something is afoot in the bond market. Bank of America Merrill Lynch said government bond funds saw their largest outflow of 2016 last month; it was the biggest in four years — although economist Stephen King of HSBC Bank doesn’t believe this is the beginning of a large bond sell-off<\/a> and follow-on bear market. He better hope not.<\/p>\n

Debit:<\/strong><\/span> One thing is certain: Since 2009, the long-term government bond market has more than doubled, to about $6 trillion. So it should be no surprise that even a modest bond sell-off resulting in a measly one percentage point increase in interest rates would lead to $2.1 trillion in losses<\/a> for global investors. Ouch.<\/p>\n

Debit:<\/strong><\/span> Of course, those government bonds support the $20 trillion — and rising — US national debt. Unfortunately, the debt burden is now so large that it can never be paid back — at least not in dollars with today’s purchasing power. Sadly, the only realistic ways out<\/a> are either via outright default or hyperinflation.<\/p>\n

Credit:<\/strong><\/span> It’s no secret that the majority of economists who infest government and academia quickly dismiss anyone who advocates returning to the gold standard<\/a>. Why? Because it’s very hard for any nation to spend more than it earns when it anchors its currency to precious metals — and that keeps a yoke on government expansion. It’s also bad for the economist job market.<\/p>\n

Credit:<\/strong><\/span> Frankly, when the majority of a nation’s wealth isn’t being siphoned off to fund parasitic government bureaus, bureaucrats, and boondoggles, everyone<\/em> is better off. In fact, the greatest period of US growth<\/a> and prosperity occurred between 1870 and 1913 — a period when the US lacked a central bank and the US dollar was backed by gold and silver. No, really.<\/p>\n

Debit:<\/strong><\/span> If the US was on a gold standard, you can bet financially-disastrous government endeavors such as Obamacare would never be possible. Just don’t tell that to ivory tower academic and Obamacare architect, Jonathan Gruber — he said this week that the “Affordable” Care Act is working exactly as it was designed<\/a>. Uh huh. That’s what Germany said about the Hindenberg too.<\/p>\n

Credit:<\/strong><\/span> Then again, maybe I’m being too hard on Mr. Gruber. Higher premiums. Absurd deductibles<\/a>. Fewer choices. Compulsory participation. Hey … what’s not to love about Obamacare? Forward!<\/p>\n

Debit:<\/strong><\/span> By the way, while Mr. Gruber maintains that Obamacare doesn’t need fixing, he did<\/em> recommend an enhancement that would make it even, um, “better”:<\/p>\n