Last Updated: Nov 19th, 2009 - 11:07:39 Newsletters : 2007 Newsletters : 16 November 2007 Thought for the Day Follow the incentives. Economics starts with individuals taking action to resolve some need that they have. They must purchase food, a new pair of socks or get a hair-cut. For this they will agree a price with the seller and exchange money (or the local currency) to complete the transaction. All of economics is the sum total of all human transactions. All of these transactions take place because of incentives. If you want to know what will happen in the world of economics - follow the incentives. In the world of banking and money the results are depressingly predictable. They have happened before. Those in charge use every opportunity to make more money and hence the drive by banks to drop the gold standard. To stay in business they need a "lender of last resort", the Central Bank who can always "print" more money to keep the bank "liquid". The Central Bank is supposed to be free from political influence but as we have seen with the crisis at Northern Rock the Bank of England jumped to obey the command from government. Politicians like the idea of fiat currency as they can then print more money to keep the populace in thrall to a "little" inflation and when they need to buy an election they can pay for it with freshly minted paper money. When countries need to compete on the open market it helps if their money is kept artificially low compared with their trading partners. This boosts their export markets. We are seeing this race to the bottom around the world right now as finally the US Dollar is falling like a stone after many years of claiming to be "just like gold" as Mr Greenspan claimed. All incentives point to paper money flooding the world. All paper money systems in the past have failed. What will make it different this time? Nov 16, 2007, 10:37 Newsletters : 2007 Newsletters : 16 November 2007 European Central Banks Blew It With Gold. Give the analyst below some credit for noting the incongruity in central bank sales of gold in a sharply rising market. But he gets no credit for failing to pose some obvious questions, starting with: What less-visible benefit might accrue to central banks selling gold? Of course that might lead him to the central banks' desire to support their own currencies against a competitive currency, currencies in which the central banks have infinitely more invested than they have in gold, and to the general rigging of the currency and commodity markets. But one step at a time. Nov 13, 2007, 15:52 Newsletters : 2007 Newsletters : 16 November 2007 Productivity: New Zealand's Biggest Economic Problem More of the same old same old. Dr. Cullen is hopelessly astray with his ideas of how to produce an "Economic Transformation" in New Zealand. Far from moving into the "top half of the OECD" we dropped two more places downwards last year to number 22 under the good doctor's administration. The evidence is now overwhelmingly against the Labour government and their ideas of more bureaucracy (we now have one health bureaucrat per hospital bed) and central planning of the economy. Not to mention taxes! Things will get worse next year as Labour's policies work through the system! Nov 13, 2007, 12:59 Newsletters : 2007 Newsletters : 16 November 2007 Currency Controls Return as Central Banks Fight Dollar Freefall. Our theory tells us that Fractional Reserve Banking leads to booms and busts and when the currency is no longer backed by gold things will just get worse until the currency becomes worthless (Zimbabwe) or stagflation descends (Japan). Bankers have an incentive to persist with fractional banking as it greatly increases their profits. If they are backed by a Central Bank that will print more currency and "rush it round in a truck" then they cannot go bust. The Central Banks need this situation to continue otherwise they are not needed in the economy. Politicians like this situation because it maximises their opportunity to print extra money with which to buy elections. And so this situation will persist until the forces of economic breakdown become too great. The populations of the countries affected (and maybe all countries) will move to buy gold and silver as a store of value that they can rely on and they will be joined by the Central Banks themselves as they attempt to shore up this deteriorating situation. This will cause a gold rush. Whoopee! Nov 13, 2007, 12:41 Newsletters : 2007 Newsletters : 16 November 2007 On The Verge of a Worldwide Currency Crisis Banks are leary of lending to each other. Who knows who is going to go next in the current credit crunch? Central banks don't trust each other as they work with their political masters for economic advantage. All countries are printing more money than ever. The situation is becoming more and more unstable just as Austrian Economic theory predicts. Can we put off the day of reckoning much longer? Unfortunately, it is not possible to predict the timing. Be like the boy scout - be prepared. Nov 11, 2007, 11:27