Posted in Banking system, Central banks, Crisis, Economics, Euro, Gold, In English, Inflation, Macroeconomic theory, Money, Videos, tagged Central banking, Economic policies, Financial crisis, Gold, Money illusion, QE, Rationality, Spain, Video on the crisis on 3 December, 2012 |
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And then we all became economists …
One of the few positive consequences of the recent financial crisis is that people do know now much more about how markets work, on the scope and limits of Government intervention and, even more important, on the unintended consequences of ill-designed policies and bad regulation. We might not be fully aware of it now, but better informed people will be an essential requisite to better monitor and control discretionary and inflationary policies in the future. Those who have a degree in Economics will be familiar with what economists usually call ”rational behaviour” or “rational agents”, who are able to escape from another very important concept, “money illusion”. Let me explain then very briefly.
Being rational in economics means that we make decisions by exploiting all the information and resources at our disposal in order to get a particular outcome (whichever the final goal is: increasing the value of a portfolio or that of a charity). This rational assumption does not necessarily imply that people cannot err; of course they can, but then they will learn by their own experience and incorporate past failures in order to improve how to make their expectations in the future. So the key point is that they cannot be cheated systematically! One example of this is the ability of people to react to anticipated inflation; after suffering substantial losses in the past, as a consequence of recurrent inflationary policies, people have learned that (1) real variables is what really matters in making economic decisions and that (2) printing money is not tantamount to prosperity or economic growth (quite the contrary!). In consequence, in a nutshell, in the face of excessive fiscal spending and money growth, inflation will be expected; so people, instead of keeping on increasing their spending more and more, will be saving part of their income in deposits and other financial assets adjusted to inflation in order to maintain their purchasing power along the time. By doing so they will not have “money illusion” and will act rationally.
People may have finally seen that the expansionary monetary policies conducted before 2007 led to inflation and provoked market distortions and major financial instability. Let´s see if we have learned this important and painful lesson of the recent crisis, so we can counteract these policies should they persist in the near future.
Finally, find here a very brief and funny (fiction) movie that depicts a conversation amongst traditional Spanish housewives (in Andalusia), who wisely discuss on the current policies to overcome the crisis in a typical and beautiful southern spanish “patio”. I wish most economic ministers and Governments´economic advisers had their knowledge and vivid conversation! Enjoy it:
- Hablando en Plata (Directed by Mikel Gil, “Producciones Varadas”):
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An estimate of the stock of gold (1493-2011)
As part of a research project founded by GoldMoney Foundation, last year I had the opportunity to conduct a research on the world’s stock of above ground gold. As we found out, the current stock of gold is less than generally believed. The exact amount of this overestimation may be controversial and subject to further analyses and I will welcome more research on this topic; but, to the best of my knowledge, all available direct and indirect sources and information indicate that there is an overestimation of the current stock of gold. Anyhow, this is an ongoing research and I intend to provide more information and, possibly, more accurate estimates on this question in short.
The reason for this overestimation is the widely very differing views of the above ground gold stock existing in 1492, which is the starting point in our estimation. As we justify in our essay (page 9 on), 1492 is a good starting point because it marks the beginning of relatively formal record keeping. Accordingly, the estimate of the stock of gold at 1492 becomes essential and determines the discrepancy between our estimates and the World Gold Council’s (WGC) estimates of the current above ground stock of gold. Furthermore, as notable scholars of the XIX and XX c. have estimated series on gold production since the end of the XV c. , we are able to produce a series on gold the stock of gold since 1492 to present time; so we think that a better estimate of the gold stock existing at 1492 will provide a more accurate measure of the current above ground stock in our days. Finally, there may also be significant implications of this discrepancy on the gold market, and, in particular, on the expectations of the price of gold.
You will find our estimate and the discrepancy with the current (“official”) figures in the essay in which I collaborated with James Turk (the main author) and the GoldMoney Foundation recently. You may also find interesting some news and reactions already published in The Telegraph (22nd October 2012).
All comments very much welcome.
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Posted in Banking system, Central banks, Crisis, Euro, Fractional reserve, Gold, Gold standard, In English, Monetary competition, Money, tagged Central banking, Fractional reserve debate, Gold, Gold standard, Monetary competition, Spanish crisis on 17 August, 2012 |
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A chat on fractional reserve and monetary competition
This video was originally recorded in Spanish and released on the 15th of March 2012 at Vimeo (Spanish version). Then it was very kindly supported by the GoldMoney Foundation, so we could release an English version of the video on July this year, entitled: “The Spanish economic crisis”. I would like to thank GoldMoney very much for their support.
Link to the video:
You can also find below a summary of the content of the video, as quoted from the GoldMoney website (research section).
Enjoy it! Comments very much welcome.
What caused the Spanish economic crisis, and how safe is your money in banks? Maria Blanco, economist and member of the Instituto Juan de Mariana; Doctor in Economics Juan Castaneda; Marion Mueller, founder of OroyFinanzas.com; and Expansion.com journalist Miquel Roig discuss this and more over coffee at Madrid’s Café Gijón.
Fractional reserve banking, sound money, and the prospects for monetary reform in Spain and the wider world are the broader topics of conversation. Though the quartet are heartened that more and more people in Spain are taking an interest in economics since the country’s debt problems became apparent, they doubt that the kind of radical monetary reforms they favour would win support among many Spaniards. They are heartened though that elsewhere in the world – notably an increasing number of US states – the sound money cause is gaining support, albeit slowly, among citizens and politicians.
This video was recorded on 10 March 2012 in Madrid.
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Posted in Central banks, Gold, Gold standard, Historia Económica, In English, tagged Central banking, Gold, Gold standard, Milton Friedman, Monetary competition, Real vs Pseudo gold standards on 15 April, 2012 |
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Gold standard has been often claimed to be the liberal panacea as regard to monetary regimes. I myself believed it for quite a long time. However, the study of monetary history in a broader and longer perspective has made me change my mind on this question. In relation to the gold standard, Milton Friedman (1) made a very interesting critique from a liberal perspective in the paper presented at the Mont Pelerin Society in 1961. His work, “Real Versus Pseudo Gold Standards” is a true challenge for all those who beleive that the classical gold standard was (and still is) a panacea. As Friedman remarked, it is difficult for a pro free-market economy to put the label of “liberal” to a monetary regime in which the State fixed the price of one specific good (in this case, the covertibility rate between the bank notes and the gold held by the central bank). In his view, the belief of the classical gold standard as part of the main liberal body of theories is the result of the traditional involvement of the State in the monetary field; as a result, we cannot even think of a monetary system in which the price of gold were not determined by the State, but by the competitive dynamic of different issuers of bank money and money holders themselves.
And this is the sort of the debate that I introduced in the last meetting of the “ANR DAMIN” Project (coordinated by Prof. Georges Depeyrot, CNRS, Paris), entitled Silver Monetary Depreciation and International Relations, hold in Paris last January. It was an extraordinary meeting with experts and very good colleagues in the area of contemporary monetary history; and my proposal to talk about a competitive gold standard monetary system was received with some surprise at first. Then, once the question was properly set and introduced, we did develop a very interesting debate on the feasability of a monetary regime not necesarilly monopolised by the State; one in which, different issuers of paper money, backed with gold, were able to compete to provide the best means of payment. Under this system, as Friedman masterly stated, there is no need to claim for a fixed priced for gold, as its price will vary in the market everyday according to its demand and supply(ies).
Let me clarify that, even though under the control of the State, I do take the classical gold standard as a stable monetary system, with a remarkable record of long term price stability and economic growth from 1870 to 1914. And this is much more the case in light of the much more discretionary monetary regimes that we have experienced since the abandonment of the gold standard in the last century; under purely fiat monetary systems, we have seen during the so-called “Keynesian years” how money supply was taken as another tool in the hands of the policy-makers to finance excessive and recurrent fiscal deficits, with the expected and undesirable results in terms of higher and more volatile inflation, and thus more uncertainty in the markets.
The debate can be found in the following link: http://www.anr-damin.net/spip.php?article31#outil_sommaire_1
(please, go to the last Saturday video, “Final Debate of the Round Table”; the debate on this question is in the middle of the recording)
(1) I am grateful to Prof. Pedro Schwartz for his suggestion to read it several years ago.
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