Keith Weiner: We Are Headed To A Monetary Reset (Which Is Not A Good Thing)
SilverDoctors.com
July 9, 2018
Keith explains why nobody should look forward to the monetary reset, and why we should change course to avoid a reset if possible…
by Keith Weiner of Monetary Metals
Before it collapsed, the city of Rome had a population greater than 1,000,000 people. That was an extraordinary accomplishment in the ancient world, made possible by many innovative technologies and the organization of the greatest civilization that the world had ever seen. Such an incredible urban population depended on capital accumulated over centuries. But the Roman Empire squandered this capital, until it was no longer sufficient to sustain the city (we are aware the story is more complicated than this).
After the collapse, the population fell to about 8,000 people. Some fled and arrived at safe places, but surely most perished.
Monetary Reset
Monetary Reset
This is what we think of when we hear someone say, “There will be a reset”.
A reset is not a good thing. No one should look forward to it, and you certainly cannot profit from it. Not even from owning gold. Sure, those who don’t own gold may be worse off than those who do, but no one does well in a catastrophe like that.
Keith saw a museum exhibit, displaying gold hoards dating from the time of the fall of Rome. It had been the gold of several very wealthy men (each hoard had hundreds or thousands of ounces of gold!) Yet it did not avail them. Those people either fled or died, and their gold was lost for 1,500 years. And rediscovered by workers who were excavating foundations for big buildings in the late 20thcentury.
The monetary system is indeed headed towards this reset. We shouldn’t just wait passively for it, we should change course if possible. It is possible, but first, let’s look at what we can’t do.
Price Fixing Scheme
We can’t fix the right gold price. When you hear this proposed, don’t you get the picture of a central planner, a gnome with his tables and magic formulas? Lobbyists would line up in the greatest battle of special interest groups that Washington has ever seen. And a counterintuitive one, at that. We assume that most gold bugs are not debtors, and have savings (i.e. they are creditors). A low gold price benefits creditors. And a high price benefits debtors.
For example, suppose someone owes you $100,000. If the gold price is $1,000, he would need to give you 100 ounces. But if you owed that same amount, then a price of $100,000 lets you pay off your debt by handing over one gold Eagle.
Of course in any market, buyers always want a low price, and sellers always want a high price. There is no conflict of interest, unless the government fixes the price. Which is the essence of this approach.
That’s one fatal flaw. Another is that there is no way to set the price of gold. Look at all the banana republics which have tried to fix the exchange rate of their currency to the dollar. In the end, this scheme always fails. The problem is that Banco de Banana has to take the other side of the trade. So when market participants sell the baneso, Banco has to buy banesos and sell dollars. Since Banco only has so many dollars, it is overrun sooner or later.
The Swiss National Bank tried to fix the price of the franc in the other direction—they wanted to keep it down against the euro. Everyone believed they could do it, because obviously they couldn’t run out of francs when they have the power to print to infinity and beyond. Except it’s not printing, it’s borrowing. The SNB was borrowing francs to buy euro denominated assets. The market was pushing up the franc which is the liability of the SNB, and pushing down the euro which is the asset of the SNB. They could only take so much increase in their liability and so much decrease in their asset, before crying “uncle!” Keith wrote about this at the time, at Forbes.
Money Supply Targeting
Advocates of a gold standard based on a fixed price of gold don’t usually propose buying and selling gold in order to maintain the peg. Instead, they say the Fed should print dollars if the price of gold drops below the target and unprint (our word, not theirs) dollars if the price of gold goes too high. There’s just one problem. Can you spot it, in this graph?
The Rest…HERE
