FRA co-founder Gordon T. Long deliberates with Alasdair Macleod, head of
research at GoldMoney on the Austrian School of Economics in an Era of
Financial Repression.
Alasdair. Macleod began his career as a stockbroker in 1970 on the London
Stock Exchange. Through experience he rapidly learned about things as diverse
as mining shares and general economics, within nine years he had risen to
become senior partner of his firm.
Subsequently, he has held positions at director level in investment
management, as a mutual fund manager, and also at a bank in Guernsey as an
executive director. For most of his 40 years in the finance industry, he has
been de-mystifying macro-economic events for his investing clients. From the
accumulation of his experience he concluded that unsound monetary policies
are the most destructive weapon governments' use against people.
"I want to destroy this business of printing money as the solution
to everything."
Mr. Macleod strives to educate and inform the public in layman's terms
what governments do with money and how to protect themselves from the
consequences.
What is Austrian Economics
"Prices are entirely subjective."
It began with Carl Menger who was one of the 3 economics who came up with
marginal theory of prices. Where Menger differed from other two was that he
appreciated that prices were purely subjective. You cannot forecast
tomorrow's prices because prices are determined by the consumer who always
has the option to buy.
"It overturns the cost theory of prices which is what Adam Smith
believed in. It is completely irrelevant."
The law of the markets, the reason you and I work is we go out to earn
something. We need to transform our skills into consumption. In a free market
economy we have people who use their skills to earn money for consumption;
the intermediary in this is money. Money is nothing more than the temporary
storage of someone's labour that is transferrable into goods. If you understand
this you will see how unsound money is bad for an economy. The idea by
printing money which runs a budget deficit that a government can generate
economic growth is nonsense.
"In regards to investing one thing that is desperately important
to understand is that asset prices always refer back to their
production."
This applies across every asset that you buy. If you see that the prices
of assets have moved away from their underlining productive value then you
know that you are in a bubble.
A World of Infinite Credit
"The world post 1970's is a completely different world from before
the 1970s."
After 1981 rates had been lifted to a point which stopped the relationship
between businesses and savers. This is what killed the price inflation up
until the early 90s. Banks not only had the liberty to print credit but also
to monopolize and control securities markets, if you combine these two thongs
together; it is basically a money making machine, which is what we have
today.
The end point in credit comes from the logical conclusion of that
development. At every cyclical peak the level of interest rates which
collapse the economy gets lower. The reason it gets lower is because this
combination of credit control in securities markets does nothing more than just
pumps up the level of debt. The overhang of debt means the rise in interest
rates to stop the economy from getting out of control is getting lower. You
cannot raise interest rates by more than one or two percent without serious
economic dislocation.
Negative Nominal Interest Rates
"The effect of negative interest rates would be to throw every
commodity into backwardation."
There is no doubt that negative interest would drive up inflation, or
rather, it would lower the purchasing power of said currency. Negative
interest rates for the reserve currency in which all commodities are priced
have a severe risk which we will generate runaway inflation, but in fact it
is a collapse. In order to make negative interest rates work you need to ban
cash entirely. I have no doubt at all that that is the underlying reason why
there is so much emphasis on anti-money laundering.
The FMQ Concept
"The fiat money quantity is the amount of money that would have to
be redeemed for gold that once was deposited."
The fiat money quantity was put together to try to quantify the amount of
money that Is being issued in return for the gold that we originally gave to
our banks which the banks then handed to the federal reserve.
The reason for doing this is to try to get an idea of how much money is
not only in public circulation, but also not in public circulation and potentially
in public circulation. From looking at the Feds balance sheet and considering
other factors like repos and reverse repos, we see that the growth curve has
taken off; and in the very broadest sense we have monetary hyperinflation.
Abstract written by Karan Singh karan1.singh@ryerson.ca
