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Dylan Grice, un analyse de
SocGen explique… à peu près tout, et notamment pourquoi,
dans un monde ou toute honnêteté a disparu, le seul
repère est l’or, et qu’il vaut désormais plus de
10.000 dollars l’once.
Pour les lecteurs de
l’anglais, cet article mérite le temps d’être lu.
Extraits de l’étude
de la Société Générale : The market for honesty: is $10,000 gold fair
value?
Last week, the Swiss National Bank (SNB) pledged to buy
“unlimited” amounts of foreign exchange to prevent the Swiss
franc from further appreciating. In other words, it is willing to print
“unlimited” quantities of Swiss Francs, tolerating an 'unlimited'
debasement of its currency. Why would the Swiss of all people, one of the
world’s few remaining 'sound money' proponents make such a commitment?
Because unlike its main ‘competitors’ in the market for currency
(the major central banks), which are either debasing with abandon or looking
as though they’re about to, Switzerland had been rewarded for its
rectitude with an uncomfortable share of the world’s flight capital and
a painful currency overvaluation. So the SNB has given up trying to be honest
in a dishonest world.
So let me explain why I believe printing money to be a fundamentally dishonest endeavour.
Think about how it works. When the central bank, at zero cost, increases the
monetary base by 1%, where does that money go? Answer: into the market for
government bonds. Since printing the money to buy government bonds costs
nothing, government revenues are obtained ostensibly for free. Of course, it
buys those bonds in the secondary market rather than from the government
directly, and the pretense of an arm’s length transaction between
government and central bank is thus maintained, with all parties claiming a
separation of monetary and fiscal policy. But it’s only a pretense.
By issuing bonds to itself the government seems to have
miraculously raised revenue without burdening anyone else. This is probably
why the mechanism is universally adopted throughout the world’s
financial system. Yet free money does not, and cannot, exist. Since there can
be no such thing as a government, or anyone else for that matter, raising
revenue "at no cost" simple logic tells us that someone, somewhere
has to pay.
But who? This is where the subtle dishonesty resides,
because the answer is that no-one knows. If the money printing creates
inflation in the product market, the consumers in that product market will
pay. If the money printing creates inflation in asset markets, the purchaser
of the more elevated asset price pays. Of course, if the printed money ends
up in asset markets even less is known about who ultimately pays for the
government’s ‘free lunch’, because in this case the money printing sets off its own dynamic via
the perpetual Ponzi machine that is the global financial system. The
‘free lunch’ providers will be the late entrants into whatever
asset-bubble or investment fad the money printing inflates.
The point is we can’t know who will pay, only that someone will pay. Thus the
government has raised revenues without even knowing upon whom the burden
falls, let alone telling them. Compare this to raising explicit
‘honest’ taxes, which are at least transparent. We know who
levied the sales tax or the income tax, when it was levied, when it is
payable, and how much has to be paid. The burden of this money printing, in
contrast, seeps silently into the economy, falling indiscriminately but
indubitably on unseen, unknowing victims.
The economic hardships this clandestine tax operation
imposes are real and keenly felt. But because no one knows from where it
comes the enemy is unseen. Thus,
during great inflations, societies turn on themselves with each faction blaming
another for its malaise: the third century inflation crisis in ancient Rome
coincided with Diocletian’s infamous persecution of the Christians; the
medieval European debasements coincided with surging witchcraft trials; the
extreme Central European hyperinflations following WW1 saw whole societies
blaming their Jewish communities. More recently, the aftermath of the
historically modest asset inflations in the tech market and the US real
estate market have seen society turn on "fat-cat CEOs" and
"greedy bankers" respectively.
By now, some of you might feel this all to be
irrelevant. Surely, you might be thinking, the plain fact is that there is no
inflation. I disagree. To see why,
think about what inflation is in the light of the above thinking. I
know economists define it as changes in the price of a basket of consumer
goods, the CPI. But why should that be the definitive measure, given that
it’s only one of the many possible destinations in money’s
Brownian journey from the printing presses? Why ignore other destinations,
such as asset markets? Isn’t
asset price inflation (or bubbles as they are more commonly known) more
distortionary and economically inefficient than product price inflation?
I believe economists focus so firmly on product prices
in their analysis of inflation not because of any judgment over the relative
importance of one type of inflation over the other, but simply because
CPI-type measures of inflation are easier to see. In doing so, they resemble
the fabled driver who lost his keys one evening and was found looking for
them under a streetlamp. When asked by his wife why he was looking there when
he’d probably lost them further back, he replied “Because here
it’s easier to see.”
We know that revenue cannot be raised for one person without
costing someone else. We know that
money printing generates revenue for the public sector. So we also know
that money printing must be a tax. We know that the magnitude of
that tax – the inflation rate – can be reliably measured by the
increase in the rate of base money growth. Since we don’t know which
markets new money will end up in or even when, we know we can’t
reliably count on measures of inflation in those markets to tell us what the
‚inflation rate? is. Thus, the only reliable
measure of inflation is the expansion of the monetary base. So to those who
say there is no inflation, I give you the following chart.
 
By now, the more polite economists among those still
reading may be thinking something like: “What utter drivel you are full
of Grice! When there is a recession/depression on and the pressure faced by
an economy is deflation, which can become self-fulfilling, the only correct
thing to do is to create inflation to protect jobs.”
To this I would reply that every right thinking person
wants to see job creation. Those advocating the creation of inflation, or
fiscal stimulus are doing so because that’s what the system of logic
known as ‘theoretical macroeconomics’ teaches. Yet this system of logic with its deeply
flawed epistemological foundations is what brought us here in the first
place! The macroeconomic body of knowledge represents no such thing
– a cacophony of faiths would be more accurate. The instruments and gauges it recommends
policy makers rely on – CPI, trend growth, output gaps, NAIRUs, budget
deficits, debt/GDP – are subject to such wide conceptual ambiguity, not
to mention estimation error, as to render them utterly meaningless. The
fact is the captains of our ship have no reliable gauges. They have no
understanding of what a yank of this lever, or a
push on that button will ultimately achieve. They just think they do. Intoxicated by trumped up notions of
what they know and understand, the
drunk driving of macroeconomists is what led us to where we are today.
Of course, this
begs the question of why we continue to listen to them. I believe
it’s for the same reason that Quintus Cicero thought his famous brother
was such a successful politician two millennia ago: people prefer a false promise to a flat refusal.
Believe it or not, for all this talk of honesty and
dishonesty I’m not actually passing any judgment on the ethics of this
state of affairs. The simple fact
is that as a species we’re liars. One of the most famous
recent experiments was carried out by Robert Feldman who recorded students
talking to strangers for ten minutes, and then asked the students to watch
the recordings again, making notes of the number of lies they told. Fully 60%
owned up to lying at least once, with an average of 2.9 lies (to be precise)
told per person. As a species, our capacity for conceptual thought makes us
better at it than other animals, but other animals do it too. When a Kildeer’s nest is threatened, it feigns a broken
wing to lure its predator away. There are firm evolutionary foundations for
the tendency towards untruth. However, societies work on trust too, and there
are equally firm evolutionary foundations for honesty. I know honest
economists, honest investors, honest journalists, even
… deep breath … honest bankers. Indeed, there is a demand for
honesty. There is a demand for honest
brokers, fund managers, lawyers, dentists, doctors, plumbers etc. And
there is a demand for honest currency.
That demand has overwhelmed the Swiss. But their
actions merely narrow the universe of honest destinations for flight capital
with which gold has historically competed. For gold has
no export sector, no pop-economists to be swayed by, and no populists to
pander to. Gold might be a mere lump of dense, useless shiny metal, but
it’s one which crackpot central bankers can’t print. Indeed, benchmarked against the printing of
The Ben Bernak, the price of gold at which the US
dollar would be fully gold-backed is now $10,000. You might think such
a ‘price target’ is far-fetched (and I might agree with you). But bear in mind that the last time honesty
was perceived to be so scarce – in the 1970s gold mania – the
dollar was over-backed by gold (see chart below). If it happened then, why
not again?
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