- Will Gold or Silver Pay the Higher Interest Rate?
by Keith Weiner
This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question.
Which interest rate will be higher?
The Wrong Approach
It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money—its purchasing power—is 1/P (where P is the price level). Inflation is the rate of decline of purchasing power.
This view treats the quantity of goods you can buy as intrinsic to the money itself. This is a mistake, and it leads to a false theory of interest. Before I can present this wrong theory, let me define some terms.
The Nominal Interest Rate means the rate at which lenders lend and borrowers borrow in the market. The Real Interest Rate is the Nominal Interest Rate – inflation. Notice the switcheroo. The actual rate charged by actual lenders to actual borrowers is dismissed as merely nominal. A fictitious rate which is not used in any transactions is elevated to the status of real. Got that?
The theory asserts that interest is determined by inflation, that is, real interest> 0. With nominal rates below zero in Europe and elsewhere, this view is tempting and convenient.
According to this view, which metal has the higher interest rate comes down to which will have a faster-rising purchasing power. Most people would say silver, especially when silver is so cheap compared to gold by a long-term historical perspective.
Suppose silver’s purchasing power rises at 5% per annum (i.e. deflation) over the long run, then a nominal interest rate of 2% gives a real rate of 7%. If gold’s purchasing power is rising at only 3%, then its nominal rate must be 4%, if both metals have the same real rate.
First, and it should be obvious that, no one knows how prices will change in the future. Anyone who knew could make billions trading commodities futures. In any case, prices may change, but that is not the measure of the value of money. Consumer prices have many nonmonetary forces pushing them up (such as regulations and taxes) and down (such as improved manufacturing efficiency). At best, prices are a weak proxy for the value of a falling paper currency.
I don’t take the purchasing power approach.
Monetary Science
Instead, to determine which rate will be higher, let’s look at the incentives that encourage action. Everyone who owns metal will face the choice: to hoard it or to lend it.
In general, we know that if interest is greater than their time preference, people will lend. But that does not help us predict which metal will have the higher rate. For that, we must look at factors that differ between them.
For example, there is a cost to store precious metals. Since silver is about half as dense as gold, an ounce of silver is almost twice as bulky. And that ounce has about 1/75 as much value as an ounce of gold. This means to hold the same value in silver you need 150 times the volume of gold. An iPhone (the small size) made of gold is worth as much as two and half bread loaves made of silver. No wonder why storing silver is typically more expensive.
If silver storage costs you 0.75%, and gold is 0.5%, then there is a 0.25% spread in storage costs. Lending silver is a net gain for you, compared to lending gold at the same rate. This is an actionable spread (unlike the so called real rate)—an incentive to lend silver in preference to gold.
There are other differences between the metals, such as marginal utility. Economists had long struggled with a dilemma. Water is important to human life, but diamonds are not, so why is the price of a diamond much higher? If you are thirsty in a desert, the first gallon of water is worth a high price. The second is worth less. By the third or fourth, you are not willing to pay anything. The reason is that you use the first gallon for drinking. The second is a spare. The third is to wash yourself. The fourth is maybe to wash your clothes. Can you think of what to do with a fifth gallon?
Economist Carl Menger resolved the dilemma with his discovery of the principle of marginal utility. Marginal utility refers to the value of the next quantity of the good in relation to the previous. Marginal utility declines, because when the higher needs are satisfied, the next unit of the good goes to a lower need.
Water is so abundant, that at the margin its value is nearly zero. People use water to clean their driveways. Large, high-quality diamonds are not so abundant. They are used only for engagement rings and other important jewelry pieces.
Each kind of good has a different marginal utility. For food, it’s low because food perishes. For many durable goods, it’s higher because they can be stored until needed.
Over thousands of years, the market ranked all goods by marginal utility. It determined that the highest marginal utility belongs to gold. Gold is not consumed, and virtually all gold ever mined is still in human hands. Even today, gold mining continues and the market happily absorbs all that can be produced. Silver is second.
People value the last ounce of gold as much as the first (or nearly as much). Whereas wiith silver, the last ounce matters a bit less. People may be willing to part with some silver more easily. By this assessment, one might expect people to prefer to lend silver, and therefore gold should have the higher interest rate.
However, there are other factors to consider.
For the next one, it may be easier by starting with a physical analogy. A metal ball is tied to the left side of frame by a piece of string. You try to pull it to the right with a magnet. Physics teaches us that it will not move, unless the force of the magnet is greater than the strength of the string.
Applying this analogy to money, the left side is hoarding. Metal is held there by the propensity to hoard. People have hoarded since before recorded history, because they must plan for the future, especially senescence and retirement. They hoard today because they don’t know what a dollar will be worth in 10 or 30 years. The force pulling metal out of hoards is interest. Lending can only occur if Interest is high enough.
This sounds a lot like our discussion of time preference. Interest must be higher, or else there is no lending. However, time preference is not about a metal, and so it tells us nothing about which will have the higher rate.
It also sounds a bit like our discussion of marginal utility. If the propensity to hoard were just the effect of marginal utility—if people hoarded simply because they valued the next ounce of gold as much as the previous—then the answer would be simple. Gold would have the higher interest rate, as it has the higher marginal utility.
However, the propensity to hoard is something else. To understand, we must ask something that few have asked.
Why are there two monetary metals?
This is an important question. The answer is not at all obvious. Money has a network effect. The more people who use a form of money, the more value its value increases. Think of eBay. All the sellers go there because that’s where the buyers are. And all the buyers go there because that’s where all the stuff is offered for sale.
The network effect makes it more puzzling that we have two different monies. In other cases when two different networks compete, one winner eventually emerges. For example, alternating current beat direct current for use in the electric grid. More recently, Internet protocol beat token ring for use in the public data network.
Yet, over thousands of years, gold has not displaced silver. The reason is that gold and silver do not directly compete. They perform different functions.
Both are heavy and shiny metals. Both are resistant to tarnish, and they’re good conductors of heat and electricity. But their physical similarity has misdirected attention from their separate roles.
Gold was selected by traders as the best money to carry large values, especially over long distances. Before gold, they used cattle, because cows move under their own power. Gold does not move itself, but its value density is so high that you can easily carry a fortune in your pocket.
Today, gold can be moved anywhere in the world in days. The entire globe is effectively the trading region for gold. This means that gold is not subject to local gluts or shortages. Gold supply and demand are quickly smoothed out over the entire world. This helps makes gold the most liquid commodity.
Silver was chosen by wage-earners, not for carrying large value over distance, but to carry value over long periods of time. Before they used silver, they used salt. Salt is not perishable, and it is accessible to even unskilled laborers. Workers need a way to accumulate small amounts of value every month, and store it until needed to buy groceries in retirement. Gold does not work as well for this purpose. An ounce of gold is far too much for most people to buy weekly or even monthly. In smaller sizes, you pay a high premium which will be lost when you sell. Silver offers a better deal for small savers. Silver is the most hoardable commodity.
Gold tends to be owned by wealthier people. It is likely that a larger number of people have smaller amounts of silver.
The wage-earner who has a modest stack of silver coins does not need interest so much as he needs security. Lending and interest are for people who have already covered their need for security. The wealthy, by contrast, will decide to lend their gold purely as a financial decision. To them, it may be no different than running their dollar investments.
Silver’s greater hoardability suggests that much of this metal is not available for lending, and what is offered will demand a higher interest rate.
Silver is also the metal of choice for speculators. We might coin the term speculability (not a real word). Speculators are betting on a 25% gain in a few months, or a 2,500% gain in a few years. As a trader, the speculator is ready to sell quickly. While speculators may appreciate interest, they may not want to commit the metal for the time necessary to earn it.
Silver’s higher speculability, like its hoardabilty, encourages us to think that silver will command the higher interest rate.
This leads to an opposing factor. The world is inverting now. For many decades, there had been interest on paper currencies, but not on money. But now, interest in paper is vanishing, while it emerges in money.
Some investors will be drawn to metal solely for the interest. If they can buy either gold or silver to earn interest, most will choose gold. It’s the senior metal, less volatile, and less ambiguous between industrial consumption and monetary uses.
So far, we have looked at lender supply of metal. What of borrower demand? I think it’s premature to try to predict this. A business should borrow the money which it earns as revenue. For example, a gold mine should borrow gold to expand and a silver mine should borrow silver. The question of which metal will have higher demand for borrowing is simply which metal will be more used as a medium of exchange.
Circulation is itself a function of interest rate. At zero interest, metal cannot circulate. It is for hoarding only. Interest draws it out of hoards. This is a feedback loop, a non-linear system.
Finally, let’s look at some data which may help inform our analysis. Today, under paper currency, there is a market for what is called leasing (I have written three papers discussing this market—the links to Part I, Part II and Part III are here—arguing why one should be careful not to conclude too much from it, especially Part II).
Here is a graph showing the gold and silver lease rates (six-month maturity). It runs from July 26, 1999 through November 2, 2012, or 3,356 days, the period when the London Bullion Market Association quoted the silver lease rate.
Source: London Bullion Market AssociationThe silver lease rate is higher most of the time. Here is a graph of the spread, to show this more clearly.
The silver lease rate was higher than the gold lease rate on 71% of trading days. And when the silver rate was higher, it was about 0.9% higher on average, whereas when gold was higher, it was only about 0.3% higher.
It is worth noting that the silver lease rate is much more volatile than that of gold. This is due to several reasons, but the most important is that silver is less liquid.
My Opinion
The above is my framework for thinking about this topic. I welcome criticism of any errors I may have made. But errors aside, what I tried to present above is not opinion but science.
However, an article like this demands that I offer my opinion. So here it goes, I will stick my neck out.
I believe that silver will have the higher interest rate.
The primary reason is that silver is more hoardable, and hence it will require greater compensation to incentivize people to give up their silver. I must also say that I already see dollar investors buying metal just to earn interest. They are buying gold.
Let me take this opportunity to add one sobering thought. While I believe that my study of monetary science qualifies me more than most people to predict the interest rate, central planning always fails. One reason is that no one—no matter how qualified—knows what everyone wants.
I would never want to be put in a position to dictate what interest rates people must lend gold, silver, or anything. I would refuse, as John Galt did in Atlas Shrugged, the job of Economic Dictator. It takes a market with many buyers and sellers, to set the price of anything. Including the price of borrowing money.
The Crowdsourced Experiment
Which metal should offer the higher rate—and what those rates should be—is the most important economic question of our era.
The paper currencies are now in the terminal stage of failure, with some already dead (Zimbabwe), some in their death throes (Venezuela), and some showing advanced signs of cancer (Switzerland and Japan). The dollar is the least ill paper currency in hospice.
My company is conducting an experiment. We are crowdsourcing the answer to these questions, and publishing our findings.
We just closed a gold deal. Here is the graph showing the interest rates offered by the investors (horizontal axis), and amount of gold offered (vertical).
The market is nascent. However, notice that there was a pretty tight grouping of offers from 3% to 3.5%, with significant additional gold offered at 4%.
We may find that I am correct in predicting that silver will have the higher rate. We may find I am totally wrong. Maybe both metals will even have the same rate (though I doubt that, it would be like finding two ropes from different manufacturers had the same strength).
Whether I am right or wrong about the gold-silver interest rate spread doesn’t matter. What matters is that this is the moment of a monetary renaissance. It’s an exciting time.
I encourage everyone to tune in, and follow our results as they emerge.
- "Brexit Is A Time Bomb…" UBS Chairman Warns "Europe's Not Out Of The Woods With Macron Win"
It appears the chairmen of UBS have plenty to say on Europe.Following former UBS chairman Peter Kurer's comments that "to the elites, the EU is a means to get rich quickly and export their problems," UBS current chairman Axel Weber has warned bankers that Europe is not "out of the woods" from its political risks even after Emmanuel Macron’s reassuring victory in the French presidential election.
Peter Kurer recently remarked on the end of the Euro…
Following an unfortunate combination of wrong decisions at the top and the uncontrolled flourishing of a self-serving bureaucracy, the union has moved in a direction where it has become a prisoner of its own constructed reality.
The EU was a great idea but it has been ridden to death. Back in 1992, almost half of Swiss voted to join the European Economic Area, including the traveller. If there was a vote today on joining the union, the latest polls say just 15 per cent would vote yes.
The EU had its chances. It squandered them, and maybe it will come to an end in the foreseeable future under the weight of its burdens: La messa è finita, andate in pace.
And over the weekend speaking in Tokyo, as The FT reports, UBS Chairman Axel Weber said that political risk in Europe remained “actually quite high” even though “we’ve seen the centre hold in France” with Macron’s victory over far-right candidate Marine Le Pen, and even though all the signs were that the centre will also hold in the upcoming German location elections.
“That doesn’t mean Europe is out of the woods,” he told the International Institute of Finance’s spring meeting. “There is still Italy where it is very unclear that the centre will hold. And there is still Greece.”
He continued: “Where you find some bright side….there are (also) some downside risks that are not really priced into the market but could derail (Europe).”
“Brexit is a time bomb… and the countdown is on. It will be two years from now,” Mr Weber said. He added that “if the British really do leave the customs union and single market there could be a lot of volatility which could impact on the global economy”.
This is not the first time Weber has dared to comment against the global elites' party-line… Speaking on the sidelines of their annual meetings of the IMF and World Bank last year, Weber warned that monetary intervention is causing international spillovers and major disturbances in global markets.
"They (central banks) have taken on massive interventions in the market, you could almost say that central banks are now the central counterparties in many markets. They are the ultimate buyer,"
"Investors have been driven into investments where they have very little capability for dealing with what is on their plate and I think that is a sure reminder of where we were in a different asset class in 2007," he said.
"So I think the central bankers need to be very careful that they do not continue to produce disturbances in the markets, which they acknowledge – it's a known side effect – but the perception that the underlying impact of monetary policy outweighs the potential side effect in my view is starting to be wrong," he added.
Since the global financial crash of 2008, central bank policy has focused on buying up bonds in large quantities and cutting interest rates to record lows. The Federal Reserve has since looked to unwind its own policy which focused on the Treasury market and the yield curve, but the Bank of Japan and the ECB's large-scale bond-buying programs continue.
"I don't think a single trader can tell you what the appropriate price of an asset he buys is, if you take out all this central bank intervention," Weber warned, adding that it often meant investors were making bad choices with where to put their money.
UBS Chairman Axel Weber is a former policymaker at The ECB and was the president of Germany's Bundesbank.
- When Might The Pillaging End?
Authored by Jeff Thomas via InternationalMan.com,
Recently, I published the comment that, when the present debt bubble eventually pops, “governments will lose the economic power to continue their advance against economic freedom.”
The immediate reaction from one reader was, “What could we expect next?… The governments and Deep State aren’t going to ‘just go away.’”
An excellent question—one which deserves an answer.
We won’t need a crystal ball to find the answer; we can look at history. After all, this isn’t the first time a government has engaged in overreach. In fact, it’s the norm. Political leaders tend to expand countries if they can, then build them into empires, becoming increasingly oppressive along the way, then causing the collapse of the empire—generally through welfare and warfare.
The dominant empire of the world today could be said to be the US and its allies, but the hub of the wheel is the US itself, so that’s where we’ll focus. The US is so powerful that it can demand that its citizens pay tax, no matter where they may live in the world. The level of US debt has made the government so flushed with money that it could create a money-collection system that’s beyond any the world has seen.
At some point, however, debt always generates a major crash. What we can expect next will be that the governments will no longer be able to pay for all of their programmes, so they'll have to cut back. How much will they cut back? That will depend on the severity of the collapse. In my estimation, one of the first indicators will be a stock market collapse. Will it drop by 20%? If so, that will only be a correction, and nothing will change significantly. Will it drop 40%? That's an amount I consider very likely and would be an indicator that the economy in general will soon be taking a significant hit, with a knock-on effect as to government coffers. Will it drop 60%? That's quite possible and would be catastrophic. The economy would then go full-on into the Greater Depression.
Unlike the Depression of the 1930s, the country will not be the largely agrarian, highly-productive country of (generally) hard-working people. It will be a society of entitlement-conscious people, who will fail to rise to the occasion. An unproductive society contributes little to its government. In addition, the worldwide credit bubble will pop and the petrodollar will be no more. That will serve to eliminate the false income that the government now relies on. The heroin syringe will be removed suddenly and the government will find itself severely strapped for cash.
So, the government will cut back dramatically—because it has no choice.
So, here’s where you get to picture yourself as the government. What areas do you maintain as sacrosanct and what others do you cut back on? It would make sense to hang on to those programmes that bring in the most revenue and cut the others, but the big-ticket items are welfare and warfare. You no longer have enough money to maintain those in full. You’ll have to cut back on them, but they’re the programmes that allow you to continue in office. Without them, you not only won’t survive the next election, you might face revolts. So, you do what you have to. You dismantle every other department as much as is possible and hope for the best. After all, your primary concern is not the survival of your country’s economy. Your primary concern is your own retention of power.
Historically, what you end up with is fewer departments surviving the cut, with each of the surviving departments operating on a skeleton crew, resulting in all of them being less effective. A good example today is Argentina. It was once the tenth most productive country in the world, but, in the 1950s, the Peróns collapsed the economy through socialism. It’s never recovered. Argentina today passes laws as regularly as any other country, but they’re considered a joke by Argentines. Especially in the outer areas, the laws are largely ignored. Whatever little the government does do is extremely inefficient.
The US has, in recent years, gone way over the top with regard to the economic enslavement of its people, but it has funded the programme through massive heroin (debt) injections. When that debt collapses, the US government will drop dramatically in terms of its ability to control its people in every way, but its main focus will then be on riot and revolt control. That aspect will be fully funded—more so than at present.
At that point, the investor who has a bit of gold or an account in Switzerland will be too costly to go after. Political leaders will be scrambling to save themselves, and there will be far more important priorities to fund.
As a holder of wealth (no matter how small), your objective is to bridge the period from now until then. Diversify yourself as much as you can and then sit tight. The primary objective is to still have your skin on after the dust has settled.
* * *
Today, the US is driving itself straight into a debt-fueled economic crash. This historic financial meltdown will dwarf the Great Depression and 2008 financial crisis. It will wipe out countless investors, including many who thought they were prepared. Don’t let yourself be one of them… New York Times best-selling author Doug Casey and his team recently released a video with Doug’s strategy for what you can do to protect yourself. Click here to watch it.
- A Graduation Message For A Tyrannical Age
Authored by John Whitehead via The Rutherford Institute,
“When the rivers and air are polluted, when families and nations are at war, when homeless wanderers fill the highways, these are the traditional signs of a dark age.” – Pema Chodron, When Things Fall Apart
Those coming of age today will face some of the greatest obstacles ever encountered by young people.
They will find themselves overtaxed, burdened with excessive college debt, and struggling to find worthwhile employment in a debt-ridden economy on the brink of implosion. Their privacy will be eviscerated by the surveillance state. They will be the subjects of a military empire constantly waging war against shadowy enemies and government agents armed to the teeth ready and able to lock down the country at a moment’s notice.
As such, they will find themselves forced to march in lockstep with a government that no longer exists to serve the people but which demands they be obedient slaves or suffer the consequences.
It’s a dismal prospect, isn’t it?
Unfortunately, we who should have known better failed to guard against such a future.
Worse, we neglected to maintain our freedoms or provide our young people with the tools necessary to survive, let alone succeed, in the impersonal jungle that is modern America.
We brought them into homes fractured by divorce, distracted by mindless entertainment, and obsessed with the pursuit of materialism. We institutionalized them in daycares and afterschool programs, substituting time with teachers and childcare workers for parental involvement. We turned them into test-takers instead of thinkers and automatons instead of activists.
We allowed them to languish in schools which not only look like prisons but function like prisons, as well—where conformity is the rule and freedom is the exception. We made them easy prey for our corporate overlords, while instilling in them the values of a celebrity-obsessed, technology-driven culture devoid of any true spirituality. And we taught them to believe that the pursuit of their own personal happiness trumped all other virtues, including any empathy whatsoever for their fellow human beings.
No, we haven’t done this generation any favors.
Based on the current political climate, things could very well get much worse before they ever take a turn for the better. Here are a few pieces of advice that will hopefully help those coming of age today survive the perils of the journey that awaits:
Be an individual. For all of its claims to champion the individual, American culture advocates a stark conformity which, as John F. Kennedy warned, is “the jailer of freedom, and the enemy of growth.” Worry less about fitting in with the rest of the world and instead, as Henry David Thoreau urged, become “a Columbus to whole new continents and worlds within you, opening new channels, not of trade, but of thought.”
Learn your rights. We’re losing our freedoms for one simple reason: most of us don’t know anything about our freedoms. At a minimum, anyone who has graduated from high school, let alone college, should know the Bill of Rights backwards and forwards. However, the average young person, let alone citizen, has very little knowledge of their rights for the simple reason that the schools no longer teach them. So grab a copy of the Constitution and the Bill of Rights, and study them at home. And when the time comes, stand up for your rights before it’s too late.
Speak truth to power. Don’t be naive about those in positions of authority. As James Madison, who wrote our Bill of Rights, observed, “All men having power ought to be distrusted.” We must learn the lessons of history. People in power, more often than not, abuse that power. To maintain our freedoms, this will mean challenging government officials whenever they exceed the bounds of their office.
Resist all things that numb you. Don’t measure your worth by what you own or earn. Likewise, don’t become mindless consumers unaware of the world around you. Resist all things that numb you, put you to sleep or help you “cope” with so-called reality. Those who establish the rules and laws that govern society’s actions desire compliant subjects. However, as George Orwell warned, “Until they become conscious, they will never rebel, and until after they rebelled, they cannot become conscious.” It is these conscious individuals who change the world for the better.
Don’t let technology turn you into zombies. Technology anesthetizes us to the all-too-real tragedies that surround us. Techno-gadgets are merely distractions from what’s really going on in America and around the world. As a result, we’ve begun mimicking the inhuman technology that surrounds us and have lost our humanity. We’ve become sleepwalkers. If you’re going to make a difference in the world, you’re going to have to pull the earbuds out, turn off the cell phones and spend much less time viewing screens.
Help others. We all have a calling in life. And I believe it boils down to one thing: You are here on this planet to help other people. In fact, none of us can exist very long without help from others. If we’re going to see any positive change for freedom, then we must change our view of what it means to be human and regain a sense of what it means to love and help one another. That will mean gaining the courage to stand up for the oppressed.
Give voice to moral outrage. As Martin Luther King Jr. said, “Our lives begin to end the day we become silent about the things that matter.” There is no shortage of issues on which to take a stand. For instance, on any given night, over half a million people in the U.S. are homeless, and half of them are elderly. There are 46 million Americans living at or below the poverty line, and 16 million children living in households without adequate access to food. Congress creates, on average, more than 50 new criminal laws each year. With more than 2 million Americans in prison, and close to 7 million adults in correctional care, the United States has the largest prison population in the world. At least 2.7 million children in the United States have at least one parent in prison. At least 400 to 500 innocent people are killed by police officers every year. Americans are now eight times more likely to die in a police confrontation than they are to be killed by a terrorist. On an average day in America, over 100 Americans have their homes raided by SWAT teams. It costs the American taxpayer $52.6 billion every year to be spied on by the government intelligence agencies tasked with surveillance, data collection, counterintelligence and covert activities. All the while, since 9/11, the U.S. has spent more than $1.6 trillion to wage wars in Afghanistan and Iraq and police the rest of the world. This is an egregious affront to anyone who believes in freedom.
Cultivate spirituality, reject materialism and put people first. When the things that matter most have been subordinated to materialism, we have lost our moral compass. We must change our values to reflect something more meaningful than technology, materialism and politics. Standing at the pulpit of the Riverside Church in New York City in April 1967, Martin Luther King Jr. urged his listeners:
[W]e as a nation must undergo a radical revolution of values. We must rapidly begin the shift from a “thing-oriented” society to a “person-oriented” society. When machines and computers, profit motive and property rights are considered more important than people, the giant triplets of racism, materialism, and militarism are incapable of being conquered.
Pitch in and do your part to make the world a better place. Don’t rely on someone else to do the heavy lifting for you. Don’t wait around for someone else to fix what ails you, your community or nation. As Gandhi urged: “Be the change you wish to see in the world.”
Say no to war. Addressing the graduates at Binghampton Central High School in 1968, at a time when the country was waging war “on different fields, on different levels, and with different weapons,” Twilight Zone creator Rod Serling declared:
Too many wars are fought almost as if by rote. Too many wars are fought out of sloganry, out of battle hymns, out of aged, musty appeals to patriotism that went out with knighthood and moats. Love your country because it is eminently worthy of your affection. Respect it because it deserves your respect. Be loyal to it because it cannot survive without your loyalty. But do not accept the shedding of blood as a natural function or a prescribed way of history—even if history points this up by its repetition. That men die for causes does not necessarily sanctify that cause. And that men are maimed and torn to pieces every fifteen and twenty years does not immortalize or deify the act of war… find another means that does not come with the killing of your fellow-man.
Finally, prepare yourselves for what lies ahead. The demons of our age—some of whom disguise themselves as politicians—delight in fomenting violence, sowing distrust and prejudice, and persuading the public to support tyranny disguised as patriotism. Overcoming the evils of our age will require more than intellect and activism. It will require decency, morality, goodness, truth and toughness. As Serling concluded in his remarks to the graduating class of 1968:
“Toughness is the singular quality most required of you… we have left you a world far more botched than the one that was left to us… Part of your challenge is to seek out truth, to come up with a point of view not dictated to you by anyone, be he a congressman, even a minister… Are you tough enough to take the divisiveness of this land of ours, the fact that everything is polarized, black and white, this or that, absolutely right or absolutely wrong. This is one of the challenges. Be prepared to seek out the middle ground … that wondrous and very difficult-to-find Valhalla where man can look to both sides and see the errant truths that exist on both sides. If you must swing left or you must swing right—respect the other side. Honor the motives that come from the other side. Argue, debate, rebut—but don't close those wondrous minds of yours to opposition. In their eyes, you're the opposition. And ultimately … ultimately—you end divisiveness by compromise. And so long as men walk and breathe—there must be compromise…
Are you tough enough to face one of the uglier stains upon the fabric of our democracy—prejudice? It's the basic root of most evil. It's a part of the sickness of man. And it's a part of man's admission, his constant sick admission, that to exist he must find a scapegoat. To explain away his own deficiencies—he must try to find someone who he believes more deficient… Make your judgment of your fellow-man on what he says and what he believes and the way he acts. Be tough enough, please, to live with prejudice and give battle to it. It warps, it poisons, it distorts and it is self-destructive. It has fallout worse than a bomb … and worst of all it cheapens and demeans anyone who permits himself the luxury of hating.”
As I make clear in my book Battlefield America: The War on the American People, the only way we’ll ever achieve change in this country is for the American people to finally say “enough is enough” and fight for the things that truly matter.
It doesn’t matter how old you are or what your political ideology is. If you have something to say, speak up. Get active, and if need be, pick up a picket sign and get in the streets. And when civil liberties are violated, don’t remain silent about it.
Wake up, stand up, and make your activism count for something more than politics.
You are the true guardians of the galaxy.
- Trump Set To Nominate A Slate Of 10 New Federal Court Judges
Having been dealt a number of legal defeats at the hands of Obama-appointed judges in the early days of his administration, Trump is preparing to fill roughly 120 vacancies on lower federal courts around the country. The first of those new appointments will come later today in the first slate of 10 nominees, which will be followed by “monthly waves of nominations” according to a White House official quoted by the New York Times.
One is Justice Joan L. Larsen, a former law clerk to Justice Antonin Scalia and law professor at the University of Michigan, who now serves on the Michigan Supreme Court. She will be nominated to the United States Court of Appeals for the Sixth Circuit, in Cincinnati.
The other is Justice David R. Stras, a former law clerk to Justice Clarence Thomas and law professor at the University of Minnesota, who now serves on the Minnesota Supreme Court. He will be nominated to the Eighth Circuit, in St. Louis.
The announcement on Monday will include three other nominees for federal appeals courts: Amy Coney Barrett, a law professor at Notre Dame and former law clerk to Justice Scalia, to the Seventh Circuit in Chicago; John K. Bush, a lawyer in Louisville, Ky., to the Sixth Circuit; and Kevin C. Newsom, a lawyer in Birmingham, Ala., who served as the state’s solicitor general and as a law clerk to Justice David H. Souter, to the 11th Circuit in Atlanta.
Many of the new appointments are expected to be pulled from the list of 21 “potential Supreme Court Justice picks” that Trump released back in September….so far, 3 of the 21 picks have been nominated for new positions.
1. Keith Blackwell
2. Charles Canady
3. Steven Colloton
4. Allison Eid
5. Neil Gorsuch
6. Raymond Gruender
7. Thomas Hardiman
8. Raymond Kethledge
9. Joan Larsen
10. Mike Lee
11. Thomas Lee
12. Edward Mansfield
13. Federico Moreno
14. William Pryor
15. Margaret A. Ryan
16. Amul Thapar
17. Timothy Tymkovich
18. David Stras
19. Diane Sykes
20. Don Willett
21. Robert Young
Of course, Democrats have called on the Senate to obstruct all new appointments from the Trump administration to the greatest extent possible.
But liberal groups expressed alarm at the prospect of a federal bench filled with Mr. Trump’s appointees. “The Trump administration has made clear its intention to benefit from Republican obstructionism and to pack the federal courts with ultraconservatives given a stamp of approval by the Federalist Society,” said Nan Aron, the president of the Alliance for Justice, referring to the conservative legal group. “We’ll be scrutinizing the records of these nominees very carefully.”
Ms. Aron said Democrats should be wary of Mr. Trump’s nominees. “Given the critical importance of the circuit courts,” she said, “it is incumbent upon the Senate to treat its duty to provide advice and consent very seriously.”
That said, with Republicans controlling a majority in the Senate and the “nuclear option” barrier already breached, we suspect there is very little they can do other than appear on CNN every 15 minutes to complain about Republicans doing all the same things that Obama did for 8 years.
- Mining CEO Explains Why Silver Could Reach Over $136
Authored by Simon Black via SovereignMan.com,
His remarks started off like dozens of presentations that I had heard so many times before. . .
“Without silver,” began the speaker, “our entire society would go back to the Stone Age.”
The speaker was the CEO of one of the largest silver mining companies in the world, and he was a special keynote at the annual closed-door meeting of the Atlas 400.
CEOs of mining companies almost always start their presentations talking about how important their mineral is.
“If we didn’t have cobalt we would all be cave men again. . .” or “Without molybdenum our modern technology would cease to exist.”
It sounds impressive, but the same story applies to just about every industrial commodity in the world, from copper to lumber to recycled steel.
It’s hardly an original argument and doesn’t impress me enough to be bullish on their mineral.
The real investment thesis about silver is that it’s a precious metal that has industrial qualities and a long-standing tradition of value.
Like gold, silver was an ancient form of money. And for good reason.
Out of the 118 known elements that exist on the periodic table, gold and silver share certain chemical properties that made them ideal as a medium of exchange to our ancestors.
Gold and silver are solid at normal temperatures (as opposed to Helium). They’re not radioactive (like Plutonium).
They’re not explosive when they come into contact with water (like Cesium), nor do they rust when they get wet (like Iron).
Most importantly, gold and silver are rare enough to be valuable, but not so rare that it would be almost impossible to mine more.
Between the two, gold is obviously more rare… hence the higher price.
There’s an old estimate from the US Geological Survey from the late 1960s suggesting that the ratio of silver to gold in the earth’s crust is about 21:1.
(So assuming that’s true, the theoretical price ratio between the two should be around 21:1)
And in ancient times the price ratio between the two metals was frequently in the range of about 15:1, i.e. one ounce of gold was worth 15 ounces of silver.
Today the ratio is about 75, based on a gold price of about $1230 per ounce, and a silver price of $16.35.
This is fairly high even by modern standards as the long-term average over the past several decades is about 50.
This would suggest that silver should in increase in price relative to gold in order for the ratio to return to its historic average.
(A ratio of 50:1 would imply a silver price of $24.60 based on a gold price of $1230.)
Now, all of this is an argument that many of us have heard before.
But I did learn something over the weekend from the mining CEO; he told us that the current mining production ratio between the two metals is about 9:1.
This means that 9 ounces of silver are mined for every 1 ounce of gold that’s mined.
This is very interesting from a supply/demand perspective.
According to the Silver Institute, demand for silver hit an all-time high in 2016.
But the price of silver, at least relative to gold, is hovering near a multi-year low at 75:1. (Again, the historic average is around 50:1).
Moreover, even though the price is 75:1, the new supply of silver is only 9:1.
In theory if the new metal supply is 9:1, then the price should be 9:1 (which would be a silver price of $136.67).
Obviously that’s a purely academic postulate; reality rarely conforms to theory. And the mining CEO wasn’t projecting a $136+ silver price.
But it seemed clear to him that there’s an unsustainably wide gulf between the gold/silver price ratio versus the gold/silver supply ratio, especially when silver demand is at an all-time high.
Commodity prices tend to move dramatically when the market realizes there’s a serious supply/demand mismatch.
That seems to be the case with silver right now.
And while it would be silly to expect $100+ silver, there are certainly credible reasons why the ratio should close the gap and move MUCH lower.
- Kushner Companies Seen Hawking Shady US-Visa-Buying-Residency Program To Wealthy Chinese
Authored by Mike Krieger via Liberty Blitzkrieg blog,
When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.
– Frédéric Bastiat
I’ve written about the EB-5 visa program previously, something I consider a total racket that allows wealthy foreigners to buy their way into U.S. residency while funding real estate catering to, you guessed it, wealthy Americans. It’s more or less a system by which really rich people abuse a government program simply to help out other really rich people. What a country.
This wasn’t always the case. In fact the EB-5 visa program was originally meant to connect wealthy foreigns with projects to help the less fortunate here at home. Naturally, the entire thing has been completely corrupted.
As I noted in the 2015 post, More American Cronyism – U.S. Government Selling Visas to Fund Luxury Apartment Buildings:
Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.
The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.
At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.
Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.
The Kushner Companies have been taking advantage of this program for years, and continue to do so despite Donald Trump being the current U.S. President.
As reported by The Washington Post:
Over several hours of slide shows and presentations, representatives from the Kushner family business urged Chinese citizens gathered at a Ritz-Carlton hotel to consider investing hundreds of thousands of dollars in a New Jersey luxury apartment complex that would help them secure what’s known as an investor visa.
The tagline on a brochure for the event: “Invest $500,000 and immigrate to the United States.”
And the highlight of the afternoon was Meyer, a principal for the company, who was introduced in promotional materials as Jared’s sister.
The event underscores the extent to which Kushner’s private business interests have the potential to collide with his powerful role as a top official in his father-in-law’s White House, particularly when it comes to China, where Kushner has become a crucial diplomatic channel between Beijing and the new administration.
The EB-5 immigrant investor visa program that Meyer discussed Saturday allows rich foreign investors who are willing to plunk down large investments in U.S. projects that create jobs to apply to immigrate to the United States.
Bloomberg News reported in March 2016 that the program has been used to the benefit both the Trump and Kushner family businesses. Before joining the White House, as chief executive of his family’s real estate company, Jared Kushner raised $50 millionfrom Chinese EB-5 applicants for a Trump-branded apartment building in Jersey City, according to the report.
The EB-5 program has been criticized by members of Congress from both parties who have said the program in essence sells visas to the wealthiest foreigners.
The program has been extremely popular among rich Chinese, who call it the “golden visa” and are eager to get their families — and their wealth — out of the country. The fact that some use it to move their money out illegally, however, has made the program unpopular with the Chinese authorities.
The program was launched with the goal of securing investment and creating jobs. But instead, in recent years, many real estate developers have used the program as a source of cheap financing by using foreign investors, especially from China, for flashy projects in Manhattan and other city centers.
A Government Accountability Office report in 2015 found the EB-5 program carried a high risk of fraud, was rife with counterfeit documentation and had “no reliable method to verify the source of the funds of petitioners.”
The program, however, is especially popular in China, with estimates in recent years showing that more than 80 percent of EB-5 visas were issued to Chinese investors.
Saturday’s event in Beijing was hosted by the Chinese company Qiaowai, which connects U.S. companies with Chinese investors. Qiaowai is working with the Kushner company to secure funding for Kushner 1, the New Jersey project presented to investors, also known as One Journal Square. Promotional materials tout the buildings’ proximity to Manhattan and note that the project will create more than 6,000 jobs.
At Saturday’s event, attendee Wang Yun, a Chinese investor, said the Kushner family’s ties to Trump were an obvious part of the project’s appeal.
“Even though this is the project of the son-in-law’s family, of course it is still affiliated,” Wang said.
Although the event was publicly advertised in Beijing, the hosts were exceptionally anxious about the presence of reporters.
At one point, organizers grabbed a reporter’s phone and backpack to try to force that person to leave. Later, as investors started leaving the ballroom, organizers physically surrounded attendees to prevent them from giving interviews.
The day after the above described Beijing event, the Kushner Companies held another in Shanghai.
The New York Times reported:
Kushner Companies’ China roadshow, promoting $500,000 investments in New Jersey real estate as the path to a residency card in the United States, moved to Shanghai on Sunday after a similar pitch on Saturday in Beijing. Security was tighter in Shanghai than it had been in Beijing, where reporters for The New York Times and The Washington Post briefly attended the event before being kicked out.
At the event in Beijing, Mr. Kushner’s sister, Nicole Meyer, cited her brother’s service to the company, which he led as chief executive until January. She said the project in Jersey City “means a lot to me and my entire family.”
But some who attended described an investor pitch similar to the one in Beijing, and Mr. Trump’s political power was palpable at the Shanghai event even if his name went unsaid. As on Saturday in Beijing, one slide that was presented to the Shanghai audience, describing who will decide the future of the visa program for foreign investors, included a photograph of Mr. Trump, as shown by a snapshot taken by an audience member.
Although the program was created as a way to finance projects in economically troubled neighborhoods, it has instead turned into a form of cheap financing for luxury real estate developers. Applicants are primarily seeking the visa, so they typically do not seek a significant return on their investment.
The United States Government Accountability Office, the investigative branch of Congress, has criticized the visa program for its lax safeguards against illicit sources of money.
Many people in China worry that the window for obtaining an EB-5 visa may be closing. Although Mr. Trump has softened his language considerably in recent weeks, he was a vociferous critic of China during his presidential campaign. He has said he will take a tough line on immigration, although he did not take aim at investors in real estate projects.
The Kushner project promoted to Chinese investors, called Kushner 1, includes two towers and nearly 1,500 luxury apartments, with construction to begin early next year.
Like so much else in this fake economy, the EB-5 visa program is an unethical racket that uses a government program originally designed to help struggling communities to further help the already wealthy by funneling cheap financing to luxury property development. It’s just another example of how screwed up our incentives are as a nation, and how completely corrupt the American Banana Republic has become.
For more on the topic, see the following article published by Bloomberg earlier this year: Rich Chinese Race to Apply for a U.S. Golden Visa.
- Some Chinese Banks Suspend "Interbank Business" As Regulator Demands That Collateral "Actually Exists"
With “risk” in most of the developed world seemingly a long forgotten four-letter word, as seen by today’s plunge in the VIX to a level not seen in 34 years, traders hoping for some “risk event” have been confined to the recent turmoil in China, where overnight not only did trade data disappoint, with both imports and exports missing, but bond yields jumped to the highest level since 2015, dragging stocks lower even as the local commodity crash slammed iron ore and copper to new YTD lows.
While largely a “controlled” tightening, meant to contain China’s out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.
As DB added, “local bond markets are practically shut for corporates. In fact, YTD issuance is down 40%+ yoy and net issuance has been negative in three out of the first four months this year. A number of issuers are being forced to cancel bond issuances (over RMB100 billion YTD) and there were reports (Bloomberg) of even CDB halting issuance (though subsequently denied). Some AA corporates are now issuing at north of 7%.”
These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.
Overnight, Deutsche Bank’s China analyst Harsh Agarwal noticed the “gyrations” in the bond market, and compared the current selloff in onshore bonds to the similar episode one year ago, saying “this time, it’s sharper and longer – AAA yield & spreads are almost 200bp and 100bp wider respectively in the past 6 months or so – because of China’s focus away from growth to deleveraging. This is far from over in our view. Every day we see headlines on new regulations trying to control leverage in different parts of the system – WMPs, insurance companies, banks, etc. Having said this, we do believe in China’s ability to make a U-turn quickly if the situation goes beyond control, and see these changes as a long term positive, hence we are not overly worried as of now.”
Maybe not as of now, but Agarwal is surely getting more concerned with every incremental negative news out of China, even as the PBOC refuses to inject more liquidity, as it just did moments ago when for the third day in a row, the central bank skipped open market operations.
Meanwhile, confirming that Beijing is clearly concerned about developments behind the scene, potentially culminating in the worst possible case for China’s banking system – a shadow bank run -China Banking Regulatory Commission said in guidelines on banks’ collateral management posted on its website.
Commercial banks should carry out pressure tests on collaterals at least once a year, China Banking Regulatory Commission (CBRC) posted new guidelines on banks’ collateral management, among which that banks should revalue collateral at least once a year; and that banks are being urged to prevent risks in the collateral business. Of course, since this is the country where due to “infinite rehypothecation” of collateral, thousands of tons of copper and aluminum were “found” to be missing at China’s Qingdao Port, urging Chinese banks to engage in collateral “quality control” seems like a lost cause.
In fact, the banking regulator itself appears to be in on the joke, because as Bloomberg’s Tom Orlik points out, the CBRC requires that collateral accepted by banks must actually exist, as explicitly stated in Chapter 3 on “Risk Mangement” in the just released Collateral Guidelines:
Article 15 The collateral received by a commercial bank shall meet the following basic conditions:
- the collateral is real;
- the relationship between the collateral is clear, the mortgage (pledged) has the right to dispose of the collateral;
- the collateral conforms to the laws and regulations or the national policy requirements;
- the collateral has a good ability to achieve liquidity.
That’s not all.
In a subsequent notice posted in the Securities Times, the Chinese outlet reports that some Chinese rural banks have suspended their interbank businesses including negotiable certificates of deposit (or NCDs) “temporarily” while regulators conduct spot checks. It further adds that at the end of March total interbank liabilities of 25 banks listed in China’s stock market dropped by 1.54t yuan from end-2016, report says, citing Wind Info data, suggesting a sharp contraction in shadow funding.
While it was not immediately clear what the underlying catalyst for the unexpected move was, recall that at the end of March, Deutsche Bank reported that in the most recent troubling trend involving Chinese banks, numerous smaller banks had become acutely reliant on such shadow banking funding mechanism as Certificates of Deposit, which had become the primary source of short-term funding for many of China’s banks mid-size and smaller banks.
As DB further explained, the banks most exposed to a shut down in this “shadow funding” pathway are medium-sized and small banks, for whome as of 1H16, wholesale funding made up 31% and 23%, a number that has risen substantially in the interim period.
As Deutsche reflected just over a month ago, “we view banks that are more reliant on CDs as more vulnerable to rising rates and tighter regulations.”
Reflecting tighter liquidity, the interbank CD rate has rallied
strongly, with the 6-month CD pricing at 4.6% on average. Some CDs
issued by smaller rural commercial banks have been priced close to 5%
recently. This would have pushed up the funding cost and notably for
smaller banks. If banks invest in low-risk assets such as mortgages,
discounted bills and treasury bonds, this would lead to a negative
spread. Alternatively, banks can lengthen asset duration, increase the
risk appetite, add leverage or slow down asset growth. Among these
alternatives, we believe a slowdown in asset growth is the most likely.
And while it is tangential, here is a list of the banks most exposed to a sudden cardiac arrest involving CDs: INDB, SPDB and PAB are among the most exposed to interbank CDs.
We would not be surprised if these are among the banks that as of this evening have “suspended their interbank businesses.”
Which again brings us to the most important question: “Are we close to a “tipping point” in China?” For those who missed the answer the first time, here is Deutsche Bank’s conclusion as of mid-March. Note: since then the liquidity situation in China has gotten far more precarious. Here’s Deutsche:
For now, probably not, especially in a year of leadership transition. In our view, the risk of an uncontrollable liquidity event is low, as the PBOC will do whatever it takes to inject liquidity if needed. In the domestic liquidity market, the PBOC exerts strong influence in both the volume and pricing of liquidity. With 90%+ of financial institutions directly or indirectly controlled by the government, PBOC will likely continue to give liquidity support. In 2H15, the central bank established an interest rate corridor to contain interbank rates within a narrow range and pledged to inject unlimited liquidity to support banks with funding needs.
However, continuing liquidity injections do not come without a cost. A bigger asset bubble, persistent capital outflow pressure and a lower yield curve over the longer term are side effects that China will have to bear. At the same time, the execution risk of PBOC itself is rising.
In other words, whether or not China keels over and has a hard (or worse) landing, will depend on the PBOC; when (not if) the central bank gets involved, will depend on how soon China’s banks and various CD-funded financial institutions run out of collateral (whether it exists or not) to sell, such as iron ore, copper, precious metals, bonds and even stocks. This will hardly come as a surprise. As we showed last month, the only reason the Chinese banking system hasn’t imploded, is due to nearly CNY 10 trillion in central bank liquidity support for the local banks, just under 100% of China’s GDP.
One thing, however, is certain: with western central banks refusing to let the market clear on its own, or deflate the $14 trillion liquidity bubble which has suppressed price formation for the past 8 years, the PBOC is merely doing what all of its “civilized” peers have been doing for years – kicking the can, and praying.
Until then, however, things may be about to get a whole lot worse for China’s capital and commodity markets.
- 'Hate Speech' Hypocrisy
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