Saturday, June 8, 2013

Why Gold is Money

By Alasdair Macleod via,

It is clear that Western capital markets no longer generally regard gold as money. It has been relegated to the status of a risk asset, useful collateral, or simply a commodity with a history of being used as money. This is a mistake.

The great Austrian economist, von Mises, wrote that true money had to survive the regression test. Put simply, it must be established whether or not money had value before it was used as money; otherwise it is only a money-substitute which ultimately depends for its value on confidence. So we need to ask ourselves two questions: what value did gold have before it was used as money, and what value did modern currencies have before they were used as money?

The answer to the first question is clear. Anyone who has seen the Alfred jewel in the Ashmolean Museum in Oxford (over 1,000 years old), the Snettisham torc in the British Museum (over 2,000 years old), or Tutankhamen’s gold mask in the Cairo Museum (over 3,000 years old), regard these fabulous items with astonishment. They are simply priceless, being desirable beyond reckoning. There is therefore no doubt that gold, the major element in all these objects, survives von Mises’s regression test. Furthermore the Aztecs and Incas in the New World, completely isolated from Eurasian values, held the same human view.

Paper currencies do not survive this test. They started as money-substitutes for gold or silver and over time lost all their convertibility. As a result they now depend for their value on confidence alone.

Traders and investors in capital markets are unconcerned about this distinction. Instead of realising that Gresham’s Law applies, that bad money has driven out the good, they regard currency as the only money for modern times. This is understandable, because they draw up their accounts and pay their taxes in currency. They invest to make a profit in currency. And so long as they can hedge currency risk by acquiring capital assets, they can manage investment portfolios without recourse to gold.

For these practical reasons mainstream opinion holds that gold is no longer money; but this complacency is likely to be undermined by events. We already see the four major central banks committed to issuing their confidence-based currency in increasing quantities, to finance their governments and to prop up the banks. We have yet to see how they intend to stop doing so.

The effect of monetary inflation was usually predictable. It raised asset prices first, which we are already seeing. It then raised prices of raw materials and manufactured goods, as people started to spend encouraged by low interest rates, leading inevitably to rising prices and rising interest rates. The sequence of credit-fuelled economic cycles is all too familiar.

This time, given the likelihood of a financial and collateral crisis from falling asset prices, the economic cycle is in grave danger of a short circuit. Rising prices for raw materials and goods are likely to be driven by falling confidence in fiat currencies, instead of rising confidence in the economic outlook.

It will be the ultimate test for unbacked currencies. Everyone wedded to modern currencies will then wish they had been aware of von Mises’s regression theorem.

Game On! - France Bans Postage of Precious Metals

Yes more capital controls from the socialist paradise that is France, to go with their restricted cash withdrawals (here) and their banning of cash sales of bullion (here). This time the they have banned postage services carrying precious metals and restricted the postage of jewelery. Seems somewhat pointless as the whole country is 16% smaller than the third smallest state of Australia that I live in. Small Places = Small Minds.

Translated from French by Google translate. Original source page

Official Gazette No. 0117 of May 23, 2013 page 8481 
Text No. 30 DECREE Decree No. 2013-417 of 21 May 2013 amending the Post and Electronic Communications NOR: PROI1238667D 
Audiences: the postal service and postal service users. 
Subject: the Post and Electronic Communications, updating of the regulatory part, simple decrees. 
Entry into force, the text shall enter into force the day after its publication. 
Notice : This Order revokes or refreshes many provisions of the book devoted to the postal service in the "simple Decrees" of the Post and Electronic Communications section to reflect changes in the section "Orders in Council of State," which following the adoption of Law No. 2010-123 of 9 February 2010 on the state-owned La Poste and postal activities. 
Besides the work to update the decree introduces new provisions on prohibited items in all shipments Postal (Article 3) to take into account the requirements of the Code of Homeland Security, in particular Article L. 611-1. It is also clear (Article 4) the admission of jewelry as defined in Article 1 of Decree No. 2000-376 of 28 April 2000 as amended relating to the protection of CIT. 
References: the Postal Code and modified electronic communications by this Order may be consulted, as amended by this amendment, the Légifrance ( 
Prime Minister 
on the report Minister of productive recovery, 
view the code of postal and electronic communications; 
Given the code of Homeland Security, in particular Article L. 611-1; 
Given the Decree No. 2000-376 of 28 April 2000 as amended relating to the protection of CIT; 
Given the opinion of the Authority for Electronic Communications and Posts of January 29, 2013, 

Book I of the Post and Electronic Communications (regulations: Simple Decrees) is amended in accordance with Articles 2 through 11 of this Decree.

I under the heading of Chapter I is replaced by the heading: "The universal postal service and the postal service obligations."

Article D. 1 is replaced by the following: 
"Art. D. 1.-The insertion of banknotes, coins and precious metals is prohibited in mailings, including the insured items, registered items and items subject to formalities certifying deposition and distribution. "

Article D. 2 is replaced by the following: 
"Art. D. 2.-defined jewelry III of Article 1 of Decree No. 2000-376 of 28 April 2000 as amended relating to the protection of transport funds can only be carried by insured item by registered mail or by sending subject to formalities certifying deposition and distribution. 
Through the provision of universal postal service as defined in Article R. 1 jewelry can only be transported by sending by registered or insured parcel. 
The amount of insured items within the range of universal postal service must meet the threshold set by the order under section R. 1. 
the value of inserted objects in a registered letter or a consignment covered formalities certifying deposition and distribution must not exceed the level of security chosen by the sender when posting the item. "

The last two sentences of section D. 19-3 is replaced by the following sentence: "An agreement between La Poste and publishers specify how the implementation of press rates. "

The second and third paragraphs of Section D. 21 are deleted.

Chapters II, III and V of Title I are repealed.

The 1,2,3,5 and 6 sections of Chapter IV of Title I are repealed.

Title II is amended as follows: 
1 Articles D. 38, OC 41, OC 44, OC 45 and D. 46 are repealed; 
2 In Article D. 42 lesmots: "The Minister of Post and Electronic Communications" are replaced by the words "the Minister for Postal Services", 
3 Chapter II is repealed.

Parts IV, V and VII are repealed.

Title VI is amended as follows: 
1 Section D. 90 is replaced by the following: 
"Art. D. 90.-The buildings at a date to be fixed by joint order of the Minister of Infrastructure and Minister for Postal Services shall include equipment mailboxes to ensure the safety and speed of connections distribution. 
If no mailboxes or appropriate accessibility, remittance transfers are, whenever possible, be pending or returned to the sender when it is identifiable. '; 
2 items D. 91, OC 92 and D. 93 are repealed.

Decree No. 96-645 of 19 July 1996 fixing the maximum amount of coverage and reporting the value of insured items and changing the amount of compensation for loss, damage or theft of recommended items is repealed.

The Minister of productive recovery and the Minister to the Minister of productive recovery, responsible for small and medium-sized enterprises, innovation and the digital economy, are each responsible in part, for the implementation of this decree, to be published in the Official Journal of the French Republic.
Dated May 21, 2013.
Jean-Marc Ayrault
By the Prime Minister:
The Minister of productive recovery, Arnaud Montebourg The Minister to the Minister of productive recovery, responsible for small and medium-sized enterprises,innovation and the digital economy, Fleur Pellerin

Keiser Report - Osborne's Schlub, Schnook, Yahoo & Yo-Yo

From RussiaToday

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the longest word in the German language ceasing to exist while the most complex derivatives in the financial system continue to thrive, George Osborne's Help to Buy Scheme gets called another name and the U.S. dollar system disintegrates, 'gone with the wind.' In the second half, Max talks to Alasdair Macleod, head of research at, about the geopolitical implications of gold failing to clear.