Turkey's Banking System Begins to Use Gold as Money

Kitco interviews Jeff Christian, who reports that the Turkish central bank now allows its commercial banks to use gold as reserves for deposits, and about 7% of deposits in Turkish banks are backed by gold. Christian believes that other countries will imitate Turkey's move, which he describes as pure genius. Christian is a modest gold bear, predicting a $1540 bottom over the next two years. It seems to me that if banking systems begin to imitate Turkey, monetary demand for gold will be a bullish factor. Christian also predicts a move away from the dollar as banking systems embark on a multicurrency regime.  Over the long run the dollar will slide.  This is going to devastate Social Security and pension payments, leading to a meager old age for the baby boom generation.

Do I Have Egg on My Face?

Do I have egg on my face? Sort of. Half an omelet. Chris Johansen forwarded the above video after my diatribes about Beck over the past couple of days. Glenn Beck is a hero for talking about the 2008 expansion of the monetary base. He is one thousand percent ahead of virtually the entire news media, which has tap danced around the financial system's exploitation of the average American.

But Mr. Beck can do more. For example, he attributes the monetary expansion to the government, and that is only partially true. Ultimately, monetary expansion is attributable to the banking system, not to the government. As Beck himself pointed out elsewhere, the Federal Reserve Bank is privately owned. Hence, the value of the dollars in your bank account are determined by private interests, not by the government and not by an objective standard.

As well, Mr. Beck could be exploring how the monetary system has been used to exploit the poor and working class to the benefit of the wealthy, especially the financial system itself which Americans have permitted to control their money. I had referred Beck to several books that examine this, such as Murray Rothbard's Mystery of Banking.

The subject of money is simple. In the 19th century most Americans, including those with first grade educations, were aware of the issue and it was publicly debated. Today, television and newspaper reporters attribute some kind of mystical aura to it.

It's good to talk about the monetary expansion, but omitting the redistributive effects of pumping up the stock market and of causing real wages to stagnate leaves the story incomplete. How the money supply pumps up the stock market is evident. More money means lower interest rates. Lower rates means higher stock market. Higher stock market means more trading. Nothing complicated. More money means more inflation. More inflation means lower inflation adjusted wages. Nothing complicated.

Fancy talk about a new world order is unnecessary to tell this story. The Whigs advocated central banking going back to Hamilton and before. Hamilton based his ideas on the philosopher David Hume, who was incidentally a mercantilist economist who set forth the basic Keynesian concepts that are in use among Progressives today. "Progressives" are "Progressive" because they rely on 18th century ideas.

So, Mr. Beck, you're doing ok, but you could be doing better. B-. But "A" for courage.

Congressman Paul Kanjorski Is One Confused Dude

Jim Crum and Mairi have forwarded this video of Congressman Paul Kanjorski's explanation of the "bailout". Kanjorski is one confused dude. There is no benefit to the public from the government's subsidizing incompetently run banks by buying their bad mortgages. It is true that what Congress is doing now is even worse, and the caller has a right to be disturbed. But it is unfortunate that she cannot obtain the information necessary to analyze this problem. Wall Street's publicists, the New York Times, CNN, Fox, et al. have seen to that.

Kanjorski's confusion is particularly acute in his dramatic depiction of a run on money market funds. There is no such thing as a "run" on money market funds. Money market funds are fully backed by loans. The funds could refuse withdrawals until the short term loans expire, and then pay the depositors.

Nor is the current approach to banking essential to the American economy. The banking system is not worth a trillion dollars to the public. It is not worth a dime. It has been a cancer on the American economy for two centuries.

If Kanjorski had bothered to inform himself about the history of money, he would know that America's current arrangement, the fiat paper system and the Fed, is the result of historical decisions that have not been beneficial and that the public fared better under the gold standard. In the 1970s there was a possibility that Milton Friedman's fixed monetary rule might work, but it did not. The only choices are (a) gold and silver without fractional reserve banking, which would result in gradual, stable growth, and (b) the unstable paper and fractional reserve system that has resulted in the Great Depression, the current instability, the 1970s deflation and absurd investment in worthless construction and mortgages.