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Gibson’s paradox: the consequences

Gibson’s paradox: the consequences

We now have an explanation for Gibson’s paradox (posted here), a puzzle that has defeated mainstream economists from Fisher to Keynes and Friedman. The best way to illustrate the puzzle is through two charts, the first showing empirical evidence that interest rates correlate with the price level. And the second, showing no correlation between interest […]

November 15, 2015 | By | Reply More
Equity markets and credit contraction

Equity markets and credit contraction

There is one class of money that is constantly being created and destroyed, and that is bank credit. Bank credit is created when a bank lends money to a customer; it becomes money because the customer draws down this credit to deposit in other bank accounts and to pay creditors. It is not money that […]

November 13, 2015 | By | Reply More
Welcome to the world of ZIRP zombies

Welcome to the world of ZIRP zombies

Interest rates in the US, Europe and the UK were reduced to close to zero in the wake of the Lehman crisis nearly seven years ago. Initially zero interest rate policy (ZIRP) was a temporary measure to counter the price deflation that immediately followed the crisis, but since then interest rates have been kept suppressed […]

November 11, 2015 | By | Reply More
China chooses her weapons

China chooses her weapons

China’s recent mini-devaluations had less to do with her mounting economic challenges, and more to do with a statement from the IMF on 4 August, that it was proposing to defer the decision to include the yuan in the SDR until next October. The IMF’s excuse was to avoid changes at the calendar year-end and […]

November 9, 2015 | By | Reply More
China and the dollar

China and the dollar

With the benefit of hindsight, the two-day devaluation of the yuan in mid-August might have been a masterstroke of strategy. China executed a financial move that appeared to undermine its own position but instead created trouble for the US; how much is still to be played out. So was the devaluation a well-executed move against […]

November 7, 2015 | By | Reply More
Economics of a crash

Economics of a crash

This month has seen something that happens not very often: it appears to be the early stages of a global stock market crash. For the moment investors are in shock, seeking reassurance and keenly intent on preserving their diminishing assets, instead of reflecting on the broader economic reasons behind it. To mainstream financial commentators, blame […]

November 5, 2015 | By | Reply More
Gold Price Framework Vol. 1: Price Model

Gold Price Framework Vol. 1: Price Model

Gold Price Framework Vol. 1: Price Model In this paper, we introduce a model for understanding the short- and medium-term price movements between gold and currency.  Solving for gold in US Dollars, we find that the majority of price movements can be explained by just a few key drivers: real interest rate expectations, central bank […]

November 3, 2015 | By | Reply More
The danger of eliminating cash

The danger of eliminating cash

In the early days of central banking, one primary objective of the new system was to take ownership of the public’s gold, so that in a crisis the public would be unable to withdraw it. Gold was to be replaced by fiat cash which could be issued by the central bank at will. This removed […]

November 1, 2015 | By | Reply More
Gold Price Framework Vol. 1: Price Model

Gold Price Framework Vol. 1: Price Model

Gold Price Framework Vol. 1: Price Model In this paper, we introduce a model for understanding the short- and medium-term price movements between gold and currency.  Solving for gold in US Dollars, we find that the majority of price movements can be explained by just a few key drivers: real interest rate expectations, central bank […]

October 30, 2015 | By | Reply More
Equity markets and credit contraction

Equity markets and credit contraction

There is one class of money that is constantly being created and destroyed, and that is bank credit. Bank credit is created when a bank lends money to a customer; it becomes money because the customer draws down this credit to deposit in other bank accounts and to pay creditors. It is not money that […]

October 28, 2015 | By | Reply More