Cato looks at Oil and Gold

Cato at Catallaxy has taken a look at Oil and Gold prices and posts the following:-

http://www.agiweb.org/workforce/Currents-007-OilByCurrency.pdf

The key message of the graph is that the rise in the price of oil over recent years was really just a decline in the value of currencies as monetary policy became too loose. I tried to make a similar point here on ALS with some other charts recently and on my own blog I’ve charted the long term comparison before also. However the chart offered by Cato is a real gem.

117 thoughts on “Cato looks at Oil and Gold

  1. So the growth in demand as a result of the massive increase in car ownership in China and India is irrelevant?

    Next you’ll be claiming a gold standard would cure cancer.

  2. India and China are causing demand for all manner of things to grow. They do this by increasing the supply of all manner of things.

    The US had growing demand for oil as wealth increased and the nation built more highways between 1950 and 1970 and yet the US dollar oil price from 1950 to 1970 was essentially flat. See the US dollar price of oil shown in blue on the following chart (normalised so base year equals 100 units):-

    I won’t be claiming that a gold standard would cure cancer. Most of the world had a gold standard for centuries and cancer seemed to coexist without any problem. Such an argument would be stupid and I’m not stupid. You seem to have adopted a straw man approach to argument. Try not to spoil a relevant and constructive comment with an irrelevant and unconstructive comment.

  3. We pick two commodities in short supply, note that they have both gone up in value at an equal rate, ignore the fact that international demand has increased and conclude the value of money has decreased.

    Shakes head in disbelief at the stupidity of it all and walks away.

  4. Charles a better indicator is the Goldman Sachs commodity index. You can overlay it on any currency even the SDR. It does look like there was a global monetary expansion.

  5. yea, or you can overlay each individual currency… Which would take a longer time. SDR’s are neat because it’s basically an index.

  6. I don’t think anyone here would deny that there has been a monetary expansion, so it follows as a near certainty that part of the inflation of the oil price will reflect the currency debasement, but that does not mean the increase is purely an artifact of the monetary expansion. You need to also have a graph of oil supply and demand (if such a thing exists). If there is unmet then there should be an increase in price.

  7. to the oil is running out crazies.

    how much have you made trading on your knowledge?

    I am 900% (nearly an order of magnitude) in the money on my oil options which i bought just after the peak. If you are doing better please let us know.

  8. Cato

    I bought oil at 70 and bought a ton of oil related regalia such as straight out oil companies and oil service firms. I think it’s headed back up again for one reason.

    Al the hedgies have been closed out and the CB’s are going to monetize like crazy.

    Commodity plays are heading to the moon simply for monetization reasons.

  9. I think Cato’s chart and Terjes investigations show that a commodity like diesel or liquified-coal could quite adequately take up a lot of the slack of a countries currency if private money-providers could figure out a cost-effective way to store it. Because we don’t really want to pushing gold up to unnatural heights in price simply because we don’t have enough to retire the old fiat money with.

    A private money provider would tend to buy his raw materials in during the dips in price. Like you might buy in a tonne of silver when you can get a good price for it and be coining it over time, or setting it up for digitization.

    So you don’t want monetization to be a factor which blows out prices to new record highs. But rather something that stops prices falling below the mid-range.

    This is actually very important now that the American markets are so corrupted. Its like oil might have got a tad too high but now its way too low. They don’t have the inventories for it to be this low. There will be a new round of price runups and I’m sure the fellas will make a tonne of money on it.

    But it would be a healthier thing if money providers had been buying the real thing (as opposed to derivatives) and refining it to diesel for monetary purposes when the price dropped below (lets say) 100USD. As things stand there is likely to be shortages and great stress on the horizon. I think Cambria will make plenty on this new venture. Since the corrupted markets can only work totally out of sinc. with reality until such time as all the inventories run dry.

  10. “I bought oil at 70 and bought a ton of oil related regalia such as straight out oil companies and oil service firms. I think it’s headed back up again for one reason.

    Al the hedgies have been closed out and the CB’s are going to monetize like crazy.

    Commodity plays are heading to the moon simply for monetization reasons.”

    I suspect this fellow is just about to get a whole lot richer.

  11. For the non-economists in the room: Historically who are the most famous economists who have argued for 100% reserve?

    I heard Friedman used to, but abandoned this on pragmatic grounds, ie: to difficult to implement politically. Is this true?

    It might be interesting to read their arguments.

    GMB has pointed out his moral objection. It’s like the abortion argument. You can’t tell an anti-abortionist that you’re pro-choice, because if abortion truly was murder, then choice doesn’t come into it. You can’t choose to murder someone.
    Likewise, if someone thinks fractional reserve is theft, you can’t convince them by saying it’s voluntary. Because you don’t have the right to choose theft. ie: the issue is not fraud (we all know fractional reserve takes place) – the issue is theft by turning $1 into $1 + $x.

    While I find GMB’s commenting volume and style not to my liking, from what I’ve briefly read of the responses, many seem to be insufficient.
    eg/ If GMB has a loan himself from a bank that practises fractional reserve, so what? This may make him a hypocrite but it’s not an argument for or against fractional reserve.

    As an aside, I’d also be interested to see how many libertarians support a central bank?

  12. Graeme – there is nothing mystical about my views on gold or money.

    Under a gold standard gold inflation will drives gold miners out of business and makes coinage unprofitable. As such there can be little inflation under a gold standard due to base money expansion. Under a gold standard any inflationary expansion of credit substitutes will also have the same contractionary effect on the gold sector. There is no mystery involved, just basic economics.

    The main argument against a gold standard is that it might be deflationary. There is little evidence from history that this ever occur in any severe way. The USA did have significant deflation in the late 1800s but that was due to the price at which they returned to the gold standard after the civil war. Likewise the commonwealth nations had deflation in the 1920s because Great Britian returned to the gold standard at the pre WWI price level essentially necessitating a reversal of all the non-gold standard inflation that had occured in the interum. They could have just returned to the gold standard at a new price and avoided all of this trouble. Rarely in history has a well established gold standard ever been deflationary in any severe way. Britian did average about 1% inflation from 1800 to 1900 but this was hardly severe.

  13. Graeme,

    Relative to every montetary regime we have had since the end of Bretton Woods my contention is merely a statement of fact. Nominal commodity prices in almost every era for which we have data (hundreds of years worth) were far less volatile compared with the post gold standard era. Obviously the same is true for exchange rates. It’s not a contention, merely an observable fact. And stability in consumer prices, which form the basis for headline inflation, have not been more stable without a gold standard (far worse in many instances). We can also point to the cost of credit (interest rates) which have been almost universally higher in the post gold standard era as there is generally more risk in lending in a non gold standard environment.

    As an aside it is worth noting that the hedging and futures industry that relates to the management of risk has boomed since the gold standard ended. There are simply more risks to manage in the commodities sectors than there were in the gold standard era. When long term prices are relatively stable there is a lot less need to hedge and hence less demand for the services of financial wizz kids. This would have to be one of the few industries that would suffer if we returned to a gold standard.

  14. Tim R, banks borrow money from some people and lend it to others. The terms at which the borrow and lend are not matched so they are at risk of a run. But that is a risk every bank depositor (lender) takes when they put the money in the bank. Banks keep some money at hand to meet withdrawls (repayments). There is no crime of theft in there, and really, it is silly to say money is created by the process. If money was created then there would be no risk of a run.

  15. Pedro – your last sentence is pretty spot on. The problem in these discussions is that people use the word money. That term is too general and there would be less confusion if people used more specific terms such as currency and credit.

  16. Tim R., I would not object to a central bank in a libertarian society. I think that small is good, and I like the idea of gated communities making up shires. However, we would like convenience, so the shires and cantons could meet at conferences and set Public standards, meaning that these would be what they prefer to use amongst themselves, and on their roads. Thus a central Bank might be a standards bureau, issuing notes for the amount of metals in its’ vaults, etc.
    So long as these things are voluntary, but convenient, there should be no danger.

  17. You cannot have a central bank. Thats an imposition and a banking cartel coup. The only excuse for it is fractional reserve. So just get rid of that and we can save a lot of money on central bankers. If you have a central bank or fiat money thats not capitalism. It money-socialism and banking sector hegemony.

  18. “Tim R, banks borrow money from some people and lend it to others….”

    Thats a misrepresentation. We have to get that right for starters. This is no valid description of how they operate.

  19. Graeme, I’m sure you’ve avoided this question a million times already, but how is your brave new world to prosper with the amazing limitation of credit you propose. By all means try to demonstrate with the Muslim world that has done just yankee doodle dandy except where they allow usury.

    Mind you, there is nothing anti-islamic about fractional reserve, their prohibition is on interest.

  20. Graeme, how is is a misrepresentation to say banks borrow and lend? Your deposit is a loan to your bank. It is not a storehouse for your notes. Wishing it so does not make it so.

  21. I”m not proposing a limit on credit. I’m proposing the total prohibition of ponzi-money, ponzi-shares, gold or any other such fakery or version of fraud of this sort. Its about house-training our finance people and forcing them to stop thinking that rampant fraud is economic development.

    Pyramiding fake gold on top of real gold does not lead to more resources. What it leads to is actually medium-run shortages of gold and a spanner being launched into the pricing mechanism for investment and producer goods and assets.

    To think that pyramiding resources leads to more real resources is outrageous superstition.

    But you can fall for it if like Terje if you don’t get definitions straight in your mind. He won’t call anything that is not CASH “money.” He has never acknowledged pyramided money except as some figure the government collates for some odd reason.

  22. Its not misrepresentation to say that banks borrow and lend. Mate you are just a nut. You just made a misrepresentation then you followed up by misrepresenting your own misrepresentation.

    Banks without a reserve asset ratio make the ponzi-loan up front. Then they get about finding enough cash for purposes of their own liquidity. The cash they keep is merely backup, or insurance, for the loan-fakery they involve themselves in.

    You had it that they dutifuly borrowed money and then lent this out. As if you were describing a 100% backed bank.

  23. “Bird wants banks to operate as safety deposit boxes.”

    JC is lying. Lying with knowledge and malice. A 100% backed bank doesn’t operate as a safety deposit box. It borrows money and lends it out, without pyramiding. It does not sell, trade or loan gold silver or cash that doesn’t exist.

    Stop lying you pathetic welfare queen.

  24. “Terje, can we sensibly use currency these days? Mostly I move money around electronically using eftpos.”

    Exactly Terje. Get with the goddamned program will you? How long have you been in denial about precisely this point? You ought to have backed down on this a very long time ago. And stop telling us that the money we all use, the vast majority of it, was not merely credit, but bank pyramided money.

  25. Hey Graeme, do you mean that banks can lend money that they have not borrowed? like, they just make the money out of thin air?

  26. Bird

    Could you please explain the thin air concept?

    This is what I remember from accounting 101.

    Balance sheet.

    Assets Liabiltiies
    1,000,000 800,000

    Equity

    200,000

    Total 1,000,000 1,000,000

    In other words equity + liabilties = assets.

    equity is shareholders funds
    Liabilities are deposits
    assets are loans

    Now show us where the money out of thin air comes from, Sheik al Birdie. If there was thin air money the balance sheet couldn’t balance.

  27. You mean to say that you worked AS A BANKER and you are so stupid as not to know this? Is there anything you will not try on?

    How about you give me starting balance sheets for a two bank two people island.

  28. No Bird, I am not stupid. you are basically an innumerate and quite insane which is why this looks extraordinary to you.

    If the balance sheet does balance there is no money from thin air.

    Forget your stupid island example and consolidate the balance sheets of every bank in the economy. They would also balance.

    You, bird are a complete nutcase and deserve only the worst scorn.

  29. No you are an idiot. You are lying. And the fact is that banks create money out of thin air. The trick is that the banks have to OWE EACH OTHER CASH.. which they don’t demand off each-other lest they both go broke. At no time does the balance sheet not balance.

    This is why you guys were squealing awhile back that the banks won’t lend to eachother. Who would give a toss if they were decent outfits? Why do we care if banks won’t lend to eachother?

    Well we ought not. But the reason this is a big deal is that they have made loans of money that they have no cash for on the basis that each bank will keep a line of credit to eachother. Hence they each hold a gun to eachothers head. Which is why they keep outstanding cash owed to eachother on a very equal level. Since if they pull that trigger their mutual insolvence will be revealed. This is why fractional reserve banking is essentially a cartel. And why it has taken so much cash injection for thirteen months and these guys still aren’t ready to trust eachother enough to start the racket up full tilt yet.

  30. I beleive it is illegal for a bank to lend money it has not borrowed or raised as capital from shareholders. Because of reserve requirements, a bank cannot lend all of the money available to it. It certainly cannot lend more than the money available to it.

    The Rothbardian analysis of how fractional reserve creates money is delusional because it ignores the fact that the depositors’ money is not money they can spend until redeemed. But you are taking it to a whole new level.

  31. No Brid, I am not lying. I am not an idiot and you are quite insane.

    The banks balance sheet balance therefore there is no money “out of thin air”.

  32. Yes, Pedro. It’s martian money he saw in the pictures.

    Two years of birdian economics and we would be migrating to Afghanistan looking for a better life.

  33. When we say BANKS. We are talking in plural. The banks owe money to eachother. Money for which they have no cash backing. I’ve always shown, with great patience, that it usually takes 2 or more banks to create money out of thin air. Notice that the interest owed to eachother between two banks CANCELS. Hence they get this new money creation very cheaply indeed.

    Now admit you have been lying.

  34. Right if you are all through lying you might admit that the banks create money out of thin air. Which is the whole reason why ponzi-money so vastly exceeds cash in size.

  35. This is what you must expect from bankers. Constant lying and an almost total non-understanding of the business they are involved in. In a bank you must be able to get about looking good, acting like you know everything, conforming to norms in an environment of almost total non-understanding of the business itself.

    One day in corporate finance I got a call from a student researching how we set the interest rate. Who actually set the rate? On what basis? Who decided when the base rate was changed. I wanted to help the young researcher out but no-one could tell me what department and who set the rate for the floating-rate home loans and on what basis. But everyone gave off the vibe that it was something you didn’t ask. There were murmurings of “cost of funds” this and that. But from what I could see, the main cost of funds was the interest rates we banks charged to eachother and these cancelled out. So the cost of funds was a hard thing to pin down. To this day, aside from the banks CEO, I would not know who to ring on this matter. Who pulled the actual trigger to make the announcement.

    So JC’s incredible ignorance, if thats what it is, is by no means atypical.

  36. Just as well you didn’t delve deeper into the question Graeme. That researcher could have led you into a world of pain. You could have had your life threatened had you pursued your investigations and one morning you’d wake up next to a horse’s head ….

  37. So the response is akin to a 15 year old girl. “Whatever” Did you get your homework done “Whatever” You staying out late tonight “Whatever” Those rumours that you stayed over at the principals house true “whatever.”

    55. Things might be getting that desperate in the States now. Like for example fake share selling is “The New Drugs” when it comes to mobsters. Its really hard to tell the behavour of mobsters and bankers apart which is akin to banking in early America. How much difference was there between counterfeiters and bankers? They both used a lot of ink and neither had a great deal of gold to back their notes. Well its almost broken down to that level again.

    Historically speaking its a disaster that John Snow was kicked out and that Paulson and his Goldman Sachs coterie was let in. It was a decisive turn that lead down the road marked “way to the banana republic”. Paulsons just a total disaster. Its just terrible to see our ally damage itself so badly. Slashing its wrists like this. Had they spent the money just on a 50 year tax exemption for energy production revenues. Or even if they’d just set up a lot of nuclear power stations and let the banks go under…. Well there may still have been a change to avoid the total breakdown of their currency.

  38. ” beleive it is illegal for a bank to lend money it has not borrowed or raised as capital from shareholders. ”

    Don’t be silly man. We would have to go arrest them all right now. Don’t just make stuff up pedro. They can create money out of thin air but they are limited by these capital requirements. Which slows them down a bit whilst cutting out competition.

    You are wrong pedro. Its best not to just make things up. That they CAN IN FACT create money out of thin air is the very reason that when you deal with money you are no longer typically dealing with cash as you described.

  39. Bird

    You just pick this stuff up from truther sites and think it’s going to impress us. It doesn’t. You are basically an insane ranter and whatever you say doesn’t mean much any more.

    I present you with the evidence that the balance sheet is in balance and you still don’t understand. You are basically and insane lunatic looking for attention.

  40. They are also limited by the each banks willingness to lend the other bank money that each bank does not have. Its a whole confidence racket. And it amounts to a big fat cartel.

  41. No JC you are lying. I worked in Corporate Finance. I studied economics. And when I was up in Corporate one of my two portfolios was the finance institutions one. I got to see all the global limits and the amount that we had outstanding to each of the other banks on a daily basis.

    Its not a truther site thing. Its just the way banks behave. You were a banker yourself. There is no point you lying about it.

  42. I got to see all the global limits and the amount that we had outstanding to each of the other banks on a daily basis.

    So what, you numbskull. banks have had limits with each other since time began. They are just another counterpart.

    So who killed JFK, bird? Paulson or Bernanke?

  43. Right so whats your point. If you knew that then you know that you were lying.

    You are supposed to have a point when you make a post JC. Its not supposed to be about you stepping into Fyodors role and trying on the thread of doom.

  44. OK then. So we have established that banks create money out of thin air. And that there ability to do so is dependent on their willingness TO EXTEND CREDIT TO EACH-OTHER. Hence when they lose their nerve and are no longer willing to extend this credit to each-other we get the sort of problems that we are getting now.

    We have also established that bankers and even people who have got no skin invested in banking, are willing to lie about what it is that banks do and pretty much make things up as they go along.

    We have established that it is a very strange study that brings out an immense amount of crankery and confusion. Yet the basic racket that makes banking so profitable during times of monetary growth is schockingly simple.

  45. Bird

    Do yourself favor and walk away from the computer for at least 3 months to clear your head otherwise you’re going to get in so deep that you will seriously fall over the edge.

    This is insane talk.

  46. Has anyone seen JC make a valid point? Ought you not be angry at him for trying to lie to you?

    Its his big heroes that have white-anted our ally. Who have ruined the United States with their ponzi-schemes and so have opened up immediate vulnerability for our own country. You see JC looks up to criminals like Henry Paulson. Whose ponzi-schemes have made him half a billion dollars. Half a billion dollars Paulson has made and now he’s bailed his own cartel out at the expense of his country.

    Now its important to understand this. Since our own banks are causing our own destruction through lending for non-wealth building activities and through the creation of relentless trade deficits.

    They are numbskulls and ignorant liars. And they are bringing us to our knees. However not as quickly as Paulson and company trashed the United States.

  47. None. Its just whats going on. Just accept that you won’t get away with lying and I’m telling people the truth. If you think otherwise explain your different theory.

    I did a degree in economics and I worked in a bank. I’ve never stopped reading about these subjects so I know what is going on.

    But the big shock came when I found out there were shortages in gold and silver and fails to deliver in shares. This does not happen under capitalism. Because they are shortages. And shortages cannot happen under the profit motive when folks have a free ability to set prices.

    So this was a mystery that I tracked down. And the pyramiding on pretty much all things is what is causing both this and the derivatives explosion. The shortages were a mystery that had to be solved. And so there you have it. The American capital markets totally debauched via all this pyramiding. If you have an alternative explanation for the shortages well lets have out with it.

  48. No bird, I am not a liar, you are a delusional fool who has no idea what he’s talking about.

    If money is created out of thin air banks couldn’t balance their balance sheets, you fool despite all your petty sideshows of abuse about lying.

  49. our own banks are causing our own destruction through lending for non-wealth building activities

    You mean like Graeme Bird’s mortgage?

  50. Bird you idiot. Banks run mismatched books which means they are either long or short of cash each day depending on what loans and deposits mature (get taken off the books). So they lend/borrow from each other making their cash position square for the end of day.

    I can’t believe how simple minded you are.

  51. Look this is an Australian libertarian blog and in the tradition of Deakin, I would like to keep the discussion focussed on calssical Australian liberal themes with a contemporary edge. Such as raw veganism:

    Green chlorophyll & oxygen rich, hemoglobin building, Green Smoothies! Alkalizing, relaxing, feel good food! If you like Apricots, you will love this one!

    Apricot Mango Green Smoothie
    (Tools: Blender & Knife)

    * 1/2 Cup Apricots (organic as the ‘normal’ variety are highly sprayed)
    * 1 or 2 Mangoes
    * 1 stalk of Celery
    * 1 large handful of organic spinach
    * Enough water to blend

    Put Apricots, peed and pitted mango, celery and spinach in the blender with enough water to blend, and blend until creamy smooth! This is an incredibly tasty way of getting your greens! You won’t believe your taste buds!

  52. Regarding #39.

    Graeme – essentially I did back down some time ago. I realised that getting people to use the word money correctly was futile so instead I now endeavour to use the words currency and credit. We agree that these days private banks don’t make currency.

  53. “Bird you idiot. Banks run mismatched books which means they are either long or short of cash each day depending on what loans and deposits mature (get taken off the books). So they lend/borrow from each other making their cash position square for the end of day.”

    You useless lying prick!!!!!!! You are scraping both the outer limits of human idiocy and dishonesty both!!!!!

    People this is a typical thread of doom tactic. Where the monetary crank writes something AS IF I said something different. You will search in vain for me contradicting the above. Which is exactly what banks do.

    How is this JC hey?

    What a stupid welfare queen hey?

  54. “Graeme – essentially I did back down some time ago. I realised that getting people to use the word money correctly was futile so instead I now endeavour to use the words currency and credit. We agree that these days private banks don’t make currency.”

    But it was YOU that were using the word incorrectly. And it was your usual softheaded compromise with wicked behaviour. Like when you refused to acknowledge the environmentalist hand behind the Malarial outbreak.

    Credit just means a loan. It doesn’t necessarily imply new money creation. You are using lack of precision here to pretend that banks don’t create money out of thin air. Credit need not imply this. A simple loan need not create new money. If debt levels BETWEEN the banks are not increased then a new loan won’t create new money. If a single bank makes a loan out of deposits or at the rate at which his outstanding loans are being paid off this will not create new money. It takes usually 4 parties and 3 separate moves to create new money. And the phrase “credit” says absolutely nothing about this process.

    This means when I go to ask you the difference between money and cash you have to get all evasive. And then you’ll talk as if money supply is just something the bureaucrats cook up.

    If we outlawed ponzi-money overnight without replacing it with cash-money we would all be unable to pay our debts in AUD. The crash would be unimagineably harsh. So why do you refuse to acknowledge that the ponzi-money is indeed money? Not only is it money. Its your money too. And its the vast majority of the money that you have.

    Every month of your life you acknowledge ponzi-money AS MONEY when you ask yourself “how much money have I got in my cash card.” But then you come here and wanting to compromise with these lunatics you claim that the money in your cash card is not money its credit??????????

    Why would you want to sell out to these nutballs in that way??? If the ponzi-money goes we get by on barter alone until such time as the replacement cash-money can be printed up. One is a direct substitute for the other. So why be bigoted and be calling ponzi-money “credit”?

    Its very much a case of:

    1. Janet is Michael (Jackson)

    2. Michael is Janet

    3. Then who is Diana? (ie Diana Ross)

    You see if you are going to call cash “money” and ponzi-money “credit” what in the hell are you going to call other forms of credit that are not ponzi-money?

    You are just playing silly-buggers and helping the usual suspects confuse people.

    You can call ponzi-money “fiduciary media” or something of that nature. But we have to use definitions with some sort of precision. And “bank-pyramided-money”. Or alternatively “ponzi-money”, is what allows for that sort of precision.

    Suppose you call ponzi-money “credit?” You are being horribly misleading. Suppose you call ponzi-money “fiduciary media?” Peoples eyes tend to glaze over. If you therefore adopt reason and good definitions you will differentiate cash-money from ponzi-money or “pyramided-money”. That way people will be able to follow what it is you are saying without being mislead.

  55. “Its very much a case of:

    1. Janet is Michael (Jackson)

    2. Michael is Janet

    3. Then who is Diana? (ie Diana Ross)”

    It’s rubber room time.

    Graeme, if this is a thread of doom then who has been posting the most? Is the person who posts the most the one responsible for the thread of doom?

  56. Supposing if there is a thread of doom and I’m going up against four liars, three dumbasses, 2 graffiti artists, and 1 compromiser….. Well right there thats the potential for me to have 10 times as many posts as anyone else.

    What they do is they just talk nonsense until I’m moderated or everyone is exhausted and cannot stand to talk about it any more. Yet this is the most important subject as far as our liberty, prosperity and survival is concerned. We have two sets of thieves. We need to bring it down to one. The banking thieves are the guys who make the government thieves appear plausible, such is the grave damage they do to the market and to the nature of the version of capitalism that we experience.

    It ought to be a matter of morality and personal pride that we don’t let these people steal off us and ruin our prospects for a free society.

    In the first instance it ought not need to have been about antagonism to bankers who are only working within the framework that they found themselves within when they started their working life. But in practice it has to be an extremely antagonistic campaign. Because when you bring these matters up with these guys, THEY!!! are immediately antagonistic and contemptuous. Hence we have to see them in the light of their systemic exploitation, rather than in the light of people we can win over by persuasion.

  57. Graeme — I told you not to go on about FR-banking. You can write about anything you like on your blog. But when invited into somebody else’s place you should respect their rules.

  58. I don’t remember you telling me that. This is an important subject. Don’t be so poopy-pants about it. You’ve never been able to justify your idiotic anti-economics point of view on this subject. Ponzying up phoney materials, whether it be gold, silver, shares, cash, or anything else is clearly something that defies market pricing. At the moment this is going on in the gold markets and prices are going down. But nobody can find any gold. People are backed up weeks and months. So how can you justify this sort of fakery? Its like you never went to university.

  59. This is typical. The anti-economics side of the arguments get comprehensively whipped and then they ban the discussion without admitting that they are wrong.

  60. “Ponzying up phoney materials”

    Please explain. Now it seems you are simply not accusing anyone who disagrees with of printing “Ponzi” cash, but of actually fraudulently making false stocks of physical assets to back with cash.

    You’ve gone off the rails Bird.

  61. “This is typical. The anti-economics side of the arguments get comprehensively whipped and then they ban the discussion without admitting that they are wrong.”

    Two things remind me of this:

    1. Graeme’s blog.

    2. That famous Soviet photos where purged former [liquidated] party elites (Abel Yenukidze Nikolai Yezhov)were also “purged” from the photos.

    Actually 2. reminds me of 1. a lot more than the ALS blog!

  62. I don’t think you’re making too many friends with your attitude Graeme. Are you trying to say the LDP isn’t good for free markets?

    http://graemebird.wordpress.com/2008/10/24/ponzi-moneythe-importance-of-being-earnest/#comment-17586

    # Mustafa Al-arbib Says:
    October 25, 2008 at 6:14 am

    Mr Bird
    This is very serious. These bankers cause recession and then the infidel socialists blame free market yes? But this is no free market. Free market is based on honesty.

    I am in business myself Mr Bird and many of my family too. What can I do to protest this? is LDP good party for fighting this?

    # Graeme Bird Says:
    October 25, 2008 at 6:29 am

    No I’m afraid they are not. I cannot think of any outfit in this country that is dirty on this type of exploitation. The best was is to learn up your monetary-economics and then just hit out in talkback and on the net until enough people have an understanding of things. It will be awhile before it reaches the radar of any party.

  63. Thats what has been happening lately. False shares being sold and pyramided on the stock exchange. False gold paper sold and on-traded and this causing shortages. The whole idea that these behaviours are not fraud, or that they ought be tolerated is an attack on basic property rights, ethics, and economic science. Yet this is akin to what fractional reserve is. Its doing the exact same thing with cash as these other examples of fraud. This is the reason why the gold price has been falling even though no-one can find any gold.

    Pyramiding up fake titles has a similiar effect to government price controls. But worse since the shortages don’t become apparent until its too late. Its clearly fraud. Anyone who says otherwise is being ridiculous.

  64. You mean the same *false* shares which companies pay dividends to the holders of? Quick Graeme, do something before shareholders ruin the economy with their deception!

    Sure Graeme, a TOTALLY PRIVATISED BANKING SYSTEM [which would entail free issue and most likely banks lending on less than 100% backing] is the same as “government price controls”, you’re freakin’ genius you idiot!!!

    You haven’t jumped the shark, you’ve turned it into an amusement ride.

  65. “This is the reason why the gold price has been falling even though no-one can find any gold.”

    Jesus. I almost feel sorry for Graeme.

    http://www.cortonaresources.com.au/IMG/pdf/126_-_Significant_Gold_Intercept_Confirms_Dargues_Reed_Potential_23.10.08.pdf

    24 October 2008

    “SIGNIFICANT GOLD INTERCEPT CONFIRMS
    POTENTIAL FOR DARGUES REEF EXTENSIONS
    POTENTIAL TO SIGNIFICANTLY EXPAND EXISTING RESOURCE”

    There are two possibilities:

    1. No Graeme, you’re lying.

    2. Graeme hasn’t the foggiest of what he’s actually rabbiting on about.

  66. Yes exactly. The same false shares that people pay dividends on. But the fraudsters tend to pick on shares that are attempting to raise capital and expand. Shares that aren’t in that part of their life-cycle where they have the cash to buyback their own shares or to pay dividends.

    Hence this sort of fraud disproportionately inhibits small cap growth and new company innovation. Its an absolutely devastating attack on capitalism.

  67. The shortage is being called by ponzI-selling you economics-illiterate. Never in the history of capitalism has shortages been caused by optimistic reports about the potential for resources still in the ground.

    You are an economic illiterate mate. A complete moron.

  68. Look JC. Mark is being an idiot. There is no point coming in to support his economic illiteracy.

    Shortages don’t happen under capitalism properly considered. But they happen you when you have price controls. And now we see them happening because of ponzi-selling. In precisely the way that recessions are largely just cash shortages due to bank-cash-pyramiding.

  69. “How does one go about creating false shares and collecting the dividends?”

    How do you think you moron. Through fraud. But if dividend-paying shares were the ones that tended to be targeted it wouldn’t be as bad. Rather they tend to target people who need to raise capital and cannot buyback shares. So just the sort of companies we would want to be expanding are being hampered. Small oil companies and this sort of thing. Its a big money-spinner this fraud. But its at the expense of the sound workings of capital markets.

  70. Graeme, please enlighten me. How do I sign up for these fake shares that pay real dividends?

    I assume you don’t need to pay for something fake but still get to keep the dividend cheques which can be deposited at any Australian Depository Institution?

    Thanks for your advice forthcoming!

    Regards, Mark.

  71. There is simply no room under capitalism for the toleration of pyramiding fake titles. None whatsoever. Why are people still playing silly-buggers about this?

  72. Fraud? What a simple solution to my money problems. This is fascinating stuff Graeme.

    Don’t they know exactly how many shares are issued? On the other hand, wouldn’t the companies realise they’ve paid dividends twice to the same shareholder?

    Thanks for your advice forthcoming!

    Regards, Mark.

  73. You create fake shares the same why banks pyramid on cash. Thats what naked short-selling is. This is a racket run by investment banks, brokers and hedge funds. This is something that JC, Reynolds and Edney have all tried to justify. It cannot be justified. Its watering the stock. Its a direct attack on the company and the shareholders. Its been called by some “the crime of the century.”

    If you are a gold dealer and not all customers take delivery you can also involve yourself in this sort of fraud. Now its taken off to an extent unimagineable. And largely because people can insure themselves with derivatives. Well they think they can. But this is an illusion in the long run. In the end these ponzi-rackets fail or must be bailed out by government.

  74. “The same false shares that people pay dividends on”

    Tell me how I get the dividends. Stop filibustering.

    It is obvious you don’t understand short selling.

    Shares are lent out, NOT “CREATED”.

  75. What’s is your point Mark.

    Suppose you continue to act like an idiot?

    Whats your point?

    This is what is happening. Thats why there are shortages. And its also causing immense instability in the share markets.

    So you being an idiot? What exactly does that prove?

    All I’m doing is telling you what is going on. Telling you how it is that gold and silver can fall in price even as non-one can take delivery of gold and silver. If you fake up the titles you are deceiving the market and adding a phantom supply. Supply is increased (insofar as the market signals are concerned) and therefore the price drops. And this is a misallocation of resources. Which you’d understand if you had any understanding of economics.

  76. They would pay you the dividends of course. But lets go over it again since you are such a blockhead:

    “But if dividend-paying shares were the ones that tended to be targeted it wouldn’t be as bad. Rather they tend to target people who need to raise capital and cannot buyback shares. So just the sort of companies we would want to be expanding are being hampered. Small oil companies and this sort of thing. Its a big money-spinner this fraud. But its at the expense of the sound workings of capital markets.”

    So I’ve already answered the question. If you are too much of a blockhead to understand the answer that I’ve already given you twice, then you ought to be in remedial reading. Lets face it. You do not understand economics.

  77. I made a fairly obvious mistake above. However, this will show Graeme’s idea to be a load of hogwash.

    You are so bloody minded about this you miss a mistake I make.

    Lending out shares in a covered short sale does not create new shares. Nor does naked short selling. A stock can have turnover many times firm value in one day. Naked short selling does not create any new net shares on the registry.

    Anyway Graeme, it’s been said before, we have T+2 delivery in Australia, so whether or not you have borrowed the stock doesn’t matter. You have two days to close your position before you need to borrow.

    Unless you are going to demand immediate delivery, your argument is pointless. Your argument is piffle basically because you do not incorporate options markets. The valuation of shares and derivatives can only be fully appreciated when both are considered.

    Being unable to deliver on a short sale drops prices how Graeme? The ask price was roughly market price with more volume than usual – and the transaction is completed the same way as with covered short selling with cash. This is only profitable IF the price drops, which is exogenous of the short seller. Noting the exogenoeity, there are both a countervailing purchase and sale.

    There is more volume and there is no difference on the impact on prices compared to covered shorting. You are confusing sales volume with the direction of sell orders. The daily price differences of shares matters little. Covered or naked shorting doesn’t affect resource allocation or share prices in the long run.

    WHY IS GRAEME WRONG? Let’s look at “naked” buying…

    The flipside of all of this is if Graeme was right, we could all simply make very low bids for shares, with or without cash and simply make very high sell orders the very same day and live at Point Piper within a month. Companies could have an endless supply of cost free capital by ramping up their own shares with no intention of actually handing money over to anyone else and simply offer discounted rights issues again and again. Stock option salary packages have never looked so good.

    The reality is, none of this has happened and Graeme is totally and utterly wrong.

    You can’t explain two things:

    1. Why naked short selling actually “hurts” companies as you claim. (It is pretty obvious it is more or less inconsequential past anything longer than the very short run).

    2. How I can get real dividends off *fake* shares.

  78. Yeah well thats all cronyism. But thats the local rules as Andrew has explained them to me. These are disgraceful rules. They are an absolute disgrace. But they are just not relevant to what I’ve been talking about. Which is the total corruption of American capital markets. The pyramiding of ponzi-assets on real assets. The extent of it. The destruction of the proper functioning of the market.

  79. Obviously the fakers are going to pay you the dividends if they sell you ponzi-shares you idiot. How many times do I have to go over it?

    Ok then you moron lets go over it again!!!!

    “But if dividend-paying shares were the ones that tended to be targeted it wouldn’t be as bad. Rather they tend to target people who need to raise capital and cannot buyback shares. So just the sort of companies we would want to be expanding are being hampered. Small oil companies and this sort of thing. Its a big money-spinner this fraud. But its at the expense of the sound workings of capital markets.”

    Now thats the third time I’ve had to explain it to you you blockhead. If you don’t understand that you cannot read.

  80. No Graeme your assertions are absolutely absurd.

    I can buy fake shares and get real half yearly dividends?

    Surely you’ve found a bottomless pit of financial wealth?

  81. Yes you can buy fake shares and the guy who FAILED TO DELIVER will have to pay you the real dividends.

    Lets go over it again because you are an idiot:

    “But if dividend-paying shares were the ones that tended to be targeted it wouldn’t be as bad. Rather they tend to target people who need to raise capital and cannot buyback shares. So just the sort of companies we would want to be expanding are being hampered. Small oil companies and this sort of thing. Its a big money-spinner this fraud. But its at the expense of the sound workings of capital markets.”

    Thats the fourth time we’ve gone over it you moron.

  82. It won’t affect their earnings per share. It will affect their share price and the ability of their company to raise needed capital. And of course it ought to piss off shareholders. And it does. But recently when this came to light they were laughed at. It ought to piss off anyone who has money in their 41K’s or if it was happening here it ought to piss off anyone who has money in their super-accounts. It ought to piss off anyone who isn’t in awe at unproductive bankers cashing in their 500 millions worth of “earnings” and heading for the treasury.

    In this very same way fractional reserve banking ought to offend anyone who has ever had to try and pay for anything. But you see there are these sycophantic court economists and various other dummies who pretend to be experts and mislead the people about the true nature of what is going on.

  83. Graeme,

    How does covered, naked or defaulted short selling of any kind in itself affect share price? The logical conclusion to saying yes is admitting that you think firms could engage in the cost-free capital raising I describe above. Obviously this, and in turn blaming naked short selling is simply ridiculous.

    Why does not being able to deliver at a higher or lower price than the short sell affect the price? (Here we see the price is exogenous of the short sale event – covered or uncovered).

    How does a falling share price affect capital raising – how does this affect the cost of any capital raising method other than a rights issue?

    “In this very same way fractional reserve banking ought to offend anyone who has ever had to try and pay for anything.”

    Except for debtors, such as yourself.

  84. Just like pyramiding affects all prices.

    Whether the pyramided asset is cash, gold, silver, shares, or anything else the pattern will be such that the item in question will be UNDERPRICED since the ponzi-artist has set up a phantom-supply which is in addition to the real supply.

    Now cash the government can add to. But other items this isn’t the case. So the pyramiding will set up a shortage, the shortage will have to be cleared. So there will be a lurch in prices until the shortage is cleared. Therefore the prices will be too low much of the time. But way too high some of the time.
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    Share prices and capital raising.

    If you are a small company with a great need to expand you need to raise funds for that expansion. Supposing you were a goldmining outfit. You can take gold out of the ground at 200USD an ounce but you need to invest a great deal to expand your operation.

    You want your share price to be a little overpriced in relation to your book value and price-earnings. Since you want to issue more shares for cash. This involves diluting your shareholders stake. For this to be worthwhile to your current shareholders the cash must be worth a bit more than the new shares you are issuing. Since otherwise you are diluting their position for a lesser value.

    So the stockmarket is supposed to supply fair value. Or slightly higher value for those small companies that have good expansion prospects. Pyramiding of either cash(monetized commodities) shares non-monetized commodities, or anything else gives off fake demand and supply signals, fake prices, and therefore ruins capital allocation and destroys the functioning of the stock market itself. It ought to be not nearly the casino that it is. It ought to be a sober and devastatingly powerful capital allocation mechanism.

    “Except for debtors, such as yourself.”

    Rubbish it offends me also. It means I had to go into debt to buy a house. It means all our stuff is overpriced. It means that our capital formation is crap and so our real wages are low.

  85. As Steve E recently described , Bird wants to introduce the same rules to any transaction as practiced in drug deals: immediate cash for loot.

  86. No thats not right. But changes in ownership have to be compressed-in-time in the financial arena like they are everywhere else. Because people within the financial industry are determined to commit fraud no matter what the laws are.

    For example in the States after the temporary ban on short-selling. This ban was ignored. Bankers have argued with me that they have this inherent right to commit fraud and that we could not stop them if we wanted to. Then comes all the attempts to look for loopholes.

    The free market would bankrupt all these guys. Then we might see if the next lot wanted to commit fraud or play it straight.

  87. “Just like pyramiding affects all prices.”

    No it doesn’t. We went through this ad nauseum over on catallaxy years ago. The banking system can only facilitate the creation of more money if each round of lending is productive, or by consumption BACKED by other productive activity or saving. The net result is (perhaps) the same nominal price but lower real prices and greater output, and greater purchasing power. Christ you are a slow learner man.

    But your example of uncovered shorting isn’t “pyramiding” as such. The shares obviously disappear as you won’t tell me how I can get the dividends. They don’t exist because no more shares have been created, only in your head Graeme.

    “So the stock market is supposed to supply fair value.”

    No it is not. It facilitates capital formation that wouldn’t otherwise exist.

    “fake prices”

    This is a dissent into madness.

    Graeme, if what you are saying is correct, then this only affects rights issues. Firms could simply short their own shares for cash. Clearly this is the start of a financial perpetual motion machine. Clearly your ideas are loopy and need revision.

    “It means I had to go into debt to buy a house.”

    Yeah right! Yer dreamin’ Graeme. House prices are a function of bank capital adequacy? Bah. Then explain why house prices did not triple as our bank cap. adequecy ratio went from 25% to 8% from 1983 onwards.

    You’re telling me if we went from market disciplined rates now of 12.5% to an imposed 100% that house prices would be 1/8th of what they are now? Home prices will be a year’s average wage? You reckon you’ll be able to rent an apartment in the Sydney CBD for $100 p.w eh Graeme?

    “Stockbroker style on a housing commission budget”?

    This is a stinking load of rubbish. You reckon you can create wealth out of a few strokes of a pen. The only sucker for a Ponzi scheme here is YOU Graeme.

  88. No thats not right. But changes in ownership have to be compressed-in-time in the financial arena like they are everywhere else. Because people within the financial industry are determined to commit fraud no matter what the laws are.

    The only thing that seems compressed are the thoughts going on in your head.

    For example in the States after the temporary ban on short-selling. This ban was ignored. Bankers have argued with me that they have this inherent right to commit fraud and that we could not stop them if we wanted to. Then comes all the attempts to look for loopholes.

    there is no fraud in short selling you ignorant fool. What loopholes were they looking for, you idiot? Banks as a rule don’t take a great deal of risk compared to hedge funds. Christ you are an idiot.

    The free market would bankrupt all these guys. Then we might see if the next lot wanted to commit fraud or play it straight.

    Play straight with whose rules? Yours of course! However the rules don’t apply to you. They just apply to everyone else it seems. Why did you bu8y a house, Bird? Did you think the price was going up or down? Weren’t you a speculator too?

  89. Graeme — I gave you a fair go, but now you’re back on moderation.

    JC, Mark — why do you perpetuate this? If you just ignored his first comment then we wouldn’t have this crap.

  90. You reckon? He doesn’t desist. Graeme posted firstly three times in a row here, linking to his own site. I don’t think we should let him post his rubbish unchallenged.

    Really I think it reflects poorly on the rest of us if we let this bigoted nonsense get put up here without anyone pointing out no one else agrees to any of it.

  91. Well john

    He attacks everyone calling them liars etc. when he’s talking nonsense. Like Mark said, it needs to be challenged as people will think Libertarians actually may think this crap……. This truther crap.

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