“We make money the old fashioned way. We print it.”
– Art Rolnick, former Chief Economist, Minneapolis Federal Reserve Bank
Subject: How big is the money supply?
The value of your money depends on the amount of money in circulation. Is it possible for you, as a layman, to learn and understand how large the money supply is, and whether it’s growing or shrinking?
Probably not. There are many measurements of the money supply, and there seems to be no consensus about which measurements are best. These measurements go by the names M-zero, M1, M2, M3, and MZM. There’s even something called the “True Money Supply,” devised by Murray Rothbard, and reported at the website of the Ludwig von Mises Institute.
The “True Money Supply” page will also give you numbers for M1, M2, M3, and MZM, but the numbers are only updated through April, and the M1 measurement, for some reason, is only current through February of 2006.
Well, you could try the Federal Reserve instead. They ought to know, right? Well, there are problems there too. The Fed doesn’t report M3 anymore, which some people think is the best measurement. The Fed also provides two different numbers for M1 and M2, one seasonally adjusted, and one not, without explaining what the seasonal adjustment entails. Worse still . . .
[Editor's Note: Liberty Maven welcomes Matt Malkus to The Free Investor contributor team. We look forward to learning more about investing in general and "liberty style" investing in particular from Matt.]
Note: This will be part one in a continuing series of articles related to commodity spreads, offering advantages and disadvantages, potential mistakes, and detailed examples.
The world of commodities is a fast-paced, highly-leveraged world where gains and losses per day can be in the thousands, even in the smallest of trades. This offers unique advantages and disadvantages over equities, where one share is just one share, and its face value is what you pay. For example, the “face value” price of a soybean contract is currently at $1357.75 (and this is what you will pay to obtain it), this is the price of 100 bushels of soybeans. However, one contract controls 5,000 bushels of soybeans, making a change of $1 in the contract price a change of $50 in actual value in your position. A “limit” movement (maximum allowed) of $50 in the contract price means gaining or losing up to $2,500 in a single trading day on a single contract!
As such, if you can’t afford to lose a few thousand dollars on a trade, it is not advisable to purchase a contract outright without employing a strategy that greatly minimizes this risk (while, of course, also limiting the upside potential). One of the major upsides to dealing with commodities over equities in developing a strategy is the relationships present between multiple markets. In equities, for example, shares of technology companies may all move loosely together – but if Apple comes out with an earnings report, announces a new product, or hires a new CEO, it may not follow the broader sector.
Money gradually evolved from societies from barter (or direct exchange) economies to economies based on indirect exchange . Under indirect exchange, Joey sells his chickens’ eggs for money and then either buys, say, a wrench from Bob or saves the money for future use. If one looks at this with an economist’s eye, Joey exchanged his commodity (eggs) for another commodity (money) and then either saved the commodity or exchanged it yet again for another commodity (Bob’s wrench). Hence money is actually a commodity just like corn, copper, or even an Ipod , if you follow the literal definition. This is a truth that few seem to recognize or fully appreciate its implications.
Open your wallet and take a look at the money you have inside. Hopefully you have some metallic coins and slips of paper (actually its linen). Take a closer look. At the top in large letters it reads: ‘FEDERAL RESERVE NOTE.’
The Federal Reserve is the central bank of the United States. It issued the money you hold in your hands, although the Department of the Treasury actually printed it. Although it has the word ‘Federal’ in the title, the Federal Reserve is a private bank or company delegated the power by Congress to manipulate the money supply. It is no more ‘federal’ than Federal Express or Wal-Mart for that matter. More on this later.
Now, far more curious is the use and definition of the financial term ‘note.’
Note - A written promise to pay a specific sum of money on a certain date. A written pledge to pay.
Interesting. A ‘Note’ is actually a form of Debt, i.e. you are owed its worth by the United States government. The linen also has text “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” ‘Legal Tender’ is a legalese that means money that cannot be refused by law when you are paid or go to buy something.
But what is this note for debt actually worth ? A common fallacy is that the worth of the dollar is indirectly tied to the gold at Fort Knox. Dead wrong! Another is that the dollar is tied to the nation’s GDP/GNP/purchasing-power parity. There is some truth to this, as the dollar’s worth ‘floats’ or fluctuates with the exchange rates of other currencies like the Euro and Yen, but what is a dollaractually worth ?
This series will seek to explain what I’ve nicknamed the Money Matrix. We will first discuss what money really is or should be, then educate ourselves on why the current global monetary system is intrinsically flawed. As we proceed, taboo topics or not-well-understood time-bombs like the Federal Reserve, financial derivatives, and hyperinflation will be discussed. The last part of the series will seek to provide basic understandings of US big government finances such as the national debt, social security, the income tax, the trade deficit, etc. My goal is to explain this as simply as possible and how the current global monetary policy is morally wrong, so please ask any questions as probably both you and I will learn something further.
However, anything I write will just be tidbits of a greater truth, what I write will not be a substitute for thorough understanding. With that end in mind, I’ve included an online source list with comments at the end of this letter for you, the Reader, to peruse.
For your reference, this column really started with my outrage and personal search for truth concerning the morally wrong American wars of invasion or the “War on Terror,” but in a way I now believe I have been treating just a particularly egregious symptom, not the disease itself. Like Neo choosing the pill of reality, I believe I have at last come in contact with the walls of this ‘Matrix’, and having ripped a hole in it, and at long last can peek out and gaze at a reality for the first time from the outside in. I see how this Matrix has enslaved (or controlled, take your pick) all, and constrained mankind from our full potential. I see how this Matrix has enabled more wars and strife for our world, and I will now oppose it, rid of my ignorance. However, make no mistake, history is littered with battles of free men against this Matrix, and the wreckage of defeat is strewn throughout the sands of time, as well as the modern day. (To clarify the ‘Money Matrix’ idea, I believe it just consists of people and groups with their own motives, ideas, beliefs, resources, and desires, not some type of wacko conspiracy. These people (just like I) are just acting out life in their vision which may include “for the greater good of all” or for more self-centered reasons.)
What a ride it has been the past few weeks on the market! Freddie and Fannie have now cajoled the government into providing a bailout; meanwhile, Bennigan’s, Steve and Barry’s, and other companies began closing their doors. In such a volatile time, how do we remain confident that we’ve made the proper investment choices? Remember, diversification.
Hedging against inflation
I am a strong advocate of, in a high inflation environment, holding 5-15% of one’s portfolio’s NAV (net asset value) in gold, silver, platinum, or palladium. Such metals are a strong ‘hedge’ against inflation, meaning they almost always go up in value as a currency decreases. There are a few methods of purchasing these metals, but I’d warn against purchasing an ETF linked to precious metal; true ownership is the best scenario in case of a market crash. Both home ownership and overseas holding are the best two options, although the government has seized gold before. If one is looking into purchasing gold/silver, bars are almost always better than numismatic purchases, as one does not pay the collector’s overhead on the coins. That being said, there is also a good market in junk silver, where a large discount is to be had. Be creative, and one can often purchase many ounces of silver at a significant discount to melt price.
Beyond gold and silver, one can also store some of their money in more well-managed currencies, such as the Swiss Franc. This is a more complex investment strategy, but is easily accomplished through such online brokers as Interactive Brokers, who can put one’s cash deposit in any currency within their Forex database. Alternatively, one could hold the currency itself, but may find convertibility to be an issue.
Positions written about in the Free Investor are purely the opinions of Alexander Drummond and the Free Investor staff. Tomorrow and Sunday, this series will be continued with a segment on Overseas Investment, as well as possible U.S. stocks that can survive economic recession. Following that, the Free Investor will be on a 3 week vacation, after which we will transfer to a twice-weekly program with posts on Tuesdays and Fridays.
This is another great interview with Ron Paul on New York’s WABC radio with Bob Grant. They cover 15 minutes of a myriad of topics including a section where Ron Paul calls McCain and Obama “Tweedledee and Tweedledumb”. Great stuff.
Ron Paul, following his interview on Glenn Beck’s radio show the other day, appeared on Beck’s TV show tonight. Many similar topics were covered, but it is so refreshing to see Ron Paul being treated with respect in the main stream media. While I think his interview on the radio was better, this TV interview was fantastic as well. When Ron Paul speaks about economics, inflation, the value of the dollar, and sweet liberty people should listen. Watch it below in 2 parts.
Ron Paul, apparently has an alter-ego who also enjoys speaking out against inappropriate spending.
At least four other chains have filed for bankruptcy protection since the start of the year. That compares to about two during all of 2007 and six in 2004, estimated Ron Paul, president ofTHE UNITED STATES OF AMERICA consumer research company Technomic Inc.
Paul said the number of restaurant bankruptcies this year “could easily surpass” the 2004 number.
The reason is the sharp change in balance between supply and demand, he said.
Quote of the Day:
“Be thankful we’re not getting all the government we’re paying for.”
– Will Rogers
Subject: Can we control the runaway federal deficit?
When you earn less, you must spend less. But when the government earns less, it spends more, usually by borrowing. It’s happening right now.
The U.S. economy has slowed. Tax revenues are dropping, but government spending is soaring. The federal deficit is projected to reach a record level next year — $490 billion. That’s nearly half a trillion dollars added to the national debt in just one year.
This is bad for the economy. Money that’s borrowed by the government can’t be borrowed by businesses. Businesses create jobs. Businesses are competing with the government for capital. It’s a competition businesses can’t win. But it gets worse . . . Read More »
Liberty Maven
Money gradually evolved from societies from barter (or direct exchange) economies to economies based on indirect exchange . Under indirect exchange, Joey sells his chickens’ eggs for money and then either buys, say, a wrench from Bob or saves the money for future use. If one looks at this with an economist’s eye, Joey exchanged his commodity (eggs) for another commodity (money) and then either saved the commodity or exchanged it yet again for another commodity (Bob’s wrench). Hence money is actually a commodity just like corn, copper, or even an Ipod , if you follow the literal definition. This is a truth that few seem to recognize or fully appreciate its implications.
