PAGE: GAME CHANGER PART 3

In case you still don't get what a big deal the Pan Asian Gold Exchange that opens in June is going to be; and in case you think this GOLD STANDARD argument between Rickards and Roubini as reported in the last post is some isolated argument; Today John Mauldin reports a conversation with Dr Lacy Hunt, in which he argues passionately for a Gold Standard, citing the work of Irving Fisher and Hyman Minsky in opposition to Keynes and Friedman (And Bernanke and Roubini etc.):


Dr. Lacy Hunt: "Milton Friedman said Irving  Fisher was the greatest American economist, and I think that is correct. Fisher had a broader understanding of the economy in a very, very critical way and in a way that I don't think either Friedman or John Maynard Keynes understood it, and even a lot of contemporary economists, such as Ben Bernanke.  Keynes and Friedman both felt that The Great Depression was due to an insufficiency of aggregate demand and so the way you contained a Great Depression was by your response to the insufficiency of aggregate demand. "

"For Keynes, that was by having the federal government borrow more money and spend it when the private sector wouldn't. And for Friedman, that was for the Federal Reserve to do more to stimulate the money supply so that the private sector would lend more money.

"Fisher, on the other hand, is saying something entirely different. He's saying that the insufficiency of aggregate demand is a symptom of excessive indebtedness.

"What you have to do to contain a major debt depression event — such as the aftermath of 1873, the aftermath of 1929, the aftermath of 2008 — is you have to prevent it ahead of time. You have to prevent the buildup of debt."

Mauldin: "How do you prevent the buildup of debt? "

Hunt: "Fisher advocated 100% money because he wanted the lending and depository functions of the banks separated so we couldn't have another event like the 1920s."

(100 % Money = A GOLD STANDARD )

Mauldin: "You're saying that Fisher argued against fractional reserve banking?"

Hunt: "Yes, and so did the people that more or less followed in Fisher's footsteps, principally Charles Kindleberger and Hyman Minsky. Minsky felt that the way you prevented a major debt deflation cycle was to keep the banks small."

Mauldin: "Prevent them from ever becoming too big to fail in the first place?  Too bad nobody paid attention."

BUT SOMEBODY IS PAYING ATTENTION: THE PEOPLE'S REPUBLIC OF CHINA.   When they launch the Pan Asian Gold Exchange with every contract settled in YUAN and fully backed by Gold Bullion that will be delivered - they will have made the first step to a Yuan backed by a Gold Standard.

GET IT?  China is moving to a gold standard.  Not all at once.  That's not how they do things.  But they're moving that way in order to make the Yuan into the new reserve currency.  Anybody who can't see this is missing the financial world's biggest picture.

See, here in the US and Europe the banks would never agree to a gold standard because it limits their credit creation and the their credit creation now determines their profitability.   Politicians who are owned by the banks will never argue for a gold standard either.  

But when China adopts a gold standard the US dollar will lose much of its value.  So devaluation is inevitable whether we choose it or not.


GET IT?  GOT GOLD?