Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Learning from LI(E)BOR

Interest-Rates / Market Manipulation Jul 09, 2012 - 03:30 PM GMT

By: William_Bancroft

Interest-Rates

Best Financial Markets Analysis ArticleThe LIBOR scandal rolls on in the UK, eagerly observed by the rest of the world. This scandal has reached mammoth proportions and has become deeply political with politicians past and present rushing to tell the media: ‘nothing to do with me’.

What people in the UK seem most upset about is ‘the greed of bankers’, but I think what this feeling is really articulating is ire at the rewards for greed in an industry that enjoys an implicit state back-stop. Us Brits have little issue with the likes of Richard Branson, James Dyson or Alan Sugar earning large amounts of money; these individuals’ futures are properly governed by the success of the decisions they make.


It’s all about the money
The LIBOR scandal is at the very heart of our financial system, the apparent manipulation of the cost/price of money itself according to political and profit motives. Money is the basis of society, the great facilitator, the measuring stick. What should upset people in the UK most is the fact that the value of the pound, the cost of money, and financial instruments that affect us can potentially be fiddled. Could it be this scandal feels typical of this contemporary era of ‘high finance’?

However, greed and at least a profit motive are just parts of human nature; remember our general respect for the entrepreneurs mentioned above. The problem here is greed being found on the banking gravy train, a locomotive that is bailed out by taxpayers when it goes off the rails. Normally greed and hubris, where they contribute to a resulting misallocation of capital, are punished by market discipline.

When digesting the LIBOR scandal, and hearing more neo-Keynesian clap trap from the likes of Paul Krugman, I couldn’t help but remember why I was drawn to the Austrian school of economics.

Is there another way?
The still largely overlooked Austrian way of thinking is one that recognises humans and the heart of everything. There is no use devising systems and rules, if the humans existing within their frameworks are not properly understood. It seems to me the classical school of economics (e.g. Austrian) is concerned with what does happen, whilst the contemporary neo-classical school (e.g. Keynesianism) forgets humans, has become deeply financialised and thinks only of what ought to happen ‘ceteris parabus’.

Amongst other things, the Austrian way of looking at the world requires small government, sound money and individual liberty. It recognises greed and folly. It is not a depressing world view, but one that is down to earth and celebrates our strengths and seeks to restrain our flaws.

One of the most appealing parts of the Austrian economic way of thinking is the insistence on sound money. Sound money is generally backed by a commodity, and circulates outside the influence, manipulation of politicians, central bankers et al. Throughout history this commodity has usually been something rare, inert and durable. Gold and silver have proved most fit for purpose, although other commodities have been tried (pepper corns, spices, bails of tobacco etc). Gold and silver, being of nature, provided a serenely independent measurement for exchanging value.

Sound money, outside of manipulation, interference and printing, is essential to freedom, and to provide a constant and uniform measuring stick for trade and commerce. It is the greatest form of financial discipline. Detractors falsely cite that we should not ‘crucify mankind upon a cross of gold’, being mistaken in the use and context of William Jennings Bryan’s quote, but sound money actually prevents all sorts of abuses and imbalances. It removes political influence from the monetary system, prevents governments pursuing inflationary policies and saddling future generations with debt, prevents the growth of huge trade imbalances, limits the ability of government to bail out certain industries, and generally provides a level playing field to the monetary system.

Compare and contrast
The high point for sound money could be seen as the Classical Gold Standard of 1870 to 1913. This was a period of almost no inflation, with increased productivity, rising living standards and without increasing unemployment. It was said to be the first age of globalisation. Contrast that to today where inflation is ever present, living standards in the West are declining and unemployment is high.

What the recent LIBOR scandal really shines light on is the (mis)management of interest rates and currencies. The dollar managers of the world have been exporting inflation and living beyond their means for some time, and buyers and users of dollars have had to react accordingly. Remembering Jim Grant’s quote, the ‘gold price is the reciprocal of faith in central banks’, suggests this 12 year bull market is a reflection of declining confidence in the managers of paper money.

The LIBOR scandal is just another straw to add to the camel’s back, in terms of confidence in the current monetary system. The pound may not be a reserve currency anymore, but it is important nonetheless. Interest rates affect the value of our money, when it appears this can be fiddled it’s no wonder savers thinking of holding their savings in other forms. Gold bullion anyone?

Will Bancroft

For The Real Asset Company.

http://therealasset.co.uk

Aside from being Co-Founder and COO, Will regularly contributes to The Real Asset Company’s Research Desk. His passion for politics, philosophy and economics led him to develop a keen interest in Austrian economics, gold and silver. Will holds a BSc Econ Politics from Cardiff University.

© 2012 Copyright Will Bancroft - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in