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
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 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