The False Perception of Living in a World of Infinite Credit

By: Gordon Long & Alasdair Macleod | Wed, Nov 25, 2015
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FRA co-founder Gordon T. Long deliberates with Alasdair Macleod, head of research at GoldMoney on the Austrian School of Economics in an Era of Financial Repression.

Alasdair. Macleod began his career as a stockbroker in 1970 on the London Stock Exchange. Through experience he rapidly learned about things as diverse as mining shares and general economics, within nine years he had risen to become senior partner of his firm.

Subsequently, he has held positions at director level in investment management, as a mutual fund manager, and also at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, he has been de-mystifying macro-economic events for his investing clients. From the accumulation of his experience he concluded that unsound monetary policies are the most destructive weapon governments' use against people.

"I want to destroy this business of printing money as the solution to everything."

Mr. Macleod strives to educate and inform the public in layman's terms what governments do with money and how to protect themselves from the consequences.


What is Austrian Economics

"Prices are entirely subjective."

It began with Carl Menger who was one of the 3 economics who came up with marginal theory of prices. Where Menger differed from other two was that he appreciated that prices were purely subjective. You cannot forecast tomorrow's prices because prices are determined by the consumer who always has the option to buy.

"It overturns the cost theory of prices which is what Adam Smith believed in. It is completely irrelevant."

The law of the markets, the reason you and I work is we go out to earn something. We need to transform our skills into consumption. In a free market economy we have people who use their skills to earn money for consumption; the intermediary in this is money. Money is nothing more than the temporary storage of someone's labour that is transferrable into goods. If you understand this you will see how unsound money is bad for an economy. The idea by printing money which runs a budget deficit that a government can generate economic growth is nonsense.

"In regards to investing one thing that is desperately important to understand is that asset prices always refer back to their production."

This applies across every asset that you buy. If you see that the prices of assets have moved away from their underlining productive value then you know that you are in a bubble.


A World of Infinite Credit

"The world post 1970's is a completely different world from before the 1970s."

After 1981 rates had been lifted to a point which stopped the relationship between businesses and savers. This is what killed the price inflation up until the early 90s. Banks not only had the liberty to print credit but also to monopolize and control securities markets, if you combine these two thongs together; it is basically a money making machine, which is what we have today.

The end point in credit comes from the logical conclusion of that development. At every cyclical peak the level of interest rates which collapse the economy gets lower. The reason it gets lower is because this combination of credit control in securities markets does nothing more than just pumps up the level of debt. The overhang of debt means the rise in interest rates to stop the economy from getting out of control is getting lower. You cannot raise interest rates by more than one or two percent without serious economic dislocation.


Negative Nominal Interest Rates

"The effect of negative interest rates would be to throw every commodity into backwardation."

There is no doubt that negative interest would drive up inflation, or rather, it would lower the purchasing power of said currency. Negative interest rates for the reserve currency in which all commodities are priced have a severe risk which we will generate runaway inflation, but in fact it is a collapse. In order to make negative interest rates work you need to ban cash entirely. I have no doubt at all that that is the underlying reason why there is so much emphasis on anti-money laundering.


The FMQ Concept

Fiat Money Quantity

"The fiat money quantity is the amount of money that would have to be redeemed for gold that once was deposited."

The fiat money quantity was put together to try to quantify the amount of money that Is being issued in return for the gold that we originally gave to our banks which the banks then handed to the federal reserve.

The reason for doing this is to try to get an idea of how much money is not only in public circulation, but also not in public circulation and potentially in public circulation. From looking at the Feds balance sheet and considering other factors like repos and reverse repos, we see that the growth curve has taken off; and in the very broadest sense we have monetary hyperinflation.

Abstract written by Karan Singh karan1.singh@ryerson.ca

 


 

Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

Copyright © 2010-2017 Gordon T. Long

Alasdair Macleod

Author: Alasdair Macleod

Alasdair MacLeod
Contributing Author
GoldMoney.com

Alasdair MacLeod

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is a Senior Fellow at the GoldMoney Foundation.

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