• 7 hours Welcome To The Used Car Bonanza
  • 1 day The Year Of The Retail Investor Keeps Getting Bigger
  • 2 days Airlines Could Recover, But Crew Remain Elusive
  • 2 days Meet The Man Behind The World's Most Exciting Oil Play
  • 3 days Crypto-Mining Immigration Could Be The Start Of A New Trend
  • 5 days Hawkish Fed Sends Gold Prices Crashing
  • 6 days Bezos Is Heading To Space This Sunday
  • 10 days El Salvador’s Surprise Bitcoin Move
  • 13 days Markets Unfazed As Inflation Hits 13-Year High
  • 13 days How the Token Economy is Disrupting Financial Markets
  • 15 days FBI Investigating 100 Types Of Ransomware Attacks
  • 17 days Fed Ends Corporate Credit Emergency Lending Program
  • 19 days AMC Becomes the Latest Winning Meme Stock After GameStop
  • 21 days The Real Reason Your 401k Has Been Lagging
  • 21 days China Lifts Cap On Births, Allows Three Children Per Couple
  • 23 days The Market Is Ripe For Another GameStop Saga
  • 26 days Senate Grills Big Banks Over Pandemic Opportunism
  • 28 days Cannabis Has A Major Cash Problem
  • 28 days Ransomware Netted Criminals $350M In 2020 Alone
  • 29 days Russia Is Taking On Google
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Keith Weiner

Keith Weiner

Keith is founder of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of precious metals fund manager Monetary Metals. He created DiamondWare, a…

Contact Author

  1. Home
  2. Markets
  3. Other

Introducing Yield Purchasing Power

The monetary debate seems artificially limited. On one side is Federal Reserve policy based on discretion. On the other is policy based on rules. It's Keynes vs. Friedman. It's central planning of our economy based on the reactive whims of wise monetary planners vs. central planning of our economy based on the proactive rules written by … wise monetary planners.

On the rules side, there is a sub-debate. Should we have central planning based on unemployment and the Consumer Price Index (as now) or switch to central planning based on another metric such as GDP?

Whether one is on team Keynes or team Friedman, whether one is on sub-team Friedman CPI or Friedman GDP, everyone seems to take something for granted. That is, the quantity theory of money. If the quantity rises, then prices follow. However, since prices (especially commodity prices) are not really rising, this would seem to give more leeway to the monetary planners, to inflict more monetary policy on us.

There is something about this which few acknowledge. To increase the quantity of dollars -- which is not money, but that's a whole 'nother discussion -- the Federal Reserve buys bonds. Whatever effect this may have on the price of a new Chevy, it obviously affects the price of the Treasury bond. It pushes the bond price up. Since the interest rate is a strict mathematical inverse of the bond price, we have an obvious conclusion.

The Fed is pushing down the rate of interest.

We can say that the interest rate is the collateral damage. The Keynesians and Friedmanites, in their zeal to increase the quantity of dollars, support or at least ignore the falling interest rate. OK, but who cares about the interest rate? You should care. Everyone is impacted by the 35-year global trend of falling interest rates.

The falling rate ushers in a kind of hyperinflation. You won't see it by looking at prices, or purchasing power. If you look at the value of your portfolio and divide by the cost of living, you may be lulled into a false sense of security.

You will see the hyperinflation, if you look at it another way. Instead of the liquidation price of assets, consider the yield on assets. Instead of selling off the family farm to buy groceries, think of operating that farm to grow food. Can you live on the crops you produce? Or must you liquidate piece of it, just to survive?

The same question applies to any capital asset including a bank balance. Is it possible to live on the interest?

In the cold harsh light of yield purchasing power, we can see the erosion of our capital base. Since civilization itself depends on capital accumulation, this erosion is a retrogressive force dragging us back to another dark age.

I gave a 45-minute presentation on Yield Purchasing Power at American Institute for Economic Research in Great Barrington, MA on October 14, 2016. I am grateful to the Institute for recording video of my presentation plus extended Q&A. The video is here.

 

Back to homepage

Leave a comment

Leave a comment