From the Desk of Robert Williams Jr.
www.robertwilliamsjr.com
A lecture on the inner workings on the details of the Austrian Business Cycle
This is an excellent video that breaks down the key components of the Austrian Business Cycle(ABC). What is fascinating is the fact as Dr. Johnathan Newman explains this, it is quite evident that events that have occurred over the last 18-24 months(e.g. The Fed injecting egregious amounts of currency into the system due to COVID-19) can be explained using the framework of the ABC.
A video primer describing the Blockchain Solana
This is a prediction by Peter Krauth, the author of “The Great Silver Bull”
In an interview with Kitco News, Peter Krauth discusses his book, and his prediction of $300 silver and a $5,000 Gold price. It is an excellent interview, as David Lin provides excellent counter points to challenge Mr. Krauth’s thesis.
The United States Federal Reserve will make the dollar stronger against other Western Nations’ Currencies.
Brent Johnson argues that, prior to 2018, global central banks injected liquidity into the “milkshake” of the global market, and now the combination of higher relative interest rates, the deepest capital markets, tax policy, regulatory policy, the US dollar payment system, and the US military has effectively “swapped out a syringe for a straw.”
Johnson argues that the deck of the global monetary system is stacked in the favor of the U.S. dollar, and that it doesn’t matter which central bank starts quantitative easing (QE) – but rather which central bank captures that QE. Watch the interview to explore his thinking in full depth. It’s a masterclass in macro and is perfect for investors of all levels.
Watch the video here, as Real Vision conducts the interview with Mr. Brent Johnson.
It is a macro economic hypothesis that has enough merit to strongly consider. Many of the items are occurring now. For example, the USD, as of the date of this blog entry, is gaining strength after raising interest rates. Other western nations are seeing their currencies have historical lows, as compared to the USD. Other nations are suffering from price inflation that is worse than the United States(at this date). The point: To truly analyze what is going on in the “investment world”, a global macro view is extremely necessary.
Many Economists and Financial professionals are looking at the macro picture with only the United States in mind. “The Dollar Milkshake Theory” reminds us that there is a global marketplace, and the analysis must include emerging markets as well as established nations that are outside of the United States.
Inflation IS Money Supply Growth, Not Prices Denominated in Money
In this article by Dr. Frank Shostak, he makes the distinction between Inflation, as a monetary phenomenon, versus price inflation. Sometimes the former causes the latter…sometimes it does not.
“Inflation IS Money Supply Growth, Not Prices Denominated in Money” by Frank Shostak
In the recent Wall Street Journal article “Inflation Surge Earns Monetarism Another Look,” Greg Ip writes that a recent surge in inflation is not likely to bring authorities to reembrace monetarism. According to Ip, money supply had a poor record of predicting US inflation because of conceptual and definitional problems that haven’t gone away.
The head of the monetarist school, the late Milton Friedman, held that inflation is always and everywhere a monetary phenomenon. Friedman and other monetarists believed that the key driving factor for general increases in prices is increases in money supply.
This viewpoint has come under scrutiny since the early 1980s because the correlation between inflation and money supply disappeared. According to Ip in 2020, Alan Detmeister, an economist at UBS Group AG and formerly of the Fed, found inflation’s correlation to M2 since the early 1980s was weak and its correlation to both the monetary base and M1 was negative. Most economists have stopped using money supply as an indicator for inflation since the early 1980s.
Many mainstream economists have attributed the breakdown in the correlation between the money supply and inflation on the unstable velocity of money. What is it? According to the famous equation of exchange, MV= PT, where:
M stands for money,
V stands for the velocity of money,
P stands for the price level, and
T for the volume of transactions.
This equation states that money multiplied by velocity equals the value of transactions. Many economists employ GDP (gross domestic product) instead of PT, thereby concluding that
MV = GDP = P (real GDP).
The equation of exchange appears to offer a wealth of information regarding the state of an economy. For instance, if one were to assume stable velocity, then for a given stock of money one can establish the value of GDP. Furthermore, a given real output and a given stock of money enables us to establish the price level.
For most economists the equation of exchange is regarded as a very useful analytical tool. The debates that economists have are predominantly with respect to the stability of velocity. If velocity is stable, then money is seen as a very powerful tool in tracking the economy. The importance of money as an economic indicator however diminishes once velocity becomes less stable and hence less predictable.
However, an unstable velocity could occur because of an unstable demand for money. Most experts believe that since the early 1980s, innovations in financial markets made money velocity unstable. This in turn made money an unreliable indicator of inflation.
We believe the alleged failure of money as an indicator of inflation emanates from an erroneous definition of inflation and money supply. This failure has nothing to do with an unstable demand for money, and just because people change their demand for money does not imply instability. Because an individual’s goals may change, he might decide that it benefits him to hold less money. Sometime in the future, he might increase his demand for money. What could possibly be wrong with this? The same goes for any other goods and services—demand for them changes all the time.
According to Murray Rothbard and Ludwig von Mises, inflation is defined as the increase of the money supply out of “thin air.” Following this definition, one can ascertain that increases in money supply set economic impoverishment in motion by creating an exchange of nothing for something, the so-called counterfeit effect.
General increases in prices are likely to be symptoms of inflation—but not always, however. Note that prices are determined by both real and monetary factors. Consequently, it can occur that if the real factors are “pulling things” in an opposite direction to monetary factors, no visible change in prices is going to take place. If the growth rate of money is 5 percent and the growth rate of goods supply is 1 percent then prices are likely to increase by 4 percent. If, however, the growth rate in goods supply is also 5 percent then no general increase in prices is likely to take place.
If one were to hold that inflation is about increases in prices, then one would conclude that, despite the increase in money supply by 5 percent, inflation is 0 percent. However, if we were to follow the definition that inflation is about increases in the money supply, then we would conclude that inflation is 5 percent, regardless of any movement in prices.
Prior to 1980, it was popular to employ various money supply definitions in the assessment of the changes in the prices of goods and services. The criterion for the selection of a particular definition was its correlation with national income. However, since the early 1980s, correlations between various definitions of money and national income have broken down. Some analysts believe that this breakdown is because of changes in financial markets, making past definitions of money irrelevant.
A definition presents the essence of a particular entity, something no statistical correlation could ever provide. To establish the definition of money we have to explain the origins of the money economy. Money has emerged because barter cannot support the market economy. Money is the general medium of exchange and has evolved from the most marketable commodity. Mises wrote:
There would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.
Since the general medium of exchange was selected out of a wide range of commodities, the emerged money must be a commodity. Rothbard wrote:
In contrast to directly used consumers’ or producers’ goods, money must have pre-existing prices on which to ground a demand. But the only way this can happen is by beginning with a useful commodity under barter, and then adding demand for a medium to the previous demand for direct use (e.g., for ornaments, in the case of gold).
Through an ongoing selection process, individuals settled on gold as standard money. In today’s monetary system, the core of the money supply is no longer gold, but rather coins and notes issued by the government and central bank that are employed in transactions as goods and services are exchanged for cash. Hence, one trades all other goods and services for money.
Part of the stock of cash is stored through bank deposits. Once someone places money in a bank’s warehouse, he is engaging in a claim transaction, never relinquishing his ownership of the money. Consequently, these deposits, which are labelled demand deposits, are part of money.
This is contrasted with a credit transaction, where the lender relinquishes his claim over the money for the duration of the loan. In a credit transaction, money is transferred from a lender to a borrower, but the overall amount of money in the economy does not change because of the credit transaction.
The introduction of electronic money seems to cast doubt on the definition of money. It would appear that deregulated financial markets generate various forms of new money. Notwithstanding, various forms of electronic money or e-money, like digital currency, do not have a “life of their own.”
Various financial innovations do not generate new forms of money but rather new ways of employing existing money in transactions. Irrespective of these financial innovations, the nature of money does not change. Money is the thing that all other goods and services are traded for. Once the essence of money is established by excluding various credit transactions, one can identify the status of inflation. Changes in prices are not going to be relevant here.
Contrary to popular thinking, inflation is not about increases in the prices of goods and services but about increases in money supply. Following this definition, we can establish that the key damage caused by inflation is economic impoverishment through the exchange of nothing for something. What matters as far as inflation is concerned is not the correlation between money supply and the prices of goods and service but increases in money supply.
Contrary to popular thinking, the essence of money did not change because of various financial innovations. Money is a thing that is employed as a medium of exchange. Furthermore, according to Mises’s regression theorem, the historical link between paper currency and gold is what holds the present monetary system together.
This video provides a breakdown of one of the most popular protocols in the crypto market: Ethereum.
Learn the basics of Bitcoin
In this video, it covers some of the basics of the Bitcoin protocol. If you are new to Cryptocurrency and Bitcoin, this video provides an excellent start in your research.
Enjoy!
What is a Flash Loan?
Flash loans are a feature designed for developers, due to the technical knowledge required to execute one. Flash Loans allow you to borrow any available amount of assets without putting up any collateral, as long as the liquidity is returned to the protocol within one block transaction. To do a Flash Loan, you will need to build a contract that requests a Flash Loan. The contract will then need to execute the instructed steps and pay back the loan + interest and fees all within the same transaction.
The interesting thing about this type of loan: It is done without a need of a third party institution. It is a de-centralized transaction. This is a primary appeal of the world of cryptocurrency.
Here is a video describing the concept:
In the cryptocurrency universe, the terms–cryptocurrency coin and token–are used interchangeably. While on the surface, they appear the same, they are different. Yes, both are digital assets, using the blockchain technology, however, the differences are detailed in this video below.
A hint: Cryptocurrency coin is the native to the actual blockchain protocol(e.g. Bitcoin, and Ethereum, and the like). Whereas a token is built from smart contracts from the original blockchain protocol.
An article to read more about the differences…link here:
Written by Joseph T. Salerno
In the introduction to this book, first published in English in 2010, I wrote: “The idea of sound money was present from the very beginning of modern monetary theory in the works of the sixteenth-century Spanish Scholastics….” Recent research has shown that the seeds of the theory of sound money were already present in Chinese writings centuries before the Scholastics.1
China was one of the first countries to develop a metallic money that was valued and exchanged by weight. Evidence suggests that this monetary regime originated during the Shang Dynasty (1766–1122 BC) or the Zhou Dynasty (1122–221 BC). China was also one of the first countries to use precious metals as money and may have invented coined money. The long experience with a purely metallic monetary system naturally stimulated Chinese state officials, royal advisers, and philosophers to investigate and debate the origins and functioning of such a system and the policies appropriate to its smooth operation. It is therefore not surprising that China developed a rich tradition of monetary thought, which extended over nineteen centuries (roughly 700 BC to 1200 AD). This literature on monetary theory and policy embodied ideas, insights, and controversies that would appear in European writings only centuries later. In particular, some contributors to this Chinese monetary tradition formulated the conceptual foundations of the theory of sound money, the topic of the present book.
While ideas about the development of money were expressed as early as the seventh century BC, the most prevalent view of money’s origin is attributable to a politician of the sixth century BC. Shan Qi (b. 585 BC) contended that money was invented by one of the ancient philosopher-kings to measure the value of goods. However, several Chinese writers later disputed this story and argued that money originated as a market phenomenon. Sima Qian (104~91 BC), Luo Mi (1165~1173 AD) and Ye Shi (1150~223 AD) basically argued that money grew out of the trading of commodities and could not have emerged in the absence of commodity exchange. Money was only later adopted by kings as an aid in ruling their countries.
The first step in theorizing correctly about money is to understand that the value of money, like that of commodities, is never fixed and unchanging. Chinese philosophers who published the earlier Mohist Canons(468 BC~376 BC) grasped this crucial point. They recognized that metallic money, such as the “knife coins” then in wide circulation, was valued and exchanged by weight and argued that the real value of money, despite its fixed face value, was not stable but fluctuated inversely with the prices of commodities. When commodity prices were high, money was “light” or its purchasing power low; when prices were low, money was “heavy” or its purchasing power high. Thus, if monetary conditions were such that the nominal prices of commodities were abnormally high, the real prices of commodities were not high but rather money was “light” or depreciated.
In investigating the market conditions that determined the purchasing power of money, two eighth-century Chinese writers, Liu Zhi (734 AD) and Lu Zhi (794 AD), clearly formulated the quantity, or supply-and-demand, theory of money—eight centuries before the theory was introduced into European thought by Jean Bodin and the Spanish Scholastics. Liu Zhi argued that if population grew more rapidly than the money supply, the purchasing power of money would rise. Zhi reasoned that the growth of population would produce an increase in the labor force and, therefore, in the supply of commodities. As a result, the demand for money would grow in excess of supply and raise the purchasing power of money. He also deduced that high prices were a result of an “excess” of money and advocated a reduction in the quantity of money to increase its purchasing power. Liu Zhi’s contemporary Lu Zhi argued similarly that the quantity of money is a prime factor determining the prices of goods and the purchasing power of money. Thus, goods are cheap and money “heavy” when the quantity of money is relatively small, whereas goods are expensive and money “light” when the quantity of money is large. Lu Zhi inferred from his theory that government is therefore able to affect the height of prices by altering the quantity of money.
Chinese monetary writers also focused on the proper institutional arrangements for coining money, because coinage affected the quantity and quality of money in the economy. At least four major debates on the coinage question occurred during the period 175 BC–734 AD. The main point at issue was whether the coining of money should be a private and decentralized business or a royal prerogative monopolized by the central government. Of great interest is the fact that in the third (457 AD) and fourth (734 AD) debates government ministers heroically proposed private coinage as a means of ridding the realm of a shortage of money.
My book is a small contribution to this great Sino-European tradition of sound monetary theory. I hope that its translation sparks interest among contemporary Chinese scholars in recovering and extending this tradition as first presented in the brilliant writings of their ancient predecessors.
1.Zheng Xueyi, Yaguang Zhang, and John Whalley, “Monetary Theory from a Chinese Historical Perspective” (NBER Working Paper 16092, June 2010). The following discussion is drawn from this research paper.
