Question – Gold & Interest Rates
1. You have been pretty consistent in your position that gold is yet another commodity with business cycles affecting it as much as corn or copper and therefore a gold standard would never work. But wouldn’t you agree that at the least a gold standard would serve as a speed bump on government’s constant expansion of monetary base and there by debasing the purchasing power of the currency. Surely they can’t produce as much gold on an average as much as governments creating currency units through their quantitative easing. In that sense I feel gold’s role is still important as something which imposes discipline on their print and spend programs.
It is a nice theory, but we had Bretton Woods and that failed to provide any speed bump. They don’t print money, they create it by borrowing. The problem we have is that politics complies with the Invisible Hand. (1) Government will not plan long-term so there is no collective knowledge, and politics functions by borrowing today (2) they will never admit a mistake so they will not adjust a gold standard it simply goes to the point of collapse, and (3) regardless what is money, it can never be fixed for it fluctuates based upon ANTICIPATION just as the euro is declining right now. So it is a nice THEORY, but there is no evidence that this idea has ever worked even once. It is like saying gee what would happen if everyone voted Republican or Democrat. The answer – IMPOSSIBLE.
2. With interest rates being so low and mortgage rates also being historically lower around 3.5 – 4% on 30 year fixed mortgages, what will happen when interest rates eventually starts rising one day? Would the banks still be able to honor these rates given to customers? surely when they can let you re-finance when rates are going lower they are also going to pass the burden of rate increases on home owners even if they have financed with fixed mortgages. I have seen examples in other countries where when rates rise, even fixed mortgage customer’s EMI installments were increased unilaterally by the banks. Do you think that can happen here?
The difference between the USA and other countries is the banks package the mortgages and sell them. They securitize the mortgages. The banks have sold that risk elsewhere. That is not the critical issue. The increase in rates will be caused by a decline in deposits as capital is attracted to the share market and other investments. Then banks historically get in trouble for the yield curve eventually inverts. That is when bank failure take place.
“Hollande” is French for “How to Destroy an Economy for Dummies”
French President François Hollande should get the Noble Prize for providing the script for How to Destroy and Economy for Dummies. He went on TV on Thursday now saying he would make companies pay a 75% tax rate on salaries over one million euros. He is repackaging his Marxist campaign promise that he would impose a 75% tax on individual taxpayers, which was struck down by the Constitutional Court of France in December.
Hollande, is struggling to defend his race to fall to zero popularity as fast as possible. His first 10-months in office has resulted in a collapse of support as the old Marxists are dying and the youth can’t see where these policies work. Hollande is determined to tax the rich while refusing to reform. Exactly how the new rate would be calculated, or how it would affect certain salaries he never explains.
Nevertheless, in his primetime television interview, Hollande sought to persuade the French public that he had in fact made sound fiscal choices for the economy despite the economic implosion France is experiencing now with massive capital flight and migration of the very people who create employment. France is saddled with virtually historic highs in unemployment and no hope of reform with only the prospect of negative GDP growth in 2013. He acknowledged that his government’s tax rises had hurt everyone. Still, he cannot see that lowering taxes to stimulate the private sector to CREATE jobs so government reform reducing their jobs can take place. He promised not to raise taxes again until 2014!
Then he addressed the highly controversial retirement issue, arguing that any further increase in the retirement age would be necessary to safeguard France’s pension system. This was one of Sarkozy`s efforts to raise the retirement age from 60 to 62 years, which became one of the most unpopular policies of his presidency opening the door for Hollande.