Gold, Redeemability, Bitcoin, and Backwardation

I recently released a video about the Internet-based currency, Bitcoin. I asked the question: is Bitcoin money?  In brief, I said no it’s an irredeemable currency.  This generated some controversy in the Bitcoin community.  I took it for granted that everyone would agree that money had to be a tangible good, but it turns out […]

Why Duration Mismatch Will Always Fail

I have written a number of pieces on fractional reserve banking and duration mismatch.  I have argued that the former is perfectly fine, both morally and economically, but the latter is not fine.  I have dissected the arguments made against fractional reserve banking, and pointed out that it is nothing more than a bank lending […]

The Precise Definition of Inflation

Communicating about money and finance in today’s culture is a real challenge; you want to inform and enlighten your audience on their level of knowledge—but this makes the use of terms extremely difficult. Ayn Rand Institute President Yaron Brook’s recent video about deflation demonstrates why. In the video clip, Dr. Brook makes two key points. […]

Why does the “Paper Gold” Price Track the Physical Gold Price? Postscript

This article is a follow-up to Part II.  I expound upon a point I touched on, and also address some questions raised by readers. First, let’s look at an update of the open interest numbers as of Feb 6.  Gold’s open interest actually declined further. Next, here is an update of the bases.  The gold […]

Why does the “Paper Gold” Price Track the Physical Gold Price? Part II

In Part I of this article, we looked at arbitrage between the physical metal market and the futures market.  We saw that there are arbitrageurs who straddle the spread between these markets, who don’t care about price but about the difference between two prices.  They seek to profit, not from a change to the gold price, […]

Why does the “Paper Gold” Price Track the Physical Gold Price? Part I

It’s curious, isn’t it?  So-called “paper gold” (a futures contract) has a price that is not only very close to physical gold, but it remains locked to it.  This is despite the fact that “paper gold” is reviled in the gold community. I am writing this on Sunday evening with little liquidity in the market, […]

In A Paper System, All Assets Are Backed by the Treasury Bond

In a gold-based monetary system, every asset is ultimately backed by gold. This does not mean that every debtor (including banks) keeps the full amount of its liability in gold coin just lying around. Why would one bother to borrow if one did not need the money? It means that every asset generates a gold […]

Falling Interest Rates Destroy Capital

I have written other pieces on the topic of fractional reserve banking here and here duration mismatch, which is when someone borrows short-term money to lend long-term and how falling interest rates actually encourages duration mismatch ( Falling interest rates are a feature of our current monetary regime, so central that any look at a […]

In a Gold Standard, How Are Interest Rates Set?

Today, short-term interest rates are set by the diktats of the central bank. And long-term interest rates are set in a “market” in which the central bank is obliged to keep coming back to buy ever more bonds, and speculators front-run the central banks to buy ahead of them. The result has been that, for […]

The Loan: An Exchange of Wealth for Income

As the title of this essay suggests, a loan is an exchange of wealth for income. Like everything else in a free market (imagine happier days of yore), it is a voluntary trade. Contrary to the endemic language of victimization, both parties regard themselves as gaining thereby, or else they would not enter into the […]