My title has it right. Mish says money demand sets the price of Gold, less need for fiat money folks hold onto gold.
Right now the demand for fiat money among investors is slim as can be seen in the very high jump in excess deposits. Why is their less demand for fiat? Because fiat taxes are eating the money markets alive.
What Mish is pointing out is bad monetary theory, and that has been around since the beginning of banking. The offset to bad monetary theory is to compensate, by holding a gold stabilization fund. Central banks often do this.
What Mish is pointing out is bad monetary theory, and that has been around since the beginning of banking. The offset to bad monetary theory is to compensate, by holding a gold stabilization fund. Central banks often do this.
Here we see gold rise with the implicit deflator, so gold is rising with government debt, actually.
But it is a long term bet. There are carrying costs as we can see in the region between 1985 and 2001. The message from this chart is simple, when government needs central bank help, gold rises. The connector is the implied seigniorage taxes. These taxes were high at the gold default, which was a direct tax. Then after commodity markets were stabilized after government left the gold market we get a period of stability. Then Bernanke happened and seigniorage taxes hit us once again.
The key chart to look at now is excess reserves vs treasuries held. The same chart we use to measure uncertainty. We are measuring the Fed Tax. From default to default the Fed tax will rise unevenly. So this is a 40 year bet, and it looks like housing would work just as well over the period.
The correct answer for fiat banking is that gold should be better correlated with the implicit. That means we need small defaults more often to get gold aligned. If we did that then commodity volatility would reduce substantially.
But it is a long term bet. There are carrying costs as we can see in the region between 1985 and 2001. The message from this chart is simple, when government needs central bank help, gold rises. The connector is the implied seigniorage taxes. These taxes were high at the gold default, which was a direct tax. Then after commodity markets were stabilized after government left the gold market we get a period of stability. Then Bernanke happened and seigniorage taxes hit us once again.
The key chart to look at now is excess reserves vs treasuries held. The same chart we use to measure uncertainty. We are measuring the Fed Tax. From default to default the Fed tax will rise unevenly. So this is a 40 year bet, and it looks like housing would work just as well over the period.
The correct answer for fiat banking is that gold should be better correlated with the implicit. That means we need small defaults more often to get gold aligned. If we did that then commodity volatility would reduce substantially.
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