Sunday, October 25, 2009

Bullionist Professor on Radio New Zealand

From Radio New Zealand, Sunday Mornings:

makes some sense, explains the way one should think about money.

Professor Antal Fekete
Saturday, October 24, 2009 22:45 PM
The Gold Standard is a currency system based around the premise that a paper-note's value is exchangeable for an agreed and pr
edetermined volume of gold. Countries have universally retired this system replacing it with the 'fiat system' of legal tender
. Professor Antal Fekete is a world renowned monetary expert and mathematician who believes it's time to bring back the gold a
s the standard.

Media files: LISTEN: DOWNLOAD MP3:

Leading authority on Gold, Austrian School of Economics, real bills, financial matters Professor Antal E. Fekete is a renowned mathematician and monetary scientist. This site will illuminate some of his important ideas in the areas of:

* Fiscal and Monetary Reform
* Gold Standard University
* Real Bills Doctrine
* Basis
* Discount versus Interest
* Gold and Interest

In 1974 Professor Fekete delivered a talk on gold in Paul Volker.s seminar at Princeton University. Later, Professor Fekete was Visiting Fellow at the American Institute for Economic Research and Senior Editor for The American Economic Foundation. In 1996 his essay, Whither Gold?, was awarded first prize in the international currency essay contest sponsored by Bank Lips, the Swiss bank.

For many years an expert on central bank bullion sales and hedging, and their effects on the gold price and the gold mining industry itself, he now devotes his time to writing and lecturing on fiscal and monetary reform with special regard to the role of gold and silver in the monetary system.

At this moment, when the world.s monetary system appears increasingly shaky, Prof Fekete details why the current paradigm is flawed and how the problems must be dealt with. This is almost taboo in the main stream financial media. Prof Fekete explains it as a gold crisis, not a dollar crisis. Those who doubt it would do well to recall that every fiat* money system ever tried . and history is littered with examples . failed.

* Money that is not backed by, or convertible to, any specific commodity and whose only value is that determined by government.

Antal E. Fekete, Professor of Mathematics and Statistics, Memorial University of Newfoundland, Canada, is a proponent of the gold standard and critic of the current monetary system.

His theories fall into the school of economic thought led by Carl Menger. His support of the gold standard has similarities to Austrian Economics; however, Fekete's treatment of fractional-reserve banking is different from that of Murray Rothbard.

Professor Fekete is an autodidactic on monetary economics. During his associations with various universities and institutions he has done research and lectured on economics.

Professor Fekete has several points of criticism against mainstream economics, the main being that equilibrium models are not fitting for a highly non-linear world. Instead he proposes a disequilibrium theory, based on Mengerian principles of conversion. Other criticism may be summarized as the teleologal use of econometrics by economists and the disingenuous treatment of any research on the gold standard. [4]

In 1984 Professor Fekete was invited by the American Institute for Economic Research in Great Barrington, Massachusetts, to spend a year as Visiting Fellow. He served as Editor of the Monograph Series of the Committee for Monetary Research and Education [5], then headquartered in Greenwich, Connecticut, while contributing several monographs to the Series, reproduced on his website.[6] He also acted as Senior Editor for the American Economic Foundation in Cleveland, Ohio, and produced a pamphlet series Ten Pillars of Sound Money. When in 1984 South Africa celebrated the 100th anniversary of discovering gold in the Witwatersrand, at the conference Gold 100 commemorating that event in Johannesburg Professor Fekete delivered the keynote address entitled Gold in the International Monetary System. He is an invited speaker for several institutions, delivering keynote addresses on monetary economics.

Professor Fekete is a protagonist of the Real bills doctrine also going by the name of Quality Theory of Money. Conceived by Adam Smith, the Real Bills Doctrine is relevant to the world economy in the 21st century. Professor Fekete.s position can be summed up as follows : self-liquidating short-dated commercial paper on goods in most urgent demand by consumers will be indispensable in order to restore monetary stability in the world after a possible collapse of the regime of irredeemable currency. The solution is a worldwide gold coin standard cum real bills. Redeemable currency must flow and ebb together with the production of consumer goods moving to the market apace. Without real bills financing the economy would lack much-needed elasticity, and trade may even seize up causing depressions. Real bills would spring up and start circulating spontaneously. Banks would wither away as they could no longer trust each other.s promises, and no one would trust their promise to pay gold. Real bill circulation would overtake banking. However, present economic thinking, epitomized by J.M. Keynes, criticized the gold standard for being the cause of the depression. Real Bills (those maturing into gold coin held by the final consumer) were suppressed by legislation, mainly in 1909 in France and Germany, obliging their civil servants to accept paper money in lieu of the gold coin of the realm as well as by the advent of World War I, destroying whatever trust was left between merchants worldwide.[7] The worldwide gold coin standard would seriously reduce government sizes and their ability to run large deficits

Professor Fekete maintains that the influx of fresh monetary metal into an area is not inflationary and contends that it is a widespread academic myth. Pointing out the difference between discount and interest, emerging new gold will give rise to a diminishing discount rate on real bills. The real bills would be drawn on newly manufactured goods. Both goods and bills disappear from circulation, as soon as the final gold paying consumer withdraws his goods from the shop. A high discount rate would tend to draw gold to a region and a low discount rate would tend otherwise. If and when new gold purchasing media comes to the market, discount rates on real bills would drop. hence it unattractiveness for investors. Previously submarginal goods would as a result of the new purchasing media become marginal again. Manufacturing of new goods would emerge together with new gold. Real Bills are withdrawn from circulation after one season (being 91 days maximum). New purchasing media are therefor not inflationary. The assumption is an honest and publicly scrutinized discount system, rejecting the Acceptance House shelter or rollover practices of real bills and phantom goods, which would be inflationary. If prices of certain or all goods were rising under an unadulterated gold standard there would be another explanation, e.g. war.

Fekete disputes the claims of "naked shorting" of precious metals markets. He contends that holders of monetary metal are to a large extent professionals and are using the futures market to hedge their physical long positions with an equivalent short in the futures market, in much the same way as a grain elevator operator. The offsetting of long positions with short futures would only appear to be naked, as participants to the futures market are under no obligation to divulge their hedge. [16][17] The long time contango of the futures market is what provides metal holders (longs) with an income. This type of professional trading is known as Basis Trading. If spot prices of gold or silver are permanently above their futures price, the precious metals market is going into permanent backwardation. According to Fekete, the silver market being more volatile and narrower, once going into permanent backwardation, will function as an early warning system for the end of the fiat currency system.

It may be noted that mainstream economic theorists criticize gold standard-oriented monetary economists and vice-versa.

Bullionism is an economic theory that defines wealth by the amount of precious metals owned. Bullionism is an early or primitive form of mercantilism. It was derived, in the 16th century, from the observation that the English state possessed large amounts of gold and silver, in spite of the fact that there was no mining of precious metals on English soil, because of its large trade surplus.

Thomas Milles (1550-1627) and others recommended increasing exports in order to get a trade surplus, converting it into precious metals and hindering the drain of money and precious metal to other countries. Although England practised the interdiction of exportation of £ or precious metals at about 1600, Milles desired to return to staple ports in order to force merchants from abroad to use their assets to buy English goods and to prevent them from transferring gold or silver from England homewards. But Milles was not viewed as one who had any valuable words to say on the subject, as one of his contemporaries wrote ..Milles was so much out of step with the time that his pamphlets had little influence....

Gerard de Malynes (1586 - 1641), another bullionist, published a book, called A Treatise of the Canker of England's Common Wealth, in which he asserted that the exchange of foreign currency had been a trade of value rather than exchanging the weight of metals. Therefore the unfair exchanging of precious metals by bankers and money changers, would result in the deficit of English balance of trade. In order to ban the flow of exchange rates, he demanded the strict fixing of exchange rates for coins, only by the concentration of precious metals and weights and for strict regulation and monitoring of foreign trade. But de Malynes did not convince his contemporaries ..that the cambists were responsible for gold outflow or to elicit enthusiasm for a monopoly sale of exchange, par pro pari, by the royal exchanger." But he succeeded in creating the first economic controversy: Edward Misselden opposed him 1623 in his book The Circle of Commerce: Or, the Balance of Trade.

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