Here is a trip down the rabbit hole of central banks and the global debt catastrophe for governments, businesses, and ordinary people.
December 21 (King World News) – Alasdair Macleod: Surely, it is now apparent that central banks are guilty of mismanaging the economy. By slashing interest rates to zero and in some cases to an unnatural minus figure, then flooding financial systems with currency-equivalent credit conjured out of nothing followed by rapidly increasing interest rates in an attempt to stem the consequences, central banks have bankrupted themselves and much of their entire economies.
Even though hapless economists and money managers are still in thrall to them, central banks have proved themselves to be unfit for purpose. It is time for a new system based on true economic demand for credit without state interference.
The ineptitude of the monetary planners is now sharply focused by events in Argentina, whose new president has vowed to close the central bank and introduce a currency board for the peso backed by the US dollar. Far from being a maverick politician, President Milei is being well advised. Currency boards work, imposing an automatic discipline on government spending.
This opens up the debate between free banking without central banks under gold standards, and the fiat currency system which gives central banks the power of debasement. Commercial banking without central banks is the historical norm, and the evils of statist currency management is a more recent development.
Those who argue that central banks represent progress from free banking are clearly in the wrong.
Funding government deficits
Wrapped up in grandiloquent objectives, arguably the most important objective of a modern central bank is to procure funding for its spendthrift government. Even fiscally conservative governments have an eye towards this requirement. The 1844 Bank Charter Act included government bonds as asset backing for the Issue department, amounting to 43% of total assets. And the Banking Department held further government stock, amounting to 32% of its assets.
Under the discipline of the gold standard, and a general government approach of not getting involved in commercial matters, the UK government’s demand for debt funding led to net repayments, outstanding debt falling from £838 million in 1844 to £709 million in 1913. But this parsimonious approach shared by governments generally changed in the early twentieth century. In 1930, President Hoover began intervening to try and halt the depression, a baton picked up by President Roosevelt who followed him.
It was at this time that economists increasingly turned their backs on free markets, wrongly diagnosing the cause of the depression. Keynes published his General Theory in 1936, inventing macroeconomics which was somehow detached from the real world, justifying government management of the business cycle. In practice, the new economics led to increasing government borrowing, notionally funded in credit markets, but without a concomitant increase in savings rates, it became inflationary in nature. It required the issuance of increasing quantities of debt, for which central banks play an important role.
Pursuing its Keynesian policies has given the US Government the excuse to run a total deficit of over $22 trillion since 1950, leading to outstanding debt of $34 trillion today. As the central bank, the Fed has played a pivotal role in this funding, and arguably without the Fed producing the credit — dollars are the Fed’s dollars, not of the government — this funding would have been impossible. To the extent that this is true, the Fed is responsible for the debasement of the dollar, and without the Fed, the US Government would have been forced to take a more responsible line with respect to its own finances.
Conclusion
Since the establishment of central banks was never an issue understood by the public, governments have positioned them to make the most benefit from their fiat currencies. They have been promoted as being better at managing economic outcomes and economic stability than the private sector operating under free market conditions. It is always easier to sell the concept that powerful entities, such as commercial banks, need licencing and regulating, than to argue the case for non-intervention.
This article serves to remind us that normality is no central banks, and that they are a relatively recent innovation. Central bank power has increased immeasurably with the removal of gold from the global monetary system. And as their power has increased, central banks have increased financial instability. This may have been unnoticed by everyone but the keenest observers, but the suppression of interest rates to the zero bound and below, followed by the rapid increase in interest rates to deal with the unexpected (that is by central bankers and their chorus of blind, deaf, and dumb monkeys) surge of price inflation is clearly down to policy failure.
The result of this failure is a debt catastrophe for governments, businesses, and ordinary people. Led by the US as custodian of the world’s reserve currency, G7 nations face economic collapse, and with nothing but rapidly disappearing faith propping up their fiat currencies, the error of putting government agencies in charge of interest rates and credit will shortly become evident even to the dumbest observer.
Following an increasingly inevitable fiat currency crisis brought on by central bank mismanagement, logic states that we should return to free banking, credit backed by gold tying prices to gold, and the abolition of central banks. We have learned a lot since the failures of the 1844 Bank Charter Act about how to implement a cast-iron gold standard through the development of currency boards.
Do not expect this obvious remedy to be rapidly adopted in order to prevent a serious collapse in the value of fiat credit. There is too much institutional and intellectual capital invested in the current fiat currency and central banking system for that. But it is just possible that President Milei in Argentina might lead the way, particularly if Argentina increases its gold reserves for a Plan B.
In case you missed this interview…
Ultra High-Grade Gold Discovery Near Fosterville!!
Eric King: “You’ve been very excited about these projects you have in Victoria, near the Fosterville Mine, and you also picked up that asset adjacent to K92’s mine. So you have this company positioned right next door to the historic Fosterville Mine in Victoria and K92’s mine in Papua New Guinea. Everybody is excited about this drilling in Papua new Guinea that is going to unfold, but Rex Motton sinks a hole, out of the blue, in Victoria, next door to Fosterville, and comes up with this ultra high-grade discovery. How soon can you sink additional drill holes into this new discovery? Also, I spoke with K92 CEO, John Lewins, who is also a Director of Great Pacific Gold, about this ultra high-grade discovery, and he is optimistic that more high-grade intercepts will be hit with additional drilling.”
Bryan Slusarchuk: “Well, it’s an amazing discovery that Rex and his team made, Eric. As you noted, we’ve been busy over the last few months getting ready for 2024 Q1 drilling in Papua New Guinea. We have amazing projects there, a 2,100 square kilometer land package, including 130 square kilometers contiguous with (bordering) K92’s mine. So we are very excited to get started there.
In the meantime, we have had these Victorian assets for some time and have been advancing them methodically on the ground. Our COO, one of the founders of the company, Rex Motton, has spent decades in Victoria, and he knows the geology of Victoria as well or better than anybody. And, Rex, based on all of this work that had been done, had a strong conviction that we had to test a project called the Comet Prospect at a precise juncture.
Based on his knowledge of that world famous Fosterville deposit, he believed that X marked that spot for the precise point that if we were going to find another Fosterville, that was where it would be located. So he sinks this drill, the final one of 2023, and on that hole it intersected an incredibly high-grade cut of gold mineralization. It looks remarkably similar to what the Fosterville discoveries looked like several years ago. So we could not be more excited. This is one of the better discovery holes that has been drilled anywhere in the world this year.”
Almost Identical To World Famous Fosterville Discovery
Eric King: “I’m looking at this old press release from the Fosterville discovery, and it’s seven meters of 159 grams per tonne of gold. You guys just hit 5 meters of 166 grams per tonne of gold, a little bit higher than Fosterville’s drill hole. So when you say there is a similarity, it’s almost identical.”
Bryan Slusarchuk: “There are so many similarities to this discovery both geologically and structurally. Rex Motton pounded the table that this was the hole that we needed to drill at Comet because it mirrored the world famous Fosterville discovery. The geology is remarkably similar to the Fosterville Mine. And he drilled a hole right into that X marks the spot, and he made an amazing discovery. The ultra-high grades will jump out at people, but for people that know the geology of that region, what will also jump out is where structurally this discovery was made, and the big implications of that. And, Eric, because we are extremely well funded, we look forward to unleashing the drills in 2024.” Great Pacific Gold, symbol GPAC in Canada and FSXLF in the US.
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