Verlag Johannes Müller - Articles, Authors

Daily Bell: Hello again. Let's jump right in. The price of gold is still declining. Bring us up to date on the price action since we last spoke, please.

Antal Fekete: I take strong exception to your using the language of ‘rising and falling gold price’. It puts things standing on their head. It paints a will-o’-the-wisp picture of reality. The rising of the gold price in reality is the irreversible long-term decline in the value of the dollar due to the U.S. defaulting on its gold obligation to foreign central banks and international financial institutions; the falling of the gold price in reality is a temporary strengthening of the dollar for whatever, mostly irrelevant, reasons. There is absolutely no symmetry between the two events. Moreover, this is as it ought to be, since the dollar is nothing but a dishonored promise to pay gold. When did you last see the dishonored promise of a banker permanently go to a premium? Whatever decline in the gold price you are talking about, it has not made a dent in the towering fact that the dollar has lost over 95 percent of its gold value as well as purchasing power since it was dishonored 42 years ago in 1971. The language of ‘declining gold price’ serves the interest of those whose hidden agenda is to blindfold the public in order to leave people in blissful ignorance about the terminal agony of the moribund dollar. It is disingenuous to suggest that the gold price is declining. A better way of expressing that fact is to say that a stay of execution for the dollar is in force.

Daily Bell: We hear that the Fed is actually considering increasing the amount of money being printed, presumably to break out of a liquidity trap. What's your take?

Antal Fekete: Liquidity trap is claptrap invented by Keynes. If the Fed is trying to fend off deflation, then it is using counter-productive means
to achieve its ends. ZIRP (zero interest rate policy) has the effect of destroying to capital as shown by the increased burden of debt due to higher bond prices. Printing money ad libitum makes the problem worse, not better. Opening the tap fully will not necessarily increase the water-level in the tub. You also have to consider the condition of the drain. If it is unplugged (as it is now, monetarily speaking, witness the ongoing destruction of capital), then the water-level in the tub may well be receding, not rising.

Daily Bell: You have been taken to task by your critics for suggesting that a falling interest-rate structure erodes, even destroys, capital. A bank carries its capital in the form of bonds. But bond values increase as interest rates decline. How do you explain this apparent contradiction? Has bank capital been destroyed, or has it been boosted?

Antal Fekete: Most certainly it has been destroyed by the falling interest-rate structure. To the extent the appreciating bonds are used on the capital accounts of the banks, sound book-keeping principles demand that their market value be reported in the liability column, definitely not in the asset column, of the balance sheet. The thirty-three years old bull market in bonds has taken a terrible toll on bank capital. Virtually all banks have been rendered insolvent, the rest to follow. Governments and central banks burn the midnight oil in trying to stonewall this fact, in vain. They pretend that insolvency is but a temporary liquidity problem. But this unprecedented banking crisis cannot be wished away. Keynes is dead, and so is his idea that items can be shifted from the liability to the asset column of the balance sheet of the government at will. My critics are ignorant of double-entry book-keeping. But the real scandal is ignorance at the Fed, the Treasury and in academia. No one exposed ZIRP as a blueprint for the wholesale destruction of tangible and intangible capital. The banking crisis in the U.S. 80 years ago was also caused by the destruction of capital due to declining interest rates, but you mustn’t say that in polite company.