Blogs: Kelly Hanlon
Joe Queenan of The Wall Street Journal, published a terrific essay in the March 24-25, 2012, weekend review, titled, “The Index of Silly Economic Indicators.” Queenan wryly points out that there “are dandy little indicators of economic revival” like the number of liposuctions, visits to drycleaners, and the number of haircuts.
Amidst moments of laughter and good fun, a more serious Queenan is revealed. The serious one takes a look around his hometown and sees shuttered businesses, out-of-work Americans facing foreclosure, and empty hair salons (contrary to economic indices reporting otherwise).
Queenan’s point is well-taken.
For the majority of Americans, economic vital signs remain uncertain—oftentimes, muddied by long periods of un- or underemployment. Queenan, aware of the biases of proximity, admits that “it is always dangerous to base assumptions about the state of the economy on anecdotal information.” “But,” he goes on, “anecdotal information trumps government statistics any day of the week.”
Enter Chairman Bernanke and Secretary Geithner.
Dressed in tailored suits, the two converse inside an air-conditioned office, reviewing theoretical economic models and indices. They use government-generated statistics to evaluate economic vital signs.
Nevertheless, the Bernanke-Geithner duo applies their theoretical models to the real economy, infusing the market with easy money. It is no longer necessary to fire up the presses to print new bills—no new labor or capital is required. Bank lending rates are changed electronically—or, more recently, held constant, near zero. The FOMC calls in its trades.
Bernanke retires to the Federal Reserve; Geithner to the Treasury. They wait for the next round of models to provide feedback on the success or failure of their policies.
Meanwhile, as Queenan reports from the frontlines, “everyone is waiting tables, or parking cars, or pinch-hitting as a substitute teacher, or on the prowl for a nonpaying internship.”
With a sharp pen and cunning wit, Queenan drafts new headlines signaling economic vital signs:
Maybe some of these headlines will actually make front page news where Messrs. Bernanke and Geithner might make note of them. Better yet? Maybe, just maybe, Bernanke and Geithner will take a closer look at the golden era of monetary policy when the economy was based on sound—not easy—money.
Ever wonder it’s like inside the deepest gold mine on the planet? Or, who buys the gold bars produced by said mine? Speaking of which, where are gold bars actually stored? And, for that matter, have you ever wondered how gold is turned into bars? Or jewelry?
CNBC’s Bob Pisani did. He answered these questions and others in an half-hour television show simply titled, “Gold.” In a sweeping narrative, Pisani took viewers two miles below the earth’s surface in a South African gold mine, the Mponeng. Its name means “look at me” which seems appropriate considering that this it is one of the richest, most productive gold fields ever discovered.
When asked about the limitations of the gold supply, one of the mine executives replied that “the sky wasn’t the limit but the earth was.” According to employees in the mine, they are drilling deeper than ever before—12,600 feet deep. At this depth, miners face 100 degree heat coupled with 100% humidity. Plus, miners face seismic activity on a regular basis. To generate an ounce of gold, on average, 3.5 metric tons of earth are removed.
Sounds like hard work to find a measly ounce of gold, no? It is. Nevertheless, the 3,500 employees of the Mponeng mine produced 532,000 ounces of gold in 2010.
The costs—both labor and capital—required to produce an ounce of gold are real. The market for gold is constrained by the natural elements found in the earth’s crust. And, gold’s price is determined in the marketplace by its supply and demand.
Gold supplies are sufficient but not unending. The United States Geological Survey estimates that there are roughly 51,000 tons of gold left on land with another twenty million tons are undersea. And, deep sea mining is just beginning to hit its stride.
So, who is buying all this gold? That is, what does demand for gold look like? After being unearthed, gold is purified at refineries to meet general, agreed to standards of purity and weight. The resulting gold bars are then shipped to buyers all over the world. The two largest uses for gold are jewelry and investments: fifty percent of the world’s gold is made into jewelry while thirty percent is used for investments.
According to one of the largest jewelry makers in the world, Stuller of Lafayette, Louisiana, “gold demand is indestructible.” The Stuller vaults hold 100,000 items that are shipped to more than 40,000 clients, making the world’s largest jewelry maker one of the largest express customers of both FedEx and UPS.
Finally, in a rare insider’s look, Pisani gained access to the world’s largest private gold vault—containing 1,200 metric tons of gold—where viewers caught a fleeting glimpse of stacks of gold bars. Vault employees described the process by which gold bars are identified—each with a unique serial number—and catalogued with respect to its physical location. Auditors regularly visit the vault to insure the accuracy of both sets of information about each gold bar.
Fascinating, right? Just for fun let’s briefly contrast labor- and capital-intensive gold production with the creation of fictional dollars.
Let’s start with the obvious. There is no so-called “sweat” equity backing newly created Federal Reserve credit or notes—just the full faith and credit of the United States government (which, just in case anyone forgot, our credit rating was downgraded last year). Production of new credit and notes is inkless and paperless—it occurs electronically via computer.
Dollars—unlike gold—cannot be permanently recycled. In fact, the Chicago Fed has a massive operation to destroy dollars and coins that are unfit for circulation. Want to make $364? Anyone can visit the Chicago Fed and pick up a (free) bag of shredded bills—some assembly required. Interestingly, the Fed does not give out (free) tokens of recycled coins—apparently, some value is retained in the metal.
There are no new private sector jobs created when new dollars are produced. This contrasts sharply with the creation of jobs in a variety of industries related to gold mining—for example, the miners, jewelers, traders, vault keepers, delivery men, and auditors who made an appearance in the first half of this post.
The irony, of course, is that Fed Chairman Bernanke and Treasury Secretary Geithner—the two policymakers largely responsible for making and carrying out our country’s monetary affairs—are employed by those in the private sector.
As inflation rises—which is bound to occur when dollars are produced without corresponding demand—the very miners, jewelers, traders, vault keepers, delivery men, and auditors who are most harmed by (and who can least afford) today’s easy money foot the bill.
The virtues of gold are profound as are the vices of paper money. Gold retains its value over time since its quantity is limited and its price is determined by the market. Paper money loses its value over time since its quantity is limitless and its price is determined outside the market.
Over the long run, a monetary standard based on gold will maintain stable prices while a paper standard will lead inevitably to inflation. The choice for a sound monetary standard is clear.
“The purpose of the memorial is to communicate the founding, expansion, preservation, and unification of the United States with colossal statues of Washington, Jefferson, Lincoln, and Theodore Roosevelt.”
--Gutzon Borglum, sculptor
Between 1927 and 1941, four hundred men carved the façade of Mount Rushmore using explosives and hand tools. The presidents depicted—Washington, Jefferson, Lincoln, and Teddy Roosevelt—each had a profound impact on the “founding, expansion, preservation, and unification of the United States.”
At the dedication of the memorial on August 10, 1927, President Calvin Coolidge proclaimed that the monument “will be decidedly American in its conception, in its magnitude, in its meaning altogether worthy of our Country. No one can look upon it understandingly without realizing that it is a picture of hope fulfilled.”
Coolidge continued, further explaining the purpose of the million dollar monument, stating that “the figure of these Presidents has been placed here because by following the truth they built for eternity. The fundamental principles which they represented have been wrought into the very being of our Country. They are steadfast as these ancient hills.”
Coolidge summarized the importance of the monument in saying, “This memorial will be another national shrine to which future generations will repair to declare their continuing allegiance to independence, to self-government, to freedom and to economic justice.”
What were the economic institutions which each President sought to uphold?
George Washington is best known for his commanding role during the American Revolution and, thereafter, as our nation’s first president. Although much has been debated about Washington’s presidency, he was unambiguous about the societal ills caused by paper money. Selecting “his aide-de-camp from the Revolution, the charming and controversial, Alexander Hamilton,” as the first Treasury Secretary, the young nation began with sound economic policy and with a currency backed by precious metals.
Thomas Jefferson “is remembered for many things — of which the Declaration of Independence, the founding of the University of Virginia, the Virginia Statute of Religious Freedom, his presidency of the United States, and the Louisiana Purchase are highlights. Jefferson also is well remembered for his passionate opposition to his colleague in the Washington cabinet Alexander Hamilton.”
The editor of this site continues,
By the time our sixteenth president, Abraham Lincoln, took the oath of office on March 4, 1861, the country was not only on the verge of Civil War but also a financial disaster. The nation’s coffers were almost empty, left in disarray from three decades of Jacksonian fiscal policies, and the government faced a continuing liquidity crisis in light of the demands generated by Civil War expenditures.
Early in his administration, Lincoln recognized that the war’s outcome would be largely determined by resources. Thus, he understood the imperative of raising funds to carry out the war effort. It was against this backdrop that Lincoln appointed Salmon P. Chase to the Treasury, authorizing Chase alone to act on all matters pertaining to the country’s finances. Chase, like most everyone else at the time, underestimated the severity of the War—both its duration and its cost. Just as dangerous, perhaps, Chase overestimated the usefulness of Jackson era financial policies to deal with the crisis.
The Union needed money, but it also needed a uniform convertible currency—one which unlike the existing state bank notes was not easily counterfeited and whose value was reliable. Civil War Congressman James G. Blaine observed that this was “the most momentous financial step ever taken by Congress.” Blaine continued, “It was admitted to be a doubtful if not dangerous exercise of power; but the law of necessity overrides all other laws, and asserts its right to govern. All doubts were decided in favor of the nation, in the belief that dangers which were remote and contingent could be more easily dealt with than those which were certain and imminent.”
Although paper currency—the greenback—was necessary to finance the Union’s war effort and to keep the Union intact, the nation would remain off the gold standard until 1879.
Our twenty-sixth president and the first of the twentieth century, Teddy Roosevelt, became known as one of America’s greatest presidents. He is, perhaps, best known for his anti-trust policies. During his first state of the union address on December 3, 1901, Roosevelt outlined his economic policy. He said, “The well-being of the wage-worker is a prime consideration of our entire policy of economic legislation.” He continued, “Doubt, apprehension, uncertainty are exactly what we most wish to avoid in the interest of our commercial and material well-being.”
In terms of the monetary standard, Roosevelt was unambiguous, stating that “The Act of March 14, 1900, intended unequivocally to establish gold as the standard money and to maintain at a parity therewith all forms of money medium in use with us, has been shown to be timely and judicious.”
Roosevelt also addressed the question of national surpluses and deficits: “The utmost care should be taken not to reduce the revenues so that there will be any possibility of a deficit; but, after providing against any such contingency, means should be adopted which will bring the revenues more nearly within the limit of our actual needs.”
On the matter of federal expenditures, Roosevelt said: “I call special attention to the need of strict economy in expenditures. … Only by avoidance of spending money on what is needless or unjustifiable can we legitimately keep our income to the point required to meet our needs that are genuine.”
Elite athletes across the world are preparing for this summer’s Olympic Games in London. For most, their quest for Olympic gold began at a very young age.
Take Michael Phelps, the extraordinary swimmer who won eight gold medals during the 2008 Olympic Games in Beijing. He began swimming at the age of seven and, by the time he was ten, he held a national record. Phelps’ career—his quest for gold—was launched. Phelps became the youngest world record holder in men’s swimming by 15 and, by 19, the recipient of the most gold medals ever awarded in the Games.
After each event, and with the gold medal draped around his neck, Phelps stood on the platform while the American national anthem filled the stadium with song. His countrymen stood proud, enthralled by the glory of gold.
Not all who pursue their passion are rewarded so kindly—indeed there are a great number of athletes who set out for gold and who never achieve such prowess. But not everyone can win the gold medal. And, for those who fall short of winning a medal, there’s a “diploma of merit,” like this one from the 1948 Olympic Games, the last time the Games were hosted in London.
You say you’ve never heard of a “diploma of merit” nor seen an awards ceremony at the Games during which such diplomas are handed out? You’ve never heard of a certificate counting ceremony to see which nation conquered its neighbors? You aren’t alone.
There’s a reason that medals are awarded at the Olympic Games and not simply a certificate of achievement.
As Lewis E. Lehrman points out, precious metals—especially gold—are intrinsically valuable and their inherent worth is recognized across time and space. As the 2012 Olympic Games draw ever closer, competitors hold out hope as they go for the gold.
The Boss released his seventeenth studio album, Wrecking Ball, last week. Rolling Stone reports that, “Two years ago Bruce Springsteen told [the magazine] that he had just written his first song about a ‘guy that wears a tie.’ The songwriter had spent much of his career writing about characters struggling in tough economic times, but the financial crisis convinced him it was time to write about the people and forces that brought America to this ugly point.”
Given Springsteen’s long tradition of campaigning for the masses—during the 2008 election, he hosted concerts to support then-candidate Obama—we ought not be surprised by the images intrinsic to the album. Fat cats, corporate cronies, and Wall Street bankers versus the hard-working man.
The tone and tenor, however, are different in this album—more extreme, more divisive, less hopeful. Anger rages just below the surface, beyond view, but never too far out of sight. The story that unfolds is so dark that in a review of the album Rolling Stone called it Springsteen’s “most despairing, confrontational, and musically turbulent.”
The opening track, “Land of Hope and Dreams,” reminds listeners of Springsteen’s folksy roots. Were it not for Clarence Clemmons’s saxophone that comes rocketing into the fore, it would seem an odd choice—almost too hopeful—with which to start the album.
The picture darkens quickly as Springsteen begins telling the tale of the Great Recession with ballads titled “This Depression” and “Shackled and Drawn.” The lyrics to the latter song further reveal Springsteen’s own misgivings about contemporary politics and economics.
The middle of the album continues along the same plane—pinning responsibility for the economic downturn on Wall Street. For example, “Easy Money,” points to the “fat cats” who, apparently, “think it’s funny” when the “whole world comes tumbling down.”
The ballad—indeed the entire album—serves as an odd sort of tribute to America’s working class, recalling better days gone by, all the while indicting those who have a net worth greater than zero. Ironic, isn’t it? Springsteen is reportedly one of the world’s top musicians as ranked by net worth. In fact, Springsteen himself is part of the “one percent”—the “fat cats” that he rails against. Last year, Forbes estimated his net worth at $70 million.
Let’s face it. The Boss has been a top-selling musician for almost four decades but the economic story he paints is one-sided—and, quite frankly, false. There is a lot of blame to go around—and, yes, part of that belongs to Wall Street and to our political leaders. But, part of the cause of the Great Recession rests with the people too, with each one of us who spent more than we earned, and for closing our eyes to the political and economic realities around us.
It’s just that those records wouldn’t sell as well—the masses would rather be placated with a Keynesian “pharmacopeia” rather than be the hard-working man that Springsteen so frequently sings about. And, Springsteen readily obliges with the album’s final offering, “American Land,” in which the Boss attempts to redeem the promise of the American dream with illusory and grandiose images, crowing to the children that “the sweets…are growing on the trees,” while appealing to the adults that “gold comes rushing out the rivers straight into your hands,” and “there’s diamonds in the sidewalk.” The clincher? “There's treasure for the taking.”
Although Springsteen may be a terrible economist and historian, he is a renowned marketer—like a politician appealing to the greatest number of his constituents, the Boss knows how to sell albums. As CNN points out, “even though some of these songs were written before anyone pointed a bullhorn at the banks, [Springsteen’s] smart to make the declaration [that the album was inspired by the Occupy movement]. Whenever America's falling on hard times, his music simply sounds better, his lyrics taking on near-biblical significance.”
BY KELLY HANLON: