KTFA Members "News and Views" Wednesday Afternoon 9-4-19


Samson:  Trump and Fed candidate .. Is the world back to the gold standard?

3rd September, 2019 

There are many efforts to try to create a psychological analysis of US President Donald Trump's nomination of Judy Shelton to serve on the Federal Reserve

To date, there are two vacant seats on the seven-member Fed Board of Directors

Some emphasize Shelton's loyalty as an early adviser to Trump, according to an analytical vision published by Project Syndicate for University of California Professor of Economics Barry Eichengreen

Others point to their shift to someone who favors low interest rates, while a third team still highlights its defense of the gold standard as a way to isolate US monetary policy from the unreliable Fed

But all of the above explanations didn't care what matters most: Shelton is a figure who supports fixed exchange rates

Shelton's belief in fixed exchange rates is attractive to an administration that sees currency manipulation as a threat to winning its trade war

The Trump team wants to reduce the US trade deficit and boost the competitiveness of domestic industries by using tariffs to increase the price of imported goods  But the 10 percent tariffs, which are offset by the devaluation of foreign currencies against the dollar by about 10 percent, leave the relative prices of US imports unchanged

Countries seeking to maintain the competitiveness of their exports have a clear interest in encouraging such currency adjustments or at least not resisting such adjustments

In fact, they do not have to do anything to devalue their currencies when the United States applies tariffs

The US current account deficit is the only difference between US investments and US savings, which means that tariffs do nothing to bring about any change

Unless the current account changes, the relative prices of domestic and foreign goods will not change as well, and it is therefore essential that exchange rates move on their own to offset the impact of tariffs

The challenge for the Trump team is to get other countries to change their policies to prevent their currencies from moving

Given Shelton's call last year for the launch of a new Bretton Woods system, the goal, as she described it, is to create a coherent mechanism to maintain exchange rate stability among national currencies, the same as the original agreement of 1944  But in the absence of a world conference - something Trump hates - the way to achieve that goal is the same as it was in the context of the gold standard of the 19th century

At the time, Great Britain was unilaterally linking the price of the local currency to gold, and other countries followed suit after seeing Britain's advantages  Once many countries peg the domestic price to gold, exchange rates between their currencies are effectively fixed

Obviously, the idea today is that if the United States moves first, "proactively," as Shelton put it, "other countries will follow suit

Behind this assumption, there are a number of logical conclusions that are inconsistent with previous introductions.  First , other countries show no desire to stabilize exchange rates whether or not the gold standard is restored

They know that different economic conditions justify different monetary policies, which in turn require exchange rates to move

Second , gold is no longer a stable floor, with dollar-denominated gold prices swelling from $ 900 an ounce in 2009 to 1,900 in 2011 before returning to $ 1,500 today

Forcing the Fed to peg gold prices to the dollar would have no effect other than linking its relative price, the price of gold relative to the prices of other goods and services

In order to double the relative price of gold, as in the period between 2009 and 2011, consumer prices may need to fall by half, which means catastrophic deflation

The price of gold relative to CPI inflation was less volatile in the 19th century, but this reflects the importance of gold mining

When the price of gold was higher relative to the prices of other commodities, more resources were allocated to mining, which led to the extraction of larger amounts of yellow metal, thus causing its relative price decline

More precisely, the prices of other commodities have risen as additional gold extraction has supported an inflationary increase in money supply

Today, after a nearly century-long increase in the production of other goods and services, gold mining represents a much lower share relative to global GDP

Thus, the ability of the mining industry to stabilize has become weaker, making the price of gold more volatile

Some may argue that gold price volatility reflects financial instability, prompting investors to rush to gold as a safe haven, and that the gold standard will produce a more stable financial environment

But this idea is not based on history, as financial crises have been a frequent occurrence in the use of the gold standard

It was not a mystery: having to stabilize the price of gold severely limited central banks' ability to act as a last resort to lend to troubled financial systems, and instability followed on a regular basis

In short, the arguments for the gold standard and exchange rate pegs are dramatically flawed, but it is not bright: nothing will happen, whether or not Shelton is a Fed member   LINK


 Gem  Interesting no matter how much information we receive from Delta, Frank, Walkingstick and many others the constant is Iraq and the promises and yes this is a speculative investment but until Iraq decides to formally make the announcement that they are article 8 nothing else matter, IMO  

Stephenmac63:  IMO, Iraq wont announce Art 8, no need to as tonights video demonstrated that. What they will announce though is a change in the exchange rate, that will be on the CBI website first.
I have yet to see a country claim they are Art 8, Art 14, whatevers, its a classification that they alone have to deal with.   A change in the rate.....now thats something to brag about. (smile) 


Samson:  KI: Wins International Award for Best Smart Card

4th September, 2019
Ki won the Best Smart Card award at the Global Event (International Finance Award 2019) Best Smart Card- Finance 2019.

Iraq receives for the first time in the history of this award, which is the result of a great national effort for an Iraqi electronic payment company was able to transfer the reality of financial transactions to a sophisticated stage interacted with the public significantly and now embraces a family of 7 million beneficiaries, a figure that did not reach the largest banks Region.

An official source in the company confirmed that the company invests in the youth sector and provides job opportunities for a large segment, and provides services that touch the need of the Iraqi family, and this award represents a new turning point in the company's work and motivated to develop work mechanisms and presence near the Iraqi family through the adoption of new systems more developed Contribute to the creation of new products.   LINK


Netanyahu: The US administration will publish the deal of the century immediately after the Israeli elections

4th September, 2019
Israeli Prime Minister Benjamin Netanyahu said on Wednesday that the US administration would publish its plan known as the "deal of the century," immediately after the Israeli elections on the seventeenth of this month.

Netanyahu said: "Who do you want to lead the talks on the deal of the century to be presented by President Trump, which will be launched soon, immediately after the elections?"

After the US plan was expected to be published last June, it was postponed until after the Israeli elections scheduled for the seventeenth of this month.    LINK


Samson:   Pence calls on the European Union to negotiate in good faith on Britain's withdrawal

3rd September, 2019

US Vice President Mike Pence used his visit to Ireland on Tuesday to urge the European Union to negotiate "in good faith" with British Prime Minister Boris Johnson and reach an agreement on Brexit to respect Britain's sovereignty

The outcome of Britain's exit from the European Union remains uncertain, three years after the British voted in favor of the exit. There is still disagreement over how to open the border between EU member Ireland and Northern Ireland and not threaten the two-decade-old peace in the British-run region

While Pence listened well to Irish Prime Minister Leo Faradkar's letter, which said the withdrawal would not undermine the 1998 Northern Ireland Peace Agreement, he also supported Johnson, who was warmly praised by US President Donald Trump

"The United States supports the UK's decision to leave the European Union, but we also recognize the unique challenges on your borders, and I can reassure you that we will continue to encourage the UK and Ireland to ensure that any agreement on exit will respect Good Friday," Pence told a joint news conference with Faradkar. Peace), "according to the" Reuters

"But as the exit date approaches, we also urge Ireland and the European Union to negotiate in good faith with Prime Minister Johnson and work towards an agreement that respects UK sovereignty and limits trade obstruction    LINK


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