Three Prominent Doomsayers

As part of my financial education, I took a course called “macroeconomics”. The discipline was certainly more interesting than its cousin “microeconomics” because macroeconomics dealt with topics such as the money supply in association with fractional reserve banking, central banks, interest rate policy, inflation, gross domestic product, international trade, and government fiscal policy.  To this day I recall one moment sitting in class when my professor referenced the financial transaction evident when a new dollar bill is created.  The banking elite make reference to “open market operations”.  In Canada, if the “Bank of Canada” feels compelled to stimulate the economy, it does so by purchasing government denominated securities (treasury bills, bonds) in the open market.  Consequently, the seller deposits its cheque thereby increasing the capacity for the seller’s bank to lend against the increase in its “reserves”.  Money becomes available to a qualified debtor.  The scariest part of this transaction is skimmed over by academics.  Where did the Bank of Canada get the money to purchase these securities on the open market?  You guessed it – the Bank of Canada pulled it from its printing press.  What compliance formula did the Bank of Canada need to adhere prior to firing up the press?  Well, none.  That’s right, none.  It used to be the case prior to 1928 in Canada that new money could only be created with a proportionate increase in gold reserves (gold standard).  In 1991, the Canadian government enacted legislation abolishing any responsibility of Chartered Banks to hold cash reserves.  Hence; in the event of a sudden loss of confidence in the Canadian dollar, a wide swing in inflation / deflation, a material reduction in a debtor’s ability to repay loans, those first patrons to the ATM win.

Modern economic theory has aligned to the sentiment of D.H. Robertson from Cambridge University who in 1948 stated, “The value of a yellow metal, originally chosen as money because it tickled the fancy of savages, is clearly a chancy and irrelevant thing on which to base the value of our money and the stability of our industrial system.”  Today, three particular economic doomsayers, namely Jim Rickards, Peter Schiff, and Martin Armstrong have gone on record to refute the sentiment of Mr. Robertson in lieu of our current monetary system’s weakness.