Category: Economics

No Uncertainties with Silver

silver barFor well over 2,500 years, silver has been recognized as a holding of substantial value. The Lydians (present day Turkey) were one of the earliest makers of silver currency, a bas relief coinage which differed markedly from the bronze and copper coins that the Chinese had been using years earlier. Fast-forward two-millennia, and we find ourselves still loving that lustrous precious metal.

In July 2015, the U.S. Mint sold out of silver bullion coins.The high demand for silver is simply a derivation of low spot price and the (potential) upside of buying bullion in bulk. It’s also important to note the value of silver futures. Now trading at $14.65 an ounce, spot value is higher than what futures are predicting. CME data suggests that October futures will be trading about $0.10 lower than current market value. For large investors, this fractional difference screams ‘opportunity’ from the rooftops. There’s a big upside to selling now and buying again in a few months. Taking advantage of the current-spot-versus-futures situation would ultimately lead to an increase in the futures value.

But not all of us are large investors with cash flow ad infinitum. For the small investor, the answer is simple: buy more silver, and soon. I say this as an investor and also a student of the market. With prices of silver reaching affordable lows and demand for the precious metal reaching unfathomable highs, it seems that an increase in price is right around the corner. We have to remember that the large corporate investors play a pivotal role in market prices. When the supply is struggling to match the increasing demand, there has to be a squeeze coming. This means that in order to combat the excessive buying, the price of silver will soar in an attempt to manage the supply needed on a day to day basis.

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Are Government Regulations Strangling Free Enterprise?

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Everywhere you turn these days, it seems like business environments are becoming increasingly choked with regulatory morass. Tragically, these barriers to free enterprise and economic freedom are having a chilling effect on the ability of business owners and individuals to achieve financial success.

In my opinion, government’s proper role when it comes to business and commerce should be restricted to the following:

(1) Protect property rights.

(2) Adjudicate disputes between two or more parties.

(3) Provide a legal framework whereby voluntary trade is protected.

Efforts by statists to redistribute wealth or control or manage the voluntary exchange of goods or services are inappropriate in a free society.

I recently had the opportunity to talk with Anthony Sanders, Senior Attorney with the Institute for Justice, about how IJ is responding to the full-on assault taking place against economic liberty, private property, freedom of speech and other individual liberties at federal, state and local levels across the country. Here is an excerpt from our discussion:

Anthony, what sorts of barriers are being erected that are hindering free market competition in America?

Clearly, there are lots of emerging and long-standing barriers in all facets of economic life. The ones that are especially pernicious and that we focus on here at IJ are occupational licensing restrictions. Back in the 1950s, 1 in 20 people needed a license to work; today it’s 1 in 3 people. This trend is being driven in large part by people whose motive it is to use licensure to fence out the competition. We regularly see instances where government places undue restrictions on businesses and people who are just trying to earn an honest living. This is an ever-growing threat to entrepreneurial freedom.

Are there particular types of businesses that are being most affected by these barriers?

Those most affected by these laws are often small practitioners who don’t have the credentialing required by cartels. Unfortunately, the majority of these folks have neither the savvy nor the money to battle against these barriers. This is where we at IJ step in from a First Amendment context to protect the rights of those seeking to earn an honest living in their businesses and professions.

Frustrated by Housing Costs? Hey, You’re Not Alone

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Recently while at my favorite Denver watering hole, I was again reminded of the prevailing unease around housing costs. It all started with a random comment and the subsequent conversation with the woman next to me at the bar which yielded a not-so-surprising revelation: that we’re both from the same hometown of Columbus, Ohio. After engaging in the ceremonial mantra of Ohio State alums which involves beginning and ending each sentence with ‘Go Bucks,’ I learned that she was a newly minted transplant to the Mile High City. She went on to note that her excitement around the rich opportunities available for mountain hiking expeditions, skiing and other outdoor activities here had been tempered by something that caught her completely off guard when she moved here. She said:

“I had no idea that housing was going to be this expensive when I relocated here. The substantial raise that I received from my employer with this promotion and transfer is now gone!”

Frankly I wasn’t all that shocked to hear this common refrain because Denver’s meteoric population growth has led to a corresponding rise in housing costs. Home prices aside, rental apartments rates are hotter than the blistering rays of the high altitude sun. And for those scrambling to locate a new abode, it’s been all-out war as anxious bidders compete with one another for available units in the tight rental market.

Like many cities, Denver is in the midst of an unprecedented construction boom as builders burn the midnight candle in an attempt to mitigate the swelling demand. In fact, the city has more than 86 projects under construction, and is currently poised to build more apartment properties than at any point over the past 40 years. Since the end of 2009, rents have soared by about 40%.

The unfortunate reality for many renters, not only in Denver but in other parts of the nation, is that rental prices have increased at roughly twice the pace of average hourly wage growth, which has hovered at a paltry 2.1% over the past year. Millennials are taking the full force of this hit, according to findings by Harvard University’s Joint Center of Housing Studies, which found that a shocking 46% of renters ages 25 to 34 (the epicenter of the millennial cohort) is coughing up more than 40% of their income on rent, up from 30% a decade ago. It should be noted that the housing industry generally regards a figure above 30% as being financially burdensome.

Back to the bar just for a moment. My conversation with the fellow Ohioan seated next to me sent my mind off to random thoughts about my own housing situation. Much of this has been informed by previous accounts shared by friends about their travails in locating suitably priced places. One common theme seems to be landlords who tour several rental suitors at once in a manner akin to a group date on the show The Bachelorette. Listening to reports back from friends who have experienced this, it quickly becomes clear that the spoils often go to those who have a wad of upfront cash.

Currency War Rages on as China Devalues Yuan

PBOCChina’s central bank has caught the markets off-guard by unexpectedly devaluing the yuan by nearly 2 percent against the U.S. dollar, roiling stocks as a result, especially those that sell to China. The central bank of China has tried to brush aside the magnitude of the move, calling it a ‘one-off depreciation’ and saying the change in policy will help drive the currency toward more market-driven movements. However, this is just another chapter in the worldwide currency war we are experiencing, and it should not come as a surprise at all.

First, it is helpful to examine more closely what China actually changed. The yuan has been pegged to the dollar for many years now, with Chinese officials allowing the yuan to trade 2% above or below a midpoint they set called the daily fixing. Officials can look at the daily trading when setting the midpoint, or they can arbitrarily set it higher or lower as they please.

The central bank has now changed its policy, saying it will base the midpoint off of the previous day’s closing price as well as market-makers’ quotes. As a result, it set the midpoint 2% lower than the previous day’s. This was the biggest devaluation of the yuan since 1994 when they let it fall by one-third as part of a breaking away from Communist state planning.

Because the rules are now more ‘market based’, it will be interesting to see if this really will be a one-off devaluation or if China will let the currency slide further. They could also continue to influence rates by entering the foreign exchange markets themselves with their reserves.

In the end, the mechanism or specifics are minor details compared to the real reason for the devaluation; participation in the global currency war. Almost nobody doubts that China is now fully engaged in the same game that developed countries have been playing for years now. Each one is devaluing their national currency as a last-ditch effort to stimulate more growth.

Myths of Inflation (and Deflation) with Christopher Casey [Interview]

Top highlights from the interview. Five of the ways that inflation is misunderstood in today’s world:

1. “Demand pull” inflation (Keynesian concept) a.k.a. an “overheated economy”

2. “Cost push” inflation (Keynesian concept) e.g., increase in the price of oil can spark inflation.

3. Velocity can exacerbate or mitigate inflation (when it reality it does not exist and is a poor proxy for monetary demand).

4. Demographics directly impacts the price level (e.g., an aging population is “deflationary” per people like Harry Dent), the impact is really indirect and only results from the nature of fractional reserve banking

5. The Federal Reserve can not successfully control inflation, it can only contribute to the price increases with its ability to print money at its leisure.

Thanks, WindRock Wealth.