The Government And The Currency - By Ludwig von Mises (22/2/12) PDF Print E-mail
Ludwig von Mises   
Wednesday, 22 February 2012 08:53

Mises Daily

Media of exchange and money are market phenomena. What makes a thing a medium of exchange or money is the conduct of parties to market transactions. An occasion for dealing with monetary problems appears to the authorities in the same way in which they concern themselves with all other objects exchanged, namely, when they are called upon to decide whether or not the failure of one of the parties to an act of exchange to comply with his contractual obligations justifies compulsion on the part of the government apparatus of violent oppression. If both parties discharge their mutual obligations instantly and synchronously, as a rule no conflicts arise which would induce one of the parties to apply to the judiciary. But if one or both parties' obligations are temporally deferred, it may happen that the courts are called to decide how the terms of the contract are to be complied with. If payment of a sum of money is involved, this implies the task of determining what meaning is to be attached to the monetary terms used in the contract.

Thus it devolves upon the laws of the country and upon the courts to define what the parties to the contract had in mind when speaking of a sum of money and to establish how the obligation to pay such a sum is to be settled in accordance with the terms agreed upon. They have to determine what is and what is not legal tender. In attending to this task the laws and the courts do not create money. A thing becomes money only by virtue of the fact that those exchanging commodities and services commonly use it as a medium of exchange. In the unhampered market economy the laws and the judges in attributing legal tender quality to a certain thing merely establish what, according to the usages of trade, was intended by the parties when they referred in their deal to a definite kind of money. They interpret the customs of the trade in the same way in which they proceed when called to determine what is the meaning of any other terms used in contracts.



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Hiding The Elephant: Fort Knox’s Vanishing Act - By Kal Kotecha (22/2/12) PDF Print E-mail
Kal Kotecha   
Wednesday, 22 February 2012 08:52

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How Greece Could Take Down Wall Street - By Ellen Brown (21/2/12) PDF Print E-mail
Ellen Brown   
Tuesday, 21 February 2012 09:24

CommonDreams

In an article titled “Still No End to ‘Too Big to Fail,’” William Greider wrote in The Nation on February 15th:

Financial market cynics have assumed all along that Dodd-Frank did not end "too big to fail" but instead created a charmed circle of protected banks labeled "systemically important" that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS).  Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default.  According to the Comptroller of the Currency, nearly 95% of the banking industry’s total exposure to derivatives contracts is held by the nation’s five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs.  The CDS market is unregulated, and there is no requirement that the “insurer” actually have the funds to pay up.  CDS are more like bets, and a massive loss at the casino could bring the house down.



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“The Current Financial System Will Be Totally Destroyed“ - By Lars Schall (20/2/12) PDF Print E-mail
Lars Schall   
Monday, 20 February 2012 09:27

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Deflation's Inflationary Source - By David Howden (17/2/12) PDF Print E-mail
David Howden   
Friday, 17 February 2012 10:16

Mises Daily

A cry heard often today — both on the west and east sides of the Atlantic — is that inflation levels are dangerously low. While most central banks target a price inflation level of around 2–3 percent, general price indexes of most Western countries are falling below the lower bound of that target. A fear of deflation — apoplithorismosphobia, as Mark Thornton calls it — is setting in.

Without getting into whether deflation is good, bad, or benign, we should assess where deflation comes from. (The interested reader may consult George Selgin's Less than Zero: The Case for a Falling Price Level in a Growing Economy and Philipp Bagus's "Who's Afraid of Deflation?" to see the positive side of a falling price level.)

Strictly speaking, inflation and deflation can only stem from changes in the actual amount of money outstanding. Increases in the quantity of dollars causes, everything else being the same, an increase in prices. A decrease in dollars will cause the opposite effect. While bouts of inflation can occur under any monetary regime, deflation is constrained to a specific type — the fractional-reserve-banking system.



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