Hiding the Harm of Minimum Wage Laws in a Sea of Data

The federal minimum wage hike didn’t make its way into the coronavirus stimulus bill passed by the Senate last week, but it is an idea that won’t die. With Biden in the White House and Democrats controlling both houses of Congress, the issue will almost certainly come up again sooner rather than later. Proponents of […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/guest-commentaries/hiding-the-harm-of-minimum-wage-laws-in-a-sea-of-data/

At Least Somebody Gets It! SchiffGold Friday Gold Wrap Podcast March 5, 2021

Gold faced more selling pressure this week as the mainstream continues to labor under the misguided notion that the Federal Reserve is going to tighten monetary policy sooner than expected to deal with inflation. Friday Gold Wrap podcast host Mike Maharrey has been arguing the Fed is not going to tighten; it’s going to ramp […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/friday-gold-wrap/at-least-somebody-gets-it-schiffgold-friday-gold-wrap-podcast-march-5-2021/

Fun on Friday: Would You Steal From This Dude?

Do you know what’s pretty ballsy? Stealing from a professional wrestler. Yeah, I know pro wrestling is fake. (No, really, it is.) But that doesn’t change the fact that pro wrestlers are big, strong athletes. In fact, before he went into fake wrestling, Kurt Angle was a real wrestler and won an Olympic gold medal […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/fun-on-friday/fun-on-friday-would-you-steal-from-this-dude/

Central Banks Will Still Do “Whatever It Takes”!

Genies Lamp and Dollars

Governments are taking a page out of the play book that monetary policy began a decade ago – which will lead to even higher debt levels.

During the throes of the financial crisis almost a decade ago Mario Draghi, then President of the European Central Bank (ECB) pushed the ECB’s mandate to the limits with his speech in July 2012:

within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough

This was during a time when Greece, Portugal and Ireland had already received financial stabilization support from the European Union, IMF and ECB. Concern that rapidly rising government bond yields in southern Eurozone countries would create a domino effect of financial crises requiring financial stabilization packages across the region. Speculation was escalating that countries could start departing the Eurozone. Draghi then backed up his vows by purchasing government bonds to stabilize yields.

That Was Then, This is Now…

Fast forward to the current pandemic-induced crisis…

The IMF estimates that governments have already provided more than $14 trillion in support through increased spending and tax cuts. And just this week Rishi Sunak, UK finance minister, is promising.

“We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people, … First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis … Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that. And third, in today’s budget we begin the work of building our future economy”

Reuters; 03/02

This is in addition to the almost $300 billion pounds the UK has already spent on emergency programs and tax cuts since March 2020.

And the UK isn’t the only government with this mindset. Draghi himself, now Prime Minister of Italy, has the daunting challenge of restoring growth to a country that had stagnated even before the pandemic. Even with Italy already saddled with debt approaching 160% of GDP, Draghi is likely to increase spending programs and reduce taxes to spur economic growth.

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The US government is no exception, with Janet Yellen taking the helm of the US Treasury pushing for up to $1.9 trillion in additional stimulus spending, along with another chunk of additional spending on infrastructure and renewable energy initiatives.

At the same time monetary policymakers are committing to keeping rates low for the foreseeable future to support their respective economies.

The Options Are Limited

If we fast forward further to the days after Covid-19. The high and continually rising debt levels limit monetary policy options; monetary policy tightening becomes extremely risky in an environment of high debt as it risks quickly tipping an economy back into recession. High debt levels also dampen economic growth, which encourages more expansionary fiscal policies, which then further adds to debt levels, which then dampens growth yet further, which then encourages yet more fiscal policy expansion,…, and so on.

Is this the government doing whatever it takes?

Governments can reduce debt in two ways, either inflation/financial repression or shift to policy austerity. This means higher taxes and cuts to government services.

Let’s first us look at what is needed to reduce a government’s debt to GDP ratio. The basic principle is that the growth of nominal GDP (which is actual GDP growth + inflation) plus the primary balance (the government’s deficit/surplus as a percent of GDP not including the payment on its debt) must exceed the total interest paid on its debt.

For example, if a country’s nominal GDP growth is 4%, and the primary balance is -3.5% of GDP (meaning that the country spends more than its revenues), and the interest the government pays is 2%, then the debt to GDP ratio will rise, because 4% + (-3.5%) is less than 2%. However, in the example above if the country’s expenditures are equal to its revenues (a balanced budget) then the debt to GDP ratio will decline, because 4% + (0%) is greater than 2%.

“Whatever it Takes” Has Only Two Choices

As for the choices on how to reduce debt to GDP ratios, the lesson is that inflation helps reduce a government debt to GDP. This statement presumes that government deficits are brought under control. It also assumes that interest rates are lower than the inflation rate through interest rate caps.

The other option is political austerity. And if history is any indicator governments that implement harsh fiscal austerity measures, get quickly voted out of office.

Japan has the highest government debt level in the world. The majority of the debt held by the Bank of Japan. Given the absence of a debt crisis in Japan, adherents to Modern Monetary Theory have been encouraged to argue that European and North America countries should follow Japan’s example. This means the central banks should buy more government debt as the governments embarks upon capital (and social) infrastructure expenditures.  In this case, government debt levels will rise significantly higher in the coming years. And this could end – with an inflationary surge and suppressed interest rates.  

So “whatever it takes” becomes; “whatever we can given our very limited financial, monetary and political options!

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NEWS and COMMENTARY

Gold prices off 9-month low, but pressured by rising bond yields 

Gold slips as U.S. bond yields and equities dull its appeal 

U.S. Inflation Expectations Hit Decade High as Yields Resurge 

GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

03-03-2021 1727.05 1711.40 1235.53 1226.73 1428.27 1419.00
02-03-2021 1728.50 1723.85 1245.21 1237.38 1437.94 1431.66
01-03-2021 1746.95 1734.15 1252.21 1244.95 1450.67 1439.86
26-02-2021 1765.10 1742.85 1268.05 1250.67 1455.85 1438.20
25-02-2021 1792.10 1779.65 1265.76 1256.61 1465.40 1453.97
24-02-2021 1807.25 1788.00 1277.36 1266.98 1487.19 1474.74
23-02-2021 1809.50 1799.65 1284.93 1278.65 1489.22 1481.83
22-02-2021 1798.80 1807.45 1282.54 1286.54 1484.01 1487.53
19-02-2021 1773.75 1786.20 1267.34 1274.28 1461.39 1473.26
18-02-2021 1782.80 1773.15 1280.59 1271.17 1477.76 1468.70

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The post Central Banks Will Still Do “Whatever It Takes”! appeared first on GoldCore News.

Original source: https://news.goldcore.com/can-central-banks-actually-do-whatever-it-takes/

Silver Demand in Auto Industry Expected to Surge and Other Silver News

The use of silver in the automotive sector is expected to surge in the coming years, according to the feature story in this month’s edition of the Silver Institute’s Silver News. With modern cars using more silver than ever in their advanced technology components, analysts project the auto industry will likely need nearly 90 million […]

The post Blog first appeared on SchiffGold.

Original source: https://schiffgold.com/key-gold-news/silver-demand-in-auto-industry-expected-to-surge-and-other-silver-news/