What central bankers have done to your money

  • So completely out of touch
  • A near 100% devaluation

We finally arrived here at our hotel in Baltimore, Maryland, a mere 29 hours after leaving our home in Frankston, Victoria.

Three minutes later, following a quick change of clothes and a squirt of deodorant, we were off again — down to Mick O’Shea’s Irish pub on North Charles Street.

There we tucked into a cheeseburger and a couple of Cokes. While there, we had the second experience in barely two hours of how out of touch your editor is with the modern world.

For most that won’t be a surprise. And to be honest, it wasn’t a surprise for us either. More on that nonsense in a moment. First…


Overnight (for you), the US Dow Jones Industrial Average fell 22.74 points, or 0.13%.

The S&P 500 index lost 1.83 points, or 0.09%.

In Europe, the Euro Stoxx 50 index gained 18.83 points, or 0.68%. Meanwhile, the FTSE 100 added 1.09%, and Germany’s DAX index gained 0.49%.

In Asian markets, the Nikkei 225 index is down 65.77 points, or 0.43%. China’s CSI 300 index is down 0.57%.

In Australia, the S&P/ASX 200 is up 3.88 points, or 0.07%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$45.60 per barrel. Brent crude is US$46.98 per barrel.

Gold is trading for US$1,358 (AU$1,810) per ounce. Silver is trading for US$19.73 (AU$26.30) per ounce.

The Aussie dollar is worth 75.01 US cents.

So completely out of touch

Our pre-booked car service told us to phone the driver once we had collected our luggage at Washington National (Reagan) Airport.

That would be the cue for him to leave the holding bay, and head straight to the kerbside.

The problem? Of course, your editor is phoneless. Instead, we felt like an American from the 1980s, searching through our pocket for a handful of ‘quarters’ for the phone.

That assumed we could find a phone — a payphone — in which to insert the quarters.

We were in luck. Approaching the luggage area, we noticed a sign saying ‘Payphones’, and a bank of booths. Ha! We thought. Americans still haven’t fully moved into the 21st century, we’re in luck.

Not so fast. All bar one of the payphones had been removed. In place of the other payphones, were charging stations for mobile phones.


But at least there was one phone. And as luck would have it, no one was using it. So, straight to the front of the non-existent queue we went, lifted the receiver, dialled the number, pushed in the quarters, and…it turns out the payphone was broken.

I could hear the person at the other end…but she couldn’t hear me.

Now we were in trouble. That was until we strolled to the other end of the baggage claim area, and saw the same set-up — a bank of payphone booths.

And again (to our surprise, at least), no queue. This time we were in luck. We got through, and five minutes later, we were in the back of Oscar the driver’s Lincoln sedan. ‘To Baltimore my good man, and make it snappy,’ we didn’t say.

Our second experience of seeing how we’ve lost touch with the world occurred in Mick O’Shea’s Irish pub, mentioned above.

Our first problem was that we sat neither at the bar, nor at a table. We sat at the bench alongside the window, which was near the bar. Our innate awkwardness in these situations meant that we didn’t know whose attention we should try to attract — the bartender or the waitress.

Awkwardly, we leaned over, in a gap between two bar-sitters, and ordered a cheeseburger and Coke that way.

But it was what happened next that amazed us. A young lady was sat at the bar by herself. She had been for about the first half hour I was there. She had asked for the check, and seemed ready to leave.

Then a chap of roughly the same age sat down at the bar next to her. He ordered a drink (a shot or spirit), and then as quick as a flash, had struck up a conversation with the young lass.

His shot or spirit arrived, they clinked glasses, and he knocked his back in one gulp.

They chatted a while longer. All inaudible to your editor, due to the country & western and rock fusion live music going on in the background.

She got up to leave, and as she did, he appeared to ask her for her details. Not a phone number, of course, but an exchange of social media contact of some sort.

Being unfamiliar with the, erm, genre of social media, your editor can’t confirm exactly how the exchange took place. But it all appeared very casual and consenting…not a hint of, ‘I’d rather not’, about any of it.

We can only thank our lucky stars that we’re not part of the dating scene today. We wouldn’t have a chance.

To the young copy editors who check your editor’s spelling, syntax, and grammar each day, this will no doubt cause much amusement.

We’ve held out on not owning a mobile phone for around five years now. But each day we see things changing around us that makes it harder for us to ‘hold out’ for much longer.

Not owning a mobile phone has turned into some kind of pathetic badge of honour. So, we’ll try. It’s been five years already, what’s another five years?


A near 100% devaluation

In the time we’ve been blathering away about nothing, the Aussie market has gone into the red.

At the time of writing, it’s down 0.72 points, or 0.01%.

But the most interest point of anything and everything isn’t so much the stock markets, it’s the bond markets.

Earlier this week, the 10-year US government bond traded at 1.323%. Today, it’s not much better (or worse, depending on your position). It’s trading to yield 1.3564%.

chart image

Source: Bloomberg
Click to enlarge

It has been a similar pattern for Aussie bonds. Since reaching an all-time record low earlier this week of 1.836%, they’ve soared. Today, as I write, the 10-year Australian government bond yields 1.875%.

As for two-year bonds, we can only think it’s a matter of time before the US bond falls to zero and then negative. It’s currently trading at a price that yields 0.589%.

The yield has slumped 35% since it traded at 0.918% in May this year.

The fun looks set to continue. The market, politicians, and central bankers all have a new ‘fall guy’ to blame — Brexit.

Without Brexit, they seem to claim, the markets would be fine and dandy. Without Brexit, the US Federal Reserve would be on its way to raising interest rates into somewhere near the stratosphere.

Believe that if you will.

Our take, of course, is much different.

We see the world’s macroeconomic and microeconomic problems for what they are. They are the result of a decades-long experiment with paper money that has the backing of nothing except the honour of a central bank.

History has shown you that when it comes to displays of honour, the last folks you should turn to are central banks.

The experiment in paper money has been a miserable failure. If it were a horse, they would take it out and shoot it.

But no, the central banks persist.

For evidence of central bank failure, and the destruction they have wrought on wealth and the value of money, you only need to look at gold.

But not in the way you would normally look at gold. Normally, you would consider how many dollars it would take you to buy an ounce of gold.

But by looking at it that way, you tend to focus on the value of gold measured by paper money, rather than on the value of the money measured by gold.

So, in comparison, check out the chart below. It starts at 0.02572 in March 1971. It ends at the current level of 0.00074 today:

chart image

Source: Bloomberg
Click to enlarge

What does it represent? It represents how many ounces of gold you would get for one US dollar. In 1971, before US President, Richard M Nixon, closed the ‘window’ on the gold standard, one US dollar was the equivalent of 0.02572 ounces of gold.

That’s because the gold price was fixed at US$35 per ounce.

But today, one US dollar will buy just 0.00074 ounces of gold.

Put another way, you can buy 97% less gold with a dollar today than you could in 1971. And put still another way, it means the good old central banks have crashed the value of money by almost 100% in a little over 40 years.

What a jolly good show.

That’s all. We’re tired. Time to get some sleep.

Back on Monday, with more blathering from Baltimore, Maryland.