Author Archives: Keith Weiner

About Keith Weiner

Dr. Keith Weiner is the president of Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

Republicans Adopt Dirty Rotten Democrat Trick

Do you remember budget debates, where the Democrat would say “it’s a severe budget cut”? He would claim a 3 percent cut. This was a dirty, rotten trick. Here is how it works.

For example, last year’s budget was $100. They project $105 this year, and for whatever reason—inflation, need, population growth—that is assumed to be the new baseline. Suppose the legislature passes a budget for this year, of $102. In reality, this is an increase of two percent.

However, the Democrats would spin it as a cut of three percent. If Republicans hold the majority, then they are so mean to hurt widows and orphans. If Democrats hold the majority, then they are showing fiscal responsibility.

But of course, it’s not a cut. It’s an increase.

Fast forward to today, when Republicans have found a way to exploit this ideas. It’s not the budget, but regulations. They claim that President Trump has cut regulations by 30 percent. This is a subtler use of the old dirty rotten trick, so let’s look at how it works.

Trump supporters point to the Federal Register. This is the government’s publication of new regulations. In 2017, the Federal Register contained about 30 percent fewer pages than in 2016.

We will ignore two problems with the quantity theory of pages in the Federal Register. One, the Federal Register contains other material than just new regulations. Two, not all pages are created equal. A page that repeals the monstrosity of Dodd Frank is good, whereas a page increasing the federal minimum wage to $15 is bad. Even new regulations are not all created equal. A hike of the minimum wage is more damaging than a rule saying employers must provide bathrooms for employees.

Anyways, for the purpose of this discussion, let’s accept page count as a proxy for regulation. The dirty rotten trick is that the Federal Register is the publication of new regulations. If the 2017 edition had over 30 percent fewer pages, that does not mean that Trump removed 30 percent of existing regulations.

It means Trump added over 60,000 pages of new regulations, which is 30 percent less than Obama’s over 95,000 pages!

The government publishes the complete set of all existing regulation. This is not the Federal Register, but the Code of Federal Regulations. The page count for 2017 is not available yet (that I could find in 15 minutes of Googling), but if you look at some of the years under President Reagan, you see lower Federal Register page counts but rising Code of Federal Regulations page counts. That is what is happening today also.

Indeed, promoters of the Trump Deregulation Story often quote work by the Competitive Enterprise Institute. Here is a link to their 9,999 Commandments. CEI has done a lot of analysis of page counts in the Federal Register. And they acknowledge that Trump did not deregulate. From 9,999 Commandments:

This analysis [by the Mercatus Center at George Mason University] found that “the numbers don’t show a massive deregulation—in fact, they show that the quantity of regulatory restrictions actually grew. But it grew by less than we might have expected based on historical patterns.”

Unfortunately, this subtle truth has been drowned out by the unsubtle cheering of Trump’s deregulation.

The confusion of Federal Register and Code of Federal Regulations is like the confusion of the deficit and the debt. The deficit is how much more we add to the debt this year. Proponents of the Paul Ryan budget plan in 2012, for example, sometimes said he was reducing the debt, when the plan proposed a lower deficit. That is, Ryan proposed to increase the debt—more slowly than President Obama did.

The CEO Pay Ratio

A popular metric is to compare CEO pay to the pay of the lowest-skilled–and hence lowest-paid–worker in the company. If the CEO makes $15,000,000 and a burger-flipper makes $15,000 then the CEO is making 1,000 times more.

This provides fuel for policy debate. As I often say, socialism is not about economics. There is no economics of socialism. It is nothing more than institutionalized envy. And the pay ratio of 1,000 appeals only to envy. It is offered without context, as none is deemed necessary. The very fact that he is paid so much more is taken as proof of … well it’s outrageous.

Something must be done!

Or so the Left argues. Get him because he’s rich. Impose a pay restriction on all companies, or at least all public companies. Tax the #$&%! out of him. Give all workers a so called guaranteed basic income (so called because socialism never delivers on its promises).

Libertarians are correct to note that if a wage is set in a free market, there is no fairer mechanism. And besides, it’s the company’s money to spend as it chooses. No good can come out of Washington meddling. They also point out that the CEO produces more value than the burger flipper, and his job is harder and more stressful.

This is true, but the very notion of a ratio of one person’s pay to another’s is meaningless. It tells us exactly nothing, while tantalizing us that it tells us something important.

I propose a different metric. A ratio of a worker’s pay to the value he produces. For example, suppose the gross profits (ex. cost of meat and ingredients) generated by the burger flipper’s work is $15 per hour. His pay is $7.50. Therefore this is a 2:1 ratio. He is paid half the value he creates.

Now consider his manager. The manager supervises 10 workers. Assuming all have equal productivity, the total gross value of these workers is $150. If the manager is paid $15, then this same ratio moves up quite a lot. It is 10:1.

Finally, let’s go all the way up to the CEO. If the firm’s gross profit is $15,000,000,000, then this ratio is 1000:1.

As we move up in the value chain, it is harder to measure the gross value contributed by each worker. For example, with the CEO, is the gross value simply gross profit? Or are we trying to look at just the difference he makes compared to his predecessor?

However, it should be clear that as you go up in value and salary, the ratio of value created to salary also goes up. That is, higher-value workers are paid less as a percentage of the value they create. Isn’t that a different view from the common envy view?

I am not sure what to call it. It may even exist, though I have not come across it. I am mulling “gross value capture ratio of wages”.

You Didn’t See That

I don’t normally write about myself. Please bear with me as I get something off my chest.

My field is monetary science. I focus on two areas. One is the pathology of the dollar, which is in terminal decline. The other is a free market in money, a.k.a. the gold standard. Science is a quest to discover new principles. I work on understanding the processes and mechanisms of both the failing dollar and the unadulterated gold standard.

One of the greatest satisfactions in my life is to identify something, work out what it is, obsess until I truly understand it, and then communicate it. For example, why we need an objective unit of measure of economic value and how we can recognize it when we see it.

This is what I have done all my life. As an early teen, learning to program on the Apple ][+, I developed a way to write floppy disks that could not be read by any copy program (copy protection was important in those days). I studied how the disk drive mechanism worked, and traced the inner loop of the commercial copy programs (alas I did not have the discipline to finish and commercialize it, or I should have made a lot of money).

At my last company, DiamondWare, I envisioned what 3D audio would sound like, what it would do for voice communications. I remember the day when we finally put together all the code to implement it, and I heard it for the first time. It worked! Later, I architected a scalable realtime audio server to provide this 3D voice experience to a massive number of people.

After selling the business (and spending several years at Nortel, and then at Avaya), I applied myself to monetary economics. The gold world has a benchmark called the Gold Forward Rate (GOFO). It is as important to gold-using businesses as LIBOR in conventional finance. It was published daily by the London Bullion Market Association until a few years ago. Everyone said it could not be calculated using only public market data. I developed a way to do it. We now update a daily chart of GOFO.

I have worked out what a modern, 21st century gold standard will look like—and the path to get from here to there.

Without boasting, this is what I do.

So I must say the most frustrating experience for me is when someone denies my observation. What they are saying (without understanding what I am saying) is, “you didn’t see that.”

Obama infamously said “you didn’t build that.” It’s pure envy. He did not build anything, and says this to feel better about his own lack of achievement. When various and sundry alleged free marketers say “you didn’t see that,” they are trying to feel better about their own lack of vision. They hold to the conventional Quantity Theory of Money. Aside from being wrong, this theory does not encourage (or enable) seeing new phenomenon. It’s a dead-end.

Some of these folks are threatened by my seeing that, the way Obama is threatened by entrepreneurs who build that.

They have even tried to suggest that I am attacking Mises along with all economists. Sorry, guys, that’s not how science works. You do not get to deny an observation by such emotional appeal. You cannot just conjure up a picture of carnage, of economists slain by the dragon of a new idea.

Either I am right, or I am not. If not, show me where I made a mistake (which would first demand that you understand what I said). Failing to meet that standard, you’re just attacking what you don’t comprehend.

You cannot make me unsee something. Nor can you cow me into remaining silent. If there may have been a time when you could have marginalized me by browbeating my early audience with fear that if they follow my work they will be ostracized, that time is long past.

If what I say makes you feel uncomfortable, then it is not my sin. It’s all yours. It is you who ought to check your premises, oh you who would presume to utter “you didn’t see that” out of fear of seeing it for yourself. It is you who need to know why my ideas cause you such anxiety. If it were true that I saw nothing, and my work just rubbish, then you know that it would not vex you so.

And if you don’t want to know, if you don’t want to check your premises, and you don’t want to understand my ideas well enough to refute then, then you marginalize yourself. Monetary science is moving forward, whether you will or not.

I’ve got science to do, a business to build, and a world to help move towards the gold standard. What are the “you didn’t see that” crowd doing?

The Party of Spend More vs. the Party of Tax Less

The Senate just passed a 500-page tax reform bill. Assuming it lives up to its promise, it will cut taxes on corporations and individuals. Predictably, the Left hates it and the Right loves it. I am writing to argue why the Right should hate it (no, not for the reason the Left does, a desire to get the rich).

The root of our problem is spending. The federal government spends much of our income, and an increasing amount of our wealth to the tune of over $4 trillion a year. That is over $11,000 for every man, woman, and child. But children don’t work and many adults don’t either (or they work for the government or a contractor). Assuming 100 million work in the productive sector, the government spends $40,000 in cash for each one, not counting the promises it racks up. This is the federal government only, and of course the people also bear the burden of spending at state, county, city, and municipal water district levels.

The government spends more than it takes in tax revenues. A lot more. The federal debt today is over $700 billion more than it was a year ago. The reason is simple. The people may love spending, but they hate taxes. So the government makes it up by borrowing.

I have written a lot about this concept, borrowing. They call it borrowing, but without the means or intent to repay it, it’s really a fraud. This is my definition of inflation—counterfeit credit. It is the compromise between the party of spend more, and the party of tax less: the policy of borrow more.

And that brings us to the present topic. Is it good to cut taxes? Economist Frederic Bastiat could have written this essay for me, in only 168 words. The first paragraph of the introduction to his 1850 book That Which is Seen, and That Which is Not Seen reads:

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, — at the risk of a small present evil.”

If they cut taxes, the seen is the lower tax you must pay. That is good and everyone is happy. But what is the unseen? What is that thing to which Bastiat refers as the “ultimate fatal consequence”?

It is an increase in borrowing. The “great evil to come” is the collapse of the debt, which is the backing for what we call money nowadays. When the debt is defaulted, our money will be worthless.

A reduction in tax revenues necessarily means an increase in net borrowing. Borrowing, of course, does not generate revenues. It is merely an addition to the debt.

To manage the rising debt—it’s rising exponentially—they suppress the rate of interest. This keeps the monthly payment down, but it has many other unseen but foreseeable consequences. Just ask a retiree trying to live on fixed income.

The bottom line is that when the government spends our income and our wealth, we are impoverished. That is a fact, and there cannot be any real debate over it. The debate is whether it is less bad to tax us or to borrow.

When the government taxes us, we know we are poorer. It is seen. We adjust downward our consumption and our quality of life. This is why everyone hates taxes.

When the government borrows, by contrast, we do not feel the pinch of the impoverishment. Instead, the government sells us bonds. The bond is a financial asset which not only pays interest, but has been in a bull market since Ronald Reagan took office in 1981. We not only don’t feel poorer, but we actually feel richer. The purchasing power of our investment portfolios is going up.

Borrowing is not a magic perpetual motion machine. It is not a way to spend above your revenues. It is not a way to consume without first producing. It is a just a way to deceive—to consume without the taxpayer realizing it.

It is Bastiat’s unseen.

The Big Myth

Don Watkins of the Ayn Rand Institute wrote an article, The Myth of Banking Deregulation, to debunk a lie. The lie is that bank regulation is good. That it helped stabilize the economy in the 1930’s. And that deregulation at the end of the century destabilized the economy and caused the crisis of 2008. If deregulation is the problem, then reregulation is the solution. So, in the wake of the crisis, Congress enacted a 2,300-page monstrosity of regulation known as Dodd-Frank.

Watkins does a good job describing government regulation of finance, in particular addressing the savings and loan industry. He gives an example where people commonly assume that Congress reduced regulation, the Graham-Leach-Bliley Act of 1999. The headline is that this law reduced regulation, and allowed banks to be in the securities business. However, the truth is that it mixed in a dollop of increased regulation.

I commend him for tackling regulation and the moral hazard of deposit insurance, and calling for real deregulation.

However, I must criticize is article. He says:

“By far the most important factor in postwar stability was not New Deal financial regulations, however, but the strength of the overall economy from the late 1940s into the 1960s, a period when interest rates were relatively stable, recessions were mild, and growth and employment were high.”

Here is a graph of the interest rate on the benchmark 10-year Treasury bond from 1946 through 1969.


Even during the initial smooth period through 1953, the rate of interest climbed 27 percent. By this point, the instability had only just begun. If “into the 1960’s” refers to the last plateau in 1965 before the rate destabilizes further, then the rate was about 4.2%. This is about double what it had been just 15 years earlier. And at the end of the 1960’s, the interest rate had hit 7.7%, or about 3.5 times where it started.

Watkins gives us a hint that he means that the interest rate destabilized after President Nixon severed the last link to gold in 1971. He says, “…[the] U.S. government cut its remaining ties to gold in 1971. The volatile inflation and interest rates that followed…”

So let’s look at the interest rate for the full period of rising rates, up to the peak hit in 1981.


We can see that it does indeed get worse after Nixon’s ill-conceived act. However, it is just a continuation of the same trend that had been underway since 1946. It’s a combination of rising interest rates with rising interest rate volatility. Both phenomena inflict damage on the economy.

Watkins claims, “Part of the credit for this [interest rate] stability goes to monetary policy.” He thus contributes—I assume unintentionally—to the myth of monetary central planning.

Myth: central planners were successful for decades, delivering a strong and stable economy. They can do it again. So if our present planners are not getting it right, then we just have to hire the right people.

If our civilization is to have a future, then this myth must come down!

In recent decades, most people believed that Fed Chairmen Greenspan and Bernanke administered a strong and stable economy. They called it “the great moderation”. Of course, this view ended with a crash in 2008, along with the markets.

Watkins reinforces the myth in his subsequent discussion of regulation and the savings and loan crisis. He says that New Deal regulation, “collapsed under the pressure of bad monetary policy from the Federal Reserve…” The very phrase “bad monetary policy” implies that there is such a thing as good monetary policy.

There is no such thing as good monetary policy.

There is no such thing as effective monetary policy, or monetary policy that does no harm. There are only the times when most people see no overt symptoms, when they don’t realize the damage being done. And there are times of pain, when reality takes hold again. Since monetary policy can have lags of decades, most people do not know how to ascribe the blame properly.

One economic indicator that may make the postwar economy appear strong is Gross Domestic Product. GDP quadrupled from 1946 to 1969. Unfortunately, GDP is not a measure of the quality of economic activity. A fever is not a measure of the quality your health, but merely the quantity of calories your sick body is burning. Similarly, GDP is not a measure of the quality of the economy, only the quantity of dollars turned over.

GDP should be understood to be a measure combining destruction plus production. Government waste is added to private activity. And of course, not all private activity is productive. GDP does not distinguish between the squandering of precious capital during false booms and the genuine productive enterprise. It also includes many other wasteful activities, such as regulatory compliance.

A rapidly-rising GDP does not necessarily mean the economy is healthy or stable. In fact, it was not in the postwar period.

One subtle but deadly problem was described by economist Robert Triffin in 1959. Rational domestic fiscal policy was in conflict with international demand for the US dollar, used as their monetary reserve asset. The US was obliged—and happy to oblige—to run greater and greater budget deficits. Triffin knew that a crisis was inevitable. It came under the Nixon administration.

I want to pick on a phrase that feeds—again I assume inadvertently—into the anti free market, anti gold standard myth. Watkins uses the passive voice to say that the classical gold standard “had fallen apart during World War I…”

Most people today, if you press them, will tell you that that a free market contains the seeds of its own destruction. “Falling apart” is precisely what they fear will happen when a free market is unregulated, uncontrolled, and not centrally planned. That’s why they want regulators and central planners.

It needs to be said again and again. No. The classical gold standard did not fall apart!

It was killed by government. In 1913, the Federal Reserve was created. That altered the gold standard the way drinking a bottle of wine alters consciousness. If a drunken worker drives a bulldozer through a house, no one says that “the building had fallen apart.” In addition to the Fed in the U.S., the governments of Britain and Germany and other belligerent powers suspended the gold convertibility of their currencies in 1914.

Many people blithely say that the gold standard fell apart. I say, again, it did not.

After the war, the victorious countries claimed they were returning to the gold standard, but instead they created a pseudo gold standard. As everyone knows now, it didn’t work. At least one economist, Heinrich Rittershausen, knew in advance. He warned that this dysfunctional monetary system would cause a great unemployment.

We, the advocates of liberty, will only succeed if we are rigorous. We must know the facts we present in our writings, and our theories must take these facts in account. Otherwise, we may get a hosanna from the choir, but we will not persuade the mainstream. False facts will not win people who have studied the field.

Objectivism is the philosophy which reveres facts and integrates facts into theories which explain reality.

The fact is that since at least 1913, we have not had capitalism (and there was not a free market in banking in 1912, or even in 1812). Instead, since 1913, we have had a central bank. The Fed has been taking for itself more and more power over the decades.

Our central bank administers the interest rate. Interest, being the price of money, affects every other price and every economic decision in the economy. Distorting interest can have terrible consequences, which can come decades later.

More importantly than deregulating—and that is very important—we need to end central planning. The collapse of the Soviet Union proved that even corn production cannot be centrally planned. Corn is a simple product. You put seeds in fertile ground, wait for sun and rain to do their thing, and then harvest it. Yet the Soviets starved.

We are smart enough to know that we can’t centrally plan corn. However, we think we can centrally plan the most complex of man’s products: credit.

We must talk about this in plain language. The gold standard of a freer era did not just collapse, without cause. Power-lusting, war-mongering governments killed it to do away with the discipline it imposed. Then, free from this constraint, they marched men off to worldwide wars twice in 30 years (no, I am not saying that the US had the same moral stature as the European belligerents).

Towards the of the second world war, the US forced the allied powers to agree to a new monetary order at Bretton Woods. The architect of this vicious scheme was Harry Dexter White, a communist and tool of the Soviet Union. Ever since then, the worldwide monetary system has been dominated by the Fed. And the US has been abusing what Valéry Giscard d’Estaing, the French Minister of Finance in the 1960’s, called the “exorbitant privilege”.

The Fed’s central planning could not possibly have delivered stability, as any rational theory tells us. The Fed’s central planning did not in fact deliver stability, as any rational reading of history shows us.

What Will a 20% Tariff Do?

The Trump administration is now talking about a 20% tariff on imported goods from Mexico. As expected with any issue in economics, reactions are all over the map. Predictably, his supporters forget everything they learned about economics. They think the tax will be yuge.

Many others oppose the tax, but make a basic economic error. They think a 20% tax on, say Corona beer, will result in a 20% increase in the price of Corona.It’s much worse than that. Stop and think about it for a moment.

A 6-pack of Corona is about $10. Will people pay $12 for it? I bet most won’t. Corona itself has the strongest motivation to find out what consumers are willing to pay. If they thought they could charge more, they would already have raised their price.

Therefore, this tax will eat up Corona’s capital, as the company squeezes its profit margin. Maybe they raise the price a bit, and suffer reduced volumes. This will pinch margins even more, as there are fixed costs which don’t go down as volume drops.

Their American importers will also suffer, of course.

Ultimately, Corona will likely be forced out of the market. That’s when beer prices will go up, with fewer producers and less supply.

And of course the newly unemployed Mexicans who worked at Corona will cease buying any products from America. And Corona itself will have to reduce what it buys, as it is making less money.

Domestic beer brewers +1
Domestic importers -1
Domestic consumers -1
Domestic manufacturers -1
Domestic exporters -1

And all of this is assuming Mexico does not respond with tariffs and regulations of its own, which will add more entries to the minus column. If only we had a historical precedent so we could know how that is likely to play out…

Yield Purchasing Power

Most people think in terms of purchasing power. How much can one’s cash buy? I reject this view on two grounds. One, it encourages a liquidation mindset. If your life savings consists of 100,000 dollars in the bank, plus a house and some shares of AAPL and INTC, how many years’ worth of groceries can you buy?

If the grocery-value goes up, people cheer.

Life savings is not supposed to be about liquidation. People used to be able to earn a yield on their money. We should think of an estate as a business, with assets that generate income (as people once did). In this view, you don’t think of selling the business every minute of every day, cheering when its price goes up.

You think of its profits. You think of how many groceries you can buy–by operating a business to generate profit.

You don’t think of the purchasing power of the business, but its Yield Purchasing Power.

The conventional purchasing power paradigm paints a rosy picture. That may help explain why apologists for the regime of the irredeemable dollar promote it.

The yield purchasing power view shows something altogether different.

I have written eight short articles on Yield Purchasing Power. I gave a talk about it, in fall 2016 at the American Institute for Economic Research, which was recorded on video. Below are the links, gathered here in one landing page (which will be updated as I add more material).

Yield Purchasing Power: Think Different About Purchasing Power
Falling Yields, Rising Asset Prices -Rising Yields,Falling Prices
Interest – Inflation = #REF
THERE’S Your Hyperinflation!
Yield Purchasing Power: $100M Today Matches $100K in 1979
The Economy is in Liquidation Mode
Who the Heck Consumes Capital?!
Move Over Entrepreneurs, Make Way for Speculation!
Who Is Worth More: Some Hedge Funds or All our Kindergartens?

Video of my talk at AIER