Infinite Cash, Scarce Toilet Paper
Anyone trying to buy toilet paper knows it’s difficult to find. The same goes for physical gold. Bill Fleckenstein seized the juxtaposition to entitle his daily rap, “Gold: Almost as Good as Toilet Paper.” Anti-gouging laws have consumers lining up early and often to grab some precious rolls.
Last month the Chinese central bank treated that country’s currency as toilet paper by destroying bales of bank notes. The South China Morning Post reported, “The Guangzhou branch of China’s central bank says it will destroy all banknotes collected by hospitals, wet markets and buses to ensure the safety of cash transactions as the country battles a coronavirus outbreak.”
Not so long ago, in 2006, the New York Times reported,
at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417. No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.
Toilet paper may be in short supply, but the Federal Reserve is determined to make sure dollars are not. Last Sunday’s 60 Minutes featured Scott Pelley interviewing Minneapolis Fed President Neel Kashkari, who, after Pelley asked what he would say to the average person who wants to pull their money out of their bank, answered reassuringly,
You don't need to. Your ATM is safe. Your banks are safe. There's enough cash in the financial system. And there's an infinite amount of cash at the Federal Reserve. We will do whatever we need to do to make sure that there's enough cash in the banking system.
To his credit Kashkari didn’t dodge the obvious question. Pelley asked, “Is the Fed just going to print money?”
Kashkari quickly responded,
That's literally what Congress has told us to do. That's the authority that they've given us, to print money and provide liquidity into the financial system. And that's how we do it. We create it electronically. And then we can also print it with the Treasury Department, print it so that you can get money outta your ATM.
Of course followers of Austrian economics have known that. Murray Rothbard wrote in The Case Against the Fed,
these Notes, which, of course, the Fed can print at will. Unlike the days of the gold standard, it is impossible for the Federal Reserve to go bankrupt; it holds the legal monopoly of counterfeiting (of creating money out of thin air) in the entire country.
The Minnesota Fed head told Pelley, “in the last crisis, we've used something called quantitative easing, buying long-term bonds. We've got a lot more experience in how to do that. It didn't trigger inflation. So, there're other tools that we've used before that I think we could also use again in using it aggressively.”
No price inflation if you exclude asset prices and day-to-day necessities.
In addition to a heavy-handed Fed, Larry Kudlow just provided a few highlights to the Trump administration’s 6 trillion dollar government package the senate is wrestling over.
Since the airing of the Kashkari interview and prior to Kudlow’s utterings, the price of an ounce of gold increased $150. The yellow metal maybe is not as scarce as toilet paper, but still hard to find. Philip Grant writes in today’s Almost Daily Grant’s,
The acute shortage of physical gold has reached historic proportions, with COMEX futures for June delivery priced at a $57 premium to London spot prices this morning. According to Bloomberg, that’s the largest divergence between the most active contracts since 1980. “If you need to borrow gold in the OTC [over-the-counter] markets right now, you are going to pay a king’s ransom” commented Ole Hanson, head of commodity strategy at Saxo Bank.
This morning, Goldman Sachs analysts said: “We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now.”
Goldman’s currency debasement is Rothbard’s counterfeiting. Either way, the next step is toilet paper.
