Wednesday, January 18, 2017

Fielding my grandson’s questions about gold and banking

My grandson had quite a day at school.  He had learned that the economy had been suffering from things called Panics, capital P, during the 19th century and had another big one in the early 20th century.  He had been told that responsible, public-spirited men like J. P. Morgan had organized a central bank to prevent those Panics.  He and other bankers finally got the government to go along with their idea and pass it into law in late 1913.  And wouldn’t you know it — we’ve had no more Panics since then.  

He looked doubtful, though.  He didn’t understand what a central bank did, exactly.  And wasn’t the Depression and the recent Financial Crisis kind of like a Panic, only called a different name?  And if those calamities were like Panics, then why didn’t the federal reserve prevent them?

His teacher said that this country and most countries of the western world were on a gold standard during the days of Panics.  Economists and other people decided that the real culprit behind the turmoil was the gold we used as money.  So we got rid of gold for the stuff we use today . . . which doesn’t come out of the ground . . . which comes from the government but is regulated by the people in charge of the federal reserve, which is not really part of the government, though they’re close friends.

“Ok,” he said, “so we have gold causing us and other countries all those Panics and we got rid of it.  But we didn’t get rid of it.”  He said his teacher told the class about the vault at the Federal Reserve Bank of New York, which houses gold for other countries.  The vault is 80 feet below street level and 50 feet below sea level.  He found that astounding.  The vault is protected by armed guards, CCTV, and electronic surveillance.  And the guards are trained marksmen.  

Then his teacher pulled out his tablet and read this to the class, which my grandson read to me from his smartphone:
There are no doors into the gold vault. Entry is through a narrow ten-foot passageway cut in a delicately balanced, nine-feet-tall, 90-ton steel cylinder that revolves vertically in a 140-ton, steel-and-concrete frame. The vault is opened and closed by rotating the cylinder 90 degrees. An airtight and watertight seal is achieved by lowering the slightly tapered cylinder three-eighths of an inch into the frame, which is similar to pushing a cork down into a bottle. The cylinder is secured in place when two levers insert large bolts, four recessed in each side of the frame, into the cylinder. By unlocking a series of time and combination locks, Bank personnel can open the vault the next business day. The locks are under "multiple control" no one individual has all the combinations necessary to open the vault.
He found this even more astounding.  “Why?” he wanted to know, “Why all the protection for something that’s worthless?  Why even keep it around, except maybe for rings and other jewelry?”

As I started to answer he interrupted me.

“That bank stores the gold of other countries.  Fort Knox vaults the gold Americans once had.  And it’s a piece of work, too.” 

He told me the depository was on an army base, and the building that housed the vault was made of North Carolina granite.  When the government ordered Americans to turn in their gold coins they melted it down into bars and shipped them by rail to the depository under heavy guard.

“But it’s not just gold stored there,” he said.  The place is so secure the government stored the Declaration of Independence and the Constitution there during World War II — the original documents.  It also held four exemplified copies of the Magna Carta, which had been on display during the 1939 World’s Fair in New York.  

 “And get this,” he added, again reading from his smartphone:
During World War II and into the Cold War, until the invention of different types of synthetic painkillers, a supply of processed morphine and opium was kept in the Depository as a hedge against the US being isolated from the sources of raw opium.
“What’s going on?” he wanted to know.  “Drugs are bad, gold is bad, right? They’re against the law.  But we protect them like our very lives depended on them.”

“You want an answer.”

“Yeah.  Why didn’t government just dump the gold into the ocean or drop it down a volcano?

“For that matter, why did the government order people to turn it in?  If they didn’t want people using it for money, why not just say it was no longer legal.

“I checked the Constitution during study hall.  It says no state shall coin money.  It also says no state shall make anything but gold or silver coins a tender in the payment of debts.  Since the federal government is prohibited from doing anything not explicitly authorized by the Constitution, that would mean private mints would coin money.  Right?”  

I told him I couldn’t answer his questions on the constitution, other than to say it’s become a dead letter, meaning that men in power have used tortured arguments to interpret it to suit their purposes or have ignored it altogether in the name of “national security.”

I told him when “national security” is used to justify any government action we’re either at or headed for a dictatorship.  He agreed.  Then I attempted to fill in some other blanks he left.

Explaining why we went from gold to fiat paper money

A central bank, I explained, is a bank only to its member banks, not to people like you or me.  It holds its members’ deposits as reserves on which the commercial banks can issue loans.

At the time of the Fed’s creation in 1913 gold and to some extent silver were still legal money in the United States.  Holders of gold or silver coins could walk into stores and buy things with them, or deposit them in banks.  In some cases they could get banks to exchange notes for coins, though that became uncommon after 1917 when commercial banks began shipping their gold off to regional federal reserve banks where they were added to the banks’s reserves.

People, thereby, lost the use of gold coins and became acclimated to paper.  They were confident, though, that if they really wanted the gold the paper money promised to pay, they could get it.

That confidence crashed and burned in 1933 when FDR ordered Americans to turn in their gold coins — or else.  They were given assurances of the necessity of the heist — which has also been called a “gold recall,” as if the gold itself were defective.  It was a national emergency, and Americans knew the government took away their rights in a national emergency.  

Many of them recalled the social environment of World War I where people could get arrested for reading the Bill of Rights publicly.  And during the American Civil War Lincoln suspended habeas corpus and ordered the arrest and imprisonment of anyone challenging his policies.  Even the Constitutional Convention amounts to a violation of rights inasmuch as the delegates created a new government rather than revise the charter of the existing one, as they were empowered to do.  I suppose they would have said ‘national security’ required the ditching of the old government.

When Roosevelt delivered his first inaugural address he referred to the depression as an emergency comparable to war, thus setting up his listeners for some drastic measures.  Later, when he ordered people to turn in their gold, he told them not to worry.  The paper they would be using was good stuff, guaranteed.  Gold was preventing a recovery — somehow — even though the classical gold standard had been ditched almost two decades earlier.  If that doesn’t make sense rest assured monetary issues were complicated, and only the best and brightest could untangle them.  And Roosevelt had those kind advising him.  Besides, one of the best and brightest had said the gold standard was a barbarous relic, and it was obvious prices were too low, and the only way to bring them up was to manufacture more money.   But how are you going to do that with a scarce commodity like gold?  

“In a sense, though not the right one, gold did cause the Panics you mentioned.”  I said banks had been engaging in fractional reserve lending, where they would promise to redeem in gold coin all the banknotes and deposits for which they were liable.  But they expanded the banknotes and deposits beyond the amount of gold they had, a form of embezzlement, though bankers and their friends don’t see it that way.  Banks were creating multiple receipts to the same weight of gold, and those receipts circulated as money.  In that way they were inflating the money supply.  They got away with it until depositors got nervous about the bank’s ability to pay out in gold or until some other bank attempted to clear payments and discovered the inflating bank couldn’t do it.  

The public’s discovery of an over-inflating bank led to distrust of other banks, and soon there was chaos known as a Panic.  Bankers and most economists see nothing wrong with expanding credit beyond the money in the vault.  They consider it a sound practice that only becomes unethical and disruptive when the banks expand too much.

Instead of ceasing the practice of fractional-reserve lending they directed their wrath on gold.  If they didn’t have to redeem their notes in gold they could inflate to a much greater degree.  Get rid of gold, establish an institution that can provide funds during an emergency — in other words, a central bank — and the chaos would end.

Only it didn’t.  Gold acts as a brake on inflation, and without it the monetary unit we call the dollar starts to proliferate and lose value.   With economists focused on prices instead of the money supply they missed the inflation of the 1920s.  They said inflation was a rise in prices, and there was very little of that in the 1920s, except on the stock market.   When the Crash hit it came as a big shock — though not to Ludwig von Mises, an economist of the Austrian school.

Did they see their mistake and rethink their theories?  No.  Once again they seethed over gold’s role as true money.  President Roosevelt seized it from the public, but the Depression continued long after that event.     

Why the government protects gold to such an extent is a mystery to me.   Gold has always been a highly valued commodity, even now when it’s not used as a general medium of exchange.   So it would make sense for the government to safe-keep it.  But that only pushes the question back further.  Why is it such a highly valued commodity?

Not every government has kept it.  Gordon Brown, Britain’s Chancellor of the Exchequer, sold roughly half of the UK’s gold reserves between 1999-2002.  

“We should be free to decide what to use for money,” I told him.  “I would prefer something the supply of which can’t be increased easily, such as gold.  And banking should be subject to the laws of the market, instead of granted privileges protecting it from the market.”

He asked me to tell him again the name of the economist who predicted the Crash.  I was pleased to do so.

Announcement:  I have new books up on Amazon:


The New York Federal Reserve Vault: Guardian of the Gold,

United States Bullion Depository, Wikipedia

“Only Thing We Have to Fear Is Fear Itself”: FDR’s First Inaugural Address,

Mises: The Man Who Predicted the Depression, by Mark Spitznagel,, re-posted by Jeff Harding,

Sale of UK gold reserves, 1999–2002, Wikipedia

Wednesday, January 4, 2017

A painless path to publishing on Amazon

You’ve written hundreds of articles on markets, gold, government, and perhaps monetary theory.  You’ve hammered politicians and economists with merciless logic and unflagging scholarship.  Some of your writings are more valuable than gold, but where are they now?  Scattered, that’s where.
Why not put the best ones in one place: A book.  Make that two books.

For writers who have yet to publish a book and would like to, this brief article will show you step-by-step how to get it done.  It’s easy.

Yes, easy.  

Briefly, what you’ll do is create a word processing file then duplicate it.  You’ll use one file for a Kindle ebook, the other for a paperback.  

For the Kindle eBook, you’ll use your word processor to create an ePub file.  For the print version, you’ll change the document dimensions to fit Amazon’s 6” x 9” paperback format, then save it from your word processor as a PDF.  

You’ll then go to, if necessary register, then go through three steps for each book to put them up for sale on Amazon’s site.   You’ve already done the hard part by creating the content.  

Your books will need a cover, and you can create your own or use Amazon’s hand-holding Cover Creator, which you’ll see during step two of the three-step process.

You’ll upload the ePub to create the Kindle version and the PDF for the print edition.  

That’s it.  Amazon will email you when they’re live and available for purchase on Amazon’s site, usually within a few hours of completing the three-step process.

Manuscript preparation

(In what follows I’m referencing MS Word for Mac 2011 version 14.4.5 and Apple Pages version 6.0.5.  Some details may differ depending on your version.)

To create a good reader experience it’s important to get your word processing files formatted consistent with Amazon’s requirements.  It is, as they say, a piece of cake.  Let me show you:

1.  Crank up your word processor and prepare your manuscript.  Keep it as vanilla as possible — no fancy fonts or drop caps.  You’re marketing thoughts, not typefaces.  If you’re gathering articles already written, you’ll copy and paste until they’re all home in one place.  Otherwise, write as you normally would, keeping in mind that the sections you want to appear in an active table of contents for Kindle editions should have paragraph style titles rather than ordinary text titles.   

Here’s what I mean.  Below, I’ve typed the text then applied paragraph style Heading 2 to the title of a chapter:

Chapter One:  They all laughed

So, for example, if you have 12 chapters in your book, each chapter title would have the Heading 2 style.  Your word processor (Word or Pages) will incorporate all chapter titles as entries in the table of contents.

2.  Create an active table of contents.  Create a new page at the beginning of your manuscript by inserting a page break at the top of your first page.  Then on the blank page:

Apple Pages: Insert —> Table of Contents —> Document

MS Word: Document elements —> Table of Contents

In our example, all 12 chapter titles would appear magically in the table of contents — because you’ve applied paragraph styles to each title in the body of your manuscript.  With an active table of contents you can click on a chapter title and jump directly to the actual chapter.  Test it, you’ll see.  It’s neat.

3.  Add a page break at the end of each chapter.  

4.  All images should be inline, not floating.  Select each image, then:

Apple Pages: Format —> Arrange —> Text wrap —> inline with text

MS Word: Format picture —> Position —> Inline with text

If the image is a picture make sure it’s high-resolution.  

Important: Insert images into your document, rather than copying and pasting.

5 . Do not include headers or footers.   You will use this file to create a Kindle version, which doesn’t support headers or footers.

6.  Finish writing the manuscript and make sure it’s as clean as possible — no misspellings, omitted words, etc.  If you use hyperlinks test them to make sure they’re accurate.  I think it’s a good idea to put them in an end notes section, using superscripts in the body to reference them.  

For help strengthening your writing, even for powerhouse authors, see my little book, Write like they’re your last words

7.  Add the usual book front matter.  In your manuscript add at minimum a title page and copyright page.  You might also wish to add a dedication page and another page listing books you’ve published, honors received, knighthoods bestowed upon and so on.

8.  Create an ePub copy for Kindle. 

Apple Pages: File —> Export To —> ePub

MS Word: Not supported (as far as I know).  But — you can use the free program Calibre to perform the conversion.  See this 52-second YouTube tutorial to see how it’s done.

The content of your book is now in ePub format.  You will upload the ePub file to Amazon Kindle shortly.

9.   Copy the clean word processing manuscript from step 6 to a new file to create a print version of your book.  

Apple Pages: File —> Duplicate.  

MS Word: File —> Save as . . .  Give the duplicate file a unique name.

Using the duplicate file do the following: 

Add page numbers in the footer.   Set margins to 6” x 9”. 

10.  In the 6x9 print version, go through the manuscript to ensure all block quotes and images are within the new 6” x 9” dimensions.  Look for any kind of strangeness.  Adjust as necessary.
11.  Save the 6x9 word processing file to PDF.

Apple Pages: File —> Print —> PDF —> Save as PDF

MS Word: File —> Save as . . . —> PDF  

You are now armed with an ePub file for Kindle and a PDF file for a paperback.  All you have to do is feed these files to Amazon, essentially.
12.  Go to and sign in (or register for an account).
13.  Signing in will take you to  Follow the onscreen directions for creating a Kindle eBook and a paperback.  As I said at the outset you’ve done the hard part by preparing the files.  
You’ll be able to preview your books before giving Amazon the okay to make them live on their website.  You can always un-publish a book temporarily if you discover problems that eluded you earlier. 

Don’t let a mere 13 steps keep you from being a published book author, with full control over the content of your material (as long as it’s not porn).  Don’t be intimidated by the likes of PDF or ePub.  They’re servants with odd names.  They will do your bidding.  Let them.  You’ll profit from it.
See you on Amazon.

Wednesday, December 14, 2016

Don’t let fallacies torpedo your thinking

A fallacy is defined as a mistaken belief or a failure in reasoning.  Though most people make an effort to avoid mistakes, no one is infallible, not even great writers.

You can download a chart of common fallacies here.  The online chart is hyperlinked to each of the fallacies.

Here’s another source of common fallacies with examples, including their Latin names.  Example: post hoc ergo propter hoc (‘false cause’) fallacy: "after this, therefore because of this.”

I break fallacies into two major groups:

A.  First, we have traditional fallacies you might remember from philosophy 101.  In these, the reasoning is obviously absurd, though we might be at a loss to explain the specific violation involved:
Your dog has puppies. 
Your dog is a mother. 
It is your dog, therefore it is your mother.

Every distance, no matter how short, consists of an infinite number of points 
For a body to move any distance requires covering an infinite number of points. 
Nothing can move an infinite distance. 
Therefore, all movement is deceptive.

B.  More frequently we find these, where the fallacies are more subtle:
“The country’s top economists are in agreement that the Federal Reserve is necessary for economic prosperity.”
“The country’s leading experts agree that X is harming the environment.  Therefore, the government should regulate or ban X.”
Let’s address the first statement found under B.

Is it true?  In a literal sense, yes — the top economists wouldn’t dream of doing without a central bank.  Or if they did it would be considered a nightmare.

So is our work finished?  Do we affirm it as true and move on?

No, because the statement suggests that unless you’re a top economist, you have no grounds for disagreeing.  I call it the “Who are you?” (Quis es?) fallacy.  History tells us experts can be dead wrong, so let’s at least mount a challenge, shall we?

The country’s top economists hold advanced degrees from universities that support central banking.  The universities, in turn, receive funding from the federal government, which created the federal reserve system and relies on it heavily for monetary support.  Is it odd the universities would promote the Fed as an essential economic institution?

With regard to funding, many of the top economists themselves are deriving at least a portion of their income from the Fed.  Is it a stretch to imagine these economists are reluctant to turn against an institution they’ve been trained to salute?  Is it possible their bank accounts play a role in their refusal to cast a critical eye? 

And do the ones on top belong there?  If they’re the best and brightest, how did the bust of 2007-2008 explode in their faces?  Almost none of the “top” economists saw it coming, including the leading ones on the Board of Governors.  The same blindness prevailed before the stock market crash of 1929, with one notable exception.

In economics as in other crony (government-connected) professions there is a pay-to-play aspect, where the payment is an unstated agreement never to question certain assumptions.

Perhaps the economics the top economists learn is flawed.  In school they are taught that low interest rates are necessary for economic growth.  Since the central bank has the exclusive power to increase the money supply and thereby (indirectly) lower the rate of interest, it is therefore a pillar of prosperity.  

The idea that the economy is harmed by changes in the money supply, that any increase in money available for lending should come from real savings, is given little or no hearing in classrooms or policy discussions.  Not coincidentally the few economists who adhere to these views, who for this very reason are not considered “top,” had claimed a crisis was “baked in the cake,” as some put it.  

I should also mention that if the Fed is necessary for prosperity, how did we ever prosper before November 16, 1914 when the Federal Reserve Bank of New York opened for business?  And if the Fed is needed to control the business cycle — the booms and busts — how is it we’ve had some of the biggest economic crises since the federal government imposed it on us?

So, returning to the original statement, we find the country’s top economists to be incompetent, grossly so, while the Federal Reserve has been anything but a facilitator of general prosperity.  

I leave the second example in B for you to dissect as an exercise.

Monday, November 28, 2016

Technology: The Great Bushwhacker

If anything is clear about the 2016 presidential election it is the failure of the establishment media to push their favored candidate into the White House.  How did this happen?  A nearly-ubiquitous force known as the Web riding on the quietly-soaring Pegasus of technology As Gary North wrote in 2013,
What is going to shape the thinking of the American electorate is access to the Web, which enables people to read in-depth stories that interest them, and which interest people of similar perspectives. The social media will determine which news stories are read, not a handful of news screeners at the four major television networks. . . .
The Left is blaming Facebook in 2016.  But where did Facebook come from?  

Moore's Law bushwhacked the election.  It is bushwhacking almost everything.

Technology is poised to redefine life-as-we-know-it, including government.   There are numerous books that advance this outlook in great detail, among which are  Engines of Creation: The Coming Era of Nanotechnology, The Singularity is Near: When Humans Transcend Biology, Radical Abundance: How a Revolution in Nanotechnology Will Change Civilization, and Regenesis: How Synthetic Biology Will Reinvent Nature and Ourselves And putting technology in an economics context, Human Action: Scholar’s Edition 

There are many high-IQ people who talk about the future as if technology were an irrelevant consideration.  Political commentators especially have been speculating on presidential candidates for 2020 and 2024, as if the world will be essentially the same then as it is now in late 2016.  Have they forgotten how technology helped an underdog get elected in 1960?  Have they not seen Wag the Dog?

If anything is certain about the future it is the continuing decentralization of political power along with the technological empowerment of the individual.  It's possible government will suffer the same fate as landlines -- still around but headed for extinction.

Technological change is coming at us in ways that resonate with science fantasy and at an increasingly rapid pace, and nothing short of a global disaster will stop it.    

In 1965, Gordon Moore, co-founder of Intel, published a paper in which he noted that the number of components on an integrated circuit doubled every year.  Since the cost of the integrated circuit would remain roughly constant, we would get twice the speed and twice the circuitry at the same price.  Though later revised to every two years, Moore’s prediction has proven to be remarkably accurate and is known eponymously as Moore’s Law.  Ray Kurzweil, futurist, inventor, and head of engineering at Google, gives us a sense of what this means:
When I was an undergraduate [in the late 1960s] we all shared a computer at MIT that took up half a building.  The computer in your cell phone is a million times cheaper and a thousand times more powerful.  That’s a billion-fold increase in price/performance of computing since I was an undergraduate.  
Moore's Law will bow to another

Many observers predict Moore’s Law will end within the next few years, and with it we’ll see tech development slow from a sprint to a walk.  But as Kurzweil frequently points out, Moore’s Law is not the first but the fifth paradigm to provide exponential growth of computing.  Whenever one paradigm runs out of gas another one has been developing in the wings ready to continue the exponential.  In his words:
Computing devices have been consistently multiplying in power (per unit of time) from the mechanical calculating devices used in the 1890 U.S. Census, to Turing’s relay-based “Robinson” machine that cracked the Nazi enigma code, to the CBS vacuum tube computer that predicted the election of Eisenhower, to the transistor-based machines used in the first space launches, to the integrated-circuit-based personal computer which I used to dictate (and automatically transcribe) this essay.
He thinks the sixth paradigm of computing will be modeled on the structure of the human brain:
Chips today are flat (although it does require up to 20 layers of material to produce one layer of circuitry). Our brain, in contrast, is organized in three dimensions. We live in a three dimensional world, why not use the third dimension? The human brain actually uses a very inefficient electrochemical digital controlled analog computational process. The bulk of the calculations are done in the interneuronal connections at a speed of only about 200 calculations per second (in each connection), which is about ten million times slower than contemporary electronic circuits. But the brain gains its prodigious powers from its extremely parallel organization in three dimensions.  
There are many technologies in the wings that build circuitry in three dimensions. Nanotubes, for example, which are already working in laboratories, build circuits from pentagonal arrays of carbon atoms. One cubic inch of nanotube circuitry would be a million times more powerful than the human brain. There are more than enough new computing technologies now being researched, including three-dimensional silicon chips, optical computing, crystalline computing, DNA computing, and quantum computing, to keep the law of accelerating returns as applied to computation going for a long time.
In an interview with K. Eric Drexler, the founding father of nanotechnology, Kurzweil asked what sorts of things will emerge from nanotechnological engineering in the years ahead.
Kurzweil: One thing we can build today is very powerful computers.  What kind of computers can we build with nanotechnology?
Drexler: There’s a very conservative design for computational systems that can be the basis for computers that are comparable in power to modern CPUs but occupy approximately one cubic micron.  
And putting the power of a modern-day CPU into a cubic micron lets you deliver that kind of computational power in a volume that’s about 1/1,000th that of one of the cells in your body.  
I think that says something about the kinds of tools that will be available for biomedical instrumentation and intervention in the future.
By controlling the structure of matter at an atomic level, nanotechnology will also launch a revolution in manufacturing, including factories on a desktop.
Drexler:  Nanotechnology will provide a basis for taking everyone in the world — including people who are dirt-poor today — and providing them with a standard of living that’s far beyond the developed world today, and with less ecological impact. . . .
The greatest difficulty I see in developing advanced nanotechnologies is more cultural than scientific or technological.  We need a new field of engineering . . . .  
Scientists are used to working in small teams exploring new frontiers.  Engineers, to build large systems, work in larger teams and seek their challenges in taking known components and building new systems.   
Having a culture of systems engineering developing nanoscale technology is one of the greatest challenges we have today.  
Moore’s Law will stall, but the exponential progression of technology will continue as long as civilization survives.
Incorporate technology into your thinking, and keep this chart in mind, one of many in The Singularity is Near.