From: The Daily Bell
50
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| Dr. Antal Fekete |
The Daily Bell is pleased to present this exclusive interview with Antal Fekete.
Introduction: Professor
Antal E. Fekete is an author, mathematician, monetary scientist and
educator. Born in Budapest, Hungary, in 1932, he graduated from the
Eötvös Loránd University of Budapest in mathematics in 1955. He
immigrated to Canada in 1957 and was appointed Assistant Professor at
the Memorial University of Newfoundland in 1958. In 1993, after 35 years
of service he retired with the rank of Full Professor. In 1995 he was
Resident Fellow at the Foundation for Economic Education in
Irvington-on-Hudson, New York and in 1956 he was Visiting Professor at
the Francisco Marroquin University in Guatemala. He is the founder and
chairman of the board of the New Austrian School of Economics in Hungary. His website is www.professorfekete.com. Professor Fekete is a proponent of the gold standard and critic of the current monetary system. His work falls into the school of free-market economic thought led by Carl Menger. He is an advocate of Adam Smith's Real Bills Doctrine.
Daily Bell: Nice to speak with you again. Let's jump right in. Why is the price of gold declining?
Antal Fekete: Columbia University professor Michael
Woodford, the world's most closely followed monetary theorist said
recently that if we are going to scare the horses, might as well scare
them properly. He said it in an allegorical sense: loose talk about
ending QE and about exit strategies is amateurish. Telling the world
that central bank
financing of the public debt is here to stay, and that QE is forever,
is professional. The allegory can be extended from fiscal policy to
monetary policy as well. The demand for dollars is waning spectacularly
due to its unprecedented debasement that, to add insult to injury, is
done with great fanfare. The price of paper gold was declining in April
because Bernanke
now thinks it's time to scare the horses properly. They have strayed
too far afield to graze. They should get back to the dollar turf.
Daily Bell: Where is the price of gold headed from here?
Antal Fekete: The price of gold is headed for
extinction. I for one don't believe that the price of gold is headed for
five digits. Long before that might happen, permanent backwardation*
would shut down the gold futures markets. Gold could no longer be
purchased at any price. Gold would only be available through barter.
World trade is facing an avalanche-like transformation flattening out
monetary economy into barter economy. Practically all economists,
financial writers and market analysts have missed this possible
scenario. They don't see the greatest economic contraction ever staring
them in the face. They don't see the coming tsunami of unemployment.
Very few see deflation as indicated by the progressive disappearance of
cash gold. It never occurred to Bernanke that the new Federal Reserve
notes he is printing galore could also go to purchase physical gold,
causing the gold basis to shrink. Once the gold basis* goes permanently
negative, the total U.S. debt, all $16 trillion of it, will not be worth
one ounce of gold. That will pull the rug from underneath the
international monetary system. Barter is the ultimate in deflation, and
that is what the world economy is getting.
Daily Bell: Is gold a commodity?
Antal Fekete: Gold (and silver) must be
distinguished from other metals and other commodities. Gold is a
monetary metal due to the fact that its marginal utility
declines at a rate lower than that of any commodity. For this reason
gold does not obey the Law of Supply and Demand. For example, a higher
price of gold need not call out a greater supply; often it causes the
supply to shrink further. Also, the threat of a lower or falling price
for paper gold, far from "scaring the horses properly," will induce
people to dump paper gold and make them flock to cash gold. Keynesian
and Friedmanite economics have wiped out the distinction between
ordinary commodities and monetary commodities. Today no university
offers courses treating the gold basis, the gold cobasis and their
interplay, or on the apocalyptic threat of permanent gold backwardation.
At the New Austrian School of Economics we do offer those couses.
Daily Bell: How about silver?
Antal Fekete: Silver is not an ordinary commodity
either. Like gold, silver is also a monetary metal. Its marginal utility
declines at a rate slower than that of any other substance save gold.
The silver basis, just like the gold basis, has shown a secular decline
from its maximum, the full carrying charge to zero and beyond, proving
that the supply of silver available for futures trading is dwindling and
disappearing fast. Permanent backwardation of silver is a matter of
time, probably not a very long time. It is an intriguing question which
event will come first. While there is a strong argument that its greater
relative scarcity will trigger permanent backwardation of silver first,
it's hard to see how permanent backwardation of gold can lag that of
silver, making it probable that the two events might occur
simultaneously. Be that as it may, either event will create an
unprecedented and uncontrollable turmoil in the financial markets, for
which Bernanke is utterly unprepared. Practically nobody realizes that
the root cause of all the bubbles, price-shocks, currency crises, as
well as the more recent deflation in Japan, Europe and America was the
secular decline in the gold basis. The "Big Bang" occurred in 1971, when
the U.S. defaulted on its international gold obligations.
Daily Bell: Why do they fix the price of gold in London? Is this how commodities should be priced?
Antal Fekete: Of course, they don't fix the gold
price in London. It's more like taking a snapshot and pretend that the
landscape was frozen thereby. It is another question that the London
gold fix could come handy in trying to manipulate the gold price and to
"scare the horses properly".
Daily Bell: Are gold and silver manipulated or is the current shake-out a result of too-high market expectations?
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