Friday, May 18, 2018

The Worst Man In Modern History

It seems extraordinary that in defiance of all factual history and philosophical knowledge anyone should celebrate the bicentenary of the birth of Karl Marx. More than anyone, through wrong-headed ideas, he bears responsibility, indirectly admittedly, for the deaths of an estimated one hundred million people in the last century, and the severe suppression though economic and social servitude of fully one third of the world’s population. And if you also include those who have suffered under the yoke of Marxist-inspired modern socialism, the philosophy that says the state is more important than the individual, you could argue nearly the whole world is influenced by Marxian philosophy today.

That might seem an extreme statement, but you only have to ask almost anyone anywhere, which do they consider is more important, the individual or the state, to see if this supposition is correct. The only explanation for the continued adoration of the man is that with such universal influence, there are bound to be legions of supporters remaining, ignorant of and blind to the reality. However, during his lifetime – he died in 1883 – he was hardly known. It wasn’t until the Russian revolution thirty-four years later that Marx began to be taken seriously.

How did Marx achieve this powerful posthumous position? It was not through his economics, though they are often quoted and form the core principles of his Communist Manifesto, but through his philosophy, old ideas from forgotten men such as Hegel (1770-1831), which he rehashed into a socialist philosophy that is still accepted by many today, despite the accumulated evidence against it. The difference with Hegel is Hegel strove to establish that historical evolution would lead to increasing individual freedom, while Marx strove to prove the individual played no role in historical evolution.

Hegel argued that all reality is capable of being expressed in rational categories and can be reduced to a synthetic unity by dialectic reasoning within a system of absolute idealism.[i] In plain English, he concluded we all take our cue from our social and cultural surroundings and circumstances, and that they in turn are set by historical events. This became the basis for Marx’s extreme philosophy of class structure, which, in common with Hegel, denied any role to the independence of human thought.

His philosophical stance was comprehensively set out in his book, A Contribution to the Critique of Political Economy, published in 1859. The fundamental principle behind Marxism is stated early in the preface, where he defines his deduction from the Hegelian dialectic: “It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.” In other words, social organisation takes precedence over the individual, and it therefore follows that the individual is subordinate to the social organisation.

It follows from this logic, Marx argued, that the classes that formed on the back of material interests forces members of those classes to think and act in their narrow class interests and not independently in their personal interest, there being no such thing. For Marx, ideologies evolved on class lines, where the interests of the minority, the bourgeoisie, dominated. And as the bourgeoisie profits from the labour of the proletariat, it is in their interest to keep the proletariat suppressed. The accumulation of wealth in the hands of the bourgeoisie was entirely due to the exploitation of the proletariat.

Marx’s world was a black and white one of haves and have-nots, the exploiters and the exploited. As Emmanuel Kant (1724-1804) had said, “If one man has more than necessary, another man has less”[ii]. The only way this apparent wrong could be righted would be through the collapse of the capitalist system, which led to these imbalances in the first place. The final solution was a classless society of the proletariat, handing them the means of production administered on their behalf by a revolutionary government.

If proof was needed, it came for Marx in the increasingly disruptive economic slumps over the course of his lifetime. Slumps hit the proletariat hardest, leading to unemployment and starvation. Initially, Marx was convinced that with the slumps getting progressively worse, a communist revolution would eventually be triggered, and the socialists (i.e. Marx himself) would take command from capitalist governments on behalf of the proletariat. Unfortunately for Marx, this never happened, and he increasingly turned in favour of a violent revolution to hasten the ultimate solution, reflecting his growing impatience and desperation.

Above all, Marx despised, even hated other socialists with an irrationality that can only have been fuelled by fear of competition. This hatred remains with us today, with communists loathing all forms of national socialism. Marx’s line of reasoning also freed him from criticism, because dissenters were always labelled bourgeoise, and were therefore dismissed as arguing on class lines. They were unmasked as bourgeoise, whatever their dissenting view, and therefore not qualified to comment on matters that affected the wider proletariat. The only answer was for the bourgeoisie to join the proletariat or to be made to do so, then their interests would be forcibly aligned.

We cannot gloss over the inconsistencies here, where on the one hand the bourgeoisie can only pursue a rigid class interest, yet its members are capable of the independent interest required to migrate to another class. And we must also mention that Marx himself, along with his supporter Engels, was a member of his so-called bourgeoisie, so according to his own strict doctrine, was unable or unqualified to align himself to the proletarian interest.

Marxian dogma was riddled with such inconsistences. Partly, this was due to the state of human knowledge at that time, and which formed the basis of any dialectical debate. Darwin contemporaneously proposed his evolutionary theory, pronouncing that humans evolved from the apes, and therefore were merely a higher form of animal, not a species apart favoured by God. This played neatly into Marxian philosophy.

It was also before the development of psychology by Sigmund Freud and Josef Breuer. It was believed that all human brains were the same, just as we have other internal organs with specific functions within the corpus. The concept, that humans differed in their intelligence, their acuity, was unknown. Even mental illness was believed to be a disorder emanating from the body. To Marx the philosopher, drawing on Hegel’s dialectical approach, it could have seemed logical that we are all the same, and that the obvious social differences are down to our upbringing in one or the other class.

He never defined class, which is too slippery a concept to pin down. Instead, he separated humanity into the exploited majority, the proletariat, and the minority that controls the proletariat, the bourgeoisie. He expected the proletariat to eventually rebel, forcing the bourgeoisie into the lower class, to be ruled over by a socialist administration. He believed that this would happen, because under capitalism, the impoverishment of the workers was inevitable, leading to a workers’ revolution. Yet, at the same time, he believed in the iron law of wages, most associated with David Ricardo. According to this law, wages were set by the availability of labour and the payments required to subsist. Higher wages than this basic level would lead to an increase in the availability of labour over time, while lower wages would reduce the labour pool. In this way, the cost of labour was expected to rebalance at a subsistence level. Labour was regarded as a simple commodity, whose supply was regulated by its demand. However, Marx’s belief in the iron law of wages is at odds with his supposition that the proletariat would be gradually impoverished. You cannot subscribe to both.

Subsequent improvements in economic knowledge have disproved both theories anyway. Marx’s approach was to arrogantly assume workers are unthinking work-slaves, which they are not. They are individuals with individual aspirations, and as Freud and Breuer showed later, they have brains separate from the corpus, with individual mental abilities that govern the corpus. Marx even despised the trade unions of the day, arguing that striking for higher wages was colluding with members of the bourgeoisie by negotiating with them, when instead they should be seeking their destruction. His thinking had evolved from the proposition that the destruction of the bourgeoise class would occur naturally in time, to encouraging a violent class revolution to bring it about. Workers going on strike compromised both alternatives.

Marx also cooked up a theory of dialectical materialism, a concept based on Hegelian dialectics and the materialist philosophy of Ludwig von Feuerbach (1804-72), whereby the material productive forces were meant to propel society through the class struggle towards socialism. Materialism, in this sense, is the doctrine that all changes are brought about by material entities, processes and events, and that all human ideas, choices and value-judgements can be reduced to material causes, which one day will be explained by the natural sciences.

Marx, the man, and Engels, his financial backer, came from the bourgeoisie, and had nothing in common with the proletariat. Their motivation was fundamentally dishonest. After expecting the destruction of the bourgeoisie through an evolution out of capitalism, they actively sought a violent revolution, and there can be little doubt that they impatiently expected to emerge as the leaders of the new order. They despised other socialists, who were seen as rivals. Far more famous in Marx’s time was Ferdinand Lassalle (1824-64), who shared the basic Hegelian philosophy, but helped Bismarck defeat the liberals in Prussia. To Marx, this cooperation with a government was anathema, just as national socialism was to Marxists in the next century.

To Marx, world communism could only have one leader and other socialists must be denounced. As von Mises wryly put it, the worst thing for a socialist is to be ruled by a socialist who is not your friend.

Marx and Engels despised both nationalism and national socialism, because they sought a global revolution so there was no place for national characteristics or cooperation with governments. It was, in effect, their bid for world domination, cooked up in the reading room of the British Library. A decade after the Communist manifesto was published, Marx stopped advocating peaceful revolution, in favour of civil war in all countries to destroy the bourgeoise class. Marx and Engels sought to provoke and benefit from it. The plotting with Engels increasingly took that direction and Engels studied military science in preparation for his role as commander-in-chief.[iii]

Despite Marx’s theories and subsequent plotting with Engels, Marxism was exposed by events, even from the outset, as a failure. In the years following the publication of the Communist Manifesto until his death in 1883, despite the boom and bust cycles following the middle of that century, the lot of the proletariat improved immeasurably. Something was going horribly wrong with Marxist predictions, and the chief architect had passed away into obscurity. He had, however, set the template for Lenin, who took up the Marxist banner with the Russian revolution thirty-four years later.

We now know what happened, though much of it was kept from us until the Berlin Wall was dismantled. Just as Marx strove for a global communist revolution, destroying nation states as well as the bourgeoisie, Lenin had the same Marxian objective. It persisted into the post-war era, with the annexation of Eastern Europe, and persistent attempts to undermine Western Europe. Soviet spies were everywhere. Not only did we have the Cambridge five, and left-wing economics professors promoting socialism in the top universities, but even Harry Dexter-White, a very senior US Treasury official who founded the IMF and the World Bank, was a Soviet spy.[iv]

Marx was a dead-beat plotter, who should have simply sunk into obscurity. But like Keynes in the following century, he made his half-truths sound eminently plausible. His training as a philosopher imparted a respectability to his theories. Even at his graveside, Engels eulogised him thus:

“Just as Darwin discovered the law of development or organic nature, so Marx discovered the law of development of human history: the simple fact, hitherto concealed by an overgrowth of ideology, that mankind must first of all eat, drink, have shelter and clothing, before it can pursue politics, science, art, religion, etc….”

How can you not respect, even adulate a man expressed in these terms? You cannot say that a philosopher, who discovered the law of development of human history, who recognised that man needs food, water, shelter and clothing is wrong, or bad. This is in strict contrast with the title of this short essay, that Marx was the worst man in modern history. If it hadn’t been for developments long after his death, this epitaph would not be worth challenging. There have been far worse perpetrators of human misery in their lifetimes, with a roll call that goes back to the beginning of recorded history.

No, the reason Marx was a thoroughly bad man, even evil, was he plotted not just the domination of one country, but the whole world by advocating the destructive forces of civil violence. He was a poor parody of a Bond villain. And as is the case with all socialists, he wanted total domination. You could take the view that he was a latter-day Don Quixote, delusional and mad, and that Engels was a sort of financial Sancho Panza without the wit. This would be incorrect. Marx was a failure as a philosopher, and instead of rethinking and recanting, he moved from a position of preparing himself for a leading role in what he saw as inevitable, to advocating violent social destruction.

It was Marx’s wrong-headed philosophy that led to the deaths of a hundred million souls, perpetrated by those he inspired, as well as the enslavement of most of the population of the Eurasian land-mass. And if we are to identify his catastrophic error in the simplest terms, it was the brief sentence in the preface to his A Contribution to the Critique of Political Economy, referred to above. If instead he had correctly concluded that,

“It is the consciousness of men that determines their existence, and not their social existence”

the world would be a far better place today, with ordinary people free to have delivered economic progress to their fellow men and women without bearing the burden of Marx’s failed philosophies.

He is my nomination for the worst man in the modern history of humanity, and we should remember this and only this on the bicentenary of his birth.

- Source, James Turk's Gold Money

Tuesday, May 15, 2018

Crude Oil: The Next Five Years

OPECs 2016 shift back to its former strategy has led to a sharp decline in global inventories and a rally in spot prices. It has also reintroduced the problem that OPEC spare capacity deters global oil companies from investing in future production. This problem is now exacerbated by increased hedging activity from shale oil producers. As a result, non-OPEC output ex-shale will start to decline in about 2-3 years, just when shale oil production begins to struggle offsetting ever increasing decline rates. We believe the next big move in oil will be in longer-dated prices, which will need to go higher in order to secure future supply.

OPEC once again changed strategy...

In 2016 we published a note with the title “OPEC at the crossroads” (June 06, 2016). In that note we described the difficult choice OPEC had to make: Should it continue to let the market play out as it did for the past couple of years, hoping that low prices will push out or at least curtail the shale oil producers over the long run; or, should it return to its former strategy and try to balance the market. While OPEC seemed initially reluctant to do the latter, in late 2016, the OPEC members changed their mind and agreed to curtail output. The new stated strategy sounded much like the old: OPEC would curtail production until global inventories normalized.

...which lead to a dramatic decline in inventories...

As we have explained before, OPEC cannot influence the price of oil directly. It can only manage inventories. What do we mean by that? Longer-dated oil prices are set by the marginal cost of future supply, or in other words, what long-term price is needed in order secure future supply? Spot prices can fluctuate widely around this longer dated price, depending on how much inventory there is1. Hence, by letting inventories decline, OPEC can push the curve into backwardation, which is exactly what happened since the production cuts. Importantly, by the time OPEC decided to curtail output, the market was already balanced and inventories were drawing in line with seasonal patterns. The production cut pushed the market immediately into a deficit. As a result, global inventories have been drawing over 300 million barrels more than normal since mid-2016 and days of supply cover is back to normal levels.

...pushing the crude oil price curve into backwardation and spot prices sharply higher

This led to a USD30/bbl rally in crude oil spot prices. In order to fully understand this price move, it is important to highlight the strong inverse relationship between inventories and time-spreads. A commodity price curve tends to trade in contango when inventories are high and in backwardation2when inventories are low (see Exhibit 2). The reason is that in an environment of low inventories, consumers of a commodity are willing to pay a premium for immediate delivery. For example, an airline is willing to pay a premium for jet fuel delivered today rather than in six months if jet fuel inventories are low. If the airline runs out of jet fuel, the planes will be grounded, which will be much costlier than paying a premium for prompt delivery of fuel. In contrast, when inventories are very high, consumers of a commodity are not worried that they could run out of this input good. Because it costs money to store commodities (storage cost, insurance costs) and there is a time-value attached to money, consumers of a commodity prefer to get delivery only when they really need it. As a result, spot prices will trade below forward prices in such an environment.

The sharp decline in oil inventories over the past two years lead to a massive shift in time-spreads. In early 2016, the Brent curve was in steep contango. Prompt month prices traded USD15 below the 5-year forward. As of today, it is trading USD15/bbl above the 5-year forward (see Exhibit 3). 

Longer dated price remained practically unchanged for the past two years. Hence, the entire move in the spot price was due to the shift in the curve, which was driven by the inventory decline. Importantly, the change in the spot prices does not imply that the market somehow changed its view on how much it costs to produce oil. Longer-dated prices, which are set by the marginal cost of future supply, are still below USD60/bbl. 

This means that the market still believes that USD55-60/bbl gives enough incentive to producers to make the necessary investments to meet future demand. The spot price rally thus was simply due to the decline in inventories.

- Source, James Turk's Gold Money

Tuesday, May 8, 2018

Gold and Silver Solutions to Monetary Madness

Over the past several months it has become quiet clear that we had best be seeking solutions for this ongoing monetary madness that will safe guard our our individual needs and future wealth preservation. This is not a great mystery nor is it some "theory" dreamt up by basement dwelling lunatic. All one needs to do is read the headlines around the world and the picture is as clear as bright sunny day.

- Source, The Daily Coin

Saturday, May 5, 2018

James Turk: You don't invest in gold, gold is money

James Turk, globally recognized expert on precious metals, joins Kuzman Iliev and Vladimir Sirkarov in the Boom and Bust show on Bloomberg TV Bulgaria to discuss a wide range of investment topics - monetary policy, the new reality of negative nominal yields, investment strategies for wealth preservation, what to consider when investing in gold and how to prepare for turbulent times.

Thursday, April 19, 2018

Alasdair Macleod: The Yuan Oil Future and Gold

Regular readers of Goldmoney’s research will be aware that Goldmoney was among the first to alert western financial markets that China would introduce a new oil futures contract priced in yuan. 

Goldmoney's Head of Research, Alasdair Macleod, builds on his thoughts on the Oil-Yuan Futures and the implications for gold.

- Source, James Turks's Alasdair Macleod

Sunday, April 15, 2018

Understanding How Trade Deficits Arise

Goldmoney Head of Research, Alasdair Macleod sheds lights on how trade deficits arise.

- Source, James Turk's Goldmoney

Thursday, April 12, 2018

PDAC Panel 2018: Gold vs Bitcoin

Goldmoney Co-founder, Josh Crumb takes part in the Gold vs. Bitcoin Panel hosted at PDAC 2018. The views and opinions expressed in this event are those of the panelists and do not reflect those of Goldmoney, unless expressly stated. Goldmoney only affiliates itself with Josh Crumb.

- Source, James Turk's Goldmoney

Sunday, April 8, 2018

Oil Yuan Futures To Start Later In The Month, What are the Implications For Gold?

Goldmoney's Head of Research, Alasdair Macleod, shares his thoughts on the Oil-Yuan Futures and the implications for gold moving forward.

- Source, James Turk's Goldmoney

Thursday, April 5, 2018

Goldmoney 2018 Outlook and Roundtable Discussion

As has become tradition, the Goldmoney leadership team, comprised of over a century of practical, diversified financial experience, discuss their outlook for gold, cryptocurrencies and the world economy for 2018 and beyond.

- Source, Goldmoney

Monday, April 2, 2018

Market Uncertainty and What It Means For Gold

Goldmoney director, Stefan Wieler, shares his thoughts on the uncertainty in market and what it means for gold.

- Source, James Turk's Goldmoney

Wednesday, March 28, 2018

The Dollar Will Hyperinflate Like All Other Fiat Currencies Before it

The Federal Reserve recognizes that market forces have finally begun to overpower the financial repression that has forced interest rates lower. To keep these powerful market forces at bay, it has reacted with gradual interest rate increases and a lot of jawboning, hoping that federal revenue grows rapidly enough to keep the Solvency Ratio from reaching the Tipping Point. But the Federal Reserve is “behind the curve”.

I remember this phrase very well from the 1970s. Interest rates kept rising, but the Federal Reserve never caught up with the worsening inflation until Paul Volcker became Federal Reserve chairman. He raised interest rates high enough so that the real interest rate reached a record level to re-establish demand for the dollar, which slowed the rate at which its purchasing power was being eroded. That’s not going to happen this time around.

When Mr Volcker raised interest rates to those extremely high levels back in the late 1970s and early 1980s, the US was the world’s largest creditor nation. Now it is the world’s largest debtor nation, so the current Federal Reserve chairman, Jerome Powell, does not have the same options that were available to Mr Volcker. The federal government today is over-leveraged with a huge debt load. The Tipping Point would be reached in any Volcker-like attempt to foster demand for the dollar by raising interest rates to even normal levels, let alone record real interest rates. So what is the federal government going to do?

It is unlikely that the federal government will give up willingly its power to create currency and return to a Constitutional dollar, which is defined as 13.714 grains of fine gold. It will not cut back on government spending nor learn from the lessons of history. As a direct result of the federal government’s boundless propensity to spend the currency the banks create for it out of thin air, the dollar is on the same path taken many times by many countries that incurred economic collapse as a result of the currency’s collapse.

Forcing interest rates to artificially low levels and underreporting the true rate of inflation for decades together have kept the federal government’s Solvency Ratio under control. But abuse of financial principles and irresponsible self-indulgent behaviour does not last forever. There always are consequences.

The dollar will hyperinflate. Like every other fiat currency before it, the dollar will end in the fiat currency graveyard.

- Source, James Turk via FGMR