Jeff Deist of The Mises Institute – Fri 22 Feb, 2013

The Cantillon Effect

Who loses when new money is created?  Holders of old money,  quaintly once known as “savers.”

Who wins when new money is created?  Bankers,  that’s who.  In post 2008 America, the Cantillon Effect explains how money creation serves as a kind of debt jubilee for banks.

To read more, click here.

Jeff Deist

  1. On February 22, 2013 at 9:59 am,
    SilverFox says:

    This has been going on since the money inception (fiat money)

    Where does it say, new money creation is bad? If money was lost during the 2008 crisis, and now fed is showering banks with “printed” money – it will trickle down in to mainstream eventually, and all decks will be equal. Why is that so difficult to understand?

    So what’s all these brouhaha about new money printing?

    • On February 22, 2013 at 11:32 am,
      Matthew says:

      TMS (True Money Supply) has NOT contracted at all, just the opposite:

      Your “understanding” of money is exactly what’s wrong with most of the population. Is it so hard to understand that printing money and giving it to some special lucky few amounts to theft? Counterfeiting steals value from those who have been disciplined and wise enough to save. The marketplace is an auction. Imagine you went to an auction with your hard-earned money only find out that other “special” attendees were given the privilege to create their own money on the spot with pieces of paper and a marker. You would obviously only win an item if they decided to let you. They would also be in control of your final price since they could bid you up to whatever level they desire. It’s wrong on every level and “not one man in a million” can figure it out (to paraphrase Keynes).
      I’m sure you’ve never wondered why gold’s value has remained so constant for thousands of years, but I’ll tell you anyway. It’s because the above ground supply never gets diluted by more that 1 or 2% a year. The key here is that supply never grows faster than the population. The U.S. monetary base, on the other hand, is up 350% in just the last four years. Just wait until THAT “trickles” into the economy! You just might find yourself in need of financing to buy a tank of gas.

  2. On February 22, 2013 at 10:08 am,
    Dennis M. O'Neil says:

    The problem with good old fashioned diner coffee is Hazel.
    Every time your coffee is adjusted the way you like it Hazel comes by after seating table #6 and tops it off. No harm no fowl if you take you coffee black but for the rest of the universe your coffee ratios have just been decimated. Then for the next minute or so the table rotates sugar, sweeteners and creamers in an attempt to re-establish coffee equilibrium. It makes good for actors in movies to realistically portray the coffee re-adjustments because it gives them something to do besides act. For everyone else it is a hassle. Home many diner life conversation are marred by “can you grab me a sugar!” Nothing beats the booth breakfast or open faced lunch all in earshot of a sizzling grill. Part of life is suffering the cons on the journey to enjoy the pros. I still cannot help but think what life would be like if it was not for Hazel “freshening” your well-adjusted coffee before you have a chance to wave your hand to decline. Hazel just sat table #3 and once again you are hassled with the task of readjustment calculus. Never is it simple because your cup is rarely completely empty when the offense occurs. You are left to surmise the situation as you reach for the half and half. The things we endure! Torn packets and being perplexed peeling non-dairy liquid prisons can make one of life’s pleasures vexing.
    Now we know why truckers drink black coffee. Why is it that every time the Fed meets I end up thinking of Hazel?

    • On February 22, 2013 at 10:33 am,
      Irwin says:

      You have a gift. Haha!

      • On February 22, 2013 at 11:10 am,
        Dennis M. O'Neil says:

        Mid sentence should read:
        How many diner life conversations are marred by “can you grab me a sugar!”

        • On February 22, 2013 at 2:31 pm,
          Dennis M. O'Neil says:

          Picture this: typical diner scene couple seated in the iconic window booth…dusk…raining…..
          We join the scene mid conversation…..
          Lady: “Did you hear me!!! I want a divorce!……Say something!
          Guy: “Can you grab me a sugar!”

    • On February 22, 2013 at 3:15 pm,
      John W. Robertson says:

      ..readjustment calculus…oh brother!

  3. On February 22, 2013 at 10:24 am,
    wyn harter says:



  4. On February 22, 2013 at 10:35 am,
    cfs2000 says:

    Not in Argentina, Not in Iran, Not Zimbabwe was gold and silver ever refused as payment.
    of course, gold and silver got hard to find as those economies experienced higher and higher inflation. As soon as inflation grew over 10% p.a., gold and silver were unobtainable.
    Do you think it will be different in the US?

    • On February 22, 2013 at 11:53 am,
      Money historian says:

      In a global exchange system there has never been hyperinflation in the reserve currency because it creates hyper deflation in all other countries. It won’t happen in the US either.

      • On February 22, 2013 at 12:20 pm,
        Matthew says:

        Before WWII, gold was the reserve currency of the world. The dollar was accepted as the reserve currency afterward, in part, because it was backed by gold. Since 1971, the dollar has been backed by the military. I know, some claim it is backed by oil, but that arrangement was only made possible by the military. Can you name one other reserve currency in history that had no backing?
        So, you are drawing conclusions based on a very flawed comparison. Additionally, the continued reserve status is not guaranteed.
        It ultimately doesn’t matter if the dollar evaporates or not. It has lost 99% of its value since 1913 and has seen a very sharp acceleration in its decline since 1971 and again since 2001.
        The longer one’s investment horizon is, the more bearish one should be on the dollar.

        • On February 22, 2013 at 12:28 pm,
          benb says:

          Absolutly Mathew. I just read about a deal being worked out by the g20?
          They were saying they want to go to 4 reserve currencies, the american dollar being #1, china and russia were in there i forget the 4th. euro maybe.
          These guys got deals open to them most of us havnt thought of.

          • On February 22, 2013 at 4:20 pm,
            John W. Robertson says:


            You asked about gold production meeting, or exceeding, the gold demand the other day. I know you like Casey Research….did you read their email last week regarding their rebuttal to Bloomberg’s story on Russia being the largest gold buyer? It largely answers your question, but in short, central banks have been steadily buying more gold since 2008 around a 15% rate, year-over-year, and 17% for 2012. Also, most gold mines have relatively limited life, perhaps 5-10 years. Mines producing today were typically started in the late 90’s. Finally, we don’t even know how much gold is mined by China because they won’t tell us, and for good reason: they want it all for themselves. They bought their own gold mines for their own foreign reserves.

            There’s a lot of tenuous news articles and “facts” presented today. Don’t get me wrong…scouring for both (or all) sides of an issue is a good idea, but Nadler has consistent statistics saying that gold demand has been dropping for 10 years, or that too much is being produced, etc. I would be interested in hearing about your source for the article you mentioned which described supply meeting demand, if you find it again.

            BTW, Citigroup announced Monday that it’s time to get out of gold. Today, Richard noted the COT report saw a spike of 19,000 more bullish contracts. Demand went up! I haven’t followed the COT, but buy a coffee (at a diner) and go look at World Gold Council stats for an afternoon, for some great info on who’s buying, selling, net demand year-over-year, etc. If anything, we’ve just come out of a downturn in gold demand.

  5. On February 22, 2013 at 10:49 am,
    Irwin says:

    Of interest to chartists everywhere.
    Tom McClellan has gone from bearish on gold to neutral.

    Snip from Tom’s article:
    ” There is one last point about using classic bar chart analysis techniques. Most of the classic Edwards and Magee style chart analysis ideas come from the days when they were developed for stock price charts. I am talking about chart structures like head and shoulders, rounding bottom, flags and pennants, triangles, triple tops, etc. It can be risky to just transplant those analysis techniques to a different market, especially commodities, and to then just assume that they will work the same.

    “The psychology of commodities markets, the bond market, currencies, etc. is much different from how traders think about stock prices movements. People don’t buy stocks to consume them, like they do with oil or wheat; the only use for a stock is to (hopefully) earn dividends and capital gains from owning them. Accordingly, chart pattern analysis does not necessarily work the same in other markets, because the psychology which drives the patterns is different.” (end quote)

    Jim Dines often says that the reason gold stock prices don’t necessarily follow price of gold is that the psychology of one group of investors differs from the other.

    Here is the link to Tom’s article “Gold’s Triangle Objectives Met”

    • On February 22, 2013 at 11:40 am,
      richard says:

      From the charts, it appears next week might be an interim low for the PMs. There’ll be a lot of work after that to hold the prices and work higher. The momentum indicators are still negative at this time as are the strength indicators. The interesting thing about the crush of the commodities is 2 possible scenarios for the conventional markets. 1. Lowered input costs for companies and subsequently higher margins and higher stock prices 2. The crush of the commodities may be signalling a global weakening and could be signalling a large slow down in demand and subsequently a pressure on the conventional markets. So I guess; select your poison. I’m in the camp of a general global slowdown and the fact China particularly is not as strong as some wish. We’ll see which scenario plays out over the next few months.

      • On February 22, 2013 at 11:55 am,
        Irwin says:

        Many thanks, Richard.
        I always look forward to reading about your take on the markets.

        I vote for “fix everything” and reset to 1950. That would be year 1950 and not $1950. Maybe this time around we can dispense with the wars?

        Signed: play-it-again-Sam

        • On February 22, 2013 at 12:38 pm,
          Dennis M. O'Neil says:

          We learned in the fifties “we have had hard headed women since the world began”:

        • On February 22, 2013 at 3:20 pm,
          John W. Robertson says:

          Does that mean we’d have to go back to records too? I think I still have a Doris Day South Pacific LP.

          • On February 22, 2013 at 4:11 pm,
            dw jones says:

            i think you are thinking of mitzi gaynor in so pacific!

          • On February 22, 2013 at 4:22 pm,
            John W. Robertson says:

            Really? Hmmm, thought it was her. Well, I got a Pajama Game record of Doris Day, that I know.

          • On February 22, 2013 at 4:28 pm,
            dw jones says:

            yep, back in the day we all had a crush on patti page ,doris day, rosemary clooney

          • On February 22, 2013 at 4:47 pm,
            benb says:

            Billy Holiday wasnt bad.

  6. On February 22, 2013 at 10:55 am,
    benb says:

    Lots of people reufuse gold/silver as payment in the U.S. People will actually refuse silver dollars if givin a choice of a $5 bill instead.
    We have a ways to go in N.america before PMs are accepted I think.
    Thats 1 of the things keeping the U.S. dollar strong, people still prefer it.
    Thats what makes silverfox possible, not that I agree but he could be right.

    Mr. Bob Moriarity has declared the bottom is in. So I bought today.
    Now I hope that Mr.Max Keisers April crash doesnt come.
    I need crashes to hold off until june.

  7. On February 22, 2013 at 11:54 am,
    cfs2000 says:


    We are not in 10% annual inflation yet.

  8. On February 22, 2013 at 12:12 pm,
    benb says:

    Hi cf, I am certain you mean the result of inflation hasnt hit 10% per anum yet.
    I dont think the american public is educated enough to want PMs, about 10,000 people to 1 person would prefer majiuana to gold, then there is the people prefering bullits to gold, tide detergent has become a currency (no bar code tracking).
    Houston? putting in laws ya gotta be fingerprinted and photographed if you sell precious metals. There is nothing we can do that is not gambling now, I think that includes the metals.
    But I like austrian thinking too, only thing is other people think diferently.

    • On February 22, 2013 at 2:29 pm,
      cfs2000 says:

      Who says I will be selling my Gold and silver in the US?

      • On February 22, 2013 at 2:57 pm,
        benb says:

        If I were anywhere other than North america I would have nothing but gold and silver as money, its accepted just about everywhere that I read about.
        I am just not sure about North americans useing it as currency.

  9. On February 22, 2013 at 2:13 pm,
    Dennis M. O'Neil says:

    I wonder if Irish Tony has ever consumed a pint with Richard Cantillon?
    Mr. Cantillon must know that the only good thing that ever came out of County Kerry was the Road to Dublin.

  10. On February 22, 2013 at 2:30 pm,
    richard says:

    Well, the smart money (commercials) in this week’s COT report for gold have decreased their short positions by about 19,000 contracts and increased their long positions by about 1000 contracts. Time for those who would like to buy the medal to become interested.

    • On February 22, 2013 at 3:22 pm,
      John W. Robertson says:

      My, they must have listened to Citigroup. And done the opposite.

  11. On February 22, 2013 at 2:41 pm,
    richard says:

    Just another comment. I mentioned about 6 weeks ago that we should see the dollar move higher and for awhile I thought I had blown that call. I guess I was early (seems to be a habit). I also mentioned we should see the trade weighted dollar hit minimally 82.50. We’re now at about 81.40. The odds are that 82.50 will be the high in the dollar and that should be good for commodities and the PMs if it then reverses at that level.

  12. On February 22, 2013 at 2:54 pm,
    benb says:

    Gold, silver coins acceptable forms of payment?
    Arizonans who fear the federal government will make their folding money worthless may soon be able to substitute privately minted gold and silver coins.

    The Senate Finance Committee on Wednesday took the first steps to making such coins legal tender in Arizona. Bill SB1439 would give them the same legal status as bills and coins authorized by Congress.

    Nothing in the proposal by Sen. Chester Crandell, R-Heber, would force anyone to actually accept these coins as payment for any debt. Their use would be voluntary.

    But proponents said it’s only a matter of time before the country suffers hyperinflation, making the greenback worthless.

    This article appeared on the Internet site yesterday…and I thank Elliot Simon for sending it our way. The link is here.

    • On February 22, 2013 at 6:26 pm,
      Big Al says:

      Benb- I suspect the federal government would claim preemption AZ law and seek to enforce federal legal tender laws.

  13. On February 22, 2013 at 7:47 pm,
    cfs2000 says:

    I think their mikght be some cheap real estate available soon:

  14. On February 22, 2013 at 7:48 pm,
    cfs2000 says:

    Just one problem, It may be glowing.

  15. On February 23, 2013 at 5:30 pm,
    benb says:

    Hi John, thanks for the response. I wont be able to find that article again, wish I could but the sites pages turn over time and its easy to lose them. Nothing saying it was correct iether, just was argueing the point with a little back up. There have been a few people saying the same thing, mostly banks, mainstream guys.

    Dont get me wrong, I think people should be saving in PM, investing I am not too sure, depends on age how much, I am sure you know the routine.

    Last year I was reading about another 300 million oz of silver coming to market. And there have been millions found and not dug up yet.

    Most of the world is buying gold, just not people in the west “regular joes”
    There has not been a time since 08 that I have seen a shortage, I have always had options from where to purchase. Bob Moriarity said when the “gurus” were talking shortage its was bs there is/was no shortage.

    More being mined could be a reason the price was dropping, maybe it had nothing to do with manipulation.

    I dont know nor could I ever be certain, I take pretty much everything I hear and read as a maybe. My father used to tell me Dont believe anything you hear and only half what you see. But all will be well now, the bottom is in, uncle Bob declared it.
    Should I run across the article or another similar one I will post it.