The pound sterling has come a long way since its heyday back in the 19th and early-20th centuries. Since then, the dollar has taken its place and — potentially — is itself to be supplanted in the not-too-distant future. Here, I get to grips with the marginalization of the pound as the world’s favorite ‘reserve currency asset’.

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The seemingly perennial inflation vs deflation debate is littered with mutually antagonistic groups. The two most notable combatants seem to be the ‘Deflationists’ and the ‘Gold Bugs’. In the interest of being a lover and not a fighter, I thought I’d outline the historical ties between these two groups and explain why the widely publicized misgivings between them may be misplaced.

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The endeavor of speculating in financial markets is shrouded in confusion, fierce debate and  — often — mysticism. Here at greshams-law.com, we’re at least a little bit guilty of succumbing to the latter. The long-term trends in financial assets seem to follow generational cycles. This is particularly evident in the gold price of the Dow Jones Industrial Average.

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The other day, I mentioned that the West is addicted to economic disequilibrium. By this, I meant that the West is addicted to diverging tendencies between wealth itself and the flow lines of ‘claims on wealth’ (to quote Carroll Quigley). However, as is evident by the deteriorating US real estate market, it is not always possible to ‘engineer’ such a scenario. In the case of the US real estate market, the cat is well and truly out of the bag, and not even the most extravagant of ‘money printing’ exercises seems to be able to get it on the “right” track. The behavior of this market represents an example of convergence between wealth and the flow lines of ‘claims on wealth’. Here, I get to grips with the nature of this convergence and outline why the attempted interventions will prove futile.

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One of the largest and most problematic instances of economic disequilibrium arises from a disconnect between ‘claims on wealth’ and wealth itself (to quote Carroll Quigley). When these two magnitudes diverge, a great proportion of the population can stray from economic prudence. In the West (at least), periods consisting of these divergences have become the norm – moreover, it would seem that anything else is quite unacceptable to the masses. Here, I consider the nature of such divergences and explore the investment implications of their resolutions.

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Recently, I claimed that gold is far from being a bubble and that it is possible to value gold. So, following on from these claims, I thought I’d explore the long-term prospects for gold and present a few interesting (& long-term) charts on the subject of gold as it relates to the dollar.

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In his fantastic essay The Political Economy of Moral Hazard, Jörg Guido Hülsmann defines the term ‘Moral Hazard’ as;

 

… the incentive of a person A to use more resources than he otherwise would have used, because he knows, or believes to know, that someone else B will provide some or all of these resources. The important point is that this occurs against B’s will and that B is unable to sanction this expropriation immediately.

 

Many financial commentators have written about this perennial problem over the past few years, however they have done so with limited vigor (by my perception at least). Here, I get to grips with the problem of Moral Hazard, and discuss why the profit-motive has been perverted. Finally, I highlight the investment implications of this sociopolitical structure and consider the inevitable consequence: a dwindling stock of capital.

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