IMF’s Paper on The Chicago Plan Continues to Stir Opinions

Today’s AM fix was USD 1,725.00, EUR 1,321.03, and GBP 1,075.10 per ounce. 
Friday’s AM fix was USD 1,732.75, EUR 1,327.27, and GBP 1,078.86 per ounce.

Silver is trading at $32.23/oz, €24.76/oz and £20.18/oz. Platinum is trading at $1,625.00/oz, palladium at $625.40/oz and rhodium at $1,160/oz.

Gold fell $18.90 or 1.09% in New York on Friday and closed at $1,722.10. Silver hit a low of $31.92 and rallied back higher in the afternoon but still finished with a loss of 2.02%.

Cross  Currency Table – (Bloomberg)

Gold edged down on Monday, as pressure from speculators exiting long positions and continued concern about the health of the global economy dampened interest.

When equities fall market players often have to cash in their long gold positions to cover losses. The current pullback and lacklustre interest in the yellow metal may force investors to retreat into the US dollar. Friday’s US existing home sales figure for September came in at 4.75M which was a bit higher than the 4.7M that was expected.

All eyes will be concentrated on the US Fed’s policy meeting on Tuesday and the FOMC rate decision on Wednesday. In addition, on Wednesday economic data released include Initial Jobless Claims & Durable Goods Orders, on Thursday are Pending Home Sales and following on Friday are GDP & Michigan Sentiment.

US Commodities long bets have decreased to their lowest levels since the end of August. Bloomberg said Gold holdings increased 7.7% to 178,426 contracts, the fifth straight advance and the most since Feb. 28, CFTC data show. 

XAU/USD Currency 5 Year – (Bloomberg)

In Africa, over 8,000 workers involved in an illegal strike at Gold Fields’ KDC East mine will be fired if they fail to return to work on Monday night and Tuesday morning, said the company today. 

Edel Tully, UBS analyst said in a report yesterday that, “India should be a better buyer over the next two weeks from a seasonal perspective, but this remains highly contingent on the behaviour of the rupee gold price,  Indian imports are already 40 percent less than they were last year, and we understand inventories are generally light. Therefore, if the rupee behaves, fresh demand will also prompt restocking.”   

The International Monetary Fund’s paper, “The Chicago Plan Revisited” by Jaromir Benes and Michael Kumhof highlighted a means to wipe out debt by legislation by using state created money to replace the private banking system and was commented on in The Telegraph by journalist Ambrose Evans-Prichard. The full paper can be read here.

In sum, the paper illuminates on a plan created in 1936 by professors Henry Simons and Irving Fisher during the aftermath of the US Depression. It examines how money created by credit cycles leads to a damaging creation of wealth.  

Authors, Benes and Kumhof argue that credit-cycle trauma – caused by private money creation – has been around forever and lies at the root of debt catastrophes as far back as ancient Mesopotia and the Middle East.

They claim that not only harvest cycles lead to defaults but rather the concentration of wealth in the hands of lenders would have augmented the outcome.

Solon, the Athenian leader implemented the original Chicago Plan/New Deal in 599 BC to relieve farmers in hock to oligarchs enjoying private coinage. He forgave debts, returned lands seized by creditors, and set floor-prices for commodities (like Franklin Roosevelt), and fuelled the money supply with state-issued “debt-free” coinage.

The ancient Romans studied Solon’s reforms and 150 years later copied his ideas and created their own fiat money system under Lex Aternia in 454 BC.

Fiat currencies have been around since man began trading.  The Spartans banned gold coins and replaced them with iron disks with little intrinsic value.  In early Rome bronze tablets were favoured.  Their worth was determined by law, much like the dollar, euro or pound today.

The 1936 Chicago Plan was created to somehow prevent the large boom and bust cycles seen during the Great Depression.

The debate initiated by Benes and Kumhof and continued by Evans-Prichard examines many issues that question Western Capitalist values and encourages us to examine whether we are so far removed from a Leviathan state?