“I have been poor, and I have been rich. Believe me, being rich is better for the soul.”
If investing can be compared to farming, then selecting stocks is analogous to choosing cows. When an investment fails to perform as expected, the question becomes, “Who spreads the manure?”
Reflecting on the history of our family office, our investing philosophy mirrors how previous generations built their wealth through farming. They patiently waited to harvest the crops they planted; we buy securities and patiently wait for them to appreciate.
The one future that neither public polling nor commentary is expecting is an American political economy in which the incomes of non-rich Americans will grow rapidly and that growth is paid, in large part, by a tariff on the returns to private capital in the U.S.
To understand the process by which physical coins became accepted tender in the 19th century, one should start with the wisdom of Yogi Berra and Niels Bohr.
The evolution of the role of the Federal Reserve as the U.S. central bank and how paper money came to be accepted as legal tender with a stable value, exchangeable into gold, can be traced to the first half of the 19th century.
Issues such as the convertibility of paper currency to gold and the viability of MMT were addressed more than 200 years ago by England, soon after the U.S. became independent.
How many bad/failed companies are being carried by the forbearance of their private and public creditors and emergency injections of cash from government?
That there was a price “bubble” that burst in the American political economy from 1835 to 1845 is beyond question. The challenge is to reconcile the data sets for commodity and securities prices, interest rates and production volumes with the narratives of what happened.
For the 1830s, as for the 1990s, the great change would come not in the technology of delivery systems but in the extraordinary increases in the volumes of news and financial information being delivered because of the dramatic reduction in the cost of reproducing each item of news.
The purpose of the Constitutional gold standard was to establish a reference point against which the prices of credits and commodities were set by the open exchange of bank notes and other promises to pay money.
By the end of the first decade of the 19th century, everyone in the U.S. was accepting denominations printed on paper by banks as payments in dollars. Americans had invented retail credit banking and discovered how much they liked it.
Americans with money discovered in the Depression of 1837-1842 how large the spread could become between the cash in their pockets and the values of their bank accounts and property.
In the age of Anthony Trollope, in hindsight, the variable cash returns of common stocks and their dividends deserved greater premiums; the certainties of fixed income coupons deserved lesser ones. Our family office is betting on a similar shift in market discounting.
My family office has decided to take Jeffrey Gundlach’s general advice and look at the areas in common stocks that have been damaged but not supported by Fed actions.
All that remained, as Andrew Jackson left office, was to segregate the Treasury’s money balances by having the funds held in regional sub-Treasury, independent depositories not linked to any private or state-chartered bank. What would get in the way would be the first presidential campaign argued on the question of race.
In 1832, Martin Van Buren helped Andrew Jackson decide precisely when he would end the charter for the Second Bank of the United States – the only American central bank of issue before the establishment of the Federal Reserve.
This part two of a series of discussions about how the issues of banking, taxation and slavery became intertwined and how the debate over the national currency and the national debt that the Civil War produced would shape what we think of as an entirely modern idea - a central reserve bank.
In 1832 Martin Van Buren helped Andrew Jackson decide precisely when he would end the charter for the Second Bank of the United States – the only American central bank of issue before the establishment of the Federal Reserve.
The legal framework by which paper money and coins came to be accepted for use in private transactions and international trade was established in the 18th century by George Washington and Alexander Hamilton.
As many of Advisor Perspective’s readers and contributors can testify, direct experience with the laws and regulations governing fiduciaries often leads to the conclusion that these rules were of, by and for the financial interests of the lawyers who made them.
We take for granted the government’s ability to print money and to provide credit to banks and other third parties. Those powers evolved from political struggles nearly 200 years ago, and that episode in our history carries a message for those who argue against an independent Fed or for policies such as MMT to fight inequality.
Judy Shelton, whom President Trump has nominated to serve as a Federal Reserve governor, has written about the virtues of the 19th century gold standard and expressed her eagerness to join the central bank in managing the nation’s money supply. That would have been an unacceptable position for anyone supporting the Constitution’s specie standard for money in the 1830s.
The independence of the Federal Reserve Bank is not a new issue. The role of the central bank in regulating credit and the money supply goes back at least 200 years, to the administration of Andrew Jackson.
Foreign trade ends up being cleared through international money – a currency that the world accepts as final payment, even in places where it is not legal tender.
The growth of personal savings and investment in China of the last few years has a parallel in the boom in the “old Northwest” of the U.S. following the War of 1812. The parallel carries a fateful lesson for the future of China.
Article I, section 8 of the Constitution states that Congress “shall have the power…to coin money, regulate the value thereof, and of foreign coin.” Let’s look at the historical origin of this clause.
The recent revival of import tariffs by the U.S. has created a puzzle. Why, in the midst of this “trade war,” has China not used the weakness in its exchange rate to offset the effects of President Trump’s tariffs?
Since the financial crisis, households have de-levered while federal debt has marched upwards. But the net cost of the combined debt, measured as the “cost of carry,” is at a level that historically signals an oncoming recession.
We take for granted the Federal Reserve’s unique powers that, like that of other central banks, include being the sole issuer of currency. But those powers were not always so, and their origin traces to the foresight of Alexander Hamilton.
Central banks use a common set of policy tools to achieve their inflation and employment goals – regulating the money supply and interest rates, and occasionally implementing measures such as quantitative easing. That toolkit can trace its origins to the intellectual contributions of David Ricardo, one of the earliest opponents of a gold standard.
If the debt of the public or private sector were viewed the same way we measure that of a corporation, no alarms would be sounded. Given its low cost of carry, that debt is unobjectionable.
Critics of the federal deficit should recognize the imperfect nature of the debt-to-GDP ratio. By a more reasonable measure, our fiscal indebtedness is not high by historical standards.
