Letters to the Editor

Dear Editor,

Stephanie Kelton expresses the very typical Keynesian and monetarist claptrap that deficits don’t matter. What Kelton failed to address are the consequences of unlimited access on the “printing press.”

Let’s ignore inflation and examine the bad investments that governments create by doing virtually anything. The reason that the federal government should be required to balance the budget is because the government lacks the proper incentives to efficiently allocate capital. Since governments aren’t rewarded or penalized for wasteful spending, there’s little reason to ardently avoid wasteful spending.

Kelton also claims that “nothing” would happen if Japan were to monetize its entire national debt. Not true. In fact, the yen has now started to show weakness that is unlikely to stop until it loses virtually all of its purchasing power.

It’s a shame that this type of thinking is pervasive in education as well as in Washington. It’s painful to realize that Advisor Perspectives and Bob Veres see these beliefs as fit to print and share.

Sincerely,

Jason S. Farkas, CRPS®

Wethersfield, CT

Dear Editor,

We do you publish such pablum in a financial magazine?

Japan has been in a depression for a quarter of a century following such advice. How many times does Keynesian economics have to fail before it is looked upon the way astrology is viewed by astronomers or leeching is viewed by modern doctors?

Keynesian economics will never be abandoned because it appeals to the worst in human nature – the free lunch, the something-for-nothing allusion. Any notion that says “the best thing to do during a crisis is for politicians to follow their own worst instincts” will be clung to until the day $1,000 bills are used as toilet paper.

Regards,

Ted Fiolek

The following is in response to Adam Apt’s article, Is Gold Overpriced?, which was published Oct. 15:

Dear Editor,

Nice try and interesting article. Sadly, Patterson and Ma’s conclusions that gold’s price is about right and may decline a little in the near future come with an admission that they have excluded from the statistical analysis the demand in China and India. Also, for whatever reason, they decided not to take into account U.S. monetary policy and the money supply. All those issues are significantly important to the study, especially the money supply, given the Fed’s “counterfeiting” (quantitative easing) at record levels, which threatens the dollar’s position as the world’s reserve currency.

There is a difference, too, between physical gold – which is money due to its quality and quantity available and the environmental, regulatory and political risk and expense necessary to pull more of it out of the planet (as the article alludes to), and the technical or paper gold of exchange-traded funds. The latter can, and have been, short-sold heavily by institutional traders like JP Morgan Chase. Short-selling has suppressed the price, artificially propping up the dollar, and banks and consumers to reload their supplies of the real metal at suppressed prices just in time to own vast quantities of it when the price skyrockets again.

And it will. Not because gold is worth any more that it has ever been, but because its value is denominated in increasingly worthless dollars as the Fed continues to expand its balance sheet. Is the metal overpriced? No – as per the research reported in your article – but for the wrong reasons. Is it undervalued? Most certainly, in the above context. And the price will take off again proportionate to the recognition of what’s going on with the measuring stick used to value it, i.e., a fiat currency spring-loaded for inflation and an exponential slide in the dollar’s credibility and worth, down to the value of a sheet of toilet paper. The price of ETFs can be manipulated. Not the precious metal itself.

Maybe next time, in the interest of meaningful conclusions, consider the money supply and who benefits from the gold-price fixing.

Glen

Glen M. Martin, ChFC, CLU

AXA Advisors, LLC

Bellevue, WA

Adam Apt replies:

I have two short comments. Patterson and Ma's work created a model. It may or may not have included the appropriate variables, combined in the best way, but being based on historical data, it can't account for a regime shift, if such were to occur, as Patterson admitted. The letter offers an argument but not a model. There's nothing inherently wrong with that. It goes where Patterson and Ma did not intend to go.

First, Martin asserts that gold is money, and states his reasons why. These reasons do not, however, fit the standard definition of money, which is that it is a medium of exchange, a measure of account and a store of value. In particular, it's quite clear that gold is not, currently, a medium of exchange. I can't pay for groceries or make online purchases with it.

My second comment is that Martin’s statement that gold's "value is denominated in increasingly worthless dollars" assumes what has not been proved — that the prices of goods and services are staying constant with respect to gold, while increasing significantly when measured in dollars.

The following is in response to the commentary, Scrooge McDucks, by Bill Gross of PIMCO, which appeared Oct. 31:

Dear Editor,

While I can argue with items in Gross’ latest post, I agree that someof the wealthiest Americans can pay more in taxes. But here is the rub: With the current convoluted tax structure, how will we know?

In 1980, I lived in Hong Kong and opened an outpost office for a multinational company. The first thing I discovered was that capitalism was alive and well in Hong Kong. I also noted that charity and equality there were not as bad as I would have thought. Certainly, the average worker seemed happier than in the U.S. that I left.

A key reason was the graduated, simplified tax system, which has no deductions beyond a narrowly defined charity gift.

Since it was difficult to hide income, few took the chance. Smart people looked to increase investments and therefore jobs opportunities. Few used their brains or educations to create tax dodges. No carry trade or weird tax shelters.

It worked well.

I would suggest that PIMCO focus its brainpower and influence on reformation of the tax system to a flat or graduated tax. With that accomplished, we can all have a debate about who is paying what. We are not at that point yet.

Respectfully,

Randy Cook

Long-time PIMCO investor

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