Here at last! Today is the day Marty McFly and his girlfriend Jennifer Parker travelled into the future to, along with Doctor Emmet Brown, at the end of the 1985 Robert Zemeckis classic Back to the Future.
Geeks of the world unite. We’ve been waiting for this day for 30 years. Enjoy it people.
Incidentally, the Perth Mint is celebrating the day with several new coin releases (see above). The 2oz silver ‘Hoverboard’ coin will cost you around £86. But can you really put a price on how cool it is? Probably not. The 1oz ‘proof’ coin with the flying DeLorean and the movie logo will set you back £57.
Strangely enough, the ‘Hoverboard’ coin is legal tender on the Polynesian island of Tuvalu. As far as I can tell, though, it’s only legal tender there, and nowhere else. But you don’t buy coins like this to spend them. You buy them to collect them. The premium you pay (above the spot price of the metal) is for the rarity of the coin and its quality.
For example, there are only 2015 ‘Hoverboard’ coins. They appear to be sold out already, sadly. You can probably find them on eBay in a few weeks, selling at an even larger premium to the spot price of silver. That premium, by the way, is about 315% above the spot price of silver. The premium on the one ounce coin is higher, at 457%, because it’s a ‘proof’ coin, meaning the image is stamped in higher relief than a normal coin. I myself prefer the ‘Hoverboard,’ not least because it’s a smaller premium.
While I’m on the subject, check out the five-year silver chart in pounds below. Are you a buyer or a seller at these levels? You can see that silver is down around 32% over the last five years. What you can’t see is that on a ten-year basis, it’s up almost 140%.
Source: www.goldprice.org
The trouble with the future is that hardly any of it is ‘forecastable.’ The variables in the UK silver price are the strength of sterling, interest rates, industrial demand for silver, monetary demand for silver, and financial demand for silver (exchange-traded funds).
But maybe the most useful thing to remember is that silver was money for a long time in human history. If the future is anything like the past, silver will figure in the global monetary system again—even as a hard asset of last resort. Bullion. Coins. Cutlery. It all counts.
How the welfare state goes broke, part 1
Yesterday I missed a trick when I mentioned Sweden and the fire-bombing of immigration centres. It’s true that the unrestricted immigration creates social issues, especially in a relatively homogenous place like Sweden. Open arms don’t always lead to open minds, hence the torchings.
But assimilation and integration issues aside, there’s a financial aspect that’s becoming more urgent by the day: you can’t have a generous welfare state and open immigration without creating a fiscal crisis for the state.
Sweden may be the first test-case of this. But it won’t be the last. Judging by election results in Austria, centre-right parties are going to have to move to the right to prevent leaking votes to far-right parties. The European Union may be opening the back-door to immigration. But at the local level, there’s no room at the inn.
Sweden is a member of the European Union but doesn’t use the euro. Before the most recent wave of migration, it could handle the demographics of ageing in the welfare state with high taxes. There’s enough social consensus on the role of the state in private life that the ‘Swedish model’ works, for Sweden.
But when you increase the demand for state resources without increasing real wealth, well then you have a maths problem. When you control your own currency and interest rates, you can fight the fiscal fire for a while. But you wonder if Sweden might eventually be forced to use even more unconventional monetary policy (helicopter money) to solve its problems.
As a last resort, Sweden could join the EU and go, hat-in-hand, to the European Central Bank for money or loans. But that’s how a welfare state goes broke and loses sovereignty to a supra-national organisation, when you make promises you can’t possibly keep.
If you run out of money, you either print more or borrow more. Either way, you’re broke. And once the state is broke, the breakdown in the existing social order isn’t far behind.
The UK’s ‘external liquidity metric’
Chinese president Xi Jinping’s visit to the UK is about getting more Chinese capital to fund British investment projects. That’s the argument I made in yesterday’s Capital and Conflict. At the geopolitical level, it’s also about Britain looking after her national interests in an era of Chinese ascendance and American decline (or indifference).
But the economic aspect of capital flows is, er, well, interesting. Hat tip to Mike Bird at Business Insider UK for broaching the subject yesterday. He referred to the ‘external liquidity metric’ as a kind of measure for risk. What risk?
The risk that a sudden disappearance or outflow of liquidity could be disruptive for a currency (sterling) and an economy (the UK). In plainer terms, the more dependent you are on foreign capital to finance your domestic investments, the more vulnerable you are to the flight of that capital from an external shock.
At present, the UK is a nice destination for foreign capital. That’s the reputation you want. You want to be an attractive destination for capital. But you don’t want your national standard of living dependent on foreign lenders. More on this and the current account deficit tomorrow.
How the welfare state goes broke, part 2
Tim Price comes out with the latest London Investment Alert tomorrow. I wonder if there will be any mention of 90-day Treasury bill yields in America. I desperately hope so! Why?
The T-bill market is the front-line when it comes to signals about capital flows and the psychology of the institutional investor. Yields on some short-term bills are already negative. This is a ‘liquidity preference’ that can also be expressed as ‘anything but stocks’.
But there’s more going on. The US Congress is on the verge of another ‘debt ceiling crisis’. The statutory limit on federal debt is $18.1trn. The US Treasury Department reckons it will hit that limit on or about 3 November. In the past, the Congress simply raised the statutory limit. That’s the great thing about a debt ceiling set by a legislature; they can always raise it on demand.
In the meantime, the uncertainty over the debt ceiling has caused three-month rates to go below one-month rates in the T-bill market. It’s all getting distorted now. According to today’s Wall Street Journal:
“The Treasury had shrunk its T-bill issuance in anticipation the government would exhaust its borrowing capacity in the coming days. On Tuesday, the Treasury will sell $5 billion in one-month bills for a second straight week, which was the smallest size for this T-bill maturity since 2001 when it adopted a single-price auction format for one-month bills. Three-month rates are now lower than one-month rates, while interest rates on T-bills before Nov. 3 remained in negative territory.”
You might not think short-term ructions in the US government debt market have no effect on the UK market. But it’s all part of the same big story. Net debtor welfare states are coming up against the ceiling of their capacity to redistribute wealth through higher taxes and debt. That leaves monetary policy as the only hope.
But the direct monetisation of government deficits – where the central bank buys bonds directly issued by the Treasury, without buying them from a third party in the open market – is the next frontier. When that starts to happen, you’ll want to own plenty of 20z ‘Hoverboards.’ Don’t worry if they aren’t legal tender.
In the next sovereign debt crisis, you won’t be worried about how liquid an asset is or whether it’s easily exchangeable for goods and services. You’ll be worried about storing your wealth in assets that won’t go up in the flames of hyper-inflation. The time to start worrying about that, of course, is now.
Category: Economics