Outgoing New York Fed President William Dudley has a new proposal to mock.
Dudley proposes paying bankers with long-term debt.
Wall Street should force banks to share the pain of regulatory penalties by docking executives’ pay, a move that would help discourage bad behavior, Federal Reserve Bank of New York President William Dudley said Monday.
If bankers were paid more with long-term debt, it could “better align senior managers’ interests with the long-term safety and soundness of the firm,” he said. Such a change might need to be pushed by regulators, he said, because the banks “may be reluctant to adopt such pay structures on their own for competitive reasons.”
Brief Payment History
- Millennials may be shocked to discover that people used to be paid with gold.
- Roosevelt ended the gold payment system during the Great Depression, illegally confiscating everyone’s gold. He should have gone to prison.
- Following personal confiscation, international trade deficits were settled in gold until Nixon put an end to that in 1971.
- After Nixon closed the gold window, people at least got paid in cash.
- People collected interest on debt in US dollars and other currencies.
- Lately, covenant-lite and toggle bond issuance has soared. Toggle bonds “pay” interest with more debt.
- Now, Dudley proposes paying people with debt.
What’s the difference anyway?
The dollar is in reality nothing but debt.
Dudley Gems
- Oh that “Elusive” Inflation! New York Fed President, William Dudley, says 2% inflation target will remain elusive even if price pressures pick up.
- Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run Benefit: “Hurricanes will boost economic activity over the long run.”
- NY Fed President Wants Consumers to Tap Home Equity: Didn’t We Try That Before? “People are leaving the wealth generated by rising home prices locked up in their homes.”
Dudley will be gone shortly. He is retiring. The lead candidate is John Williams, the current San Francisco Fed President.
Williams has some “clever” ideas of his own. For discussion, please see All Hail the New Fed Triumvirate: Powell, Williams, Clarida.
For discussion of the gold window and faith in central banks, please see Rate Hike Cycles, Gold, and the “Rule of Total Morons”
It is precisely because of central bank foolishness and bubble-blowing episodes that people would be wise to own gold.
Those wanting a return to a gold standard should note that the price of gold cannot be pegged to the dollar. Instead, a dollar should be redeemable as a fixed quantity of gold.
Addendum Q&A
Q. Are you simply trying to say that each dollar should be backed by a certain amount of gold that physically resides in a Federal Reserve vault?
A. Nearly correct. The gold does not have to specifically be at the Fed. A dollar should be redeemable in a specific weight. Period. Local banks quite fine.
Mike “Mish” Shedlock
You can buy gold and silver with dollars today.
“People are leaving the wealth generated by rising home prices locked up in their homes.” That would mean that people are keeping their wealth locked up in stock market, too. Why didn’t Dudley tell people to sell stocks & stock funds and spend the money?
“William Dudley, says 2% inflation target will remain elusive even if price pressures pick up.” Cycles have no target, which is why 2% inflation remains elusive. Cyclical pressure is either up or down, depending on the phase of the cycle. Greenspan’s Whip Inflation Now buttons simply didn’t work, as the the cycle phase was up. Sloganeering just doesn’t work in the face of the laws of math.
“Wall Street should force banks to share the pain of regulatory penalties by docking executives’ pay, a move that would help discourage bad behavior, Federal Reserve Bank of New York President William Dudley said Monday.” No banker was criminally prosecuted for participating in massive financial fraud during the housing bubble. There has been no discouragement of bad behavior by bankers, as they are being held above the law. Bernanke falsely lamented that no one was held accountable, but he had the power to refer and REFUSED to use it.
History clearly indicates prices need to be quoted directly in terms of ounces of Gold. With no intermediate “dollar” step. 1 micro-ounce for a pint, etc. …. I’m sure the Willie the Slicks of the world, would still immediately get busy debating what the meaning of “micro” is, but those are still quite a bit harder to redefine than less standardized terms, like “dollar.”
Do not put words like that in my mouth again, none of which I said or even agree with (other than Trump being a loose canon – never said but I agree)
Will this video float your boat:
link to khanacademy.org
There were few other Khan Academy videos referencing to a Austrian blog, but I won’t list each and every here.
I do not pay a premium for gold. I do not understand why someone would other than small quantities to look a beautiful item
US Mint (West Point) is charging $1677.50 for a 1 ounce gold coin. Found one on Ebay (Bay Precious Metals) for $1366.60. Last year the US was charging about a hundred dollar premium over paper gold price. I check many times in 2016, and 2017. Now it’s a $300+ premium.
“Hurricanes will boost economic activity over the long run.” // We could task the military with bombing a designated America city each month! (Mandatory evacuations prior to the event, of course.) The Fed would compensate insurance companies losses with long term debt. …Am I taking Mr. Dudley’s idea’s too far?
May I suggest Khan Academy:
1. link to khanacademy.org
2. link to khanacademy.org
😉
If you want to be technical, then “Currency is backed by X” is a special case of “Currency is Pegged to X” when there is enough of X in some institutions vault to redeem all currency notes in X. Feel free to Replace X with Gold or Euros or Dollars.
In anything, but **Full Reserve Gold Standard**, the “dollar will be actually pegged to gold” and not “backed by gold”, because there will not be enough of gold in the before-mentioned institution’s vault to redeem all currency notes. So it is completely OK to use more general term “currency is pegged to gold” unless you can and want to be more specific.
Anyway, if you want, you can come up with your own “Currency is pegged to X” definition by using my “Currency is pegged to X” definition and subtracting all cases of “Currency is backed by X” definition. However, that is just a technicality and then you have to come up with a new term to call what I was previously calling as “Currency is pegged to X” that includes both.
In other words, when I say “currency is pegged to X”, it meant that currency may or may not be fully backed by X. It does not seem to contradict with “pegged to” definition used in Wikipedia – link to en.wikipedia.org
“I would like to hear from Gold Standard proponents – how they would avoid any dollar-to-gold peg readjustments in the future?”
One can never guarantee against government stupidity. It’s how we got here in the first place. We are proposing there be no peg. It seems you do not understand the concept.
All I got was a “Give me a Quote” button.
When GE doesn’t price this equipment, you know it’s really expensive.
Let’s assume that collateral on loan is that someone else promised them to give 1 ounce of gold, but haven’t yet given it back.
Or it could just as well be anything else, like land. When you gave loan it was worthy to you. Now when he can’t pay back the loan to you it has become few timess less worth.
I am trying to bring back domino memories.
We would need such a devise to ensure genuine product.
Saw it in half and see if there is a tungsten core. I was actually trying to figure out how to make a water displacement device that would detect weight vs volume.
My question was not “if you know how to convert ounces to grams”. 😉
My question was – “While on Gold Standard would you lend your 1 ounce of gold to your government or to some corporation? What would you do if they can’t pay back?”
Bingo, and that is the real reason why it does not make sense to say that Gold Standard is coming back **any time**. Rhetorical question – Would it be a real Gold Standard, if people would already know that in few years there would be another peg readjustment; and then another one and then another one …? Why just not let the dollar price be determined in a free market, like Forex? Why we have to make a step backwards and leave Free Market ideas by going to Gold Standard where few appointed Federal Reserve(?) members will command the price between dollar and gold?
I would like to hear from Gold Standard proponents – how they would avoid any dollar-to-gold peg readjustments in the future?
In my opinion debt, when it can’t be paid back anymore, is the ultimate culprit for any historical dollar-to-gold peg readjustments. So, would lending and borrowing be banned in such Gold Standard system to avoid any need to repeg? Would eliminating debt be a good or a bad thing for economy?
Also, in my opinion, dollar-to-gold peg worked “somewhat fine” from 1700-1920, only because of gold mining era, where gold mining was similar to QE. You have too much debt? Go mine some gold and pay your debt [in gold] back. Gold mining increases money supply (It does not have to be neccessarily mined out to get reaction from population. It worked just as well as Draghi’s bazooka because people back in 20 century had no idea how much more gold could be mined). So why we have to waste labor and energy to create money supply? We could just automate creation of money supply by pressing a button and “woila” you have new money.
As for possibility of insider trading by people affiliated with Federal Reserve members who are in control of pressing that button – I don’t have a solution for this problem. But neither do Gold Standard proponents in Gold Standard system. Assuming new gold could be mined then people would start to loathe gold mining companies instead of Central Banks. Assuming new gold can’t be mined anymore, then debt would need to be eliminated from such Gold Standard system.
Are you simply trying to say that each dollar should be backed by a certain amount of gold that physically resides in a Federal Reserve vault?
Nearly correct. The gold does not have to specifically be at the Fed. A dollar should be redeemable in a specific weight. Period. Local banks quite fine.
Not sure I understood this comment mathematically correctly.
Are you simply trying to say that each dollar should be backed by certain amount of gold that physically resides in a Federal Reserve vault?
Is it different from “It’s important to note that the price of gold cannot be tied to the dollar.” in sense that this statment does not eplicitly mention that there **must be enough gold reserves in Federal Reserve vault** against which each dollar could be redeemed?
If I still did not understand correctly, care to give a concrete example?
Peg’s ALWAYS fail, even a fixed amount of gold to the dollar.
Sorry, but I am sick to the back teeth of people who say we can’t have a gold standard because people don’t want to haul gold around to the local store. FFS you don’t ever have to touch gold (or even see it) to operate a gold standard. Equally, I suggest we shoot people who claim that “there isn’t enough gold in the world to operate a gold standard”. These various statements are hard proof of a complete lack of understanding of monetary matters (at best) and extremely low intellect (at worst).
1/100,000 or even 1/1,000,000 seems about right
Always a fixed quantity of gold – no matter the currency. It may be an ounce, half an ounce or 1/1000 of an ounce even 1/100,000 of an ounce – regardless of currency
“Hurricanes will boost economic activity over the long run.” Ok, lets get all the wind bags in Washington, DC to huff and puff in unison once a week and there will be enough hurricanes to lift even Venezuela out of the tank – in the long run.
There are advantages to paper (and now digital) currencies in place of lugging gold coins down to the 7-11 or somehow squeezing gold bars through our internet connection. Question is – should the unit of that convenient currency (Australian Dollar, German Euro, etc) be a fixed quantity of gold? Or should it be a fluctuating quantity?
Former British Prime Minister Harold Wilson devalued the once-mighty Pound Sterling, and then went on TV to tell his serfs most forcefully that “The Pound in your pocket has not been devalued”. (And you wondered where President Barry borrowed his “you can keep your doctor” shtick from?). Of course it had!
Most governments are assiduously promoting inflation as a way to reduce their unrepayable debts. By linking the currency to gold, that effective devaluation of the currency would be made more obvious, which might induce the Best & Brightest to seek other ways to retain their spaces at the trough – maybe even by cutting spending?
How long can this sh*t show keep going on? I might as well watch the Bizarro World episode from Seinfeld.
It’s important to note that the price of gold cannot be tied to the dollar. Rather, a dollar should represent a fixed quantity of gold. – I am adding that to my article
Hopefully one day dollars can redemmed in gold or silver. An idea who’s time has finally come.
Debt on top of debt on top of yet more debt. I hope we don’t end up like Venezuela.
Beyond stupid. Why not just require that Sr. mgmt & Bod have a significant fraction of their net worth in equity, locked up until they retire or resign. It would focus attention like a hangman’s noose.