Mish's Global Economic Trend Analysis

China Announces 100 Commercial Airplane Orders Breaking Airbus-Boeing Grip; GE Among First Customers of the 168-Seat C919 Passenger-Plane
Open Letter to Bernanke from 23 Economists Complaining About QE II; GOP Lawmakers Call for Abandoning $600 Billion Bond Purchase; Curtain of Idiocy
NY Fed Manufacturing Survey: New Orders Index Plummets 37 Points to -24.4, Sharpest Drop Since September 2001; Prices Received Negative
In Search of 1.1 Million Jobs Claimed by Obama; Where the Hell are They?
"Midas Crush" - MarketWatch Attempts to Explain "Why Gold is a Bad Investment"

China Announces 100 Commercial Airplane Orders Breaking Airbus-Boeing Grip; GE Among First Customers of the 168-Seat C919 Passenger-Plane

Posted: 15 Nov 2010 09:26 PM PST

Move over Airbus, Boeing, China Wins 100 C919 Orders, Breaks Airbus-Boeing Grip .

Commercial Aircraft Corp. of China announced its first 100 C919 passenger-plane orders, breaking Airbus SAS and Boeing Co.'s stranglehold on the world's second- largest market for new aircraft.

General Electric Co.'s leasing arm and China's big three domestic airlines were among the customers for the 168-seat plane, state-controlled Comac said in a statement issued at the Zhuhai air show in southern China today. It didn't say how many aircraft each customer ordered.

The development of the nation's first large passenger aircraft could damp sales for overseas planemakers in China, which may need $480 billion worth of aircraft by 2029, according to Boeing. Comac expects to sell more than 2,000 C919s worldwide over 20 years in competition with Boeing's 737 and Airbus's A320, the aircraft-makers' most popular models.

The 70-seat ARJ21, China's first regional jet, is also due to make its maiden exhibition flight at this week's Zhuhai show. China will trail only the U.S. in plane orders over the next 20 years, according to Boeing.

Aircraft, Grains, Empty Crates

Aircraft, grains, and empty crates are among US leading exports to China. With this announcement, you can now safely kiss aircraft goodbye. And if you ever once believed the US was going to quickly double its exports as president Obama proclaimed, you can stop believing that too.

There is nothing inflationary about this announcement. It is guaranteed to cost jobs. Worse yet, more stories like this are coming. We not only exported jobs to China, we also exported technology.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Open Letter to Bernanke from 23 Economists Complaining About QE II; GOP Lawmakers Call for Abandoning $600 Billion Bond Purchase; Curtain of Idiocy

Posted: 15 Nov 2010 04:51 PM PST

Please consider this Open Letter to Ben Bernanke from 23 economists posted in the Wall Street Journal.

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own." In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

A spokeswoman for the Fed responded:

"As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee's recent actions reflect those mandates. The Federal Reserve will regularly review its program in light of incoming information and is prepared to make adjustments as necessary. The Federal Reserve is committed to both parts of its dual mandate and will take all measures to keep inflation low and stable as well as promote growth in employment. In particular, the Fed has made all necessary preparations and is confident that it has the tools to unwind these policies at the appropriate time. The Chairman has also noted that the Federal Reserve does not believe it can solve the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector."

For a list of the economists signing the letter please see the article.

GOP Lawmakers Pressure Bernanke Over QE II

I am pleased to report yet another Fresh Attack on Fed Move by members of Congress and others.

The Federal Reserve's latest attempt to boost the U.S. economy is coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics.

The economists have been consulting Republican lawmakers, including incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and began discussions with potential GOP presidential candidates over the weekend, according to a person involved.

The increasingly loud criticism of the Fed comes as some economic officials outside the U.S. are criticizing the central bank's move to effectively print money, which has the side effect of pushing down the dollar on world currency markets. President Barack Obama last week defended the Fed. The move to buy more bonds, known as quantitative easing, "was designed to grow the economy," not cheapen the dollar, he said.

Organizers of the new campaign predicted the Fed will increasingly find itself caught in the political crosshairs, though. A tea party-infused GOP is eager to heed voters' rejection of big-government programs, and conservatives say a new move by the Fed to essentially print more money make it ripe for scrutiny by the incoming Republican House majority and potentially an issue in Mr. Obama's 2012 re-election campaign.

"Printing money is no substitute for pro-growth fiscal policy," said Rep. Mike Pence, an Indiana Republican who has been privy to early discussions with the group of conservatives rallying opposition to the Fed plan. He said the signatories to the letter "represent a growing chorus of Americans who know that we should be seeking to stimulate our economy with tax relief, spending restraint and regulatory reform rather than masking our fundamental problems by artificially creating inflation."

Some prominent liberal economists, including Nobel laureates Joseph Stiglitz and Paul Krugman, already have challenged the efficacy of quantitative easing, arguing that more fiscal stimulus is needed to restore the economy to health.

Signatories to the letter criticizing the Fed insisted they aren't trying to undercut the central bank's independence.

"It's fair to have a public debate about what the right monetary policy is," Mr. Holtz-Eakin said. "I'm a long way away from being comfortable with the idea of the Congress running monetary policy."

Curtain of Idiocy

For starters QE II is guaranteed to fail.

Three Reasons QEII Will "Backfire"; Pavlov's Dogs and the "No Choice" Argument Yet Again

"Money's Already Quite Cheap"

Bill Gross' Arrogant Endorsement of Fed's QE Policy he calls History's Most "Brazen Ponzi Scheme"

Second, the Fed is attempting to hide behind a "dual mandate" which is virtually impossible to meet.

Dual Mandate Equals Mission Impossible

Here's the deal.

1. The Fed can control money supply but it will have no control over interest rates (or anything else).

2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).

That is the full and complete extent of the Fed's "control". Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.

The simple truth of the matter is the Fed can print money, but it cannot control where it goes, or even if it goes anywhere at all. Indeed the Fed can encourage but not force banks to lend, and encourage but not force consumers to borrow.

The Fed certainly cannot induce hiring. The unemployment rate at 10.6% is proof enough.

Thus, the Fed is attempting to hide behind a Congressional mandate that is as idiotic as suggesting black can be white. It does so because Bernanke is an academic fool as well as an economic illiterate, blind to the real world economy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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NY Fed Manufacturing Survey: New Orders Index Plummets 37 Points to -24.4, Sharpest Drop Since September 2001; Prices Received Negative

Posted: 15 Nov 2010 11:53 AM PST

Inquiring minds are investigating the November Empire State Manufacturing Survey for clues about manufacturing and the state of the economy.

The Empire State Manufacturing Survey indicates that conditions deteriorated in November for New York State manufacturers. For the first time since mid-2009, the general business conditions index fell below zero, declining 27 points to -11.1. The new orders index plummeted 37 points to -24.4, and the shipments index also fell below zero.

The indexes for both prices paid and prices received declined, with the latter falling into negative territory. The index for number of employees remained above zero but was well below its October level, and the average workweek index dropped to -13.0.

Business Activity Declines

The general business conditions index fell below zero for the first time since July of 2009, dropping a steep 27 points to -11.1—an indication that, on balance, conditions had worsened over the month. The percentage of respondents reporting that conditions had improved fell from 35 percent in October to just 17 percent in November, while the percentage reporting that conditions had worsened rose from 20 percent to 28 percent.

The new orders index plummeted 37 points to -24.4, its sharpest drop since September 2001. Nearly 40 percent of respondents reported that orders were down. The shipments index fell 26 points to -6.1, and the unfilled orders index declined 23 points to -24.7. The delivery time index, at -9.1, was little changed. The inventories index rose to zero after dropping into negative territory last month.

Price Indexes Fall

Indexes for both prices paid and prices received were below their October levels. The prices paid index fell 8 points to 22.1, suggesting that the pace of price increases had slowed in November. The prices received index dropped below zero, falling 11 points to -2.6 — a sign of slight downward pressure on selling prices. Employment indexes were also lower. The index for number of employees fell 13 points but, at 9.1, remained above zero, indicating that employment levels were modestly higher in November. The average workweek index, however, fell below zero, to -13.0, indicating that the average length of the employee workweek was shorter.

New Orders, Shipments, Unfilled Orders

The new orders index plummeted 37 points to -24.4, its sharpest drop since September 2001. The backlog of orders in conjunction with new orders suggests huge overstaffing issues unless things change quickly.

Employees and Workweeks

The average workweek plunged. Layoffs are next unless conditions change.

Prices Paid vs. Prices Received

For all the brouhaha from inflationists regarding soaring commodity prices and how it means wild-ass inflation, I calmly point out five things.

1. Inflation is about credit and the demand for it, not prices.
2. Pricing power is nonexistent. Similar small business surveys show the same thing. Businesses have not been able to pass along input price increases, and that's a fact Jack.
3. A business pricing squeeze is on, as consumers demand bargains.
4. Inflation is rampant IN CHINA, not in the US. Commodity prices have far more to do with overheating in China, than anything regarding inflation in the US.
5. Money supply and more importantly credit, is soaring in China. Credit is contracting in the US.

Thus, the rah-rah inflation talk by inflationists cherry picking commodity prices and pretending those prices are a measure of inflation in the US, is complete nonsense, for more reasons than one.

If inflationists want to scream about inflation they should be screaming about China. Instead they run around like chickens with no heads, unable to find any country except the US on a global map.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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In Search of 1.1 Million Jobs Claimed by Obama; Where the Hell are They?

Posted: 15 Nov 2010 09:25 AM PST

On November 5, the administration was singing the praises of an economic recovery that allegedly created 1.1 million jobs this year. Before we dive into what's really happening with jobs, please consider Remarks by the President on the October Jobs Report

THE PRESIDENT: Good morning, everybody. We are in the middle of a tough fight to get our economy growing faster, so that businesses across our country can open and expand, so that people can find good jobs, and so that we can repair the terrible damage that was done by the worst recession in our lifetimes. Today we received some encouraging news.

Based on today's jobs report, we've now seen private-sector job growth for 10 straight months. That means that since January, the private sector has added 1.1 million jobs. Let me repeat, over the course of the last several months, we've seen over a million jobs added to the American economy. In October, the private sector has added 159,000 jobs. And we learned that businesses added more than 100,000 jobs in both August and September as well. So we've now seen four months of private-sector job growth above 100,000 [jobs], which is the first time we've seen this kind of increase in over four years.

151,000 Jobs In October? Really?

Inquiring minds just might be wondering how we created 151,000 jobs in October. As it turns out, about 100,000 of them was a seasonal adjustment, and I am not even talking about the much maligned BLS Birth-Death Model that 10 months out of 12 presumes the economy added jobs that no once can see.

I am talking about regular "seasonal adjustment" factors, and last month was a doozie. The latest issue of Barrons discusses the The magic of seasonal adjustment.

THE JOBS REPORT FOR OCTOBER was released by the Bureau of Labor Statistics on Friday, and at first blush was surprisingly strong, much stronger, indeed, than expected. Payrolls expanded by 151,000 and the two previous months' were revised upward. But hold the hurrahs.

Happily, the always astute Stephanie Pomboy of MacroMavens provided a quickie explanation:

"The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers."

Thus in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented "an upside surprise" of 100,000.

Household Survey vs. Establishment Survey

Please note that the monthly jobs number and the unemployment rate are derived from two different surveys. The reported jobs number comes from the Establishment Survey (a sample of actual payroll tax collections, seasonally adjusted, then further massaged by the infamous Birth-Death model (a guess by the government as to how many jobs it missed that were newly created). Historically 10 to 11 times out of 12, the birth-death adjustment goes up. Every January it goes down. It sometimes goes down in July.

The unemployment number is actually derived from the Household Survey (a phone sample that asks people if they have a job, and if not do they want a job and are looking for a job). Unless you are looking for a job and do not have one, you are not unemployed. If you worked as little as 1 hour, congratulations, you are counted in the ranks of the employed.

Both surveys are detailed in the BLS monthly jobs report. Let's take another look at the BLS October Jobs Report.

Scroll down to page 5: HOUSEHOLD DATA Summary table A. Household data, seasonally adjusted.

click on chart for sharper image

The first item of interest is the Civilian Noninstitutional Population (i.e the population aged 16 and up not in school, prison, or other institutions).

In the last year, the table shows Civilian Noninstitutional Population rose by 1,980,000 an average gain of 165,000 potential workers a month.

Next consider the gain in employment.

Household Survey Shows Loss of 330,000 Jobs

In September 2010, employment was 139,391,000. In October 2010, employment was 139,061,000. That is a LOSS of 330,000 jobs in October, a loss even the BLS recognizes. Meanwhile the president is crowing about an alleged gain of 151,000 jobs.

This discrepancy does not add up and it gets worse the deeper you dig.

In the last year, the number of employed rose from 138,242,000 to 139,061,000 - a gain of 819,000 jobs (not a million). That translates to 68,250 jobs a month.

Hooray!??

Given the Noninstitutional Population rose by 165,000 potential workers a month, adding 68,250 jobs a month does not look so good. Moreover, by that comparison, the unemployment rate ought to be soaring.

Instead, via Participation Rate magic the unemployment rate actually dropped from 10.1% to 9.6%.

The Participation Rate is the percentage of the Noninstitutional Population in the workforce (holding a job or actively seeking a job). This is where the game comes in. If you are not actively seeking a job, whether you want one or not, you are not considered unemployed, nor are you considered to be in the labor force.

In the last month alone, (last line on the above table), 462,000 people dropped out of the labor force, collapsing the participation rate from 64.7% to 64.5%.

In the last year, those Not in the Labor Force rose from 82,696,000 to 84,626,000.

Allegedly, 1,930,000 people dropped out of the workforce even though the Civilian Noninstitutional Population rose by 1,980,000!

That's a net discrepancy of 3,910,000 individuals who disappeared, a rather amazing bit of magic.

Unemployment Rate Magic

The BLS claims the unemployment rate dropped to 9.6% from 10.1%.

If we discount the net discrepancy and simply add 1,930,000 back into the ranks of the unemployed as well as the labor force, the number of unemployed becomes 16,773,000 and the labor force becomes 155,834,000.

That would make the unemployment rate 10.76%.

The above math is not entirely accurate because it does not reflect those entering or graduating from school or those retiring. However, we can probably discount school factors on the basis those entering school and those graduating from school are approximately the same.

The net effect then is retirement and people otherwise "vanishing" from the workforce via the falling participation rate. Did a net 3,910,000 individuals retire in the last year? If not, the rest just "vanished".

In a subsequent post I have still more about "vanishing jobs". There is much more to the unemployment story.

Finally, I am quite interested in retirement trends and asked the social security administration a set of questions about historic retirement numbers. I will post the answers, if and when they come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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"Midas Crush" - MarketWatch Attempts to Explain "Why Gold is a Bad Investment"

Posted: 14 Nov 2010 11:49 PM PST

Jonathan Burton at MarketWatch attempts to present a case Why gold is a bad investment.

Gold isn't like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that's safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.

"Gold is going up because people are buying it, and people are buying it because it's going up," said Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill., and a longtime gold trader.

"Gold is always a speculation," James Grant, editor of Grant's Interest Rate Observer and a longstanding gold bug, noted in his latest newsletter.

To Jon Nadler, senior analyst at Kitco Metals Inc. and a veteran gold-market watcher, Wall Street's buy recommendations remind him of speculation in 2008 that propelled another must-have commodity — oil, the "black gold" — to stratospheric heights.

"I don't think gold is an opportunity at $1,400 an ounce," Nadler said. "Just because gold has been above $1,000 for 14 months, everybody thinks it's a new paradigm. This is very much what we heard about oil a couple of years ago."

"Gold at $1,400 is not what I would call an investment," said Kaplan, of Prospector Asset Management. "An investment is something you buy near its value. If gold costs $450 or $500 to produce, at $1,400 you don't have value, you have momentum."

"I called gold the ultimate bubble, which means it may go higher," Soros told an investor conference in New York in mid-September, repeating a warning he'd made earlier this year. "But it's certainly not safe and it's not going to last forever."

"Gold would probably provide a decent hedge against a declining dollar, but so would foreign stocks, which you can value," said Scott Kays, an Atlanta-based financial adviser who does not include physical gold in client portfolios. "If gold becomes overvalued, there are places you can cash in on factors that drive up gold, without as much risk," such as emerging-market bonds.

Everything Is Speculation

"Gold is always a speculation," says James Grant.

The legal dictionary defines speculate "to assume a business risk in hope of gain; to buy or sell in expectation of profiting from market fluctuations"

By that definition, what isn't speculation?

Buying bonds is speculating that a company will be able to pay you back. Sometimes it works and sometimes it doesn't as the collapse in GM shows. How many widows on fixed income counting on GM yields got wiped out?

Little did GM bond investors realize they were foolishly betting (speculating) that GM would not go bankrupt. They lost.

What about technology stocks, especially "bellwethers" like Cisco?

The results for 10 years running speak for themselves: Congratulations to Cisco Insiders for Dumping 6,620,750 Shares, 60% of Holdings in 6 Month; Cisco CEO Whines about Taxes; Is Chambers Worth a Dime?

Purchasing any stock is speculating whether or not the company can return value to shareholders.

Cisco has not paid a dividend ever. Whether it starts to now is moot. Those buying dividend stocks are speculating the dividend will not be cut. In addition to GM, look what happened to the dividends of Citigroup, Bank of America, Wells Fargo, and the entire financial sector in the last few years.

Buying those stocks was not speculation? And gold is? Please be serious.

Nadler Nonsense

Jon Nadler, senior analyst at Kitco Metals Inc. and a veteran gold-market says "Just because gold has been above $1,000 for 14 months, everybody thinks it's a new paradigm."

Excuse me for asking Jon, but can you please name some names of people who proclaimed gold to be "a new paradigm."

While you are addressing that question Jon, please comment on this: Nadler Nonsense "Gold Is Not in a Bull Market"

Buying Near Value

Kaplan, of Prospector Asset Management says "An investment is something you buy near its value." Really? Is a value-bag of potato chips an investment?

More seriously, and since I am in a question asking mood, why is Kaplan the arbiter for determining the proper "value" of gold?

Holding Dollars is Speculating

By the definition I gave above, even those holding dollars or treasuries are speculating. The speculation in this sense is that dollars will buy more (or lose less), than other investments.

In light of the fact that everything is speculation, which of the following is the better bet?

1. The Fed continues to debase the dollar and gold soars
2. Cisco or Microsoft goes parabolic once again (and gold doesn't follow)

Bear in mind, gold is not a sure thing. Gold fell from 850 to 250 over a 20 year period with inflation every step of the way. Gold is not an inflation hedge as most think.

Rather, gold is a hedge against deflation or extreme inflation. In ordinary inflation, and periods of disinflation, gold tends to do poorly.

Reflections on "Sure-Things"

Gold is not a "sure-thing". Then again, there are no "sure-things" anywhere.

Interestingly David Tepper, a billionaire hedge fund titan and president of Appaloosa Management disagrees, telling CNBC "The Fed is going to come in with QE. Right? Then what's going to do well? Everything! In the near term - Everything!"

Please see Sure Thing?! for a discussion and video of Tepper.

As a followup to that story ZeroHedge points out David Tepper Dumps 20% Of Financial Holdings During Quarter Of Infamous CNBC Speech.

Question of Probability

When it comes to speculating (investing if you prefer), it helps to think of things in terms of probabilities. Please consider this snip from "Straight Talk" with Economic Bloggers

9. What's the question we should have asked, but didn't? What's your answer?

Mish: I guess it would be: "Does your crystal ball have a forecast for the stock market? For Gold? The US Dollar?" Let's start with gold. I see articles everyday by some prominent people saying things like "I know gold is going to ... whatever".

The thing is, they don't know and neither do I. Only a charlatan or a fool can make such a claim. Of course the fools and charlatans may be right, but it is not because they "know" anything.

One thing I do know is that I don't know things of that nature. That puts me ahead of all those who claim to know the unknowable.

Probabilities

I prefer to look at things in terms of probabilities. It is highly likely the Fed embarks on Quantitative Easing. That should be good for gold, but short term that QE may easily be priced in.

Moreover, the Fed may go slower than what the market thinks.

Thus, there could be a huge "sell the news" event in both gold and the stock market on the QE announcement, no matter what that announcement is.

Should that happen, given that gold is in a long-term bull market, and given that Bernanke will likely go back to the QE well, I expect buying the next big dip in gold would be a higher probability event than buying a 10% correction in the stock market.

There is a lot going for gold, but it is by no means a "sure thing".

Investing vs. Speculation

No matter what you do with your money, even holding it, you are taking a chance. The prudent thing is to have a cash cushion of a year's worth of living expenses in case you lose your job. If you don't have a cash cushion and you don't have insurance you are speculating you won't lose your job or you won't get sick.

I believe it's prudent to own some gold, but no more than you can sleep with.

Putting everything you have on gold is neither prudent nor practical, especially for those managing other people's money.

Risk management is crucial, no matter what you do.

In a practical sense then, one can make a case that "a" differentiating factor between investing and speculating is risk management.

Gold is Money

The bottom line to me is that "gold is money". We know that gold is money because it acts like it. Please see Misconceptions about Gold for a discussion.

By the way, that "Misconceptions" article was written by "Trotsky" also known as my friend "HB" who now has his own Austrian Economic blog called Acting Man. His latest article is Robert Zoellick Mentions the Un-Word.

The "Un-Word" is of course gold.

Stunning Skepticism

The skepticism in the face of this rally is nothing short of stunning. The silliest line in the MarketWatch article is that "gold is worth only what people are willing to pay for it."

Excuse me, but no tangible assets are worth more than people are willing to pay for them.

Although there can be a huge pullback at any time, the fact that there is so much skepticism about this rally, from so many places, suggests gold is likely to go higher. Bottoms are formed when nearly everyone is agnostic. That happened with gold in 2000.

Tops are formed when nearly everyone is a believer. In regards to housing, belief peaked in summer of 2005. I called the peak of the housing bubble in real time, precisely on time, in It's a Totally New Paradigm.

Note that in contrast to what Nadler says about gold, people did use the phrase "totally new paradigm" in regards to home prices. Time Magazine even went "gaga" right on the cover.

For a series of real time updates on housing, please see Collapse of the "Ownership Society"

In regards to gold, we are a long, long way from everyone being a believer. By that measure, it's highly unlikely the top is in.

Addendum:

From "Andy" and a number of people who made similar comments.

Point: Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it.

Counterpoint: Federal Reserve Notes have no untapped intrinsic value; they are worth only what people are willing to exchange them for.

Only difference: gold can't be created out of thin air.

Measuring "Value"

From What Has Government Done To Our Money? by Rothbard.

Many textbooks say that money has several functions: a medium of exchange, unit of account, or "measure of values," a "store of value," etc. But it should be clear that all of these functions are simply corollaries of the one great function: the medium of exchange.

Because gold is a general medium, it is most marketable, it can be stored to serve as a medium in the future as well as the present, and all prices are expressed in its terms². Because gold is a commodity medium for all exchanges, it can serve as a unit of account for present, and expected future, prices. It is important to realize that money cannot be an abstract unit of account or claim, except insofar as it serves as a medium of exchange.

²Money does not "measure" prices or values; it is the common denominator for their expression. In short, prices are expressed in money; they are not measured by it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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