Last week I attended virtually the always excellent Cato Institute Monetary Conference. This year, it’s the 40th. The headline speaker was Federal Reserve Chairman Jerome Powell, who sat for a Q&A with Cato president Peter Goettler.
Powell started by asserting that “none of this high inflation would have happened without the pandemic.” The pandemic contributed to increased demand and reduced supply. As an example, he said that the demand for cars rose because people wanted to avoid public transportation.
Whatever caused prices to move up after the pandemic, “I will say that the relationship of monetary aggregates to prices has changed” since Milton Friedman’s days. The money supply “(doesn’t) play an important role in our discussions.”
Money Matters
Mervyn King, former Governor of the Bank of England, rebutted some of Powell’s comments without directly attacking him.
“Money matters,” he began. "It is 'bizarre' for central bankers to stop thinking about money," he said. It is common sense that too much money chasing too few goods leads to higher prices, and “you can’t explain inflation without money.” If you are increasing the money supply at 20% a year, you have to explain why that won’t lead to inflation, he asserted.
Central bankers refused to face the issue that QE was really money printing, and he attacked policies of the Fed and many other central banks, saying that if you find supply contracting, the last thing you want to do is boost demand.
When Covid came in 2020, central banks should not have increased QE, he said; they should just have done no easing. The fiscal response (government spending programs) was sufficient.
Do the Fed’s Models Work?
There was also some discussion on the Fed’s overreliance on econometric models. Even Powell commented that economics was not physics; there is not a specific temperature at which the economy boils over; it takes years of study to understand the reasons for why things happened.
Of course, with Powell, this was meant as an excuse for why the Fed gets things wrong, though he didn’t put it that way.
As former George Mason professor (and now full-time at Cato) George Selgin noted, “the Fed does not like to admit its mistakes.”
Others noted an over-reliance on models, with King saying it had led to hubris, while Kevin Warsh, a former member of the Fed’s Board of Governors, commented that the Fed should stress test its models to see what goes wrong with its forecasting.
Osisko Expands Into Copper
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) purchased a 1% royalty on a Chilean copper project for $15.5 million. Based on published resources, this would provide a 7% internal rate of return and would account, once in production, for less than 2% of OR’s revenue.
Although Osisko does hold other non-gold interests, most notably at the Renaud diamond mine, it remains focused on gold.
Osisko is a Buy.
BEST BUYS now include Barrick Gold Corp. (ABX:TSX; GOLD:NYSE); Franco-Nevada Corp. (FNV:TSX; FNV:NYSE); Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX); Midland Exploration Inc. (MD:TSX.V); Orogen Royalties Inc. (OGN:TSX.V); Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE); Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ);Lara Exploration Ltd. (LRA:TSX.V)); Gladstone Investment Corp. (GAIN: NASDAQ); and Hutchison Port Holdings Trust (HPHT:Singapore).
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