Follow the Money –July 15, 2026
It seems like a good time, as new Fed Chairman Kevin Warsh decides which “fork in the road” to take, to review some basic economic principles. History clearly shows that some approaches work better than others.
We would rather be viewed as an Austrian Economist, than the more colloquial “gold bug”. This is opposed to the John Maynard Keynes approach, first presented in the nineteen twenties, seemingly still preferred by most mainstream economists and policy makers. The Austrian School, rather than relying on mathematical models and macro-studies, emphasizes purposeful individual choices made in the course of free market capitalism. The natural laws of supply and demand are preferred to artificial manipulation of interest rates and credit by central banks. Business cycles are allowed to run their natural course, rather than operate under the influence and unintended consequences of governmental intervention. Among the most prominent promulgaters of the Austrian School were Carl Menger (1840-1921), considered the founder, Ludwig von Mises (1881-1973), Frederich Hayek (1899-1922) and Murray Rothbard (1926-1998. It happens that convertibility of paper currency into gold has proven to be particularly useful here, serving to limit currency dilution from politicians. It also happens that the best performing periods of worldwide business history, with minimal inflation, have been with gold convertibility. The most recent example is from implementation of The Coinage Act in 1792, limiting legal tender to gold and silver, until 1913, when the Federal Reserve was created to presumably control inflation and mitigate periodic booms and busts. In short form, from 1792 until 1913 the US economy grew at an average of 4%, with minimal inflation.
The Keynesian model, with no such demonstration of sustained success, allows for government stimulus (and deficits) in hard times, retracting the accommodation as the economy strengthens. Unfortunately, the politicians are happy to have the stimulus, but unwilling to tighten into strength. A version of the Keynesian approach has been largely in place for the last 113 years, but the average real GDP growth is well below 4% and a 1913 Dollar is now worth less than $0.03.
This writer became an advocate of the Austrian School after reading Harry Browne’s (How You Can Profit from the Coming Devaluation, 1970). He foresaw the devaluation and coming inflation and after his books sold millions of copies, I brought him to NYC, where I rented Carnegie Hall (June, 1974) and presented him to fans at $50/ticket.
Before and after August of 1971 the trajectory of the gold price, along with inflationary trends, have been logical and predictable. The gold price peaked at $850/oz. in early 1980, then declined over twenty years as Reagan’s relatively productive economic policies took hold. Though Greenspan took office in 1987, with US Debt at $2.35T (48% GDP), his money printing did not come into play until 2000, as gold bottomed around $250/oz. Greenspan openly promoted a gold standard before and after his Fed years, but not during, and debt grew to $9.0 trillion by 2007, about 62% of GDP. Recall that “This Time is Different, Eight Centuries of Financial Folly (2009)”, by Reinhoff and Rogart, warned that debt approaching 100% of GDP becomes increasingly problematic. US Debt hit100% of GDP in 2012 and runs over 120% today, thanks to Bernanke, Yellen and Powell. It is worth noting that in the forty six years since Ronald Reagan took office, as debt has gone from $0.9T to $39T, there have been only four surplus years, 3 under Bill Clinton and 1 under George Bush, and the combined surplus was about $0.7 trillion. Judge for yourself the chances that the current $39 trillion of debt can be meaningfully reduced.
We ran a successful investment partnership, concentrating in restaurants and retail from 1993 until 2012, when I transitioned the fund to gold mining stocks, while continuing to consult within the restaurant industry. Though we sold most of our restaurant holdings in January ’08, after Christmas of ’07 clearly disappointed, we have remained sufficiently involved in restaurants and retail to know that consumer resilience has been, and will continue to be, a scarce commodity. This harkens back to the Reinhoff/Rogart debt burden.
We do not expect that the macro factors described above can be rectified without putting the worldwide economy through major stress. Compared to 1980, when Paul Volcker and Ronald Reagan provided fresh discipline, today’s necessary pain would be politically intolerable. Kevin Warsh is experienced and presents well, but he is not a magician. The political winds have not stopped blowing and Donald Trump, for one, prefers easy money. Warsh’s appointment of a number of committees to study the problem for six months do not strike us as excessively decisive. The deficit and debts will continue to increase and the money supply will grow in excess of the production of goods and services. Prices will rise, and the US Dollar, along with almost all other worldwide paper currency, will lose value. A living, and an adequate cash on cash return can be made as a restaurant operator, but, as I wrote forty years ago. “it’s a market share game”.
Roger Lipton
