World Gold Council Says India ‘Strong Pillar of Support’ for Gold Market

Published on Feb 05, 2023 01:51 PM IST

India was the largest consumer of gold before being overtaken by China in 2009. In 2021 India bought 611t of gold jewellery, second only to China (673t) but comfortably ahead of all other gold-consuming markets, a recent World Gold Council report revealed.

Plain gold jewellery maintains 80-85 per cent of market share, the majority of which is 22-carat although the market for 18-carat jewellery is growing. (HT File Photo)
Plain gold jewellery maintains 80-85 per cent of market share, the majority of which is 22-carat although the market for 18-carat jewellery is growing. (HT File Photo)

India, the world’s second-largest consumer of gold jewellery, has experienced rapid change over the last few years due to evolving demographics witnessing growing demand for lightweight and studded jewellery, reported Asian Lite International citing World Gold Council.

“India is a strong pillar of support for the global gold markets as the second-largest consumer of gold jewellery. While weddings and festivals act as important drivers of jewellery demand, our rich cultural heritage and historic status as a major global force in world commerce underpin this strong socio-economic relationship with gold. Over time, we have created countless reasons and joyous occasions to accumulate gold. Bridal jewellery segment alone accounts for nearly half of the market share with rural India being the largest consumer of gold jewellery in the country,” said Somasundaram PR, Regional CEO, India, World Gold Council.

Also read: Gem, jewellery industry disappointed with the Budget: Report

The gold jewellery exports in India have grown from USD 7.6 billion in 2015 to USD 12.4 billion in 2019. Bridal jewellery dominates the gold jewellery landscape, enjoying 50-55 per cent of market share in India, reported Asian Lite International.

Plain gold jewellery maintains 80-85 per cent of market share, the majority of which is 22-carat although the market for 18-carat jewellery is growing. Daily wear jewellery accounts for 40-45 per cent of the market.

Plain gold jewellery exports accounted for 38 per cent of gold jewellery exports from India in 2021. Over the last decade, nearly 90 per cent of India’s jewellery exports have flowed to just five major markets: namely, the UAE, the US, Hong Kong, Singapore and the UK, reported World Gold Council.

Meanwhile, South India dominates Indian gold jewellery consumption, accounting for 40 per cent of the country’s total jewellery demand.

Aside from gold, India has a sizeable and vibrant silver jewellery market and is the world’s largest fabricator of silver jewellery, reported Asian Lite International.

Also read: Burglars dig 15-foot tunnel to break into UP jewellery shop

“Our 2019 consumer survey, carried out by Hall & Partners, found that 60 per cent of the women surveyed owned gold jewellery, closely followed by 57 per cent who owned silver jewellery, but only 26 per cent owned diamond jewellery,” reported World Gold Council.

Meanwhile, Platinum jewellery did not appear among the top purchases by female consumers, as this market is still in its infancy in India.

Notably, India was the largest consumer of gold before being overtaken by China in 2009. In 2021 India bought 611t of gold jewellery, second only to China (673t) but comfortably ahead of all other gold-consuming markets, a recent World Gold Council report revealed.

Gold Prices Finish Higher After Falling to a 3-Week Low: MW

Gold prices finished a bit higher on Monday after tumbling to their lowest level in three weeks following Friday’s surprisingly strong jobs report, which helped send Treasury yields and the dollar higher to the detriment of the yellow metal.

Price action
  • Gold for April delivery


    rose $2.90, or nearly 0.2%, to settle at $1,879.50 an ounce on Comex. On Friday, prices for the most actively traded contract settled at their lowest level since Jan. 10 after falling 2.7%, the biggest one-day drop since June 17, 2021.

  • March silver


    declined by 17 cents, or nearly 0.8%, to $22.237 an ounce after falling more than 5% last week.

  • April platinum

    shed $5.70, or 0.6%, to $974.60 an ounce, while palladium for March delivery

    fell by $39, or 2.4%, to $1,579.40 an ounce.

  • March copper

    settled at $4.035 a pound, down 2 cents, or 0.5%

Market drivers

Gold was “left licking its wounds,” said Craig Erlam, senior market analyst OANDA, after sliding almost 5% from its highs towards the end of last week.

Gold was “already looking quite overbought and was struggling for momentum on its most recent surge and so was potentially primed for a correction but the U.S jobs data certainly finished the job,” he said in a market update.

See: Jobs report shows blowout 517,000 gain in U.S. employment in January

Prices for the precious metal had surged above $1,900 an ounce and remained there for most of January on the prospect of the Federal Reserve soon ending its policy of interest rate hikes to curb persistently high inflation, said Rupert Rowling, market analyst at Kinesis Money.

However, the “massively positive jobs figures…delivered the shock that gold investors were fearing as the strong state of the world’s largest economy gives the Fed plenty more room to continue its policy of rate hikes without fearing triggering a recession,” said Rowling, in a daily report. “With more hikes now likely, gold has suffered due its lack of yield making it less attractive at times of rising interest rates.” 

Read: How a hot jobs report ‘moved the goal post’ on interest-rate expectations

Both the dollar and Treasury yields jumped in response to the jobs data, which helped to weigh on gold prices late last week, as the U.S. economy added more than half a million jobs last month, while previous monthly data were revised higher.

In Monday dealings, the ICE U.S. Dollar Index
a gauge of the buck’s strength against a basket of rivals, was up 0.7% to 103.61. The yield on the 10-year Treasury note

was up 9.8 basis points to 3.63%.

Check out: How the U.S. dollar could put this stock-market rally to a big test

Legislators Seek Repeal of Wisconsin’s Controversial Sales Tax on Gold and Silver

Madison, Wisconsin – (February 4th, 2023) – A large bipartisan contingent of Wisconsin legislators seek to end Wisconsin’s controversial practice of levying sales tax on purchases of gold and silver.

Senate Bill 33, primarily sponsored by Sen. Duey Strobel (R – Saukville) and Sen. Rachael Cabral-Guevara (R – Appleton), and cosponsored by Rep. Shae Sortwell, enjoys wide support – and would align Wisconsin with the policies of 42 other U.S. states.

Senate Bill 33 would exempt “precious metals bullion,” defined as coins, bars, rounds, and sheets that contain at least 35% gold, silver, copper, platinum, or palladium.

In 2019, Rep. Shae Sortwell (R – Two Rivers) introduced a similar measure that did not receive a hearing. But upon introduction this year, Senate Bill 33 already has seven Senate sponsors and 16 House sponsors.

Imposing taxes on the exchange of Federal Reserve notes for monetary metals (i.e. gold and silver) has become an unusual and outmoded practice in the United States… only 8 states still engage in it. 

With 42 states now having eliminated sales taxes on purchases of gold and silver, the Badger State may be the next state to do so – although similar bills are moving forward in Mississippi, Kentucky, and Maine.

Passage of SB 33 would remove a major disincentive to holding gold and silver — a move that has become especially pertinent at a time when inflation is ripping through the economy and wreaking havoc on family budgets.

Article 1, Section 10 of the U.S. Constitution prescribes that gold and silver are money, and imposing a tax on the exchange of one money for another is inherently illogical. But there are other strong public policy reasons why so few states still impose sales tax on precious metals purchases:

  • Levying sales taxes on precious metals is inappropriate. Sales taxes are typically levied on final consumer goods. Computers, shirts, and shoes carry sales taxes because the consumer is “consuming” the good. Precious metals are inherently held for resale, not “consumption,” making the application of sales taxes on precious metals inappropriate.
  • Studies have shown that taxing precious metals is an inefficient form of revenue collection. The results of one study involving Michigan show that any sales tax proceeds a state collects on precious metals are likely surpassed by the state revenue lost from conventions, businesses, and economic activity that are driven out of the state.

The harm is exacerbated when you consider that all of Wisconsin’s neighbors (Minnesota, Iowa, Illinois, and Michigan) have already stopped taxing gold and silver. This harms in-state businesses. Most recently, Tennessee ended this tax in 2022, and Arkansas and Ohio eliminated this tax in 2021.

  • Taxing precious metals is unfair to certain savers and investors. Gold and silver are held as forms of savings and investment. Wisconsin does not tax the purchase of stocks, bonds, ETFs, currencies, and other financial instruments. 
  • Taxing precious metals is harmful to citizens attempting to protect their assets. Purchasers of precious metals aren’t fat-cat investors. Most who buy precious metals do so in small increments as a way of saving money. Precious metals investors are purchasing precious metals as a way to preserve their wealth against the damages of inflation. Inflation harms the poorest among us, including pensioners, Wisconsinites on fixed incomes, wage earners, savers, and more. 

In 2023, other bills to restore sound, constitutional money have already been introduced in AlaskaWest VirginiaSouth CarolinaMissouriMinnesotaTennessee, and more.

Currently Wisconsin is tied for 45th out of 50 in the 2023 Sound Money Index. Passage of SB 33 would significantly improve Wisconsin’s standing.

The Dollar and Treasury Yields Extended Declines Last Week, Pushing Gold Higher

Frank Holmes is the CEO and chief investment officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal, and in 2011 he was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. In 2016, Mr. Holmes and portfolio manager Ralph Aldis received the award for Best Americas Based Fund Manager from the Mining Journal. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter which is read in over 180 countries.

Under his guidance, the company’s mutual funds have received recognition from Lipper and Morningstar, two trusted independent financial authorities. In 2015, Mr. Holmes led the company into the exchange-traded fund (ETF) business with the launch of the U.S. Global Jets ETF, which invests in the global airline sector. In 2017, U.S. Global Investors made a strategic investment in HIVE Blockchain Technologies, listed in Toronto, and Mr. Holmes was appointed non-executive Chairman of the Board.

Mr. Holmes was awarded the Huron Medal of Distinction from Huron University College in 2013, his alma mater for the class of 1978. This award recognizes individuals whose life achievements set an example of excellence and reflect Huron’s arts and social sciences missions.

Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association.

Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He has spoken at the Investing in African Mining Indaba conference, the Denver Gold Group’s European Gold Forum and numerous Money Show events, sat on panels with prominent industry leaders including the editor of Barron’s and continues to be invited as a keynote speaker at conferences throughout the U.S., Canada and overseas.

Mr. Holmes is a regular commentator on the financial television networks CNBC, Bloomberg, BNN and Fox Business, and has been profiled by Fortune as well as The Financial Times. His thoughts on gold are captured each week on a program called Gold Game Film in collaboration with Kitco News and Mr. Holmes was also the feature spread in Barron’s during the commodity rally at the start of 2004. He is a regular contributor to Forbes, Business Insider, Seeking Alpha and Wall Street Journal’s Experts Corner.

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly. This interview should not be considered a solicitation or offering of any investment product.

The Fed’s Portfolio Is Nonexistent: The Fed Does Not Invest. It Destroys Investments

Every so often, I check my investment portfolio to see how it is doing. (I stay out of stocks these days, but that is due to my personal situation and is not to be taken as investment advice.) Portfolios are collections of various financial instruments that one is holding, and one always hopes that their value will head in the right direction over time.

When I purchase a financial instrument, I do so because I hope it will perform well in the future. I certainly do not purchase such securities because I believe that they are underperforming and that perhaps my purchase will prop up its price. (Of course, I don’t have the deep pockets that would be needed to be able to manipulate the price of anything.)

Instead, when I sink my money into a financial instrument, I hope that I am investing, not just buying something for its own sake. Given that none of us are endowed with an internal crystal ball, we don’t know how something will perform until, well, it performs. That is the way things are with securities.

The Fed Claims Its Own “Portfolio”

When I first took academic courses in macroeconomics and money and banking, we covered the actions of the Federal Reserve System. One of the things we constantly were told about the government’s “monetary policy” was that when the Fed wanted to increase or decrease the monetary base, it would involve its “portfolio.”

We knew the drill. When the Fed wanted to increase the monetary base, it would purchase US government bonds in the secondary market (mostly six-month Treasury bills) and deposit the funds in the accounts of the previous bondholders, which increased the monetary base.

However, when the Fed wished to decrease the monetary base, it would sell bonds from its “portfolio” in the secondary market and hold the money it gained from sale of the bonds, keeping it out of circulation. In order to understand the Fed’s operations, one had to understand how secondary government bond markets work.

As the diagram below demonstrates, Fed holdings of government bonds stayed at close to a trillion dollars for a long time. Note that the Fed was not holding government bonds as an “investment,” but rather held them for purposes of manipulating the nation’s monetary base. Then came September 2008.

Figure 1: Assets held by the Federal Reserve System

We remember the meltdown of 2008 and, more importantly, the reason it happened. The question that dominated the immediate aftermath of the massive failures on Wall Street was: What should the US government do about it? The much less asked question was: Should government do anything at all?

The Fed’s Response to the Crisis It Helped Create

Those who followed the paradigm of Austrian economics knew the government should nothing. It should allow the massive amounts of malinvested capital to be liquidated or directed to new uses determined by consumer choice. However, those in economic leadership, beginning with then Fed chairman Ben Bernanke, believed that economic salvation lay a different direction: continue expanding the malinvestments and spend our way out of the crisis.

In the early, heady days of the Fed’s breakout policies, Bernanke’s Fed went on a buying spree, guided by laws passed during the New Deal years, when Congress decided to defer almost entirely to the executive branch. Included among the private securities gobbled up by the Fed were more than $22 billion worth of shares of American International Group (better known as AIG) stock.

This was not because Bernanke saw AIG stock as a good investment, but rather because the company was crashing because of its involvement with credit default swaps, which covered mortgage securities whose value had plummeted to near zero during the crisis. Furthermore, the Fed loaned AIG $85 billion to stay afloat.

Unless one is a disciple of Paul Krugman or Stephanie Kelton, it is not difficult see the huge moral hazard in Bernanke’s approach to the crisis. While Time Magazine magazine declared that Bernanke “saved the world” with these unprecedented mass purchases of stocks, government bonds, and mortgage securities, what he really did was block the real recovery that could have come about had the Fed allowed the markets to do their job and redirect capital to its most profitable uses.

Instead, we got not only the Great Recession, but also a moribund recovery that needed Keynesian stimulus action time and again. Furthermore, as one can see from the diagram of Fed “assets,” in order to provide new economic “stimulus,” the Fed had to buy more and more securities to engage in “quantitative easing,” which is Fedspeak for printing money, lots of money.

Although the Fed later sold its AIG shares and ended its purchases of private securities, it went heavily into the market for mortgage securities in order to reinflate the housing bubble. Ryan McMaken’s recent article on the details of the Fed’s purchases is instructive, as it lays out the outright fraudulence of calling the combination of Fed holdings a portfolio. Indeed, it is anything but a portfolio. He writes:

While the Fed has long bought government debt in its soo-called open-market operations to manipulate the interest rate, wholesale buying of financial assets began in 2008. This  included both US government Treasurys  and—in a new development—private-sector mortgage-backed securities (MBSs). This was done to prop up banks and other firms that had bet on the lie that “home prices always go up.” The value of mortgage-backed securities was falling fast, so beginning in 2008, the Fed bought up MBSs to the tune of $1.7 trillion.

As stated earlier, investors hold portfolios in hopes that the value of the held securities will increase. The Fed, on the other hand, holds securities because they otherwise would fail in the market. Fed purchases can artificially inflate these securities’ value. These so-called assets also help the Fed underwrite its latest set monetary expansion.

With a recession looming and the economic effects of the Fed’s ongoing stimulus racket diminishing, it is time to tell the hard truth about what the Fed has been doing and the economic peril it has caused. Because Bernanke and his successors at the Fed have refused to acknowledge the damage they have caused since 2008, it will be much more difficult to deal with the pile of malinvestments the Fed has helped create.


Had the Bush and Obama administrations permitted the malinvestments that characterized the first housing boom to be liquidated or directed elsewhere, the initial recession would have been deeper than what the economy experienced in 2009. However, there also would have been a stronger recovery and an economically sound path for entrepreneurs and investors to follow.

Instead, in its efforts to create yet another temporary fix, the Fed kicked the proverbial can down the road, and now it is more difficult than ever to do what is necessary to right the ship. Despite the so-called confidence from Fed and Biden administration officials and their court economists, the economic prognosis is not good. It will take courage to liquidate the malinvested capital, to make capital markets real markets again, and to take the heat when the economy suffers a recession before it can begin a glorious recovery.

That kind of courage no longer exists in Washington. Instead, we are given happy talk and false promises of prosperity if only we’ll let the “experts” be in charge. This does not end well.

It’s Never Too Late to Begin Protesting against the Proposed Central Bank Digital Currency

Whether you like it or not, central bank digital currencies (CBDCs) are coming. That’s the message in a recent tech column in the Wall Street Journal. A similar tone can be found coming from organizations like the World Economic Forum, the International Monetary Fund, and the Atlantic Council.

Reading these sources could lead you to conflate so-called CBDCs with autonomous trucks or artificial intelligence (AI) writers—technology that meets the needs of consumers so well that it’s hopeless to resist. But that isn’t true. CBDCs are not a groundbreaking new development in financial technology. They’re the next step in the government’s corruption of money and a severe threat to liberty.

Money evolved organically on the free market. People working toward their own ends, constrained by scarcity and economic law, settled on different commodities to help them transcend barter and engage in indirect exchange. Cattle, cowrie shells, leather, and bronze were all early forms of money. But as the nations dotting the world’s surface began to interact and trade, precious metals like gold and silver arose as the dominant form of money.

Private mints began shaping the metals into coins, staking their reputations on their ability to accurately label a coin’s weight and fineness—attributes important to traders. Later, merchants figured out they could avoid the hassle of lugging heavy coins around by storing their money and trading with the deposit receipts.

Money developed without a central authority, but as with law and language, the political class hijacked this stateless institution to serve its own ends. State control represented a turning point for money from bottom-up evolution to top-down corruption. It started with state-run mints and legal tender laws, which allowed governments to debase coins.

Next came central banking, a partnership between the government and banks to inflate the number of deposit receipts beyond the supply of money they’re meant to represent. With that, money was further decayed until governments severed the tie between banknotes and actual money by suspending the gold standard. That happened in most of the Western world in the 1930s and the US in 1971. Doing so ushered in the era of money by government decree, or fiat money, that we live under today.

So how do central bank digital currencies fit into this story? They would represent the next stage of monetary decay. So far, governments have slowly granted themselves direct control over the money supply. CBDCs would go even further and give the government control over the distribution and circulation of money. The setup would bypass the banking system and require Americans to hold digital dollars in an account with the Federal Reserve.

The fact that politically connected banks would be abolished with the adoption of retail CBDCs is probably the biggest barrier facing the program. The CBDCs being tested today are wholesale CBDCs, or digital reserves for banks to deposit at the Fed. The rollout of retail CBDCs straight to individuals would most likely occur during a national banking collapse when Washington could drop the nation’s banks without fear of reprisal.

But notice the difference between the economic evolution and political corruption of money. One is chosen, and the other is imposed. And if something is imposed, it can be resisted. There is nothing natural or inevitable about CBDCs, despite what some tech columnists say. If enough people stood up and said “no,” there would be no CBDCs. Just look at what happened to President Joe Biden’s Occupational Safety and Health Administration (OSHA) vaccine mandate.

People of all political persuasions should oppose CBDCs. This new nationalized banking system would allow the federal government to add or remove digital dollars from people’s bank accounts and trace where these dollars go. Stimulus checks could be deposited and monitored, perhaps even given a time limit. Sanction-happy Washington could make foreign boycotts mandatory. The federal government could freeze anyone’s money anytime for reasons ranging from suspected crime to political dissent. There’s no shortage of concerning implications. And even if some seem far-fetched, it’s naïve to hand the government total control over money and then just hope they’ll refrain from using all that power for their own benefit.

Like any government program, the time to quash CBDCs would be before they are implemented. Another argument for retail CBDCs is that they will help the unbanked access the global financial system. There are plenty of ways to solve that problem without violating anyone’s rights. But if CBDCs are used, those who rely on these currencies will be used to vilify anyone trying to roll back the program. “Take away our control over money, and the poor will be cut off from the economy” will be the implicit threat used by the political class, cloaked in compassionate language.

Central bank digital currencies are not a new, innovative financial technology. They represent the next stage in the corruption of money brought about by governments. But if enough people are made aware of the dangers posed by a nationalized banking system, the retail CBDC program may never get off the ground. As it’s much harder to roll back a government program than it is to stop the implementation of one, the time to loudly and assertively berate the government for even daring to consider such a blatant power grab is now.

The FOMC: To Pause or Not to Pause?

The Federal Open Market Committee (FOMC) decided to raise the federal funds interest rate this week by 25 basis points. Taken by itself, an increase in short-term interest rates by 25 basis points is relatively unimportant. A change in interest rates that small is unlikely to have substantial effects on consumers’ or firms’ borrowing or lending.

The increase, though, is part of a series of increases, and that does matter. For much of 2022, the FOMC was playing catch up after misinterpreting the increase in inflation as “temporary” and small. This interpretation was in spite of the dramatic increase in M2, which grew 16 percent from February to June 2020. Absent other factors affecting the inflation rate, this suggests an increase in the level of prices in the United States by about 15 percent. Of course, this increase would occur over time. If households’ expectations of inflation in future years were unaffected, that would be the end of the story. While not as “temporary” or as minor as the FOMC initially interpreted the increase in inflation to be, higher inflation need not be persistent.

In response to the inflation, the Federal Reserve increased the federal funds rate from a range of 0.00 to 0.25 percent to 4.00 to 4.25 percent in 2022. These increases occurred due to increases by 0.25 to 0.75 percentage points at seven of the eight FOMC meetings in 2022. There were extraordinary increases of 0.75 percentage points in June, July, and September.

The series of increases can be interpreted as part of a plan to raise interest rates and lower inflation rates to decrease the extraordinary inflation owing to the one-off cash distributions in 2020.

These increases in the federal funds rate have been associated with a decrease in the inflation rate. The attached figure shows the inflation rates from January 2020 to December 2022 measured by the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCEPI). It also includes core CPI (CPILFE) and core PCEPI (PCELFE), which exclude food and energy prices. CPI is the most commonly used measure. The PCEPI is the Fed’s preferred measure of inflation, and Fed officials generally believe that core PCEPI is the best indicator of underlying inflation.

While there are differences, there is common overall behavior. After deflation in 2020, inflation returned and increased dramatically, peaking at 1.0 percent per month in March and June of 2022 for the PCEPI. These inflation rates are 12 percent per year, if they were to continue for a year. Core PCEPI inflation peaked at 0.6 percent per month in June, which would be an annual rate of 7.2 percent. Since then, inflation has been noticeably lower and is falling overall. While not too much should be made of any one month’s data alone, inflation fell in the second half of 2022. The inflation rate for the five months from June through December 2022 is 1.6 percent, which would be an annual inflation rate of about 3.2 percent. While not as low as the target average inflation rate of 2 percent, the direction of movement is correct.

Furthermore, the breakeven inflation rate on 5- and 10-year dollar-denominated and inflation-adjusted government securities  is 2.3 percent. This is roughly consistent with the Fed’s target. These rates are down from 3.5 and 3.0 percent earlier in 2022. This suggests that expectations are more or less consistent with the Federal Reserve’s stated goals.

Given the lagged effect of monetary policy on the economy, it is quite possible that the inflation rate will gradually return to the Federal Reserve’s goal, and to what market participants expect, without any further changes in the Federal Funds rate.

Why not increase rates more, possibly buying insurance against inflation increasing?

While inflation is moderating, signs of impending recession are common. The long-term interest rate is above the short-term rate, which has been a reliable signal of recession at least since World War II. Reports of large layoffs at large companies have been common in the Wall Street Journal. The WSJ even had an article about whether it is appropriate to lay off people by email. M2 is not given much credence as a signal by many, just as it wasn’t for the recent inflation. That said, the recent monthly declines in M2 do not suggest higher, or even continuing, inflation.

While the Phillips Curve is commonly invoked as a reason to induce a recession and thereby lower inflation, the fall in inflation in 2022 is evidence that a recession is unnecessary. That is in addition to the large body of theoretical arguments and empirical evidence that the Phillips Curve is not informative.

While inflation is not down to 2 percent, the direction is correct. Given uncertainties surrounding the unusual stimulus and the lagged effects of monetary policy, it would be prudent to hold the Federal Funds rate constant for a few months and see how the economy responds to recent policy.

Gerald P. Dwyer


Gerald P. Dwyer is a Professor and BB&T Scholar at Clemson University. From 1997 to 2012, he served as Director of the Center for Financial Innovation and Stability and Vice President at the Federal Reserve Bank of Atlanta. Dwyer’s research has appeared in leading economics and finance journals, as well as publications by the Federal Reserve Banks of Atlanta and St. Louis. He serves on the editorial boards of the Journal of Financial Stability, Economic Inquiry, and Finance Research Letters. He is a past President and member of the Executive Committee of the Association of Private Enterprise Education. He is also a founding member of the Society for Nonlinear Dynamics and Econometrics, an organization for which he served as President and Treasurer.

Dwyer earned his Ph.D. in Economics at the University of Chicago, his M.A. in Economics at the University of Tennessee, and his B.B.A. in Business, Government, and Society at the University of Washington.

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The Age of Decline: Professor Antony Davies

Transitions between eras are only sometimes easily identified. Historians didn’t identify the coming of the Industrial Revolution until decades after it began. By contrast, the start of the Atomic Age can be dated to the second that the first atom bomb exploded over Hiroshima, and it took only hours for the world to know that humanity had entered a new era.

Much of the developed world has recently moved into a new era that historians likely won’t name, and the general public won’t notice for a decade or so: the Age of Decline. Japan, Greece, Italy, Portugal, Russia, Germany, Spain, South Korea, and China, along with thirty other developed countries, are projected to see their populations decline in 2023. Hong Kong, Finland, Taiwan, France, Austria, Belgium, Netherlands, United Kingdom, Denmark, and the United States, among another thirty-three countries, will see their populations grow by less than one-half of one-percent. For most of the developed world and the major population centers, population growth has largely stopped.

While this may come as good news to those who fear overpopulation, theory and evidence indicate that we have far more to fear from declining populations. As the economist Julian Simon pointed out four decades ago, humans are the ultimate resource, because they create resources where none existed before. All of the resources that make our modern, comfortable lives possible, from energy to transportation to communication to refrigeration to climate control to pharmaceuticals, are the results of human ingenuity. It’s no wonder that as the world population exploded, so too did our resources.

The Age of Decline will pose a particularly difficult problem for countries like the United States that rely on younger workers to support retirees. The latest Census figures project that within the next seven years, net migration into the United States will exceed the country’s natural population growth, making us, for the first time in almost 150 years, dependent on immigration for our population growth. Even then, the Census projects that the US population growth rate will fall (permanently) below one-half of one-percent within the decade.

For decades we’ve known the implications for Social Security. In 1960, there were more than five workers paying into the system for each Social Security recipient drawing out. Today, it’s fewer than three. And that number is expected to fall to two within ten years. In short, we need today’s average worker to contribute to Social Security two and a half times what the average worker of three generations ago contributed. 

Changing demographics are not only placing a greater burden on workers, but also making it less and less possible to institute needed changes. As the ratio of workers to retirees declines, so too does the voting power of those workers. People aged 53 and older are either receiving Social Security, and so not interested in reforms that involve cutting benefits, or are close enough to receiving Social Security to be less interested in reforming the system to their own future detriment. To further stack the deck against them, younger workers are less likely to vote than are the elderly. In the extreme, if all likely voters aged 52 years old and younger supported cutting Social Security benefits and all likely voters aged 53 and older opposed cutting benefits, then in a vote held today, a “cut benefits” proposal would win by a scant 51 to 49 percent. In another seven years, it would be a dead heat. From 2030 forward, the demographic shift toward the elderly makes it impossible for the “cut benefits” option to win. And that assumes that voters aged 52 and younger would be unanimously in favor of cutting Social Security benefits. In fact, almost 80 percent of working age Americans say Social Security benefits should be preserved, even if it means raising payroll taxes.

Unfortunately, the laws of arithmetic trump both political rhetoric and wishful thinking. The Social Security Board of Trustees estimates that with no changes, Social Security will run a $2.5 trillion deficit over the course of the next decade. To eliminate that deficit would require either cutting Social Security benefits by around 25 percent or raising payroll tax revenues by around 25 percent, or some combination of the two. Of course, the federal government could always borrow to fund the Social Security deficit, but that doesn’t eliminate the deficit so much as move it from one set of government ledgers to another. No matter what we choose to do, taxpayers are going to pay the price. The question that remains is which taxpayers. Given the polling data and the shifting demographics, the answer appears to be the working taxpayers.

An oft-repeated possible solution is to remove the cap on payroll taxes. The danger there lies in imposing a significant cost on budding entrepreneurs. Households with at least one income, and a side business that has grown enough to provide significant income but not enough to be a full-fledged business, are more likely to be earning (or anticipate soon to be earning) near the Social Security payroll tax cap (currently $160,000). As business owners must pay both halves of payroll taxes (employer and employee), removing the payroll tax cap imposes an additional 12.4 percent tax on business owners’ earnings beyond $160,000. This will create a disincentive for entrepreneurs to grow their side businesses enough to support employees. A more entrepreneur-friendly change of keeping the $160,000 cap, but then removing it for earnings above $250,000, would raise less than half of what’s needed to close the Social Security deficit.

Both the economics and the demographics lean toward placing the growing Social Security burden on the backs of workers. A stagnating population will make that burden both more financially onerous to bear and more politically difficult to alleviate. Meanwhile, slowing population growth ultimately means slower economic growth. In short, the problem only gets worse as time goes on.

It’s no coincidence that the United States grew from a small agrarian nation to an economic superpower over the same century and a half that its population grew thirty-fold. But that era has ended. The United States, and much of the rest of the developed world, has entered the Age of Decline. As population growth in developed countries slows, economic innovation and growth will slow also. This will place greater burdens on already-burdened retirement programs. The shift from a younger population to an older population will ensure that the bulk of that burden falls on the young, ultimately making it more expensive for them to raise children of their own, thereby further exacerbating the shift.

Having survived the Atomic Age without blowing ourselves to bits, and having generated wealth beyond imagining throughout the Information Age, we enter the Age of Decline and find ourselves victims of our own success. History tells us that impoverished societies die by war and famine. Now we are learning that prosperous societies die by attrition.

Antony Davies

Antony Davies

Antony Davies is the Milton Friedman Distinguished Fellow at the Foundation for Economic Education, and associate professor of economics at Duquesne University.

He has authored Principles of Microeconomics (Cognella), Understanding Statistics (Cato Institute), and Cooperation and Coercion (ISI Books). He has written hundreds of op-eds appearing in, among others, the Wall Street Journal, Los Angeles Times, USA Today, New York Post, Washington Post, New York Daily News, Newsday, US News, and the Houston Chronicle.

He also co-hosts the weekly podcast Words & Numbers. Davies was Chief Financial Officer at Parabon Computation, and founded several technology companies.

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Janet Yellen: ‘You Don’t Have a Recession’ With Unemployment at 50-Year Low

Treasury Secretary Janet Yellen on Monday said she sees a path in which the U.S. economy avoids a recession, citing a slow-but-steady decline in inflation, strong job growth and a historically low unemployment rate.

“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen said during an interview on ABC’s “Good Morning America.” “What I see is a path in which inflation is declining significantly, and the economy is remaining strong.”

Her comments came just a few days after the Labor Department reported that the U.S. economy unexpectedly added 517,000 jobs in January – well above the 185,000 forecast by economists – and the unemployment rate dropped to 3.4%, the lowest since 1969. It marked the best month for job creation since July. 


Janet Yellen

Treasury Secretary Janet Yellen speaks during a news conference at the 2022 annual meeting of the International Monetary Fund and the World Bank Group, Oct. 14, 2022, in Washington.  (AP Photo/Manuel Balce Ceneta, File / AP Newsroom)

The surprisingly strong hiring data, which occurred despite a slew of layoffs in the tech sector, dashed investor hopes that the Federal Reserve will soon pause its aggressive rate-hike campaign as it tries to cool inflation and the labor market. 

While Yellen said that tackling inflation remains President Biden’s No. 1 domestic priority, she argued that the recent data proved the economy is still healthy. Inflation hit a high of 9.1% in June and has been falling for the past six months. Still, at 6.5%, it remains about three times higher than the pre-pandemic average and continues to inflict financial pain on millions of U.S. households. 


“What I see is a path in which inflation is declining significantly, and the economy is remaining strong,” she said. “And really that’s a path I believe is possible, and it’s what I’m hoping we will be able to achieve.” 

image of the U.S. Capitol

The dome of the U.S. Capitol in Washington on Oct. 4, 2021.  (AP Photo/J. Scott Applewhite / AP Newsroom)

Yellen also called on Congress to raise the federal debt limit, warning that a failure to do so could trigger an “economic and financial catastrophe.” 

“While sometimes we’ve gone up to the wire, it’s something that Congress has always recognized as their responsibility and needs to do again,” she said.


The Treasury Department began deploying so-called “extraordinary measures” last month to ensure the U.S. government can continue to pay its bills, giving Congress until at least early June to raise the country’s current $31.4 trillion borrowing limit.

Congress last voted in December 2021 to lift the debt ceiling, which is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public, including Social Security and Medicare benefits, military salaries and tax refunds.

Economist Who Called 2008 Housing Crash Predicts Another 15% Drop in Home Prices

A U.S. economist famous for predicting the 2008 housing crash believes that home prices could plunge another 15% this year. 

In a recent analyst note, Ian Shepherdson – the founder and chief economist of Pantheon Macroeconomics – suggested that home price declines will accelerate further in 2023 as a result of low affordability and growing inventory.

“We estimate that single-family home prices have fallen by 5.4% from their recent peak in May 2022, but they still need to fall by a further 15% or so before they return to their long-run average, compared to disposable incomes,” he wrote in a recent note to clients.

Although consumer demand likely is bouncing back from a low point in the fall as mortgage rates fall from a record-high, Shepherdson – who predicted the mid-2000s housing bubble and subsequent recession – believes that prices have a ways to go before they hit bottom. 


residential homes

Residential homes in Teaneck, New Jersey, US, on Thursday, Nov. 24, 2022.  (Photographer: Yuvraj Khanna/Bloomberg via Getty Images / Getty Images)

During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low. Homebuyers – flush with stimulus cash and eager for more space during the pandemic – flocked to the suburbs; demand was so strong, and inventory so low, at the height of the market that some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.


That frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest-rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation. Policymakers already lifted the benchmark federal funds rate seven consecutive times in 2022 and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.

The interest rate-sensitive housing market has borne the brunt of the tighter policy, with mortgage rates more than doubling over the course of the year. Home sales evaporated and prices began to decline from record highs.

home mortgage

A For Sale sign is posted in front of a property in Monterey Park, California on August 16, 2022.  (Photo by FREDERIC J. BROWN/AFP via Getty Images / Getty Images)

But demand has shown early signs of returning as mortgage rates continue to fall: The average rate for a 30-year fixed mortgage dropped to 6.09% last week, according to data from mortgage lender Freddie Mac. (That is still significantly higher than just one year ago when rates hovered around 3.56%).

“Mortgage rates have fallen by 93bp since late October, and demand looks to be rebounding—modestly—after collapsing last year,” Shepherdson wrote. “To be clear, any rebound in sales from here will be small; monthly payments for a new buyer of an existing home have fallen, but were still up 54% year-over-year in December.” 


And although home prices are falling, they remain higher than they were one year ago: The median price of an existing home sold in December was $372,700, a 2% increase from the same time a year ago. This marks the 130th consecutive month of year-over-year home price increases, the longest-running streak on record, according to a separate report published last week by the National Association of Realtors

Federal Reserve Chairman Jerome Powell

Jerome Powell, chairman of the U.S. Federal Reserve, arrives to speak during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., US, on Wednesday, Sept 21, 2022. (Photographer: Sarah Silbiger/Bloomberg via Getty Images / Getty Images)

Another aspect of Shepherdson’s argument is the supply side of the equation; he believes that home supply will increase going forward. Prices tend to fall when supply increases. 

“The increase in existing home supply, meanwhile, appears to have stalled in December, with inventory of single family homes unchanged at 3.4 months of current sales. But we remain confident that inventory will rise again before long, especially as the downward adjustment in prices accelerates,” he said.

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