Kendall Rule Update

“As long as excess reserves persist, with IOR, in amounts necessary to facilitate Federal Reserve control of the price of interest, the trend for the minimum price of gold is determinative by its average price over the duration of debt.”

POG vs Duration of Debt

Gold continues to track the duration of debt. I observed this phenomenon in June 2015.  It is not an accident that gold has tracked the duration of debt for the last three years.  It is a function of errant Fed policy in response to the 2008 financial crisis.  The Fed threw out its traditional operating policy, that existed since its creation, where it directly controlled the supply of base money relative to demand and instituted Bernanke’s QE.  The result is excess reserves facilitated by IOR, interest rates commanded to the zero bound, and a massively bloated Fed balance sheet.  This prevents the Fed from controlling base money demand by adjusting supply.  With $2 trillion of excess reserves, any change in the supply of base money is absorbed by excess reserves without directly affecting demand.  

The Fed is now attempting to unwind its QE error.  However, it can’t unwind the misallocated capital and debt creation that are a result of QE driving interest rates to the zero bound.  Only a return to economic growth based on stable money and low taxes will solve the debt and capital misallocation problem.  This is how the U.S. eliminated our large post World War II debt without the Keynesian predicted recession.  The magic formula of stable money and low taxes.

Man on the Margin explains gold’s unique properties; its role as the Numeraire, the commodity par excellence that acts as the proxy for stable money.  The proper understanding of gold—eliminating the fallacies, academic ignorance, and faulty analysis—is how I accurately predict the price of gold.  Gold analysis remains hopelessly confused.  Man on the Margin cuts through the confusion. 

The price of gold remains the signal of monetary error.  Accurately understanding and predicting the price of gold is essential for understanding our global financial system.    


The Kendall Rule Explained


  1. David Anderson

    How does one calculate the duration of debt?

    1. Michael Kendall (Post author)

      Duration of debt is the optimum POG. It is based on how long it takes the price level to recalibrate to a new optimum POG when the dollar’s value changes. The more stable a currency, the longer the duration of debt.


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