LOL – A MOCKINGBIRD PUTS HIS ‘FAITH’ IN “THE PEOPLE IN CHARGE”, EXPLAINS WHY “Gold is doomed”
[Ed. Note: Though we posted this back in July, our friend Dave Kranzler just reminded us of this one – which happens to be the single most idiotic article about gold that we have ever read. It seems only fair to share it again with you dear educated reader so that you can see firsthand how absurd the establishment’s arguments are FOR FIAT and AGAINST GOLD, “a shiny rock”. Apparently Matt O’Brien has never heard of Venezuela – or a currency crisis. An author as incompetent as this one is quite literally an enemy of TRUTH. ~SGT]
by Matt O’Brien, Washington Post:
A little less than four years ago, the world looked like it was about to end and gold hit an all-time high of $1,895 an ounce.
The United States had manufactured a debt crisis, and Europe hadn’t been able to manufacture a solution to its actual debt crisis, so panicky investors sought safety in the same place they had for 5,000 years: a shiny rock. The only problem, as you might have noticed, is that the world did not, in fact, end. It’s still here, so gold prices aren’t. The yellow metal has fallen 42 percent from its peak—and 8 percent in just the last month — despite the fact that the Federal Reserve has printed more than $1.5 trillion in this time. That, after all, is what gold aficionados said would make its price go to the moon, if not infinity and beyond. So what’s happened? Well, exactly what economists said would happen.
When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing. Policymakers missed yesterday’s financial crisis, so maybe they’re missing tomorrow’s inflation, too. That, at least, is what a cavalcade of charlatans, cranks, and armchair economists have been shouting for years now…
… from the penny ads that run on the bottom of websites — did you know that the $5 bill proves the stock market is on the cusp of crashing? — to Glenn Beck infomercials and even hedge fund conferences. Indeed, John Paulson, who made more fortunes than you can count betting against subprime, has been piling into gold for six years now, because he thinks “the consequences of printing money over time will be inflation.” They all do. Goldbugs act like the Federal Reserve’s public balance sheet is a secret only they have discovered, and that it’s only a matter of time until prices explode like they did in the 1970s United States, if not 1920s Germany.
But economists do, for the most part, know what they’re doing. Sure, they missed the crash coming in 2008, but that wasn’t because they didn’t understand how bank runs work. It was because they didn’t understand that unregulated lenders had become vulnerable to runs. And the economists who haven’t forgotten their history knew that this inflation fear mongering was all wrong too. Specifically, there’s a difference between the central bank buying bonds, a.k.a. printing money, when interest rates are zero and when they’re not. In the first case, money and short-term bonds both pay the same amount of interest — none — so, as Paul Krugman has explained over and over again, printing one to buy the other won’t change anything. Banks won’t lend out any new money, and will just sit on it as a store of value instead. That’s what happened when interest rates fell to zero in 2000s Japan, and it’s what is happening now in the U.S., U.K., Japan, and Europe.
That didn’t mean, though, that gold wasn’t a good short-term investment. It was. Just not for the reason goldbugs thought. Now, the problem with gold is it doesn’t pay any interest or dividends, but it does cost money to store. So you have to pay up in the hope that it will pay off by going up in price. That usually makes it a pretty lousy investment. That calculus changes, though, when you’re being paid to borrow—that is, when you’re paying a negative real interest rate. But when does that happen? Well, when inflation is high but interest rates aren’t quite as high, like in the 1970s, or when inflation is low but interest rates are lower still, like today. And that, as Paul Krugman andLarry Summers argued, is why gold prices were going up so much even though inflation wasn’t.
