WSJ Op-Ed: In Gold We Trust
Here is an excellent op-ed piece in the Wall Street Journal today In Gold We Trust by David Ranson and Penny Russell. Mainstream economists treat gold as a barbarous relic. But gold has provided crucial insurance against monetory disorder, and in times like these, with inflation rearing its ugly head, we surely need that insurance. The fact that this inflation is even a surprise to the Fed is testimony to the shocking state of mainstream economics and its progressive decoupling from reality using sophisticated mathematics.
Economists of the Austrian School have been warning of exactly this outcome ever since the Greenspan-Bernanke Federal Reserve decided to print its way out of the recession caused by the last stock market bubble. That policy led to an even more dangerous real estate bubble, and skyrocketing commodities. As the Austrian-school inspired newsletter Daily Reckoning advised several years ago, “Sell the Dow, Buy Gold” as their trade of the decade - a trade that has done remarkably well (though I wish I were smart enough to have taken that advice ;-))
As the WSJ article concludes
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Gold is the barometer of public confidence in fiat money, and it is difficult to rebuild confidence in a currency once it has been allowed to slide. Gold has been a reliable harbinger of many economic troubles — not just of escalating prices at the gas pumps, but of inflation, rising interest rates, stagnation and poor investment performance on the part of bonds and equities alike. Changes in the price of gold are an excellent predictor of all of these. The dollar’s collapse is nothing less than a body blow to capitalism. When we downplay the significance of energy prices, we are not denying that a crisis is looming. It’s just a lot more threatening than an increase in the cost of a tank of gas. |
The chickens are now coming home to roost, in the form of higher inflation. Even the government’s own massaged and adjusted inflation numbers can no longer hide this inflation, though it has been obvious for some time to anyone in the real world [i.e except ivory-tower economists like Bernanke]. It would be interesting to see if Bernanke will risk stoking even higher inflation by liberally supplying credit or risk causing a severe recession by fighting the inflationary beast he and Greenspan unleashed.
Bernanke’s academic history indicates he may err on the side of inflation, because he has long believed the nonsense that the best way to fight a depression is by printing money, in spite of the stagflationary evidence of the 1970s. And inflation is also damn convenient for a highly indebted government.
The only silver-lining (pardon the pun!) is that Keynesianism and the neo- variety of Krugman and his ilk will be thoroughly discredited in the coming global downturn.
It is poetic justice that a leading member of the ivy-league academia is in charge to take the fall when things go to hell. Good luck, Professor Bernanke. I hope you are smart enough not to take the entire blame yourself, but make sure to give “credit” where it is due, and link Greenspan to the coming mess. That is one issuance of credit this blogger will highly approve.