re: "a tough row to hoe for the gold bugs."
Yup. There has been a fundamental shift in attitude toward gold. With the Asian and Russian credit/liquidity crisises, I expected a spike in gold prices. With the trough and then upturn in U.S. inflation, I expected a increase in gold prices. It didn't happen, and that made me reconsider my basic assumptions. My conclusion is that gold has value in jewelry, and as a minor industrial metal, and that's it. Not as a "store of value"; not as a "safe haven".
You're right, a dollar has value only because we have all collectively agreed that it does. It is a convention, a habit, and it involves Faith in those who control the currency.
There are certainly many examples of that Faith breaking down, and a currency becoming worthless. But the social/economic/political conditions that presage a collapsing currency are not present in the U.S., and there are no warning signs. The people and institutions in power remember (with fear and dread) the last bout of inflation, and will not let it happen again. The Fed, 6 months from a general election, is so worried about inflation (all the way up to about 3%) that they have changed from 1/4% to 1/2% rate raises at every meeting. And they have promised, over and over, to keep doing it until the labor market gets less tight, and consumption slows. I'm sure Greenspan would like to be done raising, as the election approaches. But, if the unemployment rate keeps falling, and consumers keep spending, he's already committed to keep raising, as long as it takes. And we will all Keep the Faith. |
