Alex, Thanks for "The Power of Gold" article, of which
I duplicated the ending using an abbreviated method.
Nothing deep there, no technical TA or fundamintal FA
or bonbon BS or dougie BaBBle, just an easy might happen,
did happen, could happen stuff about gold's past & future.
Note: Before I placed the ending segment of this article
to this post I first include the introduction of this url
that tells us who is this person in easy simple words.
Makes one wish for the "bad old days" on this GPM thread
when Mortley's Dog of Ms. Bobby keep order here and limited
the amount and size of men in their Pee'ing Contests,
of which this thread seems to be in the middle of one great
one that has great puddles all over the thread.
No sure, but is the winner the one who has greatest range,
as in distance, or is it the biggest widest deepest puddle
judged as winner?
All quiet now as gages of Empty requires these men
to retreat back to places and fill up with more beer.
Guess this is really a contest of men to see who has
the strongest Pee'ing muscles or bladder size.
thestreet.com
The TSC Streetside Chat:
The Power of Gold
Author Peter L. Bernstein
By Brett D. Fromson
Chief Markets Writer
Originally posted at 8:00 AM ET 9/30/00 on RealMoney.com
Peter L. Bernstein puts most Wall Street economists
and money managers to shame.
He's been a proven money maker, managing billions
for institutional investors until he sold his firm
in 1967 to Sandy Weill and what we know today as Citigroup.
He has advised Fortune 500 corporations and the biggest nonprofits
on where to invest and how to stay out of trouble.
He's a big picture guy at a time when so many analysts
are specialists. He's also an independent thinker
when many sell-side analysts are in the pockets
of the investment bankers and their underwriting clients.
He knows his history when most know only last quarter.
He lived through the Depression, served in economic intelligence
in the CIA's predecessor, the Office of Strategic Services, or OSS,
in World War II and has observed numerous bull and bear markets.
And most importantly for readers, he can write.
Peter has written seven books on economics and finance,
including such well-reviewed texts as
Against the Gods:
The Remarkable Story of Risk and Capital Ideas:
The Improbable Origins of Modern Wall Street.
And Bernstein has a new one just out:
The Power of Gold: The History of an Obsession.
He sat down recently with TheStreet.com's chief markets writer,
Brett D. Fromson. In a wide-ranging conversation, they discussed
the rise of gold, the role of the dollar as today's gold standard
and the scary chance that a sharp decline in the dollar could trigger
within five to 10 years the next great financial crisis.
You won't want to miss what this wise man of Wall Street has to say.
Brett D. Fromson:
-----------------
Peter, why has gold played such a prominent role in history?
Peter L. Bernstein:
-------------------
It was easy.....
Brett D. Fromson:
-------------------
Explain that.
Peter L. Bernstein:
-------------------
There would be a run on the dollar, as I said before.
I think that as long as the budget is in surplus
to this extraordinary amount, the crisis might not occur
or might be much more muted because the U.S. would still
look like a stable place. But if the surplus begins to shrink,
that could be a problem, and there are a lot of reasons
to think that it may ... these budget projections are based
on very fragile kind of substance, any one of which could
easily be wrong. That takes away a very important prop
under the dollar... all of the necessary ingredients
for a dollar crisis are there... probabilities are good.
Brett D. Fromson:
-------------------
What do the Europeans get out of the current dollar strength?
We don't hear them complaining too much.
Peter L. Bernstein:
-------------------
If you can't sell at home, sell abroad...
Brett D. Fromson:
-------------------
Has the dollar replaced gold? And can any currency ever replace gold
in its role as the means of exchange?
Peter L. Bernstein:
-------------------
The dollar has replaced gold... the dollar is playing
the role of gold. But the dollar is also the currency
of the United States of America and its value is subject
to what happens in the U.S. economy. Gold stood outside
the system. It was a stateless currency... The dollar plays
the same role as gold in all of the rest of the world
at this moment, because the dollar is perceived to be
as good as gold. But the gold standard was a rigidly
enforced system of exchange rates that didn't vary,
and where speculating against a change in exchange rates
would be a losing proposition...
Brett D. Fromson:
-------------------
Let's look at the euro.
One of the reasons it appears to be so weak
is obviously that the fundamental economy in Europe
is not as strong as the U.S. economy.
But another problem they have is that
the European Community is perceived to be weak
as a political entity, and they have essentially created
a common currency without a common government.
Peter L. Bernstein:
-------------------
So they don't have credibility.
This is the big word.
What the gold standard really conveyed was credibility,
credibility that a country would not let inflation run away,
that its currency would continue to have purchasing power.
This was the promise that the gold standard conveyed
because the gold would begin to leave if they weren't behaving...
Brett D. Fromson:
-------------------
Which currency today seems most vulnerable to you?
Peter L. Bernstein:
-------------------
I think the most vulnerable currency is the dollar
because we have this tremendous deficit in our current
account. But, except for us, there aren't any major
currencies that are exposed. The more we buy abroad,
the more other currencies accumulate dollars
and therefore seem to have plenty of reserves
to take care of them if there were a run on their currency.
The only country that is exposed to that kind of crisis
is ourselves. Because we have some reserves of foreign
currency but not an awful lot, relative to the magnitude
of what our foreign liabilities are. But if there were
reasons to move out of the dollar, then there would be a lot
at stake, and the speculators would be right out there
bidding and it would not be stable.
It would be very destabilizing...
Brett D. Fromson:
-------------------
In the United States?
Peter L. Bernstein:
-------------------
In the United States.
Foreigners would begin to liquidate their assets.
Brett D. Fromson:
-------------------
Stocks and bonds.
Peter L. Bernstein:
-------------------
Yes. And there's no reason why an American sitting by
and seeing a foreigner selling wouldn't join in,
because the consequences of holding might be bad.
So it would be real bad,
it would be the mother of all crises.
Certainly it could be the worst since 1974 because
the dollar is so overowned in the rest of the world today.
Brett D. Fromson:
-------------------
How might the Fed cope?
Peter L. Bernstein:
-------------------
Greenspan's experience and skill and his ability
to put his finger in the dike at moments of crisis
has created liquidity when there was a liquidity crisis.
This would be the opposite kind of a problem,
in that creating more dollars would only make
the situation worse.
And the only answer is to push interest rates up, not down.
And that's very painful medicine.
It's really a scary possibility.
This could be a moment when gold suddenly regains its luster,
because maybe the euro and the yen don't look like
the answer to everything, and so there's a reversion,
in a really scary time, to more primitive kinds of things.
Brett D. Fromson:
-------------------
How so?
Because gold represents some kind of absolute value at a time of panic?
Peter L. Bernstein:
-------------------
If you visualize something like this in the very complex
financial system we have today, which is a world of derivatives,
all of which have a huge amount of counterparty risk attached
to them, gold is something for which there isn't any counterparty.
That's it.
In that kind of crisis we'd see the price of gold way up again.
I'm sure there would be some reversion back to that,
because it would look like the only thing that people
would be willing to take if they began to lose confidence
in the value of paper money.
Brett D. Fromson:
-------------------
Final question...
Brett D. Fromson:
-------------------
And gold?...
Brett D. Fromson:
-------------------
Peter, thank you very much.
Peter L. Bernstein:
-------------------
Thank you.
thestreet.com
The TSC Streetside Chat:
The Power of Gold
Author Peter L. Bernstein
By Brett D. Fromson
Chief Markets Writer
Originally posted at 8:00 AM ET 9/30/00 on RealMoney.com
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