James Dale Davidson & Sir William Rees-Mogg
predicted both the collapse of the USSR and the fall of the wall. They (and I)
agree with you, these factors (along with China, the submerging tigers and
South American reforms) are contributing factors to world-wide deflation.
Over capicity in manufacturing, agriculture, and mining etc.
But the question is ... What will gold do???
Recent experience has led to the conventional wisdom that gold is primarily an
inflation hedge. IMHO gold is a hedge against fear of any sort, rational or
irrational ... fear is fear.
As with most conventional wisdom ... it may be agreed to without debate and
skeptics are scorned. But the record is clear ... if we shine our flickering lamp.
From a thorough study, "The Gold Constant: The English and American Experience, 1560-1976", by Professor Roy W. Jastram, I quote:
"The evidence drawn from the English experience for 400 years is clear. Gold
is no hedge against inflation of a prolonged character. Even worse, it lost
operational wealth (purchasing power) consistently and seriously in each
inflationary episode ... [From] (1897-1920), a person would have lost two thirds
of his operational wealth just by holding gold in bars from the beginning to end.
And this was in the golden age of the gold standard"
"Four pronounced price deflations took place in the four centuries recorded,
with the three most severe occuring since 1800. In all four price recessions
operational wealth in the form of gold appreciated hansomely. When one sees
that just by holding gold for 13 years from1920 to 1933 operational wealth would
have increased 2 1/2 times, one realizes that gold can be a valuable hedge in deflation, however poor in inflation"
IMHO in a deflationary crisis the U.S. goverment will attempt to rapidly re-inflate
the economy, much the same way Japan has done since 1989. This will without a doubt further debase the U.S. dollar, which has been in a freefall since
1972 (Nixon closing the gold window), and which almost got out of control in 1995. Central banks around the world have trillions riding upon the dollar, and
only billions riding on gold.
They have nightmares about the masses flleeing the U.S. dollar for gold.
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