So Paulson is buying tons of gold. Suppose everyone abandons fiat money as a 20th century experiment in Big Brotherdom as seems likely to me given the ability for wastrel electorates to vote to be given more free loot and to throw out any politicians who refuse them another free hit of heroin. I note that China has not even forced the "free" world to become opium addicts and if China had been a democracy back in the day, perhaps opium wars would not have been needed. But let's not sidetrack.
Everyone will swap their money for something real. There are $trillions "out there" but the amount of actual money people need to hold is not very much. Just enough for groceries and to pay the credit card. Houses can be paid for in cash or handed down from parents to child. People will save money to buy them instead of getting a 110% loan with no visible means of support.
I lived through high inflation in the 1970s and 1980s, learning early on to not hold money other than a little bit to go shopping.
I didn't buy gold. I bought houses and shares in listed companies. My guess is that people will simply abandon most of their money holdings and buy shares and houses. Some might buy gold. The outcome will be money is turned into Zimbabwean form though perhaps not so extreme, with only a 10:1 devaluation, share prices will go zooming [not all shares as some have large debts and interest rates could skoosh them and some have large piles of cash which will be mostly extinguished.
If you look at the 1980s in NZ, and 1970s, house prices zoomed, and so did share prices. Then in 1987 the debt bomb blew up and shares based on borrow and hope were destroyed. People who borrowed too much for speculative purposes were punished. Property prices took a hit [especially commercial speculative ones]. Gold fell for 20 years as the debt boom and bust was cleared out.
Now, it's not NZ, it's not Japan's 1990 either, it's the big ones [Euro and USA]. NZ had a huge external world which helped recovery - people elsewhere bought and sold with NZ. Africa can't trade USA/euroserfs out of their woes, even if India helps and Made in China continues to provide low priced goods.
To cut to the chase, gold will go up, but shares and productive assets will go up more as they become the store of value and gold-based money [if it went that way which it won't] will be just for groceries. My now 10 year old $2000 an ounce and $10,000 an ounce need review now that we have had QE I, II and a twist and shout. But the markets can stay irrational a lot longer than Paulson can stay solvent. Gold will not perform according to writ. The people pricing it are whimsical fluffies detached from reality, following fashion. Fashions change. Hemlines go down as well as up. If they simply kept going up ... it would no longer be art.
In an inflationary cosmos women get taller, so proportionately, their hemlines will be further from the ground while providing the same level of modesty. Betting on gold is like betting on hemlines in an inflationary cosmos.
Mqurice |
