To: austrieconomist who wrote (12969 ) 6/25/2003 1:56:44 AM From: Elizabeth Andrews Respond to I think gold is doing what they want it to do and that is to send a deflationary signal. It is correct that the classical way to create money, and thus inflation, is for the Fed to conduct open market operations. This isn't necessary right now as there's plenty of excess liquidity in the banking system. The issue is stimulating loan demand by productive businesses to create output, profits and growth, while keeping interest rates very low. If this works, gold will rise as the economy strengthens, as the loan demand will create the inflation from the liquidity that already exists in the banking system. If the Fed is unable to stimulate loan demand, gold is going lower but all other assets will fare much worse so gold will protect purchasing power better than any other asset class. So we are in a position of losing less with gold if deflation takes hold and winning. Or, winning big with gold if the Fed strategy works, which will eventually create lots of inflation and a much higher gold price. I'm betting on the later.
