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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (70909)	2/8/2011 10:52:29 AM
From: carranza2	4 Recommendations Read Replies (2) \| Respond to of 217714

The question is, what will it be this time? I'll tell you. It is very simple, so simple that like everything obvious, it is missed. Since Nixon did away with Bretton Woods in 1971, there has been nothing impeding the unrestricted growth of money and credit. When policy-makers are given a free hand, they will use it. LBJ started the ball rolling by his guns (Vietnam) and butter (the Great Society) approach to spending. Nixon simply was forced by LBJ's policies to abandon Bretton Woods in order that the American gold reserve not be drained when it became obvious to all that the USD was being devalued by overprinting which was in turn necessary in order to pay for LBJ's sins. Jay's book on France and innumerable other examples quite clearly show that in the absence of voluntary monetary restraint (or the involuntary discipline imposed by a metallic standard), money and credit will grow unnecessarily. It is a very easy thing to do and beneficial on the surface and at first. Your idiotic hero, Greenspan, was a prime example of this type of unrestrained policymaker. And his writings show that he knew better - but that is a discussion for another day, as I am fully aware of your inability to shift thinking once your feet are set in concrete. Note that Weimar and the Great Depression were the natural consequence of the temporary abandonment of the gold standard which was necessary in order to finance the huge costs of WWI. The same kind of economic dislocation occurred here following the end of the Civil War. Too much money in the system leads to bubbles as false prosperity spreads. The Japanese and the Asian Tigers were the first victims of the post-Bretton Woods breakdown. The historical pattern is fairly clear to me. So long as sound money exists, all stays relatively balanced. All hell breaks loose when it does not prevail. In any event, it seems clear that if given the choice and the means, policymakers will always choose to create more money and credit than is necessary. They consider it a form of wealth-sharing but, aside from the political benefits, are unaware of the problems they create. This seems to be so true as to be an immutable law of economics. We have had several bubbles in the last few decades: Japanese, Asian, dot.com, real estate and, now, credit. I maintain that China's accumulation of USD like Japan's is dangerous in the extreme because it creates a hubris-laden false prosperity in which the reasons for the gains associated with the bubble are misperceived. Bubbles, in a word, are the most egregious economic feature we can imagine (except perhap for those who recognize bubbles and get out before they burst.) Bubbles inevitabley burst; they take longer to clean up than they do to create. But the really horrific problem we are facing now is that policy-makers inject even more cash and credit into economies in order to soften the toxic after-effects of a burst bubble. They thus create the basis for a new bubble. But because more money is necessary, even larger bubbles are created. In other words, bubbles beget larger bubbles. We are in the midst of this serial spiralling of bubbles. The only cure for this is restraint in monetary policy, which I believe is impossible because it is politically painful. Moreover, I am not so sure policymakers understand the nature of our current economic life. Not to mention that have been captured by special interests that profit immensely from bubbles and are rescued when they burst. These special interestss relish bubbles for they become enriched by them. As Wyatt Gwyon wisely says, gold is stupid. But central bankers are stupider. I am chiding you about your failure to prognosticate the 2011 price of gold but with tongue in cheek because, frankly, it doesn't matter except as a means of testing your sagacity (or luck.) So long as policymakers refuse to somehow correct the global monetary system by going back to sound money principles, gold will be a refuge. In the long term, it will assuredly serve as a store of value as will other hard goods. It is no surprise, then, that fiat currencies do not ultimately survive. They are always devalued by overprinting, always, always, always. The extent of the devaluation varies from currency to currency and the prudence of each nation's policymakers but it seems that the temptation to overprint is universal. So long as that stands, gold will do fine. Here's a prognostication for you: Gold at $2500 in 3 years.