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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Axel Gunderson who wrote (674)	8/26/1998 9:10:00 PM
From: Freedom Fighter	Respond to of 1722

Axel, >>Thus the poor performance of gold in recent years. >Forget recent years. When has it ever been a good performer for any sustained period? Like you said, it has been a hedge against currency collapse.< Exactly. That was my point too. It is short term disaster insurance policy. >>Also, this new money stock is in the hands of the government and its constituents first.<< >And historically that has been true of gold as well. Yes, but it has a different effect than the inflationary one that I was describing because of the difference in quantity. It was also possible at most times for people to mine gold themselves which means they have it first. >Government and people can play about as many tricks with gold as they can with paper or electronic money. A couple hundred years ago maybe that wasn't true, but today we can "inflate" the supply, just like printing money. It may not be as physically easy, but that can be compensated for by govt manipulation of exchange rates.< And they do. But this type of government intervention in the free market system always ends badly. Although it often takes even decades for the excess amd manipulation to burst. >Just remember that on a net basis, foreigners cannot get out of holding dollars unless they exchange them for our goods and services. In other words, they would have to let us run a considerable account surplus.< If they all want to exit at the same time they cannot, but that desire can destroy the value of the currency. Just look at Asia or for that matter lots of places around the world at present. (There is a global currency crisis in progress right now including both Canada and Mexico.) When that desire causes the currency to decline enough, those assets and goods will then become cheap enough to cause a desire to once again hold dollars. But that is after the currency bust and we go through all our foreign reserves. Or we may raise interest rates high enough to change the desire to exit and destroy our economy. Just look at Hong Kong and lots of other places around the world that are trying to defend their currencies against the desire to exit at present. Their economies are all collapsing into recession.