"So, the slide in gold has turned into a rout. As Joe Weisenthal says, this should be seen as really good news, because it offers strong evidence that the goldbug/inflationista view of the world — which says that we need to stop all efforts at monetary and fiscal stimulus lest we turn into Weimar — is, in fact, all wrong.
But Joe is, I think, deluding himself if he imagines that this will make any difference. After all, the inflationista view of the world has been repeatedly, devastatingly wrong on many fronts — interest rates, inflation, the effects of austerity. Has anyone other than Narayana Kocherlakota (who deserves big props for intellectual flexibility) actually changed his or her mind in response?"
"In fact, by and large the goldbug response to each failed prediction has been to claim that evil government officials are hiding the truth. Interest rates are low? That’s because the Fed is suppressing them. How can it do that, year after year, without causing runaway inflation? Oh, actually we have runaway inflation, but the BLS is faking the numbers (and independent measures, like the Billion Prices Index, are part of the plot)."
"Sure enough, the response of many goldbugs to the latest events has been to cry conspiracy.
Maybe, just maybe, the gold crash will finally bring intellectual capitulation. But I wouldn’t bet on it.
For the record, gold prices mostly trade as just another commodity. Most commodities over the last 10 years or so have traded procyclically. What's really amazing is that while some of the extremist gold bug libertarian types-Romney's running mate had actually supported a gold coins standard-rahter than just a gold standard-believe themselves to be operating in the tradition of Adam Smith, he had already repudiated gold and silver 200 years ago as Krugman has also pointed out.
I don't know that no one learns anything-Krugman's a little pessimistic, though certainly the extreme Auesterians don't-interesting how similar the word Austerian is to Austrian. In Europe however, his pessimism is fully justified; there they learn nothing.
I see Krugman just put up a piece about the EU
"Tim Duy asks, when can we all admit that the euro is a failure? The answer, of course, is never. Too much history, too many declarations, too much ego is invested in the single currency for those involved ever to admit that maybe they made a mistake. Even if the project ends in total disaster, they will insist that the euro didn’t fail Europe, Europe failed the euro."
Mike, thanks! ... why I visit your site every day. You keep your finger on the pulse of a lot of interesting stuff... so I don't have to!
ReplyDeleteLOL! I like that Tom. Maybe we'll use it in my next ad campaign "I keep my finger on the pulse so you don't have to!"
ReplyDeleteCullen Roche has a nice piece on gold and all commodities over at pragcap.
ReplyDeleteThing is about gold, I think its best understood as more of a religious obsession. There is no rational reason to hold gold in the place so many do. Is it possible that as we become a less and less religious society we will be less and less allured by gold?
'Bout time for a Sumner update isnt it? ;)
LOL. Sumner hasn't written in like 3 days-he says he's busy for a few days or something.
DeleteHere's a nice piece on something called "Goldenfreude": taking pleasure in the drop in gold prices!
ReplyDeletehttp://www.businessinsider.com/goldenfreude-2013-4
Hey Tom
DeleteThe investing world is a dichotomy isnt it? Im thinking of that piece by Cullen a while ago regarding how there are always people wanting markets to go down as well as those wanting it to go up. This, in and of itself, seems reason enough to discourage Greenspanism which is a focus on stock markets as the ultimate economic indicator and metric of focus.
Goldenfreude, DOW-Nenfreude.... whatever. Sometimes appealing to our base emotions via our financial markets doesnt bring out the best in our societies. My hope is that the coming ( I do believe its coming sooner or later) correction/crash might prompt true reevaluation, not the bullshit responses we saw in 07,08.
Greenspanism: agreed!
DeleteI have to admit, I do feel a sense of Goldenfreude myself. I was annoyed that putting money in "rocks" could possibly pay off! ... and perhaps I'll be re-annoyed again tomorrow! I guess it's not worth getting worked up about. ;)
... but back to the Goldenfreude (I might as well enjoy it while it lasts!)... this was a nice companion piece:
http://www.businessinsider.com/what-gold-bugs-are-saying-2013-4
Greg I have to admit I have my doubts about that. The coming correction/crash would have to be worse than what we went through in 2008-which seems unlikely to me. If there is a correction I don't think it would be all the way back down to 2009 levels. The Recession of 1938 wasn't as bad as 1929-we didn't give up all of the gains.
DeleteWhat you're basically saying is that you hope that the next problem we have leads our society to some soul searching about the stock market. If we didn't have it during Lehman Brothers, etc. when could we be expected to have it.
I think it's more likely to be evolution than revolution in terms of our economic understanding.
Tom to me what gold prices do flat out doesn't matter either way. The gold bugs think it tells you something about people losing confidence in the dollar, etc. but in reality gold is just a commodity now a days.
DeleteI can understand goldefreude only because yet again they have egg on their faces. However, at the end of the day what gold does really doesn't matter.
The only trend we've eeen is that the commodities-gold, especailly oil, etc-have been procyclical.
Agreed. As Greg noted, it is a "base emotion." I'm not proud of it! ;)
DeleteFull disclosure guys. I am very much in the goldenfreude mode for the reasons Mike stated above about confidence and a proper understanding of money. Will these crashes make most people examine their views? Probably not, for reasons Krugman talked about a couple days ago, but we really dont need MOST people to we just need a majority of those who make the policy choices to.
DeleteI dont even think we need a 2009 event we just need a Dow to 9000 event or S&P to less than 1000 to make the owners very nervous. Ultimately these guys want to suffer no losses of wealth and what they have to learn (I think) is that healthy consumers are their best friend and 300 million healthy consumers is better than 100 million. Healthy consumers are not ones who are up to their eyeballs in debt. The reliance on bank credit as our source of Ag Demand has to change or we will be stuck with rising credit followed by crashing credit. Its been the history of banking through its history except for the post New Deal to Reagan years, which also happens be the time of stronger wage laws, higher gov oversight of financial markets etc. I dont think that is a coincidence.
So it will be an evolution as you say Mike but evolution is always more visible when the environment has great change. The evolution can look like a revolution in the rear view mirror
Has anyone heard a Glenn Beck or Mark Levin Goldline commercial recently? I wonder if they still do those...
ReplyDeleteGlenn Beck is off tv for a start. He's only on the radio now.
DeleteI know... but I presume he must still be doing radio ads for them. Here he is w/ Levin on their website, both with audio clips:
ReplyDeletehttp://www.goldline.com/goldline-testimonials
I guess Hannity and a bunch of other Fox hosts and right-wing radio types did/do ads for them too. Here's bit on some troubles they've been having:
http://www.salon.com/2012/11/29/more_legal_trouble_for_beck_backed_goldline/
Sorry... more reveling in the Goldenfreude. I am curious about the ads though... do you suppose they try to put a bright spin on the recent drop? Present it as a "buying opportunity?" ... claim it's all a conspiracy, but that the conspirators will lose in the end, and the price is sure to be at $3000/oz by the end of the year? However I'm not so curious that I'd actually waste my time listening to either Beck or Levin. I was hoping someone out there would be keeping their finger on their pulses so I wouldn't have to ;)
BTW, different subject, but if you've ever tried to fight your way through the logic of a ZeroHedge article and came up short, you might enjoy this:
http://rationalwiki.org/wiki/Zero_Hedge
(something about Goldbuggery made me think of that)
"Joe in Accounting" (who's a bank auditor by profession, and knows his stuff) at pragcap made a similar comment to me yesterday:
http://pragcap.com/misunderstanding-the-monetary-system-is-hazardous-to-your-portfolio/comment-page-1#comment-142863