Sunday, September 27, 2009

Washington Post Puffs Gold Buggery

The business section of today's Washington Post contains one of the most ridiculous news stories I have seen yet. I would not mind if this were a column, but "What's Making Gold a Hot Commodity" by Frank Ahrens is supposedly a news story, and as such it should not contain whoppingly erroneous statements without some correction. So, Ahrens himself says the following: "In the long term, with each new dollar introduced into the system, each dollar you hold becomes worth less. That's more than just inflation, which we think of as simply rising prices. That's debasement of not only our currency, but the globe's reserve currency." It may well be that nonsensical thinking such as this has pushed the price of gold back over $1,000 per ounce again, but why should a business section reporter repeat it without the slightest doubt. It is not even good monetarism, as monetarists only view money supply expansions beyond growth of real output and not offset by velocity changes as inflationary.

A bit later, Ahrens uncritically quotes Peter Boockvar, an equities trader at Miller Tabak: "It amazes me that any self-respecting central banker is not alarmed that gold is over $1,000 an ounce and the dollar is trading at all-time record lows." All-time record lows? Only against gold. Currently the dollar is about 1.46 against the euro, while it hit 1.5990 in July 2008. It is around 92 against the yen, but in 1995 got as low as 79.95. It is a bit over 1.5 against the pound, but was at 1.98 last year (and further back in history was over 4.0). Utter drivel.

I do recognize that later in the article Ahrens brings up some factors that might caution people a bit against buying gold too frenziedly, such as how much of it is held by central banks, and how little demand for it is due to industrial use (only about 10%). But he never mentions that it has already been above $1,000 twice before, only to fall back, and in the late 1970s was much higher in real terms, at well over $800, only to fall very far below that and stay well below that for decades. The warnings could have been a bit clearer, along with avoiding mindlessly repeating totally ridiculous non-facts spouted by wacko gold bugs.


Barkley Rosser said...

The last time I posted on this topic was earlier this year when the price previously topped $1,000 per ounce. I had encountered a non-economist friend who was asking me about buying gold with an unhealthy gleam in his eye. As it was, my post more or less coincided with that top of the market, with gold going below 1,000 shortly thereafter, although it has managed to stay above 900 since.

As it is, we may have already seen this top, making this story even sillier. The price got as high as just over $1019, but as of today it is back down to $990.79. Duh.

As is is, anyone who bought gold rather than stocks back when gold last went over $1,000 suffered a serious opportunity cost loss, but commentators like this Boockvar do not seem to notice at all.

Anonymous said...

Continued commentary only in the narrow window of analysis offered is myopic and unnecessary.

RN said...

"Remember what Keynes said about gold, "a barbrous relic," and it still is."

How much more ignorant could you be. Gold's just another asset class. Gold made it through the recent crash with flying colors. It's about the the only thing that did, by the way. I'll also point out that John Paulson, the only guy to get the subprime asset crash right to the tune of billions, has backed up the truck on gold stocks. Clearly you're out to lunch on the "gold is worthless" train.

Please, get a clue.

You anti-goldbugs are more psychotic than the goldbugs themselves.

Barkley Rosser said...


"Made it through the recent crash with flying colors." Really? It has now hit $1,000 three times, starting once in early 2008, but has fallen back each time, despite the fevered forecasts of the gold bugs. Sure, real estate has long been dropping, since the last time gold hit $1,000 the stock market has risen by 50% while gold has sat on its butt.

It is a bubble. The betting on it is that we are going to have a hyperinflation, but the evidence for that in any other market is pathetic to non-existent. Indeed, many serious economists are still forecasting deflation, or at least very little inflation. Of course, it is those who think we are going to have hyperinflation who have been hyping up the price of gold to a level that could more easily totally crash than go soaring off into the heights much further.

I see the chances of a recovery with little inflation as pretty high. That will leave all the gold bugs holding a dropping asset. This baby is the biggest current bubble around, and you sound like the overheated real estate gangsters back in 2005 going on about how anybody who did not know real estate was just going to keep on going up and up was a fool. Hah.

TheTrucker said...

Sorry... But I see nothing wrong with the point that dollars become worth less as more dollars are added to the world economy. And with land prices blown to bits via the bubble and oil now much over supplied for the busted economies, gold is probably a good measuring post BECAUSE it is based solely on belief.

On 9/3/09 the Chinese moved the gold they had stored in London to Hong Cong. There is a lot of speculation about the Chinese buying and moving gold.

Right now dollars are worth a lot of oil, but December oil went to $74 recently and then came back to $66 as of now.

Anonymous said...

Go read the latest document on Zero Hedge, and make up your own mind.

Jessica6 said...

I'm guessing Clusterstock readers don't come here.

Every now and then I'll post a comment of gold (along similar lines to your article here) only to be met with a torrent of abuse and implying I don't even have a high school education.

If you just do a simple google search about gold in general, it is amazing just how much disinformation there is on the subject, how much overall ignorance of monetary history there is and how high a profile these very goldbugs/dollar doomers have.

Anonymous said...

Jessica and Brenda,

Go read the Fed and CIA documents on Zero Hedge - the Chair of the Federal Reserve is hardly a goldbug, but he seemed to think the issue was important enough to to enter into secret agreements with foreign central banks to hold down the price of gold.

Who knows, perhaps you might think it of interest as well...

Barkley Rosser said...


The old identity says MV=PQ (or PT, if you prefer). Money supply times its velocity equals the price level times real output (which equals nominal GDP). If real GDP is rising, which it is doing now in many places and is beginning to do so again in the US, then unless velocity increases, one can add money to the system without any inflationary pressure. Indeed, one needs to add money to the system or one will have problems.

You want to put your trust in something that is a pure speculative bubble? There is an industrial use, but that sets a floor down more like $200. Believe me, it can go down that far and fast. It did so in the early 1980s. Some hedge.

The Chinese may be "moving gold," but I am unaware of any evidence they are buying it. They are buying more useful things like euros and oil in the ground, which, as you noted may be a deal right now. Gold is not.

In the meantime, 20% of the gold supply is held by four central banks, and two of them are quietly unloading it (UK and France). They don't want it anymore, and if they start unloading even moderately faster than they are, even the WaPo article says that it would "crater" the market. Yikes!


I have no problem callinlg the gold bugs "wacko." Many of them are certifiable, but somehow they get on TV talk shows and now even to news stories in the Post, despite spouting utter falsehoods. But in this environment you get taken seriously if you arrogantly yell loud enough.

Anonymous said...


Your previous argument was that gold prices weren't being manipulated and goldbug were wackos - now that Zero Hedge has published Fed document stating they were manipulating gold, you're gong to have to come up with a better argument.

Of course, you can continue to say goldbug are wackos, since if the price is manipulated, this implies gold prices will not ever reflect its true value.

Unless, the US devalues the dollar to deal with its mounting debt problem...

Any way: read the documents and honestly give your opinion - not the party line. said...


I do not have a link to Hedge. Want to provide one? From what I have read it is the British and French central banks that have been quietly and slowly selling off their gold, not the US. If they Fed is not doing any buying or selling of gold, and all the reports I have seen say it is not, then there is no way it would be "manipulating" the price of gold.

"Unless the US devalues the dollar..."

Devalues against what? Gold? In case you did not know, the US government has not set the forex rate of the dollar for a long time. It does not "devalue" the dollar anymore than it "revalues" the dollar.

There is no party line on gold. And, get it. The central banks could totally tank the price of gold in a minute by a very small increase in sales. You should be thankful that they are being kind to you clowns. said...


I did not go to Zero Hedge, but I did see something on GATA on 9/23 claiming that there are "documents" showing Fed manipulation. Actually, what those "documents" show, supposedly a letter from Governor Warsh, is that there do exists swap arrangements whereby the Fed and other central banks can swap gold if they want to. There was some vague reference to these arrangements in some Fed notes from back in 1995.

News for you folks. Those arrangements have been in place forever. There is no evidence that they have actually been used at all in recent decades. There is no evidence of "Fed manipulation of the price of gold."
Again, if they wanted to tank the price of gold, they could do it and do it hard and with no ability of any you guys to hold it back. Thank your lucky stars they prefer to let you guys play your little games on your own, because gold is irrelevant. Frankly, they do not give a damn. It is not worth bothering with.

Anonymous said...

"gold is irrelevant."

Of course gold is irrelevant, Rosser. That has always been the aim of the manipulation.

I quote the Fed Chairman Arthur Burns memo:

"... Early removal on the present restraints on intergovernmental gold transaction and on official purchases from the private market could well release forces and induce actions that would increase the relative importance of gold in the monetary system."

Keeping gold from being "relevant" or "relatively important in the monetary system" is the entire point.

As to the devaluation of a fiat currency: Washington simply recalls the existing money and replaces it with a different currency at some new ratio to the old - for instance 1 new dollar for 10 old dollars.

It is essentially what they did in 1933-34 when gold was confiscated. It is also what Argentina did - just before people began rummaging through garbage to earn a living.

BTW: the only gold I own is my wedding ring, so I
have no dog in that fight. My original point, as you might recall, is that Washington's gold m
the financial meltdown.

I am not a gold bug.

Anonymous said...

My original point, as you might recall, is that Washington's gold manipulation -aided by Larry Summers' research finding- led to the derivatives market bubble which led to the financial meltdown. said...


What Larry Summers research finding? Oh, I know. That one that says that gold has at times tracked other commodities. Of course it has blown that out the window with its recent rise ahead of the rest. Sorry, the "Summers evidence" is yet another reason to believe that gold is near the peak of an unsustainable speculative bubble.

Quoting a memo by Arthur Burns is just a joke. Yes, he was Fed Chairman back in the mid-70s, the immediate aftermath of the final delinking from gold in 1971. Duh.

The US did not replace its currency in the manner you describe in 1933-34. Where did you get that fantasy from? Nor did Argentina just before the crash of its currency in 2001.

We have seen such replacements of currencies, including in Brazil and Argentina (some years before the 2001 fiasco), along with Germany after its hyperinflation of 1923 and Hungary after its hyperinflation of 1946 and Russia in the 1990s after its hyperinflation, and some other countries. Countries do not do such a traumatic thing to make a 10 to 1 change. They do it usually to knock at least three zeros off the currency and only after either a hyperinflation or an extended and severe inflation.

We are not now nor are we anywhere near even a modest inflation, much less a hyperinflation. It is this expectation of a hyperinflation that has been inflating the gold price basically since 2001. But this expectation has not been remotely fulfilled, nor is it likely to be. That is above all why the current price of gold represents the peak of a ludicrous speculative bubble. Indeed, the behavior of the market since Feb. 2008 has resembled nothing less than a period of financial distress as I have discussed here previously, with such episodes generally ending in a hard crash.

Anonymous said...

First it wasn't relevant because gold isn't money ...

Then Burns is not relevant - because he is old news...

Then the US didn't reduce the value of the currency in 1934 by 69 percent - from 20.67 per ounce of gold to 35 dollars per ounce of gold...despite the absence of hyperinflation...

And of course, the form of money is not an issue because everyone knows paper works just as well as gold...why would anyone worry that gold might threaten fiat - economic theory says it can't because it is not really money anymore. You see, we passed a law saying gold isn't money!

Okay Rosser... said...


Gold is not money. Sorry. Not nowhere, not nohow.

Burns is indeed irrelevant because he was finishing off the final ending of a vague role for gold as money. That was over 30 years ago. Get with it.

In 1933 the US did not replace exising paper money with new paper money that had fewer zeroes on it, or indeed was any different in any way from the existing paper money, which is what you appeared to be talking about. It did absolutely nothing whatsoever at all to its paper money. All it did was change the peg with gold within a still-existing gold standard, which was a positive move at the time to stimulate the US economy. I suggest you read Barry Eichngreen's definitive book on the role of the gold standard in the Great Depression. There is a very good reason why Keynes called it a "barbrous relic."

Look, there are a bunch of fantasists who think that it is money or maybe that it should be money or maybe that it is even going to become money once again. But it is not money, not anywhere, not even in countries that export it like Russia and South Africa. And not one serious policy official anywhere on the planet is talking about reviving it at all as a money (including Larry Summers, and that is not because he has fallen under the spell of some conspirators at the Fed). Was this on the agenda in Pittsburgh? No. Should it have been? No. Will it ever be so, at any international forum. No. Get real.

Jessica6 said...

@ Anonymous 11:07 AM:

I read zerohedge pretty regularly and did see the article and a similar one from earlier and didn't find it worth spending much time on.

ZH seem to be leaning more and more into tinfoil hat territory these days which is a shame because it distracts from some very legitimate issues of corruption between governments and the financial industry.

Even IF gold were manipulated, so what? That would certainly make me even less inclined to speculate in it.

@anonymous 5:55 PM
So where do you stand on the whole issue of fractional reserve lending? That too can be technically 'money out of thin air' and had it's origins in goldsmiths - it could exist with or without a gold standard.
Or what about the inflexibility of fixed international exchange rates that can prolong the financial crises faced by individual countries?

Anonymous said...


For an independent thinker you sometimes exhibit the most calcified thought patterns...

Just remember: we (or, at least I) come here to learn something new. If I wanted to know what the Larry Summers circle of idiots think, I could just read the Times and Journal.

Anonymous said...

"So where do you stand on the whole issue of fractional reserve lending?"

On its head...

Barkley Rosser said...

I am not sure who is asking about or talking about fractional reserve banking. I think it is irrelevant to a gold standard, even though in European banking there was a link because of the historical role of goldsmiths. But, guess what? We have fractional reserve banking today without a gold standard. Big deal.

I am sorry, "Anonymous," but I must tell you have zero respect for people who engage in personal inuslts ("calcified thinking") and hide behind anonymity. What are you afraid of, you coward? Do you always accuse somebody of "calcified thinking" when they point out that you are making false and mistaken statements (e.g. your claims about what happened to US currency in 1933, just plain wrong).

Let me hammer this in very hard. There are several elements that are generally recognized as being part of the definition of "what is money?" although different schools of thought emphasize some of these aspects more than others.

So, probably the most widely focused on aspect is use as a general medium of exchange, although chartalists reject this as a criterion. Does gold serve as a general medium of exchange, or even as a medium of exchange at all in any country on the planet? No. There is nowhere on the planet that you can walk into a store and pull out a bunch of gold and buy something. You might be able to do so in some illegal operation or some other oddball transaction, just as you might be able to buy something with cocaine or sex. But that does not make those items "money" any more than gold is now.

The chartalists say what is money is what the State accepts for payment of taxes. Back under the full gold standard, indeed in many countries on earth, you could pay your taxes in gold. Maybe in Russia or South Africa or somewhere else, they might let you do so. But in most countries they will expect you to write a check or use a credit card (backed by a checking account) or maybe pay in cash with paper money. But not with gold, and certainly not in the US.

Another supposed function of gold is to serve as a numeraire or unit of account, that is provide the item for which prices are quoted in. Even under the gold standard this was at best only indirectly a function of gold, that all the currencies in which prices were quoted in such as pounds or dollars had some fixed ratio to gold and thus to each other. But nowhere were prices actually quoted in units of gold itself.

Finally, we have the store of value or wealth function. Yes, gold does serve that function, but so do pretty much all other assets, including ones that generate income, unlike gold. While most monies may serve as such stores of value (although money that is purely an abstract unit of account such as the SDR does not), an asset can only be viewed as money if it performs at least one of these other functions. Otherwise, land is money, oil is money, stocks are money, bonds are money, Rembrandt paintings are money, and so and so forth. Certainly the gold bugs are not willing to put any of these up there with their beloved gold as money.

Barkley Rosser said...

Of course I meant to say that it is money that serves as a numeraire or unit of account.

Anonymous said...

Is it possible that fiat currencies have a history?

What is that history, Rosser?

How long do they last on average?

Is there a link between fiat currencies and the unbroken string of inflation that we have experienced for some 70 years?

Is there a connection between fiat currencies and the financial meltdown last year? Between fiat and the creation of bubbles?

Did moving from gold to fiat allow the creation of super-bubble, which the asset price inflation of the last 70 years suggest?

Does fiat give banks an intolerable dominant position in the economy to the disadvantage of non-financial institutions and working families?

I once took an intro course on macro with Randy Albeda from Dollars and Sense and was surprised that she could not answer one simple question: how is new money actually injected into the system? What is the actual mechanism? New money is brought into existence but who gets this new money in their hands?

Now we find that base money is created only after credit begins to expand - how nice would it have been to understand this twenty years ago?

Given the massive failure of economics in this crisis, one would think these would not be questions settled by Keynes' statement that it is a barbarous relic.

Marx defined five functions of money, not three - and one of them was hoard. How do you hoard something which is always depreciating in purchasing power?

And, if you cannot hoard it, what impact does this have on interest rates?

The argument is that the Fed needs its independence to perform this function - but isn't this a political statement? One which states a financial cartel cannot be supervised in a democratic society? That its power must be unchecked and unlimited? said...


Fiat money was invented in China over a 1,000 years ago. They did have a hyperinflation in the late 1940s just prior to the takeover of the mainland by the Communists.

There were hyperinflations under metallic standards, in Rome under Diocletian and in many other periods through "debasing" a metallic currency. That was where we got Gresham's Law from.

If you think the gold standard helped the poor, go read the populists, including the "Cross of Gold" speech by William Jennings Bryan. Your knowledge of history is pathetic, apparently.

Base money expands when the Fed writes a check to a broker to get some Treasury securities. The succeeding money multiplier process depends on credit expanding.

There were plenty of bubbles in the late nineteenth century at the height of the gold standard, and, of course the stock market bubble prior to the Great Depression occurred during a period when the gold standard had been reimposed. You really want to go back to that nonsense? This historical fact is why no serious policy maker is even remotely talking about this.

"Hoarding" is just part of the store of wealth function. So are Keynes's "liquidity preference" and "precautionary motive." None of these need or depend on gold. One can hoard paper currency.

Actually, the best thing to hoard for really serious emergencies is not gold, but diamonds. On this day after Yom Kippur it is worth remembering that the Jews who got out from Hitler were more likely to be carrying diamonds than heavy bars of gold. Duh.

This association is so strong that I know from primary information sources that even now when Jewish women emigrate from Russia they are subjected to full body cavity searches so that they do not abscond with any of the Motherland's precious diamonds. said...


Just to hammer this again further, there is no link between having a gold standard and avoiding bubbles in real estate. We had a massive bubble in land in Florida in the mid-1920s, when the gold standard was fully in place and enforced.

I must comment a bit further on one of your apparent delusions, which I gather is widely believed, that somehow the gold standard is something populist that would help the poor against conspiracies by the rich. Those spreading this are either ignorant of history or deliberately distorting it. This particular fairy story has got to be one of the most hysterically deluded of all those coming out from the worst of the wacko gold bugs. They really should be ashamed of themselves, but instead they arrogantly trumpet such worthless dreck from every available location.

Anonymous said...

I think the French government between 1250 and 1400 also provides some great examples of how you can easily and effectively devalue a metallic currency. It was essentially a method of taxation.

If gold had actually been money then this wouldn't have been a problem, since the economy would still have had a reasonable system of exchange. But gold wasn't (and isn't) money, and so it really ate away at their standard of living.

Even before the whole war and plague business.

-locrian said...

"actually been money" And your criterion for that is what?

If the criterion for "actually being money" is what many say it is, the item used most widely and frequently as a medium of exchange, then gold has never been money. The problem is its rarity. Sure, many countries have issued gold coins. But, because of the rarity of gold, a major source of the fascination with it, those coins have always been of way too high a value to be used very widely in the economy.

Sure, they would get used, but only for very high value transactions. So, those 19th century $20 gold coins the US used to issue? They would be used for the occasional high value transaction such as buying a horse. But did people use them for buying their groceries or paying their rent? No. They generally used paper money or the copper and nickel and silver coins of much lower denomination that were much more readily available.

BTW, I just read about Zero Hedge over on Marginal Revolution. I have never visited there, and after reading that, I plan never to do so. Are you one of the nut cases who hangs out there?

Chris said...


You need to find a perma-link to Ahrens. The link in your post now refers to an article that has nothing to do with gold.

I was going to say that you are taking aim at some weak and rather easily dismissed arguments about gold. But having dug up the article (thanks Google) it's pretty clear that Ahrens is actually making weak and rather easily dismissed arguments.

I do however own shares of gold miners and plan to continue. Yes the price of gold is up, but that does not speak to whether it is cheap or expensive. The reason for owning it is that other assets generally are not paying enough to compensate for the risks they hold, and this holds true for bonds, stocks, and real estate. As to currency, empires fall eventually. It holds risk too. Post WWII institutions appear shakier now than at any time I can remember. So it stands to reason gold is more expensive.

It occurs to me, though, that criticizing gold bugs is probably a waste of time. In the first place, they won't listen. In the second place, their predictions were much more accurate than the orthodox economists. The latter group would be well advised to remove the beams from their own eyes rather than examining the motes in the eyes of the gold bugs. said...


Sorry about the link. When I wrote the post I simply provided the title of the article, and it was turned into a link by someone else later. Never double checked it.

Certainly, if you want to fool with gold, gold mining stocks are a better way to go then gold itself. At least they pay a dividend, or should.

In what sense is gold paying for the risk of holding it? Yes, it is high now, but that is exactly the point. It is dangerously so. There is a fundamental, and it is the industrial use price of it, which is down around $200 per ounce. Gold looks to me like US housing in 2006, when it also was apparently paying for the risk of it, until it was not doing so anymore. Remember those folks who bought gold in 1979 at over $800 per ounce?

And, while we are at it, just what is it that the gold bugs were right about that someone like me was also not right about? I called the crash (and am most definitely not an "orthodox ecoomist"). But, unlike all these gold bugs I did not call for a hyperinflation that has not yet remotely happened, and which is the only thing that would justify a gold price anywhere near what it is right now.

Currencies go up and down. A commodity that is about five times its fundamental could go down and stay down for decades, just as gold did after 1979, when it went to around $300 and stayed there for the next two decades. Looks like lots of risk on that one, and if it goes, so will go those gold mining stocks you are sitting on. Sleep well.

BTW, regarding the article, that Ahrens's arguments were so weak was part of the point. This was supposed to be a news article. Why was he repeating such nonsense in one, including stuff that is simply false outright? More of WaPo declining, but what else is new?

Chris said...

For bond or stocks there are sensible ways of valuing the security. You discount dividends, coupons, cash flow, or what have you. You can be wrong, but at least you have a good model.

It doesn't seem that this kind of model is applicable to gold prices. I imagine it more like say, agricultural futures. What is the value of a bushel of wheat for fall delivery in spring? You start with the collective guesswork, which over the course of the seasons gyrates this way and that way with weather and the tremendous vagaries of farming.

Economics as I understand it has little to say about this sort of thing, because the events in question are so hard to predict. I would say it is very much similar with gold. If we return to some new normality, gold will probably fare badly. But if this is the end of the Bretton Woods II neoliberal world, what of gold? I don't see it is possible to value gold outside without getting into the probabilities of various macro outcomes.

It's not an easy question. When you say gold is dangerously high, I hear you saying the world is headed to a more stable place. I don't see it either in geopolitics or in economic policy. The economic side is looking better but I think real and necessary reform is DOA. On the geopolitics side things are in a lull but intrastate resource competition could get nasty quick.

I would say that gold is "safe" inasmuch as gold production is quite small compared to supply, so it will not dilute quickly. But of course it does not pay interest either so it has "negative carry" or some such.

Anyway I don't want to sound like I am beating you up. Ahrens deserved the abuse and I well aware you have been critical of many of the financial shenanigans. But I do think you are wasting your time trying to correct the gold bugs. They won't listen.

Barkley Rosser said...


You are probably right that "the gold bugs won't listen."

There is a fundamental for gold. It is the industrial use, which generates about 10% of the demand and goes at a price far below the current one. There is a huge supply sitting in the central banks, a point even Ahrens noted. I think anybody holding gold for "investment" purposes should be very grateful that the Fed and others are not seriously selling off stocks in a way that would "crater" the market. They could easily do it, but I think do not really wish to harm the poor gold bugs. Enough damage out there already.

Regarding the "instability," depends on which kind you are really worried about. Gold may be hedge against hyperinflation, but it is not obviously a hedge against deeper instabilities. I note my reamarks already made about Jews and diamonds when Hitler was on the scene. It was not the people with gold who got out.

Are you one of those really betting that we will have hyperinflation? And what will happen to the price of gold when it finally sinks in that we will not have hyuperinflation? There is plenty of instability that does not depend on hyperinflation. Just think: Great Depression.

Chris said...

I am not a hyperinflationist. I am not smart enough to know what is coming. But, I do say there are powerful deflationary forces at work, against which policymakers are marshaling a powerful response. Could it go wrong?

I took a look at gold during the great depression. The London gold fix was $20.63 in 1929, and $33.85 in 1940. That's pretty good.

I think it comes down to confidence. When people are not confident in the institutions backing their currency, they find alternatives. People are right now losing confidence in their institutions. Whether it gets worse depends on how policymakers handle things and I think they are dedicating their efforts to reinforcing the pre-existing financial system rather than making reforms. I think I agree with Simon Johnson when he compared the US to crony capitalist states.

You are of course right that it is not obvious that gold can hedge systemic risks generally. But the funny thing about markets is that you cannot make money on things that are obvious. I would say gold has done well and will continue to do well during profound crisis of confidence periods. This has been the landscape, but the question is where to now?

I saw the investor Jean Marie Eveillard on Rukeyeser a few years ago. On the question of gold he said, more or less, that it is like insurance. Buying that insurance is more expensive than it used to be. But the situation is more uncertain, so it is not clear that you don't want to buy the insurance. For my own part, I think gold will remain in my portfolio until I see better policies from leaders. said...


Fair enough. Obviously your situation depends on when you seriously bought in. If you did so back in 2001, you are sitting pretty well. If when it hit $1,000 an ounce, well, I would be a bit worried.

Regarding what happened in the GD, the important point to keep in mind (go read Eichengreen) is that we were on a gold standard and many see that as a main reason the GD happened. The US ran a tight monetary policy to accumulate gold, which forced other countries to run tight monetary policies to try to offset the US position. That is not going on now. Eventually in the GD, countries repegged relative to gold, which eased their burden, which the US did in a single discrete move in 1933 as well. France was the last too, a position still reflected in the 1960s with their leftover gold buggery. Nobody is pegged to gold now, and nobody is going to peg to gold, not China and not any of the gold exporters like Russia or South Africa. So, we are not going to have any repeggings. The price is indeed fully under the control of the speculators.

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Anonymous said...

Just to be clear here, as the original anonymous in this thread, I must point out that Barkley in this thread is engaging with a straw man he has named "gold bug".

This discussion was never about gold, nor the role of gold, nor its history. It was about the ponzi scheme created by Rubin and Summers to manipulate the price of gold to lower interest rates on the dollar, based on Summers research, and Rubin's work at Goldman Sachs.

How far Barkley goes afield from THIS discussion is evidenced by his argument that "gold is not money."

The question is not whether gold is money, nor diamonds, silver, etc., since all of them can serve this purpose; the question was did not the collapse of the financial system in some part result from the derivatives market created by, and nurtured by, these gentlemen.

(At the time this argument began, Summers was being widely speculated to succeed Bernanke at the Fed.)

Anonymous said...

That being said, I want CLEARLY state my agreement with Barkley on several point:

1. Money does not have to be gold, and in no way should my argument be construed to imply that the lack of a gold standard was in any way the cause of this present crisis, nor of any preceding crisis.

2. Hyperinflation CAN occur under the gold standard.

3. Gold is not a protective standard for the poor and dispossessed.

4. No nation at present would contemplate reestablishing a gold standard for it money.

5. Gold has industrial uses. In fact, Summers in his paper examined the monetary vs. non-monetary uses of gold.

6. Gold bug mostly do not listen to other arguments (but neither do progressive economists.)

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