so today i'm scrolling through my news aggregators when i come across the following:
wait--the great keynesian oracle of the left has, after a decade of dismissive condescension whenever the subject is raised, finally deigned to address the 800-pound bull in the room? "oh, this is gonna be good," i think to myself as i click.
what follows are select quotes from dr. krugman's little treatise, interspersed with my comments.
he opens with the following parenthetical:
(Yes, it’s 4:30 AM where I am. I found myself wide awake, thinking about gold prices. You got a problem with that?)
i have not the slightest problem believing this--the barbarous relic's galling and unfathomable rise against all keynesian reason has no doubt caused the good professor any number of sleepless nights.
In assessing economic prospects since the financial crisis of 2008, there have been two kinds of people: inflationistas and deflationistas.
actually, there's a third kind of people he apparently can't fit into his model: those (like me) who believe that as the crisis progresses, essentials like food, water, fuel and farmland will experience breathtaking inflation, while non-essentials (i.e., ipads and pretty much every other first-world frill one can think of) won't be worth the pound of rice one would rather have. but i digress.
I am, of course, a big deflationista
well, no shit, paul--that's the only way you can claim with a straight face that all that stimulus couldn't possibly cause inflation (in fact, all of the chaos and death that took place over the course of the recent "arab spring" as a partial result of your and your cronies' misguidedly inflationary policies--maybe that's what should be keeping you up at night).
But what about gold? As some readers and correspondents love to point out, you would have made a lot of money if you’d bought gold early in this mess. So doesn’t that vindicate the inflationistas, to some extent?
a good question, i say.
My usual response has been that I have no idea what drives the price of gold
again, i totally believe him.
and then he goes on to take a gratuitous swipe at "glenn beck followers" before taking his readers down a twisting path to his sudden blinding insight: gold is rising because of...wait for it...deflation!
how did he come to this unprecedented conclusion? by a line of reasoning which is so torturous and convoluted--replete with diagrams and arcane references ("hotelling"--really, paul?)--that i won't even attempt to condense it here. seriously, you gotta go take a look for yourself.
anyway, after contorting himself into a rhetorical and logical pretzel in order to make the square peg of reality fit into the round hole of his worldview, he comes to the following conclusion as regards his shiny new model:
And this says that the price of gold should jump in the short run.
really, paul--ya think?
he then goes on to gloat about how "intuitive" his new revelation is (so intuitive it took him ten years to dream it up), and humbly closes with the following:
But suppose this [my theory] is the right story, or at least a good part of the story, of gold prices. If so, just about everything you read about what gold prices mean is wrong.
that's right, doug casey--and jim willie, aubie baltin, peter schiff, doug mcalvany, roger weigand and all the other other clear-eyed analysts i follow who started tracking the rise of gold right after the dotcom bust back at about the same time the good dr. krugman was saying shit like
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
all of you rubes may have been right, but it was totally for the wrong reasons, you got that?
* * * * *
so now that dr. krugman has devised a face-saving way for him and his fellow academicians to climb aboard the gold bandwagon, will their mainstream followers be far behind? is this the push gold needs to enter phase two of its long bull market? stay tuned...
6 comments:
guttermorality:
You know I love you. But you do not know shit about economics.
You have been predicting massive Weimer Germany levels of inflation for the past 3 years.
How's that working out?
Inflation has been low to very low. True, oil prices and some food prices have increased, but at rather modest rates.
For the sake of your ego, I would like to see you vindicated. For the sake of our lives and the economy, I would like to believe you are completely wrong.
But, having said all that, time will tell.
When, exactly, is this hyper-inflation supposed to start? I mean, you have always been vague on that.
If soaring gold prices are really due to expected inflation, then where's the inflation?
What Krugman is basically saying is that money flocked to gold because of low rates of return on everything else. It is speculation based upon the terrible state of the economy and low rates of return on savings.
Again, we'll see. If in one, two, or three years, inflation is at 100 percent, I will eat my words.
If, inflation in one, two, and three years from now is less than 5 percent, than I will feel vindicated.
Finally, gold will be going down eventually. And I will be buying it at $500 an ounce within 3 years.
[part 1 of 2]
noblesavage:
"You know I love you."
whenever you say this, i know something bad's coming.
"But you do not know shit about economics."
it's true that i've never made a formal study of economics. i am, however, a student of history.
"You have been predicting massive Weimer Germany levels of inflation for the past 3 years. How's that working out?"
I would say we're right on track. just this week, for example, the swiss national bank threw in the towel and pledged to peg its currency--up til now the strongest, most disciplined and respected safe-haven currency in the world--to one of the world's weakest currencies by flooding the market with however newly-created francs are necessary to maintain a 1.20 relationship with the flailing euro. if that's not desperation, i don't know what is.
and as money that used to seek safety in the franc flees to other currencies--the yen and the singapore dollar, for instance--those countries will have to do what the swiss did in order to attempt to keep their tourism industries and exports competitive: debase their own currencies.
all of which will, of course, spur the US to debase the dollar even more to keep its exports cheap (and water down its debt, of course), which will force other countries to do the same, and on and on it will go.
[oh, and today? we breached the shiny new debt ceiling we just put in a month ago--we're now over $15 trillion and counting.]
where will it all end? i'm on the edge of my seat--only thing i know for sure is, as the world's fiat currencies continue to debauch and destabilize, gold's safe-haven cachet will only increase.
"Inflation has been low to very low. True, oil prices and some food prices have increased, but at rather modest rates."
i suppose if you take the government at its word, that's true--according to the way it's calculated today, inflation is running around 3.8%.
of course, if you calculate it the way they did back in 1990, it's more like 7%.
and if you wanna go back and do it the way that scared the shit outta paul volcker back in 1980, it's more like 11%.
go spend some time over at shadowstats.com, honey--it'll open your eyes, i promise.
"For the sake of your ego, I would like to see you vindicated. For the sake of our lives and the economy, I would like to believe you are completely wrong."
i don't have any ego invested in this, rob--i would literally and happily give up a large portion of my gold profits to be proved wrong.
"When, exactly, is this hyper-inflation supposed to start? I mean, you have always been vague on that."
back in 2008, i woulda said we have five years easy before the shit really starts to hit the fan. but the way things are accelerating, i'd be really surprised if we make it to the next inauguration without major turmoil.
"What Krugman is basically saying is that money flocked to gold because of low rates of return on everything else. It is speculation based upon the terrible state of the economy and low rates of return on savings."
yeah, except his brilliant thesis conveniently ignores the fact of gold's 15% year-over-year appreciation during the period between 2002 and 2008 when the stock market was providing spectacular rates of return.
you really wanna know why gold is where it is? stay tuned for part 2.
[part 2 of 2]
so i'm gonna clue you (and dr. krugman, since he professes not to know) in on what woke the gold bull up from its 20-year slumber back around 2000.
it's really very simple:
(1) the abandonment of fiscal discipline in the form of the successful dismantling in 1999 of glass-steagall and other safeguards by an unholy collaboration of republicans and democrats which allowed the banks and hedge funds to fulfill their ultimate wet dream of becoming monstrously over-leveraged casinos.
(2) alan greenspan's credit expansion/creation of the real-estate bubble as overreaction to the bust of the dot-com bubble.
(3) the educated guess by a lot of really smart people that when the combination of (1) and (2) above blew up, as it inevitably would, the corrupt washington establishment would step in and bail everyone out with as many created-out-of-thin-air dollars as would be necessary (the S&L crisis being an instructive precedent for this assumption).
that's why gold's where it is, honey--it's been the safe-haven fallback in times of turmoil for 5,000 years, and that ain't gonna change anytime soon, despite what any number of ivy league economists may say to the contrary.
as for whether the current gold bubble is anywhere near its end stage: go out on the street and ask ten people (or 100) if any of their savings are in gold--i'll bet they all look at you blankly and say no.
"Again, we'll see. If in one, two, or three years, inflation is at 100 percent, I will eat my words."
well, at least you'll have something to eat.
"Finally, gold will be going down eventually. And I will be buying it at $500 an ounce within 3 years."
you know i love you, but this may be the dumbest thing you've ever said on this blog.
Well, it appears we disagree.
I could respond to you in detail, but I think it is better to leave it at this:
Time will tell.
You say you are a historian. I am an empiricist. You've made predictions and so have I. We'll see just how right they are.
What's your prediction for gold's price in 3 years then? $10,000 per ounce? As I said, $500.
Shame on you, Noble Savage! Don't you know men get cranky when they hit 30?
Happy Birthday, Gutter!
thanks, babe
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