Herewith a few mysteries of modern economics and modern economics
journalism.
Gold: Gold is extremely high
compared with where it was ten years ago. It is still comically
low compared with inflation and where it was thirty-one years
ago. Adjusted for inflation, it is barely half of what is was in
1979. But still, it has climbed like a madman in the last couple
of years. Supposedly it has risen because “investors” (read
“speculators”) fear inflation and a disarray in government
finance that will leave investors without a safe investing tool,
except for the barbarous metal.
But, in fact, what economists often say they are fearing is
disinflation, a steady fall in prices. This is all over the
Wall Street Journal and other financial publications. If
we are fearing disinflation, then why are we buying a metal that
pays no interest, whose industrial uses account for a fraction of
its price, and is basically a commodity — which means it moves
down as we get disinflation? Why do we think that we need to hold
gold, mainly an inflation hedge, in an era of declining or very
modestly rising prices?
If the answer is that we need to hold gold because we fear
the collapse of U.S. Treasury finance, then why are U.S. Treasury
bonds the most sought after instrument on earth? In a time of
fear of a federal government fiscal meltdown, “investors” would
normally shun Treasuries. Instead, they are being bought as if
they were sliced bread. This brings us to the question of
…
Government finance: If the
combined effect of President Bush 43’s tax cut deficits and
President Barack Obama’s spending mania deficits is to degrade
confidence in the dollar and the treasury, why has the dollar
rallied strongly in the summer and why are Treasuries wildly
high? These are pieces of a puzzle that do not hold together.
Obviously, investors and speculators still have plenty of
confidence in the finances of the U.S. government. This leads us
to the next mystery, which is…
Tax cuts: in that case,
especially since the Obama regime obviously believes (rightly or
wrongly, probably rightly) in deficit spending as a much needed
economic stimulus, why is the Obama regime demanding an end to
the Bush 43 tax cuts? They add to the deficit and presumably
strengthen the economy thereby. Why end them when we are in the
shallowest of recoveries? That is, if the world’s confidence in
the treasury is still strong, and if deficits stimulate the
economy (as many smart people believe), why raise taxes and lower
the deficit right now? If it is a matter of “equity” for less
well off citizens, then has the President considered that less
well off people pay no taxes on income in any event? Doesn’t that
make up for some of the lack of “equity” in well-heeled people
getting tax cuts? Perhaps this is a matter better addressed when
unemployment is 5 percent, not nearly 10 percent.
It all comes down to a quote my dear father was fond of
repeating, “Observe, my son, with what little wisdom the world is
run.” This was from Baron von Oxenstiern, and may have reflected
how little wisdom was needed to run the world or maybe how little
wisdom was employed in any event.
I add my pitiful addendum. Follow the money and the power.
Any trader and any politician can always find some theory, phony
or valid, on which to hang his self-interest. It is up to us, the
public, to find where the truth is situated.
Having said that, it now up to us to take a nap and then go
out on the lake.
