Monday, November 3, 2008

Greenspan and the gold bugs

Greenspan's testimony on October 23rd makes a lot of sense, and I agree that high finance got a little too high. It was a bubble, for God's sake, meaning most people bought into it, including the masters of the universe on Wall Street. But Greenspan ignores the fact that he was the true master, or maestro, as they called him. He had the most power of all and thus bears at least a large part of the blame. Namely, he lowered interest rates to below 2% following 9/11 and kept them there until mid-2004, extending what was then a mild bubble in house prices into a record breaker (see the chart from wikipedia).

During this time it became global, as do all bubbles, in the form of world-wide investor sentiment and the expansionary policies of the world's central banks. Many of the world's stock markets doubled or tripled between 2003 and 2007. And now the party is over.
Greenspan is making Ron Paul and the other gold bugs look more and more reasonable, even the Wolf Wave guy:

UP 38% year over year and almost triple the size of any monetary expansion since 1985; and you haven't seen ANYTHING yet. This is the face of FUTURE inflation. Add to this the HUGE expansion of government to save and provide for you, where $1.00 goes in and .10 cents of goods or services comes out; the rest goes to line the pockets of their CAMPAIGN contributors and the government enforcers they have SPAWNED in leviathan government. THIS IS WHY THE STOCK MARKETS ARE COLLAPSING and will continue to do so until they turn higher in a ZIMBABWE-like rally to escape the debasement and the “Crack-Up Boom” EXPLODES in your face.

The nuttiness of these guys makes me doubt their story. Please read the whole thing, there's plenty of truth in it, and I am now more than ever ready to consider returning to the gold standard. But I am buying stocks, particularly emerging market stocks. Gold keeps falling because we are not in the "Crack-Up Boom" apocalypse. We have reasonable leaders, such as Bernanke who knows the Depression inside and out, and even Obama I think will make measured decisions that often go against the most radical elements of his party.

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