Gold soars as the dow drops: why that's bad news for you
Baltimore, Maryland 鈥� They fought the correction; the correction won.
We refer to Bernanke, Summers, Obama, Geithner, Krugman 鈥� the whole lot of them. They added three trillion dollars to US debt in the last two years. In two more years the debt will be at 100% of GDP. Add in the debts they鈥檝e guaranteed 鈥� from Fannie Mae, for example, and state and local debt implicitly backed by the feds 鈥� and you鈥檙e already at 150% of GDP. Worse than Greece, in other words.
And what do we get for it? A recovery? A healthy economy? A gold medal?
We鈥檒l take the gold medal, thank you. It鈥檚 the only one that鈥檚 real.
The stock market was ready for a little bounce yesterday. So that鈥檚 what it did鈥 little bounce 鈥� the Dow up 123.
Gold kept climbing 鈥� to a new record high of $1,245.
If you had asked us 10 years ago which we鈥檇 rather have 鈥� stocks or gold 鈥� we would have said gold. Ask us now. Same answer.
Gold.
There aren鈥檛 many times when it makes sense to favor gold over productive investments. But this is one of those times.
Why? Because the world鈥檚 monetary system is heading for a crackup. And because the people running it have no idea what they are doing.
Bloomberg:
Pimco鈥檚 Crescenzi Sees 鈥楨ndpoint鈥� in Devaluations
June 8 (Bloomberg) 鈥� Nations have reached a 鈥淜eynesian endpoint鈥� as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world鈥檚 largest bond-fund manager.
鈥淭ime, devaluations, and debt restructurings might be the only way out for many nations,鈥� Crescenzi wrote in an e-mailed note titled 鈥淜eynesian Endpoint鈥� that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now 鈥渂eing seen as a magic elixir that has morphed into poison.鈥�
The Obama administration forecast a $1.6 trillion budget deficit, the most ever, in the current fiscal year that began Oct. 1.
You can fight a correction. You can delay it. You can distort it. You can make it bigger and nastier. But you can鈥檛 beat it. Eventually, mistakes have to be corrected鈥ne way or another.
Usually, the mistakes take the shape of bad investments or bad loans. You can pretend that they鈥檙e still worth what you have in them. You can bail out the lenders and/or the investors. You can default and inflate. But somehow, someone, sometime is going to take a loss.
That鈥檚 when you need gold. Every other asset could have bad debt behind it鈥n it鈥r standing so close beside it that a blow-up would be damaging.
The correction that began in 鈥�07 was needed to address all the bad debt built up in the bubble years. The feds tried to stop it. Since they didn鈥檛 have any money they had to fight it by borrowing more money 鈥� that is, by increasing the level of debt!
We knew that wasn鈥檛 going to work.
And now, there鈥檚 bad private debt鈥nd bad public sector debt too. And now we鈥檙e approaching a Keynesian 鈥渆ndpoint鈥� when lenders are growing wary. They鈥檝e already cut off Greece. They鈥檝e warned the rest of Europe. And when they stop lending鈥hen, all your props fall down鈥long with the economy鈥nd the markets too鈥�
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