Smell a rat? Then buy some gold.
Stocks were flat yesterday. Gold was down $8.
Just noise, in other words. Doesn鈥檛 mean a thing鈥�
But wait鈥ugar at a 30-year high鈥otton at a record high鈥il at a 28-month high鈥�
What鈥檚 going on?
Could the markets have been so wrong last year鈥nd the year before鈥nd the year before? All of a sudden, they鈥檙e discovering that commodities are a lot more valuable than they had thought.
How could they have been so wrong before? Or are they wrong now?
Or is it just more noise?
And what鈥檚 this?
鈥淔ed passes China in Treasury holdings,鈥� says The Financial Times. So, who鈥檚 the biggest holder of US debt? The Fed! And since the Fed doesn鈥檛 have any real money to speak of, how did it get all those US bonds?
It simply created the money to buy them. Out of thin air.
In other words, the US didn鈥檛 really borrow the money at all. It just printed money.
Whoa! Isn鈥檛 that what Zimbabwe did? Isn鈥檛 that what the Reichsbank did? Isn鈥檛 that what Banana Republics do鈥ust before they go bust? They can鈥檛 pay their expenses honestly, so they just print up some extra currency and hope nobody notices. But people do notice, eventually. And they dump the currency.
Well, maybe this time it is different. Hope so. Because the Fed just keeps printing money. It has a mandate to buy $600 billion of US Treasury debt in the first half of this year.
Surely that isn鈥檛 just noise, is it? No, it鈥檚 something important. Something you need to pay attention to. It鈥檚 something that affects the value of every dollar you鈥檝e ever managed to save. Maybe it鈥檚 why commodities are so high. And maybe it鈥檚 why the euro is back up to $1.38. And maybe it鈥檚 why the smart money is buying gold.
Gold is what you buy when you fear the authorities are up to no good. But so far, very few people own gold. Ask your friends and neighbors. Many will have never considered buying gold鈥nd they鈥檒l look at you as though you were a kook for suggesting it.
In the average man鈥檚 mind 鈥� at least the average mind of the average citizen of one of the average mature social welfare states 鈥� the government controls the money. And he thinks he can trust the government. Because government is a good thing. It is there to ease his suffering鈥�
鈥t will make sure that the rich don鈥檛 get too rich鈥�
鈥nd that he will have a retirement pension, public libraries, fire departments, and food tasters. If his car has a defect, he鈥檒l count on the feds to make sure it gets called in and fixed too.
鈥nd his money? Despite the evidence of 100 years of Fed stewardship 鈥� in which the dollar lost 97% of its purchasing power 鈥� he still believes that the feds are on the case, and that they鈥檒l make sure the US dollar is a valuable and reliable way to store wealth.
And if he鈥檚 wrong? Then, the feds will turn out to be less reliable than he believes. And he鈥檒l be out beaucoup dollars.
The average man doesn鈥檛 care much what kind of government he has. He has a foggy view of the whole thing鈥 bit of Mystic Knights of the Sea combined with the Rights of Man, Democracy, and supporting the home team.
To say that he doesn鈥檛 think clearly about it is misstating the situation. He doesn鈥檛 think about it at all.
And why should he? He has better things to do 鈥� like earning money and watching television.
But he still expects things of government. At the most basic level, he wants the feds to keep order. Nobody likes disorder鈥xcept for people who cause it. And even their appetite for anarchy is limited and temporary. They like it only until they have a chance to impose some kind of order of their own.
Today鈥檚 modern governments have struck a bargain with the common man. They keep order, of course. But there鈥檚 more to it than that. Keeping order doesn鈥檛 cost very much. And governments today, as Paul Krugman puts it, are 鈥渂ig, ambitious and expensive.鈥�
What do they do? They promise to look after the voter鈥o ease his pains鈥o succor him and support him in all his endeavors. That is, the voter looks to the government as he once looked to the church 鈥� to salve his sufferings.
But what does he suffer from? Not from want. There are very few 鈥� if any 鈥� people in America or the other developed nations who suffer from real want. Instead, having too much is likely to be their problem. They eat too much. They have too much stuff. They鈥檝e spent too much. And they have too many things to do and not enough time to do them.
They suffer from plenty, not from want.
Then, what suffering does the government alleviate? What itch does it scratch? What hurt does it make go away?
As we discussed yesterday, people do not necessarily want to be richer. What they want more than that is not to be too much poorer than their neighbors. It鈥檚 relative wealth that counts.
There was a wise and silly report in The Financial Times earlier this week. The writer criticized Barack Obama鈥檚 drive to make America more 鈥渃ompetitive.鈥� He pointed out that being competitive is not the same as being rich. You get richer by becoming more productive. You don鈥檛 get richer 鈥� necessarily 鈥� from becoming more competitive. Someone may be even more productive than you are. So what? As long as you鈥檙e able to produce more goods and services, more efficiently, you will be richer.
Trouble is, people are naturally competitive. They judge their own wealth and status in comparison to that of others. Without a point of reference, wealth 鈥� beyond what you need to survive 鈥� is irrelevant.
You鈥檙e probably wondering where we鈥檙e going with this. And to tell you the truth, in all the excitement, we kind of lost track ourselves鈥�
鈥ut here鈥檚 the point: what the common man really wants is for the government to beat down the rich鈥nd humble the powerful. His suffering is the kind of suffering the Bible condemns: envy.
He wants what isn鈥檛 his. He covets his neighbor鈥檚 ass. Not because he needs another ass, but because he thinks it isn鈥檛 fair that the neighbor has it.
He only wants what is 鈥渇air鈥濃�nless he can get an unfair advantage himself.
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