Is it only a metal whose value comes from the useful goods for which it can be exchanged? The belief in gold does appear more mystical, touching on the psychological aspects of fantasy and ecstasy more so than its pragmatic component. Maybe Ron Paul is one of these transcendent wild men out of John Huston’s Sierre Madre or the white man painfully aware of his alienation in Africa, surrounded by the other in Joseph Conrad’s Heart of Darkness. Or, maybe Paul is the happy go lucky tramp of Chaplin in the Gold Rush. Ultimately gold is just a metal, a moderately useful substance with emotional significance and highly deflationary. Think: every ounce of gold mined since the dawn of time is still in existence. Hidden, holed up. Waiting for that golden moment, where the alleged disposition of the precious metal’s relationship to lunacy will be exposed as enlightened foresight.
Edgar Allan Poe, The Gold Bug: “In supposing it to be a bug of real gold.” He said this with an air of profound seriousness, and I felt inexpressibly shocked.
“This bug is to make my fortune,” he continued, with a triumphant smile, “to reinstate me in my family possessions. Is it any wonder, then, that I prize it? Since Fortune has thought fit to bestow it upon me, I have only to use it properly and I shall arrive at the gold of which it is the index. Jupiter, bring me that scarabaeus!”
“What! de bug, massa? I’d rudder not go fer trubble dat bug — you mus git him for your own self.” Hereupon Legrand arose, with a grave and stately air, and brought me the beetle from a glass case in which it was enclosed. It was a beautiful scarabaeus, and, at that time, unknown to naturalists — of course a great prize in a scientific point of view. There were two round, black spots near one extremity of the back, and a long one near the other. The scales were exceedingly hard and glossy, with all the appearance of burnished gold. The weight of the insect was very remarkable, and, taking all things into consideration, I could hardly blame Jupiter for his opinion respecting it; but what to make of Legrand’s agreement with that opinion, I could not, for the life of me, tell.
…As a financial journalist (and registered Independent), I don’t take sides in political campaigns. But, in more than 20 years as an investing reporter, I’ve never seen a more unorthodox portfolio than Rep. Paul’s: no bonds at all, no mainstream stocks or mutual funds (other than three funds that “short sell,” or bet against, U.S. stocks), and 64% of all assets in the shares of companies that mine silver and gold….
…Its distinctiveness alone makes Rep. Paul’s portfolio worth writing, and reading, about. But his investing approach is also noteworthy for another reason: because it points toward a profound lesson about diversification.Many of Rep. Paul’s supporters protested, in their comments, that his portfolio has already been vindicated by its performance. It isn’t that simple.Read More:http://blogs.wsj.com/totalreturn/2012/01/05/how-weird-is-ron-pauls-portfolio/
There is something peculiar about Paul’s version of the Big Short. Something nihilistic bordering on the death wish or akin to Freud’s castration complex. Some kind of perverted desire to piss out the flames of the supernovae of inflation in a golden shower. There is something fatalistic
Paul with the extreme bet on catastrophe, the common sense candidate throwing himself to surreal fantasies and volatile emotions locked in a bathroom full of ammunition and canned goods. Investing in the future is also about minimizing your downside risk if you are actually wrong. The question, and most pertinently related to extreme ideologies, is what arises when we are so convinced of our view that the future catches us in a trap of the unexpected? …
on countries undermining their own currencies:
JD: The Dines Letter has long predicted “The Coming Competing Currency Devaluations” to be expressed as “currency wars.” These have been building for decades as some major countries began to competitively suppress interest rates so as to make their currencies less attractive, deliberately undermining them, to enhance their exporting prowess….
on currencies floating without any link to tangible value:
JD: America has been severing links between its paper money and gold, for going on one century, as outlined in my Goldbug! book, step by step, with the net result being that all the world’s currencies are floating without any link to tangible value. As a result, they float depending on the amount of paper each country prints, and it will result in what we have been calling a “fool’s race to the bottom.” It is already happening with interest rates in Japan and the United States at virtually zero, and they are baffled as to what to do next, but there is no next.
on the run to the printing presses:
JD: The result of nations running their printing presses is, first an inflation, followed by deflation, and the world has been in deflation for several decades, at least since 1989 in Japan. In these circumstances, printing additional large amounts of money risks a dreaded hyperinflation, that we call “the supernovae of inflations.”
on all currencies fluctuating against all the others:
JD: All currencies are engaged in currency devaluations in which no country wants an overvalued currency that hurts its exporters. It is very unlikely that all countries of the world would stop running their currency printing presses, or run them at exactly the same rate at the same time. Since all currencies are fluctuating against all the others, instability risks an historic crash sometime in the future, the protection against which would be difficult to find, but we recommend at least gold and silver-related assets. A fluctuating currency introduces an inherent instability into the entire world’s currency and economic systems, gravely risking serious loss of capital to those who are unprepared. Read More:http://janelanaweb.com/trends/the-race-to-the-bottom-an-interview-with-contrarian-james-dines/
Paul Krugman:For this is essentially a “real” story about gold, in which the price has risen because expected returns on other investments have fallen; it is not, repeat not, a story about inflation expectations. Not only are surging gold prices not a sign of severe inflation just around the corner, they’re actually the result of a persistently depressed economy stuck in a liquidity trap — an economy that basically faces the threat of Japanese-style deflation, not Weimar-style inflation. So people who bought gold because they believed that inflation was around the corner were right for the wrong reasons.
And if you view the gold story as being basically about real interest rates, something else follows — namely, that having a gold standard right now would be deeply deflationary. The real price of gold “wants” to rise; if you try to peg the nominal price level to gold, that can only happen through severe deflation.
OK, none of this necessarily rejects other hypotheses about gold; in particular, there could be a bubble over and above the Hotelling aspect. But the crucial message is, I think, right: If you believe that gold prices are signaling an inflationary threat, I have to tell you, I do not think that price means what you think it means.Read More:http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/