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Spengler

Why the Drop in the Gold Price is Good (for most of usS)

Gold is not an investment, but an insurance policy against the collapse of the dollar. The dollar isn’t going to collapse, despite America’s need to borrow nearly half a trillion dollars a year overseas. That’s because our trade deficit is shrinking, from 6% of GDP in 2006 to 3% today; it well may be a trade surplus by 2020 due to the energy boom. If you have a current account surplus, you can finance a big government deficit for a long time–just look at Japan. The bad news is that the economy is still very weak. The good news is that we can paper over the deficits resulting from a weak economy for the foreseeable future. The price of insurance against dollar doom has fallen. That’s good (don’t you want the cost of your life insurance to fall? The last thing you want is for your life insurance policy to pay out).

The ferocity of the April  gold price plunge, to be sure, probably has to do with fears that Cyprus as well as other cash-strapped sovereigns will be selling gold. That’s bad (for them) but doesn’t affect the rest of us too much.

Gold has a place in the portfolio as a disaster hedge. Just because disasters are less likely now than a year ago doesn’t mean they can’t happen. Lots could go wrong. But a fall in the price of disaster insurance is a good thing.

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All Comments   (11)
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A Russian language social networking site (VKontakte or Odniklassniki, most likely) bearing Dzhokar Tsarneav's name paid tribute to Islamic websites and to those calling for Chechen independence. The author identified himself as a 2011 graduate of Cambridge Rindge and Latin School, a public school in Cambridge, Massachusetts.

He said he went to primary school in Makhachkala, capital of Dagestan, a province in Russia that borders on Chechnya, and listed his languages as English, Russian and Chechen.

His "World view" was listed as "Islam" and his "Personal priority" as "career and money".

He posted links to videos of fighters in the Syrian civil war and to Islamic web pages with titles such as "Salamworld, my religion is Islam" and "There is no God by Allah, let that ring out in our hearts."

He also had links to pages calling for independence for Chechnya, a region of Russia that lost its bid for independence after two wars in the 1990s.
51 weeks ago
51 weeks ago Link To Comment
David,

The first report I heard about these lads also said that one if not both had Turkish passports and despite this were given refugee status in the US in 2002. Please note that the Russian documentary film 'Plan Kavkaz' aired by NTV claims Turkish intelligence with Saudi money was behind a great deal of the Chechen insurgency in the 1990s and early 2000s. Therefore I don't blame the Russians for wondering how two youths could have caused so much mayhem acting alone.

And finally, once more presenting the blatant double standards of fanatical Russophobes: 9/11 truthers are crazy conspiracy theorists, but the notion that Putin bombed his own people to justify the second Chechen War is not:

https://twitter.com/LibertyLynx/status/325325990886789121

Of course, this comes from the same Twitter account of a lady who claims to be Russian who said, 'have at it' Syria jihadists, meaning kill Russians. These people are sick.

51 weeks ago
51 weeks ago Link To Comment
OT I know but I thought I'd link here:

http://en.wikipedia.org/wiki/Dzhokhar_Dudaev

I wonder if the suspects in Boston are distant kin to this Dudayev? Given the clannish nature of Chechen/Dagestani society it doesn't seem impossible.

Here's one fanatic Russophobe already whining about how Putin will say, "I told you so, these terrorists were always a threat to everyone":

http://streetwiseprofessor.com/?p=7195

So while everyone demands that a certain Austin-based talk radio host apologize for sending out a reporter to ask whether it was a 'false flag' Chris Matthews won't apologize for trying to blame this tragedy on the Tea Party or right wing Christian militia types to confirm his Southern Poverty Pimp Law Center guest's ridiculous threat claims.

51 weeks ago
51 weeks ago Link To Comment
Spengler, what is your view of alternative currencies? Are they a real alternative to an actual danger, or a mistaken hedge against hysterical fear?

The benefits would be independence from fiat and its pitfalls (whether real or imagined), and also anonynimity, a growing factor in the face of rising taxation and regulatory intrusion.

The bad news for gold could be, should push ever come to shove, the government might move in and force seizure as an illegal currency compensated for on terms of a punitive exchange rate.

As for Bitcoin, I can't even figure out what that is, and I'm a career computer guy. Oh, dear economist, whaddya think on the currency thing?
51 weeks ago
51 weeks ago Link To Comment
As the top hedge fund manager Kyle Bass was told by the C O M E X when he pressed them as to what they would do should the owners of millions upon millions of paper ounces demand physical delivery per the contract, he was told in 2011, "Price solves everything". Which sums up the London bank fraudster philosophy perfectly. Can't deliver? Smash down the price with fraudulent shorts that will never be called, like a bluff that doesn't involve actually having to produce the cards at the poker table.

David you're too smart to buy into such an obvious smash down and central bank manipulation as real, particularly when thousands of buyers from India to Idaho saw it as a great buying opportunity and found dealers refusing to sell anywhere close to the COMEX price this week even with a considerable mark up.

In other words, as predicted by Ann B after MFG, the physical and paper markets have almost completely decoupled and the fraud is about to be exposed for all to see when the Chinese start laughing at the London price.
52 weeks ago
52 weeks ago Link To Comment
Let's see, if they have 2% inflation and 3% financial repression (keeping rates below where they should be) the fed could almost amortize the debt, if that is Congress could keep from growing it 10% per year.

My conclusion is that letting economists run the banking system is like letting 14 year old boys run the bomb disposal unit. An explosion, and a nasty one that kills a large number of innocent bystanders, is not just highly probable, it is inevitable.
1 year ago
1 year ago Link To Comment
Mr. Goldman:

Thank you for the sober thoughts on gold, which you've been offering for a long time now. I'd like to ask you about something else though. You've written a lot--and written very well--about private fixed investment over the years. I'd love to hear to what degree do you think a rebound in PFI will ease inflation fears.

If you back out capital consumption from net private fixed investment, you see that the asset base of America's most productive assets has been shrinking since the beginning of the Great Recession. Now it is beginning to swing back to "even." In other words, the asset base has stabilized.

A lot is written about inflation from the demand side, but I wonder to what degree the eventual expansion of supply renders the Fed largely irrelevant.
1 year ago
1 year ago Link To Comment
A rebound in PFI would tend to increase the price of assets as well as raw materials. The lowest interest rates in US history (medium-term BBB's at 3.25%) haven't created such a rebound, though, so the Fed seems to be pushing on a string. Other levers (tax and reg policy) are required.
1 year ago
1 year ago Link To Comment
Pushing on a string will soon aptly describe their efforts to massively manipulate not just precious metals but also even copper markets. How do you explain crashing prices and sold out inventories of physical David, without fraud or shorts/contracts where the physical delivery is ALWAYS settled in cash, unless you're the University of Texas pension fund or the Chinese central bank?
52 weeks ago
52 weeks ago Link To Comment
Thank you.
1 year ago
1 year ago Link To Comment
1 year ago
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