Altes Elliott-Wellen-Forum - Re: Gold at the Crossroads

Re: Gold at the Crossroads

verfasst von Ecki1, 23.05.2002, 13:51

<table><td>>Gold at the crossroads</td>
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[img][/img] By: Tim Wood</td>
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<td width="100%" valign="top">Posted:
2002/01/24 Thu 19:00 EST | © Miningweb 1997-2002</td>
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<td width="100%">PRINCETON, NJ -- I was rather deflated after finishing this article. As I neared the end of my research for it, I read the outstanding commentary by John Hathaway, manager of the aptly named Tocqueville Gold Fund, and he has stolen a good deal of my thunder. I'll publish anyway since the work is done and the perspectives differ even though the conclusions do not.

Like Hathaway, I have a nagging pessimism about the state of the world. I'll borrow liberally from him since he delivers my conclusions better than I originally wrote them. It is important that the pessimism not be misconstrued as apocalyptic or irreversibly declinist. Things will improve and progress, as they always have and do, but the medium-term outlook is opaque if things go on as they are.

The US dollar is becoming a problem because its owner has become ill disciplined and complacent about its obligations and responsibilities. That is hardly new, but now there is less inhibition and greater permissiveness. The key change is the restless belligerence of the international system that the US oversees even as it weakens internally. As the US's necessary role in the global political economy is diminished and challenged, the safety of gold will become more obvious.

Set out below are reasons why gold is more likely to thrive than not. That doesn't mean a gold pop will happen, but the chances of it grow more likely.

AMERICA ENFEEBLED 

Spain once bestrode the world unchecked and its people wanted for nothing. However, it was utterly corrupted by the wealth it accumulated in the process and ceased to make its own products because it could afford to import everything. 

A corollary of this dependence was the denigration of knowledge that forced the dominant Jewish commercial class to convert to Catholicism or die, while local craftsmen were shunned for exotic imports. Spain lost its best human capital within a single generation, most of them fleeing to England, and it was subsequently humiliated in a multitude of ways. Indeed, its humble neighbor, Portugal, had to teach its mariners modern navigation such was the loss of talent.

The world didn't particularly need Spain which lacked any refinement of its ambitions, but the world does need the US. Unfortunately, the parallels of a nation becoming lazy and ignorant of its role suggest that all the good America has achieved can be undone rather easily, plunging the world back into chaos. Gold thrives on chaos.

Welfarism

America has abandoned the founding ethic of self-improvement in favor of freeloading. It is hard to think of any country that has so happily swapped individual independence and achievement for political patronage.

The result is despicable entitlement. Tax rates are at their highest level since World War II and the intention is blatantly redistributionist with the top 5% of taxpayers paying half of all personal tax. The bottom 50% of earners pay just 4% of the tax burden. That amounts to little more than legal confiscation which goes to satisfy a few hundred Congressmen who define their jobs as funelling money from Washington to their home states.

· Point for gold. History shows that people eventually stop working rather than pay most of their income to the state. What will Congress redistribute when its mules go on strike? What will happen to the dollar when the mules stop turning a profit on it?

Parasitism

The free rider syndrome has also become intensely professional thanks to juries awarding preposterous settlements for things as minor as spilt coffee. It is a ruthless cancer that saps American innovation and productivity. Asbestos litigation is systematically bankrupting entire industries; even those only remotely connected to the substance.

The burgeoning parasite class includes advocacy organizations drumming up dubious livings on any hysteria from environment to child safety. Worse still, Congress happily indulges this idiocy with grants and hearings. 

· Point for gold. The current rate of litigious extraction is unsustainable. What happens to the dollar when it is cheaper to avoid wealth creation than to be scammed by tort parasites? 

Statism

That US government has gone from unobtrusive and benign, to omnipresent and obstreperous. It occupies a fifth of the economy and contributes precious little aside from frustration and sheltered employment. At the same time, it is hard to think of a country that is more overburdened with regulations, or at least so zealous in prosecuting them. The Soviet West is no illusion.

· Point for gold. There is no time in history where the state was better at anything, except war, than the private sector. What happens to the dollar as the nanny state further displaces private ambition and success? 

Egalitarianism

America has never been egalitarian, but rampant multiculturalism has made it a primary ethic. The representative republic originally eschewed anything except meritocratic self improvement, which fueled its unparalleled success and freedom. Egalitarian political correctness is reversing those successes.

For example, I know an eleven-year old child whose teacher will not correct her spelling because"spelling is a personal choice in New Jersey." Harvard produces a surfeit of summa cum laude graduates who wouldn't know Uganda from P Diddy; you're liable to be prosecuted for pointing out that Islamic fanatics attacked America; and people think deer and chickens have Bill of Rights protection. 

· Point for gold. Egalitarianism is tyranny by another name. What happens to the dollar when America warps back to a time that required a revolution to remove the yoke of oppression? 

Unlearned lessons

Political myth making and media credulity has obscured the truth on any number of issues including recovery from the Great Depression; the consequences of abandoning gold; floating currencies; the 1970s inflation; Reagan's heroic restoration of the Republic and the 1990s bull market it spawned.

The result is the bizarre fiscal debate currently taking place in the US where legislators seriously propose raising taxes in the midst of a recession.

· Point for gold. The government is most likely to become hyper interventionist when faced with an unprecedented fiscal and monetary crisis. That approach by President Hoover gifted America to Roosevelt redistributionists for nearly three quarters of a century. Would you prefer to own gold or the dollar in the circumstances?

Moral hazard

Nowhere are you less responsible for your actions than in America. Let me substitute my original words with Hathaway's:"The liberal use of sovereign credit by the Fed and Treasury over the past decade to bail out bad banks, insolvent hedge funds, and investors in foreign government paper, materially altered the calculation of risk by investors, corporations, and financial institutions. By removing the risk from serious investment mistakes, these policies incentivized the employment of excessive leverage that in turn inflated"the bubble.""

There is every reason to believe that 30-year bond sales were halted to obscure negative signals about the state of the financial system.

· Point for gold. Bad decisions eventually catch up with you. Inflation was the price for closing the gold window in 1971. What will the price be for the past decade's investment mania?

WOBBLY WORLD

Trade

Europe, emboldened by fascism's outgrowth from Bolshevism, dragged the world to war because of trade barriers raised through the 1920s and 1930s. After decades of liberalization, North America, Japan and Europe are freezing market access in the misguided belief that it preserves jobs and national security. 

Europe targets tax disharmony as reason to be offended while it bickers over the mass and shape of bananas; America adopts outrageous steel quotas and farm subsidies; Japan bullies its partners with competitive devaluations; Canada wants to export everything (except water) and import nothing; and China games the system at every turn.

· Point for gold. Trade disputes are the root cause of too many serious wars. What happens to the dollar when trade tanks, capital movement is restricted and countries start to push and shove each other?

Debt

The Economist this week said of the debt problem:"The share-price bubble has since popped and the IT investment boom has turned to bust, yet the credit bubble remains fully inflated. Only when it deflates will the full results be felt." 

Consumers are vastly indebted, not just in America, which the rest of the world is quick to disparage, but even more so in Britain, Germany and Japan. Corporations have also been splurging and nowhere is it more apparent than in the insane spending on tech and telecom.

America's out-of-kilter current account is part of the syndrome and simply cannot be sustained without paying a price.

· Point for gold. Present economic prospects do not suggest there is sufficient cash being generated to repay the debt, while debt liquidation inevitably follows inventory liquidation. The latter has happened, the former must still occur. What happens to the dollar with mass default or current account adjustment? 

The poverty of economics

Contemporary international economics and monetarism are fashion rather than science. Both have outlived their usefulness. Mexico, Brazil, Thailand, Turkey, Argentina, and Japan are some that followed the nostrums of IMF sponsored pundits with the same result - failure; past and ongoing.

Closer to home, it is remarkable that the dire predictions of staunch monetarists have come to naught. Monetary aggregates have soared on an unprecedented scale, yet the greater danger is deflation rather than inflation.

· Point for gold. Robert Mundell is more reliable than Milton Friedman. It's one thing for Japan to push on a string, but what happens to the dollar when the US pushes on its monetary string?

Decrying the Atlantic Culture

One of the penalties of multiculturalism is to deny the superiority of American culture (in an econo-democratic sense) and its contribution to the Atlantic Alliance with Britain. Both countries have done more to improve and secure the world than any other, but revisionists insist the common culture, its values and achievements must be reviled.

That creates space for despotism. It is not so much the existence of organizations like Al Qeda, individuals like Saddam Hussein, or countries like China that are problematic, but the fact that they brazenly inflict damage knowing they'll find approval in the rest of the world, especially continental Europe. The belligerence is spreading well beyond the usual suspects - simply read London's Independent or Guardian for a taste of it. In fact, just turn to the New York Times editorial page. The enemies are within the gates.

It is no coincidence that America and Israel are lone dissenters in international discussions on the Middle East. Nor is it a coincidence that Jews and Jewish institutions suffered more assaults in Europe last year than at any time since World War II. Systematic victimization of Jews is history's most reliable predictor of serious international instability.

· Point for gold. In times of serious strife is it better to own gold or specie? America 9/11/01 is more Poland 9/1/39, than just the Kristalnacht shakeup.

Out of focus

Two decades of falling gold prices have conditioned us to think of the metal as a mere commodity, hence the extraordinary nearsightedness of"supply and demand" analysis. To worry about annual supply and demand in the gold market is akin to standing on Jupiter and making pronouncements about its gravity by examining grains of sand on Earth through a telescope. 

The equivalent of Jupiter's gravity is the 4 billion ounces of above ground gold that will be set in motion with the right monetary circumstances. Jupiter doesn't exert much influence on earth, but buckle its orbit and find out what happens. 

· Point for gold. When global economic confidence rests on the intellect of a single man, Alan Greenspan, and a coterie of technocrats with a keyhole view of the world, gold is a better option than the dollar.

A WARNING

While gold is the obvious refuge for ordinary people it has always been subject to the capriciousness of governments. Never forget that President Franklin Roosevelt confiscated private gold and made its price his private plaything over bacon and eggs every morning. It would be naïve to assume that with equivalent turmoil the government would not do exactly the same. 

The present administration has already displayed its taste for confiscation with the unseemly threat to terminate Bayer's drug patent for Cipro unless it discounted the government stockpile of the pills. Asset forfeiture laws are ironclad, making any seizure decision easy and practicable. That makes owning physical gold a lot riskier than bullion equities or bonds that, ironically, are mostly untouchable in the American experience. 

This should not be seen as a call to switch all you have into gold - not unless you can absolutely afford it. But raising portfolio exposure to 15 or 20% may not be remiss. If things go badly that will be sufficient to make a world of difference. If we escape the expected decompression then there's not too much harm done.</td></table>

<ul> ~ The Mining Web</ul>
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gesamter Thread:

Westernisation of India a worry for gold - Ecki1, 23.05.2002, 13:33
- Re: Gold at the Crossroads - Ecki1, 23.05.2002, 13:51
- Kulturelle Entwicklung ist die eine Seite... - silvereagle, 23.05.2002, 13:52
  - Re: Kulturelle Entwicklung ist die eine Seite... - Ecki1, 23.05.2002, 14:15
- Wenn Gold steigt, bleibt Gold doch populärer als"Westernisation"!!!!! (owT) - yatri, 23.05.2002, 19:19