Only when countries left gold (Britain in 1931, the United States in 1933 and France in 1936) did the Depression begin to abate. Highly simplified, this is the scholarly explanation of the Depression.
(Robert Samuelson - Newsweek - Feb. 12 issue)
It certainly is the "scholarly explanation", distributed above all others by Mr Samuelson's namesake (no relation) Paul Samuelson. Paul Samuelson wrote the definitive first-year economics textbook - "Economics" - that all university students learned their "economics" from in the 1960s, '70s, and '80s.
You can read Robert Samuelson's complete Newsweek article by clicking on the link above. The content of the article is not the important point, it says almost exactly what one would expect it to say. What is important is that such articles are appearing in Newsweek. The economics profession, and Wall Street, have spent most of the past ten years telling us that Gold is definitely "dead". Now, having apparently all but proved it, why "protest so much"?
We have seen hundreds of explanations, dissertations, scholarly pronouncements, op ed pieces, and Wall Street research items lately. The theme that runs through most of them is that the looming U.S. recession, if it happens at all, will be shallow and short-lived. Why, because the Fed is bound to get "growth" going again, all it has to do is to lower rates the requisite level. How can they be so sure that the lower rates will "work"? Simple, there's no "inflation". How do they know that there's no "inflation"? Simple (amongst other things): LOOK AT THE GOLD PRICE!
When one reads "scholarly explanations" of the 1930s (with the honorable exception of Austrian Economics scholars), one is struck with a delicious faux pas. The "gold standard" was the culprit because it prevented countries trying to re-start growth from producing enough liquidity with which to do so. After all, their currencies were tied to Gold. The economy couldn't "expand". Gold wouldn't let it. The implication is clear enough. Divorce currency from Gold.
Please note that what is deemed necessary to get an economy expanding is an increase in the amount of currency. The other great sin of the Gold Standard is that under it, such an increase in the amount of currency is generally known as and defined as - INFLATION. Of course, the scholars of the 1930s, and all of them since, have diligently replaced that definition with the "modern" definition of inflation - a rise in prices. They have also invented a way to "measure" modern "inflation". They call it the CPI and/or the PPI.
It doesn't matter how much we "expand" the currency to "expand" the economy if the CPI/PPI doesn't go up. No amount of currency expansion is "inflationary" if these prices don't rise. And because these prices have not been rising, the Fed can lower away with perfect safety in order to get the economy expanding again. The CPI isn't going up. The PPI isn't going up. And Gold certainly isn't going up. A right scholarly job, wouldn't you say.
The interesting thing about all this is that the mass-circulation U.S. news weekly are now publishing stories which deal with the thing that many Americans are starting to fear, a relapse into something resembling the 1930s. Their method of dealing with it is to assert that the only reason that the 1930s happened is that the U.S. currency was tied to Gold back then. And their means or reassuring their readers is that the Dollar is not tied to Gold now, so another episode like the 1930s can't happen. For years, the financial establishment has been asserting that Gold is a monetary relic which has no place in the modern financial system. Now, they are going further. They are telling us that the way to make sure that there is no replay of the 1930s is to keep Gold and the world's currencies (especially the Dollar) severely apart. We repeat, if Gold is really "dead", why keep digging up the corpse?
Definition: The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
Here are the Gold in "foreign" currency charts:
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
In financial markets, a "bubble" expands until it explodes - Japan in 1990, the Nasdaq in 2000. An "elbbub" contracts until it cannot contract any further. What we are waiting for with Gold is evidence that such a state of affairs has arrived.
Last week, Gold went up against the Dollar and stayed flat against most other currencies. This week, Gold went down against the Dollar and stayed flat against most other currencies. The only difference was that this week, Gold fell more against the Dollar than it rose last week.
Why? Well, here's what we had to say about it last week:
"The incentive to hold down the Gold price has seldom been higher. The "justification" for the Fed's rate cuts, besides the crash stop in U.S. economic "growth", has been the absence of any measured "inflation". The item most used to demonstrate this absence of "inflation" is the $US Gold price.
In a modern economy, what is wanted is "expansion". The way to get that expansion is to make sure there are no impediments to the central bank bringing it about with its tools of interest rate manipulation and liquidity manoeuvres. The greatest impediment to any central bank is Gold (read Mr Samuelson - link above). Thankfully, Gold has been discredited - look at the price.
The only other thing that might derail the central bank from their quest to preserve, protect, and defend economic expansion is "inflation". There isn't any. Look at the CPI/PPI. And look at the Gold price.
The CPI and PPI have long been discredited in the eyes of most financial analysts. Even the Fed doesn't pay much attention to them any more. But these statistics are still trotted out every month to "prove" that there ain't no inflation. Gold is discredited too, but its price is still trotted out to prove that there ain't no inflation. The difference with Gold is that it's price serves as a DAILY proof, it isn't just trotted out once a month.
Most everyone thinks that the government manipulates the CPI/PPI statistics. But the Gold price? Absolutely NOT! After all, why should they bother. Everyone knows that Gold has no place in the modern financial system. And a good thing too, right Mr Samuelson?
