Are you a "baby boomer" (if you weren't around in the '60s, ask your parents about this)? Do you remember the chant which rose up at most of the big protest marches of the era?
"The whole world's watching".
Of course, back in those days, many of the people chanting that slogan had a fair idea of what they were protesting about. They were watching a war which no longer had any discernible purpose but which those who were waging it refused to abandon.
Well, the whole world's watching - again. But this time, they aren't marching on the streets. In fact, they aren't "protesting" at all. They are all just looking with frozen stares towards the Central Bank of the United States as it prepares to meet and decide - for the fourth time this year - on the future of U.S. interest rates.
Yes, the whole world's watching Mr Greenspan and his Fed colleagues, as the FOMC prepares to announce its decision. Will it be 0.25%? Will it be 0.50%? Will it be even more than that? And lurking behind this fixation with "numbers" comes the REAL question on everybody's mind:
"Will THIS cut fix it?
What is "it"? Well, ostensibly, "it" is the U.S. economy. Closer to the truth, "it" is the U.S. markets, specifically the U.S. STOCK markets. But the REAL truth is that "it" is the financial future of those same "baby boomers" who were on the streets in the late 1960s. Back then, most of them had comfortable homes and excellent job prospects to look forward to. Now, most of them have retirement to look forward to - and the LAST thing they want is to find themselves "back on the streets". Unless the Fed can indeed "fix things", that is where a lot of them are starting to fear that they might find themselves again - not through choice, but by necessity.
What the whole world has NOT been watching since the Vietnam protests of the late 1960s is the steady erosion of the global financial system which has been taking place from that day to this. What they don't understand is that the spectacle of the Fed cutting interest rates to the bone WITHOUT reviving the U.S. economy is the inevitable end result of this process. What they refuse to contemplate is that this time - IT WON'T WORK!
This is not such an amazing phenomenon, given the fact that another favorite chant of the late 60's was this one: "What do we want?" (fill in the blank) When do we want it? NOW!.
Who would have thought, way back then, that this piece of mindlessness would have become the economic orthodoxy of the twenty-first century? But the sad fact is that what was once (at least in some cases) a demand to right perceived wrongs has now become a way of life. And because it has become a way of life - as best exemplified by the fact that Americans save nothing and borrow for everything - the actions of U.S. financial officials have long since left the realm of economics. Nowadays, what the Fed does, or refrains from doing, is purely POLITICAL.
The U.S. Central Bank has a monstrous tiger by the tail. They cannot appeal to the economic understanding of the people of the U.S. and the world. There is little if any to appeal to. All they can do is to cater to their expectations. In the U.S. and everywere else, the expectation is that the Fed will "fix it". How? That's not our problem - that's their problem. But they'd BETTER "fix it". Or else!
Or else what? Yes indeed, here we come to the great political "black hole". For more than a generation, we have been told that the road to prosperity is to borrow and spend. We borrow "money", which the financial authorities create out of thin air, and then we spend it REAL goods and services that do not materialise on the markeplace, but which have to be PRODUCED. And as we borrow more and more, the way to retain prosperity is to lower interest rates further and further, so that we can continue to service the debt we have already contracted.
This is not economics, it is make believe. The entire world has watched one nation - Japan - pay for this exact form of economic folly for more than a decade. But still they cling to the idea that it can't happen here. Not only can it happen here - IT IS HAPPENING HERE. It is happening in the United States of America - and almost everywhere else - but nobody wants to recognize it.
That is the Fed's dilemma. And the politicians' dilemma. They cannot tell the truth without admitting that they have been lying for decades. And they cannot "fix" the problem because, in truth, it can't be fixed without cleaning up the gigantic mess that the last three decades of profligate borrowing and spending have produced.
Yes, the whole world is indeed watching. The tragic problem is that very few understand what they are seeing. Even worse, only a tiny number are making any attempt to understand it. They just want the problem "fixed".
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?
A "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP.
The problem faced by the Fed and the rest of the world's Central Bank has long since passed from the realm of economics to the realm of politics. In truth, the two are intertwined. Economics is the study of how people exchange the fruits of their thinking and their labour in order to advance their well being. Politics is the study of how people can best live together in harmony so that they can exchange with each other with the fewest impediments possible
The point where these two disciplines meet has always been money, and the money that has always advanced both economics and politics has always been Gold.
When money becomes purely political, that is, totally controlled by those who are in a position to arbitrate through law how people are to live together, then economics is in deadly danger. From the perversion of economics comes the perversion of politics. The process of policial perversion comes with the changing of the nature of law. From arbitrating what you must NOT do (no stealing, no killing, no force or fraud, no crossing against the red light), law is twisted to arbitrate what you MUST do (pay taxes, use legal tender, DO WHAT WE TELL YOU).
The result is that today, sadly, most people don't think for themseves. They expect to be told what to do, and they do what they're told. But in return, these same people expect that the ones doing the telling, the politicians, the judges, the Central Bankers et al, are looking out for their (and we use the term advisedly) "welfare".
The problem is that it is beginning to dawn on more and more people in the U.S. and everywhere else that their welfare is NOT being looked after. As the economic downturn steepens, it becomes more and more difficult to either evade or ignore. And that is the POLITICAL dilemma - the insoluble political dilemma -which faces the Fed next week. The consequences of its past actions are coming home to roost, in a manner which cannot be disguised much longer.
When is "Gold" going to have its day? Simple. When the facade finally cracks. It could happen at any time. It may well happen in the aftermath of the next rate cut on June 27. The "powers that be" of the 1960s were fighting a war which COULD be discerned. The powers that be today are still fighting a war, but few can discern it. The purpose of both wars was the same, the perpetuation of their power. Gold is the POLITICAL metal - because Gold used as money is the best preservation of what politics should be all about.
