In olden times, when people were much less worldly and sophisticated than we are, things used to be very different. Back then, people didn't talk about new economies (or old ones). They didn't talk about the "economy" at all. They were too busy working to keep themselves alive. Back then, if people actually did hit "hard times" (and hard times were very HARD TIMES indeed for most of them), they looked to their "masters" to save them from literal death from starvation. But unless they were in actual "extremis", most people in "olden times" did not expect that their "masters" would notice their existence, and acted accordingly. The old saying - "Put not your faith in princes" - sums up their attitude.
Nowadays, most people have become much more sophisticated and attuned to the way the world REALLY works. They certainly must have a lot more time on their hands, because they never stop talking about "economies" - old ones, new ones, good ones, bad ones, big ones, small ones, growing ones, shrinking ones, etc. etc..
And, of course, nowadays, people don't have "masters". Instead, we all have lots and lots of "servants" - public servants, that is. The trouble is that these "servants" spend most of their time telling everyone else what to do. In olden days, a "servant" spoke only when spoken to and did what he or she was told - or else!
Now, through some miracle of modern sophistication, that state of affairs has been completely reversed. Nowadays, a "servant" serves the public. Conveniently for the modern public servant, there is no such thing as a "public" - there are only members of the public, individual men, women, and children. And in order to "serve the public", a "public servant" has to make sure that each member of the public does exactly what he/she is told.
More remarkable still, the vast majority of the members of the public have totally accepted this arrangement. Not only have they accepted it, they hang on every word that their exalted "public servants" choose to utter. And most remarkable of all, they swallow almost everything they are told without salt.
Most people sneer at "public servants" - politicians, bureaucrats, central bankers, and the like. But they accept every Dollar (Pound, Euro, Shekel, Franc, Peso, Dirham, Rouble, etc. etc.) that they have been told they are "entitled to", even though most of them know that the money they are being offered comes out of their own pockets or those of their neighbours.
And while they SAY that they don't believe a word that a public servant says, they ACT as if these utterances were carved into rock and passed down to them from Mount Ararat. The amount of credulity exhibited by the modern public towards their "servants" would make the poor unfortunates of the days of old goggle with uncomprehending amazement.
An economy is said to be in "negative growth". Consumption is said to be the way to prosperity. The way to riches is said to be by borrowing - with saving not only held to be unnecessary but actively discouraged as being "counter-productive". A company is said to be doing well, even if it reports a profit which has fallen by 96% in a year, because the profit it does report beats the "estimates". There are hundreds of like examples, but we are sure you get the picture.
In olden times, and the older the more relevant, it was very difficult to fail to recognize the onset of "hard times". On could see it by counting the ribs and looking at the hollow cheeks of those who passed one on the road. The "masters" back then didn't waste their time trying to claim that the "hard times" didn't exist. They simply started a war, or if that wasn't possible, they told the "public" to grin and bear it.
It has taken the sophistication of our own modern times to reach a position where the "public servant" can claim that black is white and be not only believed, but eagerly elevated to a position of even greater "public" influence.
To a greater extent than at any time since the darkest of the "Dark Ages", the "public" has chosen to act on what they are told they see, rather than what they see out of their own eyeballs. Of all the possible outcomes of the present economic "downturn", that is the most tragic one, and the most potentially explosive when the "shear" between perception and reality becomes too big to remain hidden any longer.
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 latest "look at what we want you to see" statistic was the July U.S. Producer Price Index (PPI) duly released on August 10. The number of the PPI was -0.9%. The "core PPI" was +0.2%. Why the huge difference? Because the "core PPI" excludes food and energy prices. In the U.S., the price of gasoline fell 17.7% in July. "Energy" prices fell by 12% - the largest monthly fall in 12 years.
This PPI number was said to have had "no effect" on U.S. markets. But what actually happened is that the Dow recovered by 116 points, the U.S. Dollar stopped an increasingly precipitous fall, and the $US Gold price came most of the way back to where it started on the day after having been considerably higher in early trading.
No one believes a word that the "public servants" say, do they? No, they just ACT on what they say. Unfortunately, in reality, it is a distinction without a difference.
We don't know whether this facade will crack with the release of the "productivity numbers" on August 7, or whether it will be the release of some other statistic that does it, or whether the capacity of illusion will simply prove unequal to the situation. We do know that the present situation is NOT sustainable.
(Gold Last Week - August 3, 2001)
Last week, we talked about the specific facades generated by the production of economic statistics which were either totally irrelevant or adjusted out of all correspondence with reality. This week, we are talking about the wider phenomenon of "public credulity" as such.
As the chart above shows, Gold has improved markedly this week. As the statistics above show, interest in Gold is still at lows not seen in more than a decade. Gold remains the "safest" investment of all right now, precisely BECAUSE there is more "disinformation" being produced about it. The difference is that disinformation about Gold is designed to keep the price DOWN. Disinformation about every other type or class of investment is designed to keep the price UP.
We all have a choice. We can "believe in Princes" (nowadays known as "public servants") or we can stop believing and start THINKING. An adage we use here at The Privateer is this: "If it makes no sense - IT'S NONSENSE!" The nonsense is deafening right now, to the point where it is close to defeating its purpose. And as it always does when this state of affairs is reached, the $US Gold price is perking up again. Stay tuned.
