Tuesday, March 6, 2012
How's that gold lookin' now?
Last week just before the ECB conducted its LTRO 2, every pundit around was touting gold as protection against "rampant money printing."
We MMTers knew better. Central bank monetary operations are not inflationary. They're not the same as fiscal operations. They don't create NFA.
So, where's gold now?
It's down over $100 since that LTRO 2. And that's with Iran concerns and everything else.
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6 comments:
Are you serious? MMT has been wrong about gold for $1,500 and you're beating your chest over a $100 decline? Meanwhile, MMTers are obsessed with paper assets that have all underperformed gold over a 10 years basis.
Meanwhile, core inflation in the USA is above the upper end of the Fed's range and families all over the country are getting squeezed by inequality and the rising cost of food and gas. No inflation? Do you live on mars or are all MMTers rich snobs evading taxes in the Virgin Islands?
MMT made an indirect prediction on gold around the time of the Fed's first QE program, saying that QE was not inflationary, had no power to be inflationary and was, in fact deflationary, since it removed substantial amounts of interest income from the private sector.
MMT then went on to acknowledge that people would react as if QE was inflationary, which would drive portfolio flows for a period of time, but once those portfolio shifts had run their course then gold would drop back down.
That is EXACTLY what happened.
On the other hand, gold bugs have talked about hyperinflation, which hasn't happened, the collapse of the dollar, which hasn't happened, a Treasury bond bubble and spike in interest rates, which hasn't happened, the collapse of the U.S. stock market and economy, which hasn't happened and even the appreciation of gold itself, which hasn't happened. In real terms gold is still struggling to make back its losses from the last bubble it went through in 1980.
As far as snobs invading taxes; that's a cowardly insult directed at my friend, Warren Mosler, who is NOT evading taxes and is anything but a snob. If you want to stay around here, show some respect.
Are you serious? Gold is up 100% since QE1. Yeha, if you cherry pick your QE and your start date then you can run around saying "MMT got everything right!". No, MMT said QE would be deflationary. Meanwhile, since QE1 inflation has surged and gold has doubled.
You guys also said the stimulus "is not likely to succeed" so please don't play both sides of the recovery and claim that you were right because you guys got it dead wrong. And you should have known that big deficits would have led to economic recovery. But you didn't.
http://www.levyinstitute.org/pubs/hili_105a.pdf
Then there are the many commodity bubble calls by Randall Wray. But commodities have continued to rally despite non-stop calls of a "bubble".
http://www.levyinstitute.org/pubs/hili_96a.pdf
You guys got plenty of things wrong so stop running around saying you "got everything right".
I was very adamant about the stimulus working. I said it on Fox a million times. What MMT said was that it should be bigger.
No, MMT said QE would be deflationary. Meanwhile, since QE1 inflation has surged and gold has doubled.
What I remember most from that time period was the opinion, "It will boost commodities not because it's actually inflationary, but because many, many traders are stupid."
The descriptive dynamics are right, but timing is tricky - who knows what moves the hearts and minds of gold bugs everywhere? What's solid and knowable is that gold has returned to a relatively constant purchasing power over a basket of commodities over the past few centuries; that, at the moment, it's trading above that purchasing power; and that, unless there's been some amazing change in the global economy in the past ten years that is greater than anything else in the past two centuries, gold will return to its traditional purchasing power.
It's been a great ride, and plenty of traders who understand modern money have owned plenty of gold. But it's still just another trend and it's going to end.
The relative value of a currency is determined by fx and price stability. The fx rates are available for all to see, but measures of price stability are indexed, which is subjective. Economists technically define inflation as a continuous rise in the price level. This means that there cannot be inflation without wage pressure. Right now, the real wage is falling, which is extremely deflationary and the Fed certainly believes it is fighting deflation instead of inflation by maintaining ZIRP and debating QE3.
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