There's a column in today's (rag sheet) NY Post written a Seth Lipsky who attempts to distort the truth about the stock market's performance since 1971. That's when Nixon closed the gold window and the dollar lost all convertibility to gold. Actually, FDR took us off the gold standard domestically in 1933, making it illegal for Americans to own gold, while fixing the price of the metal at $35 per ounce, which is where it stayed for the next 38 years. Nixon's move merely removed the ability of foreigners to convert dollars to gold.
Anyway, this article uses all the usual, uniformed, gold bug trickery and distortion even as the author implores us that's it's not at all a trick.
He starts off by saying that if you divided the Dow by the price of gold (typical, stupid, unsophisticated gold-bug attempt at analysis), it is actually down when looking over the past four years. (Notice the small time sample.) Who cares if the nomimal "price" of the Dow more than doubled in that time? This guy says it's all a mirage and gold is making that clear.
While it's true that the Dow/gold ratio went from 9.3 in January 2009 to 8.47 now, if you start the comparison just ONE MONTH LATER, i.e. at the time of the fiscal stimulus, then the ratio went from 7 to 8.47. Clearly, a much different result. This is one of the problems with trying to argue with a very narrow and highly selective set of statistics.
Expanding the analysis, if you go back to 1971, when Nixon ended gold convertibility, the Dow/gold ratio did fall sharply for several years, until 1974. What was that about? It was about gold coming out of a situation where it had been fixed in price for 38 years. Naturally it shot up. In addition, nobody really owned any gold, so there was no one selling to mitigate the rise. However, by the time folks started buying gold around 1974 (still in relatively small quantities), the Dow/gold ratio was moving higher and the Dow's been in a bull market against gold ever since.
The other thing not mentioned in the Post article is that the Dow's nominal price level does not reflect its total return, which means taking into account the reinvestment of dividends. This is huge. Once you factor in reinvested dividends the stock market trounces gold. It's just another fact conveniently omitted by the gold bugs.
Lipsky continues by moving to gas prices, which he says went up not because of speculation or tight supply, but because the dollar was losing value. And here he tries to plainly pin this on Obama, even though he uses a quote from a speech Obama made back in 2008, before he was president. The dollar may have been losing value against gold at the time, but it was holding its own against a broad basket of currencies. The dollar Index, the very index that is so widely followed and cited by the gold bugs, has gone from 71 to 80 in the period from 2008 to today. The dollar has gone up, not down. They just say it's gone down and expect you to take them at their word.
That's the gist of it. Another misleading piece of crap commentary by an ideological goofball who makes his case easy enough for a second grader to debunk. It's laughable. This is not informed analysis, it's cheap dogma.
Good information, people like myself are starved for other points of view on gold which actually interact with goldbug arguments. Thanks for posting this!
ReplyDeleteWith the Austrians, gold is the measure of all things. Somehow the mining rate of gold and the optimum money creation rate (to maximize the real economic growth rate) is at all times and places equal to each other.
ReplyDeleteBut what is much more likely is that, under a gold standard, the real rate of economic growth is LIMITED to the mining rate of gold.
But what is much more likely is that, under a gold standard, the real rate of economic growth is LIMITED to the mining rate of gold.
ReplyDeleteMining rate of gold is relative to gold price and mining cost.
More money can always be created to mine more gold but would that not simply increase the drain of real resources toward a pointless activity, mining gold to rebury it in bank vaults?
ReplyDeleteMore money can always be created to mine more gold but would that not simply increase the drain of real resources toward a pointless activity, mining gold to rebury it in bank vaults?
ReplyDeleteThe market is ruled by marginal price and as long as people compete wrt marginal price and marginal product it will expand.
People are always trying to figure out how to profit. That pertains to ordinary markets and gold is its own thing. People are willing to do just about anything to get gold, even kill for it. The likelihood of the gold supply remaining fixed is low.
The likelihood of the gold supply remaining fixed is low. Tom Hickey
ReplyDeleteWho said fixed? A slowly growing money supply relative to real growth potential is also bad.
I bring it up because the point of using gold as a numeraire is supposedly to ensure price stability and the assumes fixed supply.
ReplyDeleteOtherwise if the supply is expanding, it acts like paper and loses its advantage as a stable numeraire.
Also it greatly advantages gold producers and gold producing nations.
ReplyDeleteThe idea that gold is money is just a conceptual confusion, that of reifying what is essentially an abstraction, an idea. Basically, it functions like a superstition.
ReplyDeleteUnfortunately, superstition characterizes the thinking of the mass of humanity.
ReplyDeleteNote that the "gold is all things to Austrians" meme is a complete reversal of the usual arguments I get from MMTers. I always say that in a voluntary competitive economy that commodity money will simply increase in value over time to the great benefit of everyone, especially the poor and unsophisticated. The usual MMT response is that this is horrible because everyone will just "hoard" their money (as if that's anyone else's concern) and not invest in anything. I say that's nonsense because people are going to want and will seek out higher rates of return from investments.
ReplyDeleteI say that's nonsense because people are going to want and will seek out higher rates of return from investments. Bob Roddis
ReplyDeleteDon't you Austrians say that taking care of the poor will only encourage them to be lazy? Then won't giving them real, risk-free returns on what little money they'll get in your world encourage them to avoid risk and take the sure thing?
I always say that in a voluntary competitive economy Bob Roddis
ReplyDeleteThat requires that government money (for the payment of taxes, etc.)ONLY be inexpensive fiat to avoid favoring private interests such as the Gold Standard favored gold owners in the past. Do you agree?
As for private money (for the payment of non-government debts ONLY), ALL potential private money forms must be treated equally by government. That means that if, for example, taxes are removed from gold then they must be removed from common stock too. Do you agree?
that commodity money will simply increase in value over time Bob Roddis
Not necessarily. Without government propping up its value (or the expectation thereof), the price of gold, for example, might easily drop.
That requires that government money (for the payment of taxes, etc.)ONLY be inexpensive fiat to avoid favoring private interests such as the Gold Standard favored gold owners in the past. Do you agree?
ReplyDeleteNo.
As for private money (for the payment of non-government debts ONLY), ALL potential private money forms must be treated equally by government. That means that if, for example, taxes are removed from gold then they must be removed from common stock too. Do you agree?
I think so. I'm a firm believer in meticulous "equal protection".
"Equal protection" requires that all government money be inexpensive fiat. Or is the equivalent of $700 hammers OK?
ReplyDelete"I always say that in a voluntary competitive economy that commodity money will simply increase in value over time to the great benefit of everyone"
ReplyDeleteThis is another way of saying people will be forced to accept constant wage cuts.
"what matters for business is not the general behavior of prices, but the price differentials between selling prices and costs (the “natural rate of interest”). If wage rates, for example, fall more rapidly than product prices,
ReplyDeletethis stimulates business activity and employment. (Rothbard 2000, p. 17)
http://mises.org/journals/qjae/pdf/qjae6_4_3.pdf