I come at these types of subjects mostly from the point of view of an economic theory history hobbyist, we all bring our own perspective , my thing is systemic understanding of the various theories that have unfolded since Adam Smith, this embraces the theories I both agree and disagree. For instance I have (I think) all over Bernankes academic papers (and most of his peers ), this perspective doesnt make me right its simply been an obsessive interest for the last 30 years (folks need hobbies:)).
So when I read Bernankes papers from the 80s and 90s and he talks about printing money to battle deflation , I go in my mind hmmm well Keynes said that monetary measures would be ineffective in these circumstances, similar Schumpeter, Minksy, Fisher and a bunch of others recommended against it for reasons xxyz etc.
Bernanke's work is stirking in its narrowness, there are som many example of this to list, for instance to list one example, he suggests in papers in 1996 and 1998/99 that the central bank should sell dollars to lower the exchange rate when facing deflationary pressures, no where in any of these papers does he deal with what other central banks might do when he does this, his theories are hypothisis in a vacumn, if for instance he sells dollars and lowers the rate , what happens if competing central banks do the same, what happens is the Fed is neutralised when the other banks do the same, yet none of his papers deal these types of risks.
In another paper he says lower interest rates, print money and transmit money via the credit channels, waht he doesnt address is when debt gets to a point where he prints money and the credit channels are no longer functioning, in 2002 he did under Greenspan, he lowered rates and sent money into the system by the monetary transmission of real estate credit, folks mistook asset inflation as wealth and consumed that wealth through home equity withdrawals via credit.
And we all now know the conswuences of that policy!!!!
What concerns me even more are Bernankes ideas of psychological manipulation of markets, these ideas are threaded right through his work, he refers to it time and time again as cheap talk, example of this are inflation targetting, cpi manipulation, central bank statements....asset inflation is a great example, where a central bank purposely lowers credit cost and prints money and purposely tricks the population into thinking they are wealthlier so they borrow to consume he lurches into an ara in my view that intentionally subverts democracy and the role of the central banking, he creates what schumpeter refered to as malinvestment, he warps the central bank into the role of central bank into a centrally planned economic bureaucracy. Just like the Soviets failed in centrally managing production he creates a form of centrally managed consumption, just like the soviets failed he will fail.
When he suggests he can create growth by stimulating asset inflation and debt expansion, he ignores the warnings of any number of the greats that went before him who suggest if you do this you will create malinvestment, entrepreneurs given a choice between building a factory and employing workers will divert their effort toward asset speculation utilizing debt, Minksies warns that if you do this it will all at some point come tumbling down (the minksy moment)
Nearly all the greats (for many reasons) suggested that money printing monetary measure would fail, the Japanese have proved their point over the last two decades.
So I dont buy it, it might hold off the wolves for a little while but eventually the debt acts like cancer and kills the patient.
It particularly fails if you have reserve currency status.
At present all the central banks are determined to take these measure, eventually it ends in one almighty collapse, the conditions for this type of collapse is near, timing is always difficult, the physics of the collapse though is in place.
The central banks are a ship of fools. I do not believe they have a hope of success, only time will tell if I am right. Gold in these circumstances is a brilliant hedge, but those looking for spectacular windfalls are IMO wrong, gold will preserve your wealth, equities of any variety will almost surely destroy it without careful timing, gold and gold equities IMO are not in the same investment class.
Gold in recessions has a checked history
Those of us who are drunk with certainty should try to remain sober. I am certainly not certain about anything, anyone that is doing so for psychological reasons not investment theory. We must all remain vigilant, Bernanke is like a pyromaniac in a paper factory, no one is certain how this gross irresponsibility may unfold. Any change of wind may bring us another scenario that needs to be considered and factored . This is like driving in the rain, folks who propose they know the road ahead without having seen it and propose the turns we should make based on those beliefs should think again
My buy target for gold is around 750-850, in a second meltdown we could face and ASX drop of say 50%, with a strengthening USD this could be hard to navigate with a buy and hold equity strategy.
By all means though keep you gold and remember all gold bulls have significant volatility, this market is way to stable for my liking.
