why the rules do matter, page-9

Happycats,

Investing in gold or gold related stocks or derivatives is not different from investing in any other type of asset and the opportunity to do so is open to everybody, irrespectively if he or she is a believer or non-believer.

What imo is wrong, and in that regard I am not alone, is to do so on the basis of a variety of misguided notions that have taken up residence in the brains of some people, notions that have started to influence the political discourse in the USA.

And in order to confirm this, here is an illustration of the application of rule 5 by no other person than Ron Paul. Note in the graph the relationship between the growth in the money base shown in blue and the growth of inflation shown in red.

From Krugman:

Paleomonetarism

I used that term — it’s probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who’s now going to have oversight over the Fed. If you read his stuff, it’s very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.

What he means, I guess, is monetary base. Here’s the actual relationship between monetary base and inflation:

It’s also worth nothing that in normal times (not now), monetary base consists overwhelmingly of currency (bank reserves are normally very small), and the majority of US currency isn’t even being held in the United States.

It’s kind of terrifying, in a way, to realize that the politically dominant faction in America right now has a view of money, what it is, and how it works that hasn’t been true since the early 19th century, if it ever was.