Saturday, August 18, 2012

It's all about the Benjamins

John Paulson, known for scamming billions off the last crash, is trying to pump up the gold market. The gold market responded by going down Friday after a two day mini rally. He's heavily invested in the ETF gold market, Exchange Traded Funds are traded like paper stock, because, well they are just paper. In theory you can have your gold if you want it, but nobody does.

The rationale for this sudden interest in gold is the fear of runaway inflation based alternately on scary stories about Europe's collapsing economy, or the idea that once the economy in the US starts to recover that there will be massive consumer price increases. Neither scenario makes any sense. Any sort of collapse leads to deflation and these fears are being reflected in the bond market. The specter of consumer price inflation is predicated on massive consumer lending, they don't explain how exactly consumers who are tapped out on their equity and with stagnant incomes (if they have one) will get all this credit. Basically he's trying to tap the into fears of both success and failure, either will do as long as the price of gold goes up for a few days. That's the wonder of paper exchanges, profits created from nothing.

We certainly won't be having wage inflation since unions are non-existent, and outsourcing is driving down factory wages. The gold bugs are also certain that the Federal Reserve wants more inflation than they are letting on. The problem with the Fed is that they don't seem committed to more inflation. When you have a money supply based on credit, you either have inflation or deflation. If you ever teeter over into deflation, things can get real bad, real fast. Jefferson warned us about bankers whom he believed to be a bigger threat than standing armies. Jackson shut them down. Lincoln feared bankers more than the Confederacy at a time when he could see the enemy campfires from the White House. Ironic that bankers put these guys pictures on their money.

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