Gold drops as Chinese debate rate hike

Meanwhile, ill-informed ‘gurus’ continue to extol the virtues of a return to some kind of full or hybrid type of gold standard, in the wake of recent statement (mostly misinterpreted) by World Bank President Zoellick. Fanning the flames of investors’ hopes with representations that the world is about to make amends with that which it abandoned in the late 60’s, is one thing. Asserting that this WILL happen and that it CAN work, is, unfortunately, quite disingenuous.

Such starry-eyed dreamers will attack anything that does not conform to the strict “Austrian” paradigm and will dismiss anyone who tries to open the eyes of investors to the reality that gold cannot/will not make a comeback in the global currency system, and for good reasons. May we suggest a basic primer on global economics and currency regimes might be in order?

“Mercury poisoning,” is the answer from Barry Ritholtz, the very outspoken CEO and director of equity research at Fusion IQ, when asked where Zoellick’s idea might have come from. Writing about the issue, Marketwatch’s Nick Godt found that Mr. Zoellick’s “suggestion might have served as the perfect idea to, if nothing else, short-circuit the saber-rattling from all sides with a nonsensical idea. The Fed’s easing measures were taken in order to stave off a grave threat of deflation in the U.S., in an economy which is still licking its wounds from the Great Recession.

“The last thing that the world economy needs right now is another source of deflation in a financial crisis,” said Brad DeLong, chair of the political economy department at Berkeley and a former Treasury official in the Clinton administration. “Attaching the world economy’s price level to an anchor that central banks cannot augment at need is another source of deflation — we learned that in the 15 years after World War I,” DeLong wrote on his blog.

As for what America needs right now, it is apparently a dose of imported austerity (something which has been fashionable from Athens to Paris, of late). At least, that’s the upshot of last week’s turbulent elections, in the opinion of some. Proposals for nearly $4 trillion in spending cuts made by a Presidential commission have now surfaced. Chances of these ideas being implemented (circa 2012) in their current guise? Slim, to none. However, it is a start.

The plan calls for slashing expenditures in hitherto sacrosanct entitlement programs such as Medicare, Social Security, farm subsidies, and such (never mind that more than 50% of the ‘problem’ has its origins in defense spending by the US).Curiously, the applause is missing from the scene. Isn’t this what was wanted by angry voters? Isn’t this what responsible fiscal and monetary policy entails – at least in part?

Have a responsible weekend.

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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