Commentaries

Now raising intellectual capital

from Rolfe Winkler:

Gold hits $1,100

Methinks gold is rising because investors are anticipating a big second stimulus to counter the rising unemployment rate.

I'm a fan of gold as insurance, especially for high net worth individuals who want some of their wealth "out of the system." It protects against violent deflationary or inflationary episodes, both of which can wipe out the value of paper wealth very quickly. That said, the premiums to buy that insurance are getting pretty expensive...

Personally, I don't see how we escape this crisis without a dramatic decline in paper wealth. Credit can't expand forever, much as the Fed and Treasury would like for that to happen. Eventually the cycle goes into reverse because the government no longer has the balance sheet capacity to absorb more of the private sector's liabilities. When that happens, asset values crater. The economy is so over-levered in my estimation, its equity value is probably negative. There's a reason the Dow declined 90% a few years into the Depression. (Stocks have some option value, so they aren't going to zero.)

The government is aware of how violent deflation can be...ergo, the stupendous show of monetary and fiscal support over the past year. But seems to me all we're doing is re-inflating the bubble, using the public balance sheet for financing instead of private balance sheets.

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