On gold and asset bubbles and inflation
The great David Goldman. First on the US asset bubble:
BOTH bond and stock prices are driven by the dollar. 17.5% unemployment by the broad measure keeps wages down and keeps the CPI low, despite the surge in commodity prices, while the cheap dollar makes US assets a bargain. Well, not exactly: the enormous reserve growth on the part of Asian central banks means that the Treasuryâ€™s debt-buying program has been outsourced to Americaâ€™s Asian trading partners! No-one dares pop the bubble. Itâ€™s like what Woody Allen said about death. He wasnâ€™t afraid of it; he just didnâ€™t want to be there when it happened.
Now on gold:
Whatâ€™s the price of the last ticket on last train out of Paris on the night the Germans march in? Whoever is carrying the most cash will get it, and that will be the price.Â … As I have tried to show in several recent articles, most recentlyÂ this Sept. 15 essay at Asia Times, gold is a hedge against the collapse of Americaâ€™s central role in world affairs.
What is the correct price? Central banks alone own about 4.8 million tons of gold. The world produces about 2,200 tons. Suppose that central banks wished to increase their gold holdings by 1 percent. Thatâ€™s 48,000 tons or so, or more than 20 times annual mining production. Whatâ€™s the price elasicity on that sort of thing?Â How badly do you need that ticket out of Paris? … If the whole world, including the Asian central banks, man the bucket brigadeâ€“except with kerosene in the buckets rather waterâ€“the prices of real assets are going to rise. The best real assets to hold are the ones most sensitive to the degradation of the dollar.