Is gold a better economic barometer than the actions of the world’s central banks?
*Forbes magazine, by Steve Forbes, May 5, 2008:
“The consequences of central banks' trying to guide their economies
are routinely disruptive, if not destructive. Inflation is almost
always the result. From the 1950s through the 1970s, for example,
Britain was burdened with onerous taxes--the top personal tax rate hit
98%. It never occurred to the authorities in London to lower the rates,
until Margaret Thatcher came along. Instead, both Conservative and
Labour governments relied on boosting government spending and on
printing more pounds to get the economy moving. Inflation would then
erupt, the Bank of England would have to tighten up, and the economy
would go into a slump. This process was dubbed "stop-go," and left
Britain the sick man of Europe.
Greenspan's woes came about precisely because he lost sight of the
Fed's prime job: ensuring a stable dollar. In the late 1990s Greenspan
inadvertently tightened up. The most sensitive barometer of market
mistakes is gold. During that time the yellow metal plunged to a low of
$250 an ounce. Other commodities crashed, with oil dropping to nearly
$10 a barrel. For a time the dollar became too dear, which contributed
to the 2000--01 recession. When it became clear--just before George W.
Bush was sworn in as President on Jan. 20, 2001--that the economy was
skidding, Greenspan realized his mistake and started to reverse gears.
But he stayed too easy, even when the economy was back on track. In
2004 gold began to surge well above its 12-year average, and oil began
its long, rapid ascent, as did all other commodities. The dollar
weakened not only against gold but also against other currencies, such
as the yen, the Swiss franc and the pound. With money easy, the already
buoyant U.S. housing market began to go berserk as lending standards
started to decline precipitously.
Focused on trying to steer the economy, Greenspan ignored the flashing
red lights, as did his successor, Ben Bernanke. In 2006 gold soared
above $600 an ounce. After the credit crisis hit last August, the price
kept moving up, breaching the $1,000 barrier in mid-March, before
settling down to its current $900 range.
The Fed has clearly been too loose, but so have other central banks.
Hence, we have the beginnings of a global inflation, just as we did in
the early 1970s.”
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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