Wednesday, May 09, 2012

The Gold Bug Manifesto By Paul Krugman: End This Depression Now


  We highly recommend to all investors to read this book. This is what is coming. Paul Krugman describes the insolvent financial system with the honesty affordable only to Wall Street outsider. The FIAT system can survive only by expanding the monetary base further and keep the credit running. Claims will never be met, but surprisingly enough - it is not necessary - we all can just pretend that debt will be repaid one day and service the interest enough to keep Confidence in the status quo.

  Do not run to your bank yet, Debt still matters for mere mortals, but not for the Sovereigns - like US, UK or Japan - who can print their own currency in which they have borrowed before. 

  Inflation is welcomed - by the way Paul struggles to find it in the system now - if the debt expansion rate will not exceed the growth and inflation rate. We all will be fine: the level of debt to GDP will become lower with time. We can help here with the illustration of what is happening to the FIAT currency like US Dollar in this case.

  Talking about Inflation Paul excludes Food and Energy, as usual. The real inflation now is running at least at 6% already and if Gold will not affect everybody on the Main Street, Oil and high Gas prices certainly will.

  Gold Bugs can not write anything better for the Gold case as a Store of Value, than Paul Krugman did in his work, now the best investment will be to put him in charge of the FED - apparently, General Bernanke is too soft. Maybe we should all post this book to White House and Congress as well, who knows maybe he can even run for the Office?

  This is what is happening, this is what will be happening more - Fiscal Stimulus multiplied by FED printing money (to Paul's credit he insist to call the things by proper names - QE is too academically misleading for the public).
   All will be fine in this picture of the world - Inflation and rising employment is certainly better and more electable ideas than Deflation and Depression - until the Oil Shock will put economy into free fall again. The Ugly Truth is that the FED is not in charge anymore - Oil price is dictating the economic cycle now.

   We can agree on one, but most important thing - in the optimistic scenario money will be printed in any way, it will be much better if they would not be wasted just to keep "Dead Banks Walking", but invested in Infrastructure including Electrification of Transportation. 
  We will talk about the Gold Standard in our next article - it will be the logical End Game of these financial policies.
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