Ben Bernanke made a stir today with a speech indicating (if you read between the lines) more quantitative easing via increased economic stimulus. There are two violently different schools of thought about this; some see it as the road to Armageddon, others see it as the only way to save us from a Japan-style deflationary malaise. I won’t argue about that, except to say that I think Bernanke had no choice. He is so damned if you do, damned if you don’t, and there’s literally no way out. And so we will continue flooding the system with money and propping it up with IOUs, and we will eventually see some serious inflation (that could still be some months off). There really are no good choices under the current situation.
Which brings me to a very interesting post from Zero Hedge, in which the pundit reads Ben’s mind.
You can really see into his head from reading this speech. He is an academic who thinks he is smarter than everyone else which is why he is in the position he is in. He thinks the key to monetary policy is to trick people into doing things that will hurt them in the end. He believes the mal-investments he intends to push people and institutions into equals economic growth. What surprises me so much about the investment community and the American public in general is that so many fail to understand that we live in a top down centralized economic system much more similar to China in more ways than people want to admit. We look at how the government steers the economy in China and sneer. How are we so different right now?
Well, I still see plenty of differences; we don’t have the outrageous waste and unaccountability of China’s state-owned enterprises, for example. But on the other hand, we are witnessing an unprecedented top-down intervention, for better or for worse. And I don’t see that we have any choice. The only thing that would be worse would be turning off the spigot and risking a complete collapse. Either way, we’re in trouble. You can’t keep printing money and devaluing the currency without eventually seeing some serious inflation. And that seems to be the path we’re heading down. Inflation has some advantages (it makes it easier to pay our debts), and the Fed will do everything in its power to hold off a deflationary depression, though some say we’re already in one.
Bottom line: Be careful with your money, and buy gold (and silver, at least for now – it’s on a tear). Either way, hyperinflation or deflationary depression, gold does well during times of economic uncertainty and doubts about the efficacy of fiat currencies. I am no gold bug (they can be quite scary), I’m just a pragmatist. Printing money may be necessary, but it will have to have consequences that will hurt the dollar. Dollar goes down, gold goes up. Period, full stop.
For the record, I hate economics and know very little about it. but that said, I recommended to all of you back in 2006 that you load up on gold, which I did. Gold was about $680 an ounce back then. Today it’s around $1,240. It may have it’s shaky, scary days, with huge ups and downs. But the trend is upward. The current economic dilemma, the box that poor Ben Bernanke is in, makes its rise all but inevitable.
Read the entire article and its delicious comments.
Update: While you’re at it, definitely check out this article.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.