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Gold, Silver, Soar to New Highs
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(April 8, 2011) Gold ended this week around $1475.00, silver climbed over $40 for the first time in 31 years, and oil traded over $110/barrel, all in the face of Mideast turmoil, including NATO’s incursion into Libya and subsequent Western military involvement in that country’s struggles.
It’s hard to even catch one’s breath in such a tumultuous time in world history. An earthquake and tsunami in Japan killed yet-uncounted tens of thousands of people, left more than that homeless, and wiped out four nuclear reactors, leaking radiation over large areas of land and sea.

In the Mideast, Egypt, Tunisia, Yemen, Bahrain, and now Libya have gone ‘up for grabs’ as decades of autocratic leadership faces challenges from citizens there who are dissatisfied, in touch with one another, and publicly showing their displeasure.

Considering all that’s been going on in the world lately, it would be a major surprise if gold weren’t reaching new highs.

This week, Congress duked it out ahead of a prospective shutdown of the Federal government, with both sides having at it, and finally agreeing to a temporary stop-gap solution. The next battle will come when it again becomes necessary to raise the federal debt ceiling. Expect that to be a very loud battle, with a high noise-to-signal ratio. Same as it ever was.

Back in the USA, our economy is said to be coming out of recession, the latest employment news is less bad than it has been over the past couple of years, the stock market has recovered an astounding amount of value since March of 2009 - yet any prospects for bringing the federal deficit under control seem slim. Quantitative easing (i.e., printing more money) has been the most widely used strategy by the Fed to try and kick-start the economy and boost the stock market, with decidedly more success in the latter rather than the former.

As for the dollar itself and its value going forward, the simplest way to put it is that the dollar has no friends in Washington. This does not bode well for those who hold dollars, and by that, we mean anyone in the US who has any money. The Federal Reserve Board has made clear that inflation is the preferred and desired route. Deflation and economic stagnation are the bogeymen that the Fed and Treasury are most afraid of, and seemingly all decisions they make reflect that narrow view of the world.

Arguments in Washington over the deficit have certainly been enlivened by the presence of newly-elected Congress-people with fiscally conservative leanings, but no amount of killing off minor social programs is going to do much good. The vast majority of our federal budget is defense, Social Security, and medical care and pharmaceuticals provided to the old and indigent at the taxpayer’s expense. Real reform will come with a hard look at the cost of all this, particularly the vast expenses of our enormous military and the open-ended promises embodied in Medicaid and Medicare.

Although no market travels in only one direction without any interruptions, it is likely that the dollar will continue its long-term secular downtrend, unless or until we as a country actually decide to takes steps such as questioning the wisdom of having taxpayers pay the costs of quadruple bypass operations for 95-year olds that they aren’t even related to, or ask why we are maintaining troops in Japan and Germany some 65 years after World War II ended.

Americans are eternal optimists. Which is good, because optimism is energizing of the soul, makes one sure of one’s actions and place in the world, and is the force that allows us to get stuff done. But optimism without reason is unrealistic Pollyannaism that prevents us from seeing the truth, and acting on it.

We simply must get over the idea that our present troubles are just a temporary glitch that our economy will grow out of (because it always has before), and that ‘deficits don’t matter’ because the dollar is forever endowed with the power of universal acceptance no matter how many of these dollars we create out of thin air. The future of the dollar, and therefore the future of our economy, depends on our viewing the world realistically, without the aid of magical thinking.

- Webster defines a ‘pollyanna’ as a person who is constantly or excessively optimistic, the name coming from the lead character in Pollyanna, a novel published by Eleanor Porter in 1913.

 

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