It brings me great joy that another record high in gold was greeted with yawns. Without popular media frenzy there is no bubble, period. It is just not time yet.
I have no doubt that gold is going to several thousand dollars an ounce. The wave of effective defaults is already in motion, first with quantitative easing in America and second with the haircuts for Greek bondholders. The bailouts will eventually end, but global financial manipulators must first learn some real-world economics. Gold continues to scream loud and clear that the approach our leaders are taking is dead wrong.
Anyway, I know I raised some eyebrows when I said that both raising taxes and promoting austerity were stupid. Well let me explain my point in as simple terms possible.
Imagine a young family that went heavily into debt, let’s say for medical reasons. Now it might be “fair” for this family to eat one meal a day, take on 3 jobs, and pull their children from school to help out at home, all so they can pay off their 25% APR credit cards, but it sure doesn’t help the situation. First of all, you are creating a lot of latent anger in the family, aka civil unrest. Second of all, you are forfeiting your children’s future by cutting education, all for the sake of paying your bills to a bank that gambles with derivatives to make profits, then gets bailed out by you when their bets fail. Are we really so rigid that we can’t figure out how to restructure debts? Is austerity really the smart thing to do here in the long run? A one year suspension of interest payments would go a long way in helping this family regain its footing. Instead of paying off interest, they would be paying off principal, which creates a positive feedback loop. Make no mistake about it, austerity will create a huge spike in unemployment and massive civil unrest.
And what about taxes? Well our genius leaders think raising taxes will solve everything, but I beg to differ; raising taxes is the stupidest thing you can do in an economic downturn. 3 out of 10 homeowners are underwater and somehow raising property taxes is supposed to help the situation? Raising property taxes guarantees that the marginal homebuyer who would have made their mortgage payments will now default, which depresses home values. As home values compress, more homeowners will go underwater and realize making mortgage payments is a losing proposition, depressing home prices even further. Sure you can raise taxes, but understand that the pie you are taxing will just get smaller and smaller.
Remember the homebuyer tax credit? Our leaders, with the media in tow, kept on reassuring us that the tax credit would resuscitate housing. Well I thought it wouldn’t, and I strongly felt the government would lose money in the long run because they were giving tax credits to people who would have bought homes anyway. People just pushed their purchases forward a little, which meant that future home sales were going to suffer. Our clueless leaders didn’t realize they were just pushing demand forward. Amazing.
We need to cut taxes. We need to stop paying the interest on our debt to foreigners until we get this situation under control. We need to selectively cut spending on things like wars that DRAIN our national wealth. Our leaders have the most generous pensions around, so they need to stop being hypocrites about cutting spending. This is not going to end well because our leaders have absolutely no common sense. This debt crisis is going to shake the world. Gold is going well beyond $2000 an ounce and we will all wonder aloud what happened to the gold permabears who were pounding their chest just months before.Follow