Just watch him spurt banalities about how financial markets are affecting everyone. He does not give me the impression that the understands what is going on. (The interview is towards the end, around 17 minutes mark, about 5 minutes long.)
I think I finally understand what all this noise from US markets is about. Everybody says it was a “subprime crisis”, well, that was actually merely a symptom. The real problem went mostly unmentioned.
The main problem was (and it still is) that property values in the US are overinflated. Towards early 2000s the prices started to reduce to where it should have been (compared to average household income etc.) so the establishment freaked out. The figured that there will be major upheaval if they allow markets to adjust itself (which means “let prices fall” in this case.)
(I am guessing here, but likely thrust came from the government because they knew if prices fall, there will be economic turmoil, and as a result people will be angry and their government will get into trouble. )
Anyway, the establishment decided to pump up property values by stimulating demand. They decided to do that by encouraging mortgage lending. It worked for a while alright, but then it came to the brink of collapsing.
As people (so called subprime) defaulted, the banks were left holding property. (It is, again transfer of real wealth because the banks got these properties for free- the money the lent out to the mortgage holders were created out of thin air. It’s not an anomaly- that’s how US economy works.) However, the banks don’t know what do with this wealth. First of all, they don’t trade in houses, but if they start selling these- prices will plummet.
What happened at this stage is unclear, but Robert Scheer of truthdig.org claims that the banks threatened to bring down the economy unless they were bailed out. Maybe they were threatening to sell these properties thus bringing property prices down thus bringing US economy down. Who knows what happened. Anyhow, the government saw potential for trouble there, and decided to bail the banks out- so that the banks can hold on to these properties until they can sell them for current market values. It’s ended up working well for the banks, although now I think they are not entirely responsible for what happened.
It seems to me, that the (manifestation of the underlying) problem has only been delayed but sooner or later markets will have to “adjust.” Something has to give.
The establishment is not done yet. Fed is going to print 600 billion in order to “stimulate the economy.” Not sure if it’ll help the US economy- likely the money will flow out of the country as investments/purchases into surplus economies (exporting economies). But more importantly it’ll hurt anybody who holds US dollars. It’s a involuntary transfer of real wealth of sorts. A stick-up.
Future is always hard to predict, but the way things are going, the world’s major economies are pissed off at Fed printing trillions of dollars, which may lead to USD no longer being the world currency. What we will see in it’s stead is even more difficult to say. Probably no clear winner for a while, and as long as that is true, the wealthy will keep buying gold.
If we want our economies and our societies to flourish, we must, however, invest in entrepreneurial ventures and not entirely in gold. Because gold will inflate in currency, but the activities that business generates have much values in the society. Secondly, and I’m being cryptic here, a gold coin has never fended off a bullet. It attracts bullets, if it does not have bullet friends.
Fun fact- inflation adjusted price of gold was around $80/gram in late medieval age- just before Columbus landed in America. Since then American gold flooded the market and real value of gold decreased to a mere $10. Now it’s more like $40.
