What strange pass have we come to?
The whole world is on the edge of its seat this morning. Taking short breaths.
People watch. They wait. They listen for a pronunciamiento that could mean trillions in losses...or gains. It could - in theory - push up the world's growth rate...speeding up economies and bringing millions into the workforce, where they can earn money to pay for their wants and needs.
At the margin, it could make the difference between life and death. Many millions of the world's people live day to day, hand to mouth, barely getting enough food to eat. A downturn in the world's economy hits them like a plague in the Dark Ages, pushing them over the edge into famine and death.
And from whom will these precious words come today? They will come from Benjamin Shalom Bernanke, once of Dillon, South Carolina, and lately of the US Federal Reserve Bank in New York.
The headlines tell the story:
"World Awaits Word from Jackson Hole."
"Investors edgy before Bernanke announcement."
"World economy rests on Bernanke's shoulders."
Who is this man, Ben Bernanke, and what kind of shoulders does he have? Is he a great deep thinker...a renown philosopher in whom the world's people could have confidence? Is he a captain of industry...a man who has proven that he can lead men and run a profitable business? Is he an investment wizard, like Warren Buffett, with billions of dollars as testament to his understanding of the world of money? Is he even a powerful politician or an acclaimed statesmen, who can at least pretend to solve the world's problems by threats and force?
He is none of those things. He is a fellow who studied economics and became a university professor. Now he is a quasi bureaucrat, working as head of a quasi bureaucracy, whose main function is to make sure bankers make a profit.
"It's either control or money," says our friend John Henry. John made a fortune out of a simple insight. If corporations would give up control of their legal problems, they could save themselves a lot of money. John takes on their legal challenges and handles them as commercial matters; he doesn't particularly care whether they win or lose the case, as long as the net cost is lower. He shares the savings.
"But a lot of companies don't really care about saving money. They don't want to give up control. Or, more precisely, their legal team doesn't want to give up control. So, they end up spending more money."
Control or money. That is the choice. An economy functions best with no one in control. Central planning doesn't work. A little bit of it is a drag. A lot is fatal.
But people don't like it when things are "out of control." And that's the problem with capitalism. It is always out of control. At least, it should be.
And that's Mr. Ben Bernanke's real role...the service he provides is making people believe it is under control. But the illusion of control is expensive.
He pumped $1.2 trillion into the banking system after Lehman collapsed in 2008. What did he get for it? About 80 cents worth of GDP growth for every dollar spent. A losing proposition; but maybe he can make it up on volume!
And what can he do now? At least in 2008 he still had some ammunition. Now, his big guns are empty. He's already stuck the Fed's key lending rate at zero...and pledged to keep it there for two more years. And now we know QEs I and II don't work either.
Yesterday we got word that housing went down in the last quarter - making 17 straight quarters of losses. Homeowners are down about $7 trillion...and still sinking. New building permits are down to a 15-year low. Sales have not been this low in a generation.
As for unemployment, the numbers are shifty. Most of the improvement in the unemployment rate comes from the feds' taking people who can't find jobs off the list of those looking for work. But layoffs are increasing...and it is now obvious that most of these jobs will NEVER come back.
GDP growth itself is near "stall rate." Most likely, the recession of '08-'09 never really ended.
And poor Mr. Bernanke. The weight of the whole world's illusions on those weasely shoulders. An honest man would shrug.
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*** Is it time to sell gold? Depends... If you need the cash, yes. If not, no.
Is this a bear market in gold? No, it is a dip in an on-going bull market. The bull market in gold won't end until the price of an ounce of gold intersects the price of the Dow...
...or there is a new world monetary system.
Is gold in a bubble? No, there's no fever to buy gold. There's no frenzied rush to get out of paper. Just the opposite. Ordinary people want to trade gold for dollars. Investors want to buy US dollar bonds. We are nowhere near the bubble phase.
Is the bubble phase coming soon? Nope again. We have to pass through the valley of de-leveraging, deflation, and debt-driven depression first. It could take a year...or 10 years; we don't know.
What will cause gold to take off to the upside again? Ah...a big blow-up maybe. The collapse of the Bank of America, for example, could make investors jittery...scaring them into gold. More likely, we'll have to wait for the Fed to panic. When the going really gets rough, the Fed will print money. Lots of it. Then...hold onto your hat.
How low could gold go in this dip? It lost 40% of its value during the bull market of the '70s. A 40% loss today would take it down to the $1,200 range. If it goes that low, don't forget to buy more.
How high will gold go in the final bubble? Quoth the Daily Reckoning Oracle: