Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Both Stock and Gold Markets Have Correctly Assessed the Keynesian Policies of Western Economies

Economics / Inflation Apr 06, 2010 - 02:07 AM GMT

By: Ned_W_Schmidt

Economics

Best Financial Markets Analysis ArticleDid some of you feel safer this past weekend? Your wealth was certainly safer. For three days much of the Western world was closed for a religious holiday. Even Keynesians take the holiday. As the Keynesians were away from their government offices, their relentless attack on wealth was silent. As hard as they have been working to destroy wealth in the past year, a rest was probably needed.


General Theory of Employment, Interest and Money by Keynes probably holds the record as a wealth destroying book. From it justification for replacing private property and initiative with government controls and restrictions bloomed. Somehow, per the Keynesians, transferring wealth to the government would make a nation more prosperous. Fortunately, the world discovered Gold as a defense against the evils of Keynesianism.

Text Box:

The U.S. stock market has failed as an investment over the past decade. At the same time the price of $Gold has soared by 400%. In a time when the Keynesians are contending that markets are not efficient, we would argue that these results demonstrate market efficiency in an exemplary manner. Both the stock and Gold  markets have correctly assessed the Keynesian policies of Western economies. They did so by giving those policies a failing grade, and that is the correct assessment.

Economic policies should, in part, make economies more durable. Those policies should follow the first essential rule: Do no harm. In our first graph above we can observe one source of instability being unleashed on the U.S. economy by Keynesians running amok at the Federal Reserve. In that graph is plotted the per capita U.S. money supply. The quantity of M-2, NSA, is divided each month by the population. Data is from the St. Louis Federal Reserve.

From the beginning of the graph through early 2008 per capita money supply in the U.S. was  rising. That era coincides with the inflating of the housing bubble. With the amount of per capita money seeming to ever rise, some means of spending that growing claim to paper had to be found. Rather than that abundance of money pushing the general level of prices higher, it pushed up one sector, housing.

That process stopped in 2008. In the graph the per capita U.S. money supply ceased growing. Then in 2009 we again observe this money measure moving higher as the Federal Reserveunleashed vast quantity of liquidity into the system. The correct assumption when that development occurred was that prices, somewhere in the system, would rise. But, that liquidity flow was not to continue.

For the past year the U.S. per capita money supply has not grown. The growth rate of that measure, the red line in the chart, plunged into negative territory. Until that measure again begins to rise, expectations of the rate of U.S. inflation rising will not likely be met.

Before going on to the implications for the U.S. dollar and $Gold, let us reflect on that red line. It is the growth rate of the money supply measure. Note the incredible volatility of that measure. That pattern is the equivalent of alternating between stomping on the gas pedal and then on the brake. It is a measure of the instability being injected into the  U.S. economy. Little wonder the U.S. stock market has been an investment failure when the central bank’s primary achievement is economic instability.

Text Box:

Source: Value View Gold Report

 

As shown in the first graph, the U.S. per capita money supply has changed little in the past year. A consequence of that is that fewer and fewer have excess dollars of which they need to dispose. In short, dollars have been becoming rarer relative to other moneys. In the above chart of the U.S. dollars value we can observe that it is just about where it was a year ago. In short, the value of the dollar has changed very little in a year. Second, the U.S. dollar is deeply over sold within a broadening base which may set the stage for a serious rally.

$Gold being simply another currency has little reason to change in such an environment. That means that $Gold was probably pushed well above equilibrium, and has been correcting that excess since November. With all the above as a history lesson, what about the future?

Given the size of the Obama Regime deficit and focus on nationalizing the U.S. health care system rather than economic growth, we can expect that ultimately the Federal Reserve will be forced to monetize massive amounts of U.S. government debt. When that begins to happen, the U.S. money supply will begin growing again. At such time the dollar will again depreciate and $Gold will rise. Remember, $Gold is the only defense from the wealth attack being engaged by the Keynesians in government.

As we have written before, those living in other currencies have their own unique situation. Investors residing in Canada and India should use price weakness in Gold when it develops to buy Gold given their over valued currencies. Loonie is an extremely high risk currency at the present. British investors should use price weakness to buy Gold as the pound has no long term future, despite the likelihood of the Labour party being tossed next month.

By Ned W Schmidt CFA, CEBS

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in