Federal Reserve’s dollar-debasement policy kicks into high gear -
and other central banks around the world are forced to follow suit to maintain
their pegs against the dollar - the rational choice for long-term investors is
gold. Thus, the decision to buy is not rooted in fear, but rather in reason. On
the other hand, the decision
not to buy is not only rooted in fear, but
in ignorance, as well.
Jumbo Shrimp … and Government Accounting
Those oblivious to gold’s warnings instead place their trust in
government-supplied statistics. Based simply on flimsy consumer price index
(CPI) reports, these observers believe that inflation is nowhere in evidence,
and that the flight to gold is therefore unwarranted.
The government’s recent gross domestic product (GDP) report provides the latest
illustration of this dynamic. Federal number-crunches were able to present an
annualized, first-quarter growth rate of 0.9% based on an assumed annualized
rate of inflation of only 2.6%. In other words, inflation in the first quarter
of 2008 was the lowest for any first quarter in the last four years. How such a
claim did not elicit howls of laughter is beyond me. The government previously
reported that in the years 2007, 2006, and 2005, annualized first quarter
inflation rates were 4.2%, 3.4% and 3.9%, respectively.
With global commodities prices climbing steeply, does anyone - besides some
of the Fed governors and most Wall Street economists - really believe that
inflation so far this year is really 33% below the average rate over the past
three years?
Many of those who place their faith with government figures and dismiss the
movements in gold believe that inflation is not a problem so long as wages are
not rising rapidly. The fact that U.S. wages aren’t rising anywhere near as
fast as overall prices here merely means that wages are rising - but just not in
America. Wages are rising in the nations that produce the goods that we
consume, and those higher costs are indeed being passed on to Americans.
However, recent action in the bond market suggests that a few more people are
getting wise to the government’s con. A little over a week ago, yields on
long-term Treasuries hit new highs for the year, with the yield on the 10-year
treasury up 90 basis points from its March nadir.
While the Pollyannas on Wall Street attribute this move to the
strengthening U.S. economy, those of us buying gold know it’s more likely a long
overdue increase in inflation expectations.
Got gold?
