The Dead Metal?

“We the prospectors on Toby Creek’ locate this claim to be known as Old Man Brown’s claim.: Prospectors pause and shed a tear, for old man Brown lies buried here, For gold he’ll prospect now no more, He’s patented the golden shore”  (Post marker of year 1890 of mining claim found in North Kootenai Mining District of British Columbia).

Lord Maynard Keynes , the famous British Economist, once called gold ‘the Dead Metal’ He did so  after the passage of the 1935 Act of Congress that forbade American Citizens from buying or hoarding gold bullion. His meaning may be obscure but the intent of the act was clear. To stop the  flight from the paper dollar to hard assets in the form of gold and to encourage Americans to spend rather than save; a classic description of the cure for Deflation

Turned out that this paranoia was unfounded because the Second World War, along with draconian economic controls, intervened, so we will never know what may have happened

Lately we seem to be hearing a lot about Deflation from Economists and Central Bankers, despite the fact that few  know anything about it. Deflation is becoming  the new bogey man in the closet, a name without a face.

The present answer to this misnomer is to print more money by means of Quantitative Easing, and, in the case of Europe, to forgive Sovereign Debt. In other words more of the same or inflate at any cost.

Seems to me this is all self-serving nonsense.  After inflating for five years, and destroying trust in the value of the American Dollar, the Federal Bank of New York has driven up prices for soft assets (commodities stocks derivatives et al)  to completely unrealistic levels that cannot be maintained by any means.

Now, in a blinding glimpse of the obvious, it is realized that this charade cannot continue forever.  The smart money is now selling over valued soft assets and parking the proceeds in highly liquid dollars to await a new direction for hard assets.

Truly hard assets are hard to come by. The Swiss Franc and gold are good examples that are rounding into popularity once more. The Swiss apparently want nothing to do with the Euro, if the ECB (European Central Bank) starts to print vast quantities of worthless money. The Germans likely feel the same way and may be expected to voice their concerns, that could, if the Euro skeptics  have their way, lead to the demise of the common currency.

This kind of nonsense is the reason why Britain, under Margaret Thatcher, and more recently the Scandinavian Countries, have steadfastly refused to sign the Treaty of Rome that governs the Euro.

If all of this fits the new definition of deflation, so be it.  The central banks, notably other  than China,  are now clearly swimming against the tide of  investor opinion and may have finally run out of ammunition. To make matters right,without bringing down the house of cards the Bankers are going to need the help of China, now the second largest economy in the world. Sooner rather than later.

Will it happen? Stay tuned.

 

 

 

 

 

 

 

 

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