Asset markets move up and down. The move from a rising phase then into a boom phase, then into a collapse. Then people are gloomy. There is gloom and doom around, and then the markets bottom out. And then the whole process starts again. As an investor, you need to understand that markets are sometimes overvalued and sometimes they are undervalued.
In general, if you have sound money, then money is a medium of exchange, unit of account, and a store of value. But the vice chairman of the Fed wants to take interest rates into negative territory. She can’t do that, but the Fed will certainly keep interest rates below the rising living costs as far as the eye can see. Cash and bonds are dangerous, and people must move into asset classes than cannot be multiplied at the rate of paper money from Ben Bernanke’s printing presses.
Between June 2004 and August 2006, the Fed increased the rate in baby steps. But there was no actual monetary tightening. If inflation is running at 8% to 10% per annum, then money is still losing its purchasing power. The price of everything is going up, and only at the Federal Reserve is there no inflation.
In gold and silver terms, the Dow Jones over the last 8 years has lost 80% of its value. Recently some commentators have said that gold is in a bubble. But at a recent conference in Singapore, Marc asked 200 fund managers how many had at least 5% of their personal assets in gold. Not one person lifted their hand. If it was a bubble, then a lot more people would have raised their hand, and we would all be trading gold 24 hours a day. Gold might be cheaper today than it was in 1999 when it was at $250.
If the Fed stopped printing money and allowed the economy to restructure, but it depends on whose misery you are talking about. In the US, this isn’t an issue between the political parties. It is really a question about entitlements. The poor people want more money and they want to work less. The rich people work hard, and they are out numbered by the poor people. To get back at the poor people, they inflate the money supply. This isn’t a conspiracy theory if you stop to clearly think about it.
The tragedy is that the system has become dysfunctional. Something changed in America. The wealthy people in the world benefit from money printing, because they can shift their assets around.
