Prepared for an Exceptional Correction

Email Print
FacebookTwitterShare

The price of gold fell $15 Monday, to close below $1,100. We expected a correction in the gold market. But we thought it would come along with a correction in the stock market. Stocks rose 85 points on the Dow yesterday.

We take this as a warning: something is going on that we don’t understand. That said, there’s a lot going on that we don’t understand.

But the broad patterns generally make sense. Boom was followed by bust. As dear readers know, the force of a correction is equal and opposite to the deception that preceded it. The deception of the Bubble Era being exceptional, the correction would be exceptional too — even under the best of circumstances.

But these are not the best of circumstances. Because several other things are happening…things that need to be reckoned with, too.

  • The US is losing its privileged place in the world. Americans now compete with many other people in many other places for the world’s resources — including its savings.
  • The international monetary system, an experimental system built of paper dollars, may be falling apart.
  • The days of cheap and bountiful energy are over.
  • Governments are going broke. State governments. National governments. In Europe. In the Middle East. And in America.
  • The engine of economic growth — Americans’ willingness to go into debt in order to consume more and more of the world’s output — has gone into reverse.
  • And, governments are meddling on an unprecedented scale…delaying and avoiding necessary adjustments, possibly turning an ordinary depression into a Great Depression…or even a Much Greater Depression.

These are not small challenges. Any one of them would be a worthy crisis on its own. Put them together and you have the makings of a catastrophe.

What will happen? Don’t know. Wish we did.

A series of mini-disasters? Or one big planet-wide blow-up?

Or, are the authorities so smart that they can engineer trouble-free solutions to these challenges?

If you have confidence in Obama…Bernanke…Geithner…Congress…the European Central Bank…the Bank of China…and so forth… Well, you have no business reading this. Heck…let them figure it out. Everything will be fine. Go back to the TV…

If, on the other hand, you have a sly suspicion that the authorities are headed for the rocks…you should own some gold. Traditionally, gold is what people buy when they are afraid things might not work out as planned.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

The Best of Bill Bonner

Email Print
FacebookTwitterShare