Don't Wait for GDP, $1,500 Gold IS the Recession
by John Tamny
by John Tamny: India,
and the Economic Folly of a College Degree
2005 when housing was booming, far from a sign of economic vitality,
the proverbial "rush to the real" signaled a growing economic
downturn. Thanks to a dollar in freefall as evidenced by a spike
in the price of gold, always limited capital was migrating toward
the hard, unproductive assets least vulnerable to currency devaluation.
To put it simply,
the real recession was the housing boom.
Since the dollar's
lurches in either direction tend to set the tone for global currencies,
our monetary error was something shared by everyone as a run on
paper currencies around the world fostered a global misallocation
of capital into land, rare stamps, art, gold and other unproductive
assets. The alleged worldwide boom characterized by a rush to the
tangible was a classic "money illusion" that flashed economic
hardship due to the world's innovators suffering capital deficits
in concert with sinks of hard wealth receiving capital in abundance.
are nothing if not self correcting, and the misnamed "recession"
of 2008, which was in fact a positive signal of economic rebound
as housing and other hard assets ceased their bull run, was the
corrective mechanism meant to reverse a substantial episode of Austrian
School malinvestment. Of course, and as is well known now, rather
than embrace the curative powers of what was once again a misnamed
"recession", the political class set out to blunt its
positive effects through bailouts and other subsidies of failed
ideas such that Americans were robbed of the positive economic snapback
that "recessions" always author.
The above surely
looms large at present, because it's not unfair to suggest that
we're experiencing yet again the severe capital misallocations that
forced a distorted correction in 2008. To see why, look at the gold
Though it traded
in the then nosebleed range of $800/ounce back in 2008, gold has
since nearly doubled to $1500/ounce. Its spike to previously unseen
levels is a signal that all the chatter about whether there will
be a downturn is well too late. Gold at these levels IS the downturn,
and an eventual "recession" that hopefully includes a
revived dollar to undo all the misallocations occurring at present
will be the cure.
as the weak dollar drove a recessionary rush into the real not long
ago, so is the same occurring once again. This, not the inevitable
correction, is the true recession, and that's why the gold price
(nothing more than a proxy for the dollar's actual strength or weakness)
is so useful as an economic signal.
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