Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Both Stock and Gold Markets Have Correctly Assessed the Keynesian Policies of Western Economies

Economics / Inflation Apr 06, 2010 - 02:07 AM GMT

By: Ned_W_Schmidt

Economics

Best Financial Markets Analysis ArticleDid some of you feel safer this past weekend? Your wealth was certainly safer. For three days much of the Western world was closed for a religious holiday. Even Keynesians take the holiday. As the Keynesians were away from their government offices, their relentless attack on wealth was silent. As hard as they have been working to destroy wealth in the past year, a rest was probably needed.


General Theory of Employment, Interest and Money by Keynes probably holds the record as a wealth destroying book. From it justification for replacing private property and initiative with government controls and restrictions bloomed. Somehow, per the Keynesians, transferring wealth to the government would make a nation more prosperous. Fortunately, the world discovered Gold as a defense against the evils of Keynesianism.

Text Box:

The U.S. stock market has failed as an investment over the past decade. At the same time the price of $Gold has soared by 400%. In a time when the Keynesians are contending that markets are not efficient, we would argue that these results demonstrate market efficiency in an exemplary manner. Both the stock and Gold  markets have correctly assessed the Keynesian policies of Western economies. They did so by giving those policies a failing grade, and that is the correct assessment.

Economic policies should, in part, make economies more durable. Those policies should follow the first essential rule: Do no harm. In our first graph above we can observe one source of instability being unleashed on the U.S. economy by Keynesians running amok at the Federal Reserve. In that graph is plotted the per capita U.S. money supply. The quantity of M-2, NSA, is divided each month by the population. Data is from the St. Louis Federal Reserve.

From the beginning of the graph through early 2008 per capita money supply in the U.S. was  rising. That era coincides with the inflating of the housing bubble. With the amount of per capita money seeming to ever rise, some means of spending that growing claim to paper had to be found. Rather than that abundance of money pushing the general level of prices higher, it pushed up one sector, housing.

That process stopped in 2008. In the graph the per capita U.S. money supply ceased growing. Then in 2009 we again observe this money measure moving higher as the Federal Reserveunleashed vast quantity of liquidity into the system. The correct assumption when that development occurred was that prices, somewhere in the system, would rise. But, that liquidity flow was not to continue.

For the past year the U.S. per capita money supply has not grown. The growth rate of that measure, the red line in the chart, plunged into negative territory. Until that measure again begins to rise, expectations of the rate of U.S. inflation rising will not likely be met.

Before going on to the implications for the U.S. dollar and $Gold, let us reflect on that red line. It is the growth rate of the money supply measure. Note the incredible volatility of that measure. That pattern is the equivalent of alternating between stomping on the gas pedal and then on the brake. It is a measure of the instability being injected into the  U.S. economy. Little wonder the U.S. stock market has been an investment failure when the central bank’s primary achievement is economic instability.

Text Box:

Source: Value View Gold Report

 

As shown in the first graph, the U.S. per capita money supply has changed little in the past year. A consequence of that is that fewer and fewer have excess dollars of which they need to dispose. In short, dollars have been becoming rarer relative to other moneys. In the above chart of the U.S. dollars value we can observe that it is just about where it was a year ago. In short, the value of the dollar has changed very little in a year. Second, the U.S. dollar is deeply over sold within a broadening base which may set the stage for a serious rally.

$Gold being simply another currency has little reason to change in such an environment. That means that $Gold was probably pushed well above equilibrium, and has been correcting that excess since November. With all the above as a history lesson, what about the future?

Given the size of the Obama Regime deficit and focus on nationalizing the U.S. health care system rather than economic growth, we can expect that ultimately the Federal Reserve will be forced to monetize massive amounts of U.S. government debt. When that begins to happen, the U.S. money supply will begin growing again. At such time the dollar will again depreciate and $Gold will rise. Remember, $Gold is the only defense from the wealth attack being engaged by the Keynesians in government.

As we have written before, those living in other currencies have their own unique situation. Investors residing in Canada and India should use price weakness in Gold when it develops to buy Gold given their over valued currencies. Loonie is an extremely high risk currency at the present. British investors should use price weakness to buy Gold as the pound has no long term future, despite the likelihood of the Labour party being tossed next month.

By Ned W Schmidt CFA, CEBS

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules