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Trading Lessons

The Roubini - Faber Gold Debate

Commodities / Gold and Silver 2013 Jun 05, 2013 - 04:30 PM GMT

By: BATR

Commodities

Two of the most provocative and incendiary economic prophets are Nouriel Roubini and Marc Faber. As with most oracles, the denominational sect of doctrines often determines the forecasts. This especially applies to economic prognosticators. Roubini has evolved into an establishment darling working with central bank governors and finance ministers. Faber remains a contrarian investor earning his designation as the genuine "Doctor Doom". Who is right, depends on the immediate and final outcomes of the international financial troubles. Money markets volatility and fiscal debt obligations are integral components of commercial transactions and political economic policy.

The barometric gauge of financial health and stability has invariably been the price of gold. Often overlooked is that the price is reflected by the exchangeability into different currencies. Therefore, any valid assessment of the true value of gold must factor in the real purchasing power within the coinage of local tender.

The Business Insider provides a summary of Nouriel Roubini: Why Gold Will Plunge To $1,000.

Gold spikes during extreme crises. The crises are over.

Gold does well during periods when there's a risk of high inflation. That clearly is no longer a big worry, given how much central banks have unsuccessfully tried to stoke even modest inflation.

Now with the economy recovering, nobody wants to be in rocks that don't pay any dividends.

Real interest rates are rising. That kills gold.

Governments with debt issues are selling gold.

Gold was juiced by right-wing fanatics in the US. That boom is over.

Contrast this viewpoint with the Zero Hedge article, Marc Faber: "People With Financial Assets Are All Doomed"

"Faber explains, among other things, the fallacy of the Fed's help "the problem is the money doesn't flow into the system evenly, how with money-printing "the majority loses, and the minority wins," and how, thanks to the further misallocation of capital, "people with assets are all doomed, because prices are grossly inflated globally for stocks and bonds." Faber says he buys gold every month, adding that "I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable."

The preliminary appraisal of what seemingly are contradictory positions is that both are correct, depending on the current location of the time continuum for world financial markets. The overriding ability of central banksters to paper over catastrophic crises and deflationary dislocations, seem to be unlimited. Coordinated rescue plans are frequently disguised by currency fluctuations and equity swings, but the real measure of maintaining financial solvency requires that bond rollovers and new floats be sold in the marketplace. With the immergence of the Federal Reserve purchase of government debt, as an essential resort to keep the funding game going, the era of rapid devaluation, has begun.

Does this necessity sound like an environment where the "crises are over"? As for the "risk of high inflation no longer a big worry", depends greatly on the credibility level of government reporting statistics. Just maybe Roubini’s incorporation into the Davos jet set means that his distance from middle class experiences reflect his newly found associations. Where is this vaulted economic recovery and a proliferation in the consumer spending? Dividends seldom trickle down to the vast numbers who abandoned Wall Street investments. If real interest rates were truly rising, when will the saver see a better return on their money? Roubini fails to mention that China and India have been buying gold, but in a recent article about Russia – we find out that the biggest country in the World might as well be the biggest buyer of gold. Finally, gold was juiced by right-wing fanatics in the US! Hence, we are supposed to believe that the globalists’ paper debt created system is rational and that Austrian School economics are extremists. So much for the wisdom of Roubini and the reason, the old Dr. Doom finds the moniker wearisome and says it no longer accurately reflects his opinions.
Coherent and objective analysis from The Economic Collapse argues in the Top 1% Own 39% Of All Global Wealth:

"So exactly how have the global elite accumulated so much wealth? Well, one of the primary ways is through the use of debt. There is about 190 trillion dollars of debt in the world but global GDP is only about 70 trillion dollars. Our debt-based global financial system systematically transfers wealth from us and our governments into the hands of the global elite. And of course the gigantic banks and corporations that the elite control are constantly gobbling up everything of value that they can find: natural resources, profitable small businesses, real estate, politicians, etc. Money, power, ownership and control are becoming very, very tightly concentrated at the top of the food chain, and that is a very dangerous thing for humanity."

No honest person can dispute Faber’s claim - "the majority loses, and the minority wins". What is still debatable is the timing of the looming break down of the fiat financial structure. The prospects for the inevitable, seems prudent, "When the asset bubble bursts, financial assets will be particularly vulnerable." How long can 190 trillion dollars of debt be serviced, when it is impossible to grow the world economy out of a mathematical impossibility?

The overriding issue in not about the current convertibility of gold into whatever paper species is still solvent. The conclusive finality is that a newly issued medium of exchange will be imposed under a terminable collapse of the world economy. All signs point that gold will be part of a desperate attempt by central banks to launch a world currency. The ultimate risk that outlaws gold, as once was the case in the U.S., for private ownership, is the gravest danger.

The Roubini model excludes the financial doom that Faber believes to be unavoidable. As long as it lasts, careerist economists will enjoy the payoffs from the paper-banking establishment. Yet in the end, the authentic "Doctor Doom" will prevail.

James Hall – June 5, 2013

Source : http://www.batr.org/negotium/060513.html

Discuss or comment about this essay on the BATR Forum

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors

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