Posted on 05/17/2010 7:56:34 AM PDT by danielmryan
Gold prices are soaring because of growing inflation fears--both the European Central Bank and the Federal Reserve seem to be on the path to permanently easy money with the Greek bailout and huge U.S. budget deficits.
Neither the reforms attached to the Greek bailout nor banking legislation in Congress get at the structural problems that caused failures in Athens and on Wall Street.
Soft reform is no reform--investors are fearful too much money will undermine the value of euro bonds and U.S. Treasuries--even if those bonds don't outright default.
The bailout for Greece and aid for other debt ridden Mediterranean economies provides hard commitment of assistance but does not address the fundamental structural problems that cause Greece, Portugal, Spain and other less prosperous EU states to spend too much. Namely, over the last forty or fifty years, economic integration in Europe has increased public expectations that social safety nets—health care, retirement benefits, job security, unemployment assistance, etc—would be as strong and generous in poorer EU states as in rich ones.
Unlike the United States, the EU does not have well developed mechanisms for taxing high-income states to provide low-income states with the same level of social expenditures. The EU can't tax Germany to subsidize Greece, as Washington taxes New York to subsidize Mississippi.
Consequently, Mediterranean governments spend too much and push costs on private sectors those can't bear, and higher inflation results. When those countries had their own currencies they could let those slip in value against the mark, over time, but now with the euro as legal tender, governments do not have this option. Instead, they borrow to the point of default, and pose the veiled threat of leaving the euro zone if aid is not forthcoming.
(Excerpt) Read more at enterstageright.com ...
There is virtually no connection between inflation and gold prices.
Not only that, but EVERYONE is now talking about buying gold. That makes it a fairly crowded trade, i.e., if everybody wants it, it’s probably time to take some $ off the table.
If you must buy gold, for God’s sake, don’t buy the real stuff - the markups are killers. If you buy gold stocks or ETFs keep them to no more than 5% of your portfolio. Remember, this is a hedge against uncertainty in the world, not a free standing investment.
BTW. Professor Morici is a good guy. The rest of his department must loathe him. How did he ever get tenure?
Bingo! With all of the gold touts on television and radio, all of the faux financial advice being given out about how wonderful gold is, it’s no wonder the price has sky-rocketed.
I am not trying to start a debate about the merits of investing in gold, but it is true that there is a lot of poor information on gold. Basically, these guys on TV are saying, "Pay a huge premium because my gold is better than anybody else's". These guys are selling investment coin gold when people really want spot gold.
The bailout for Greece and aid for other debt ridden Mediterranean economies provides hard commitment of assistance but does not address the fundamental structural problems that cause Greece, Portugal, Spain and other less prosperous EU states to spend too much..”
...and produce nothing and work not at all...
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