Revenge of the Barbarous Relic

by Kurt Kasun

John Maynard Keynes was the first to call gold a "barbarous relic", giving governments the right to intervene, print and distort to their hearts' content. But the day of reckoning is here. Keynesian economics has resulted in the current mess, and Austrian economics will cure it, but not overnight. Only after the world's paper currencies have reached rock bottom and nations are forced back to metals-backed currencies will the adoption of sustainable economic policies occur. We are now caught in a deflationary cycle, and the correct trade was - and is - to short the indices and buy gold. The stock market has violated every support line, and there are only plunges ahead. In addition, negative feedback loops between the financial markets and the real economy are going to wreak havoc. Deflation and the strengthening US dollar are not positive developments; declining consumer prices are only good if the decline is because of expanding supply. As for the dollar, its strength is hurting the US government, which is sure to concoct a way of squirming out of its debt obligations. It will not default, but will inflate its way out, reducing the price of its current obligations. This is why it is important to be long gold and short the market. Gold is holding up well in the current environment of asset deflation, but just wait until inflation takes hold; gold will rocket to the upside. Believe it or not, there is still too much optimism out there, an unhealthy condition in the current environment. Investment strategies that exploit this natural human desire when the evidence is for pessimism is overwhelming are required today. Optimism propels society forward and moves individuals ahead in 'normal' times. The period we are entering will be far from normal.