As is the case with most firms in the financial field, we have TVs running in our offices from the time we open to closing. Sometimes, we learn something of value, but most of the time the commentators talk about meaningless developments, such as the daily changes in value of the dollar to other currencies. Whether the dollar is up or down relative to the British pound, what does it matter in the overall scheme of things?
What really counts is the big picture, such as Fed changes in interest rates, the European Central Bank’s quantitative easing scheme and massive budget deficits. Yet those topics receive about as much attention as whether Facebook’s revenues will meet or exceed expectations.
The big picture is not hard to see at all, and at the risk at the oversimplifying I will expose the flaws of Keynesianism, which is the accepted economic doctrine worldwide.
Keynesianism advocates that governments, or surrogates such as the central banks, control interest rates, the money supply and run budget deficits “to stimulate economic activity,” which is the cornerstone of Keynesianism. Who reading this doesn’t “know” that deficit spending stimulates economic activity? It’s taught in nearly every college economics class.
Only in a few circles, such as at Mises.org, the world’s foremost advocate of Austrian economics, will you hear that production creates demand. That’s production of goods and services, not fiat money, which distorts markets and causes booms that are always followed by busts.
Another “big picture” is that few persons in political power view gold as money despite its 6,000-year history of being used as money. The same goes for silver.
The most recent boom is unwinding into a bust. It is only a matter of time before gold and silver are again recognized as “the monies of last resort” and are highly sought after. Then their values will gain relative to other commodities, resulting in the precious metals bull market that will reward patient investors.