Tuesday, November 18, 2008

Ron Paul vs. Ben Bernanke 11/18/08

Here is Congressman Ron Paul's five minutes of speaking time during today's House Financial Services Committee meeting:

Fed Chairman Ben Bernanke makes two interesting points:

1) the dollar is now strong and considered a safe haven by foreign investors.

2) central banks are selling their gold.

On the surface, I think Bernanke's arguments seem reasonable enough and one may conclude that American monetary policy is working.

But elsewhere today, Ron Paul offered two counterpoints:

1) the dollar only appears strong momentarily as foreign investors by US dollars as a prelude to buying US assets, such as factories and buildings. So it's not that "smart money" wants US dollars... they want US assets.

2) selling gold is a short-term tactic, not a long-term strategy, to build confidence.

As for my view on central banks selling gold, their argument is nonsense. I read an article recently about a huge increase in "gold jewelry" sales in India. The author opined that gold as an investment vehicle was old-fashioned and no longer used.


I lived in Vietnam from 1995 to 1998. Did they buy/sell houses in the local currency? No. Did they buy/sell houses in US dollars? No.

They bought/sold houses in gold! And just last month (at my current job) a Vietnamese coworker of mine said the same thing happens today... no one in their right mind would accept US dollars for a house in Vietnam. Similarly, in India and in China the gold jewelry that so many people wear... well... sure it's jewelry... but it's also an investment! And those two countries are... what? About a third of the world's population?

Gold hasn't lost its value as the defacto reserve currency for the world. But a bunch of central planners central bankers may have lost their mind if they think gold is irrelevant.

Tim White

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