Tags: Krugman | gold | bug | political

Paul Krugman: Political ‘Gold Buggism' Will Not Die

By    |   Monday, 15 April 2013 01:11 PM

Price declines have poked a hole in the belief that gold prices only travel up. Although some investors have gotten burned, New York Times columnist and Nobel Prize-winning economist Paul Krugman warns that we shouldn't expect to see “gold buggism” disappear because its political.

Actually, Krugman declares that in America everything is political, and the increasing amount of gold buggism seen after 2008 proves investing is no exception.

Krugman defines gold bugs as those who believe the metal provides “unique security in troubled times.” They support the idea of getting rid of the Federal Reserve and linking the value of the dollar to gold, a concept known as the gold standard.

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“Conservative-minded people tend to support a gold standard — and to buy gold — because they’re very easily persuaded that ‘fiat money,’ money created on a discretionary basis in an attempt to stabilize the economy, is really just part of the larger plot to take away their hard-earned wealth and give it to you-know-who,” Krugman wrote.

Historically, gold hasn’t been a safe investment, Krugman explained. “Sometimes it yields big gains, as it did in the late 1970s and again between 2001 and 2011. But that 1970s run-up was followed by an epic plunge, with the real value of gold falling by more than two-thirds,” he said.

Now we are at the point where people are beginning to question whether this bull run is over, as gold has clearly lost a lot of its shine just since the start of the year.

Gold “does not seem to respond adequately to the current financial and geopolitical situation,” Frederic Panizzutti, senior vice president at MKS Group, told MarketWatch.

USA Today attributed gold’s recent price decline to changing perceptions about the metal. Investors are considering that gold will not be quite as safe as they previously believed in the event of an economic crisis, if there are widespread gold sales or if inflation picks up.

Inflation is a key part of the gold story, but for many it has been a disappointing one.

Eric Rosengren, president of the Boston Federal Reserve, said we are “well below our inflation target,” according to MarketWatch.

“The runaway inflation that was supposed to follow reckless money printing — inflation that the usual suspects have been declaring imminent for four years and more — keeps not happening,” Krugman wrote.

“For a while, rising gold prices helped create some credibility for the gold bugs even as their predictions about everything else proved wrong, but now gold as an investment has turned sour, too,” he added.

But missing the mark or being wrong does not matter when you are an American gold bug because gold buggism “fits so perfectly with common political prejudices,” Krugman concludes.

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Price declines have poked a hole in the belief that gold prices only travel up. Although some investors have gotten burned, New York Times columnist and Nobel Prize-winning economist Paul Krugman warns that we shouldn't expect to see “gold buggism” disappear because its political.
Krugman,gold,bug,political
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2013-11-15
Monday, 15 April 2013 01:11 PM
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