GOLD AND CONVENTIONAL WISDOM

 

Conventional wisdom may usually be wrong - but it is instructive.  Right now conventional financial wisdom holds three things to be true: 

1) "The Fed is behind the curve."  Everyone says so.  By this they mean the Fed should have been raising rates at some nebulous point in the past.  Of course in the past nobody was in favor of the Fed raising rates.  But now everyone agress they should have done so

2) The Fed raising rates will do nothing to ameliorate the Supply Chain disruptions that are causing the inflation.  In other words raising rates will slow the economy, but they won't curb inflation, except on the demand side which is, right now, not at all the cause of inflation.

3) Everone seems to agree that the very last 2 trillion dollars of stimulus that helped the middle class were a mistake.  Not the preceding 10 trillion that the Fed took on its balance sheet to help the very rich, or the 3 trillion before that in tax cuts that helped the very rich.  Those 13 trillion were constructive and helpful,    The last 2 trillion just were giveaways that never should have happened.

Obviously, I think this conventional wisdom is fairly rediculous.  HOWEVER, when take together we can see a future that relentlessly unfolding:

FIRST, and most important, the idea that the Fed is behind the curve lays the groundwork for a general discontent with the FED.  Faith in the Fed to support the risk markets has been the glue holding the entire eocnomy together.  When the rainsing of rates slows the economy and inflation proves to be persistent - people will continue to criticize - and LOSE FAITH in the FED.

SECOND: Because everyone can see the supply chain disruptions are causing inflation there will be a strong call for the Fed to ease when their rate raising significantly slows the economy.

THIRD: There will be a great reluctance to bail out the middle classes and the poor - which will lead to massive unrest.

So what does that tell us about GOLD?

It tells us that the current price rise is only a prelude.  THese developing conditions will create a perfect storm for gold: High inflaion, Slow Economy, Loss of Faith in institurions, and general unrest.