Many valuables are in freefall mode....property, gold, petroleum and bank deposits! What is going to happen?What is going on? Will gold still be the reserve backing for hard currencies? Something deeply destabilising is going on and I want to hear opinions on this. Is the free market that has predominated the 20th and 21st century so far cracking at the seams due to an over 'laissez faire' attitude? | |
Two things to say. First, of the assets you listed only gold has continued rising. Ten years ago it stood at about US$280 and is now at about US$950. It's been a bit volatile since Sept 2008 but the trend is still upward. By the way, gold is not the backing for currencies any more. Practically all money issues in the western world are backed by government promises to pay, via Central Banks. Gold is held mainly as a hedge against inflation in India, China and some other oriental countries. Generally, it's been a good protection this past 200 years but it's not legal to hold bullion in UK unless via a specialist dealer. Buying jewellery with hallmarks is not a good idea in western countries - you're paying mostly for the handling and packing.
I expect that property (real estate) will continue to appreciate in value over longish periods, even if there are periodic slumps, because the population is rising in almost all countries. Property prices seem to slump lasting about 6 years and then they take off again. There's more of a timing problem in buying than with gold.
Second, the present financial crash is exactly that. It's financial and not a real economic problem. US financial intermediaries boosted their balance sheets by lending unwisely and then selling the rights to those credits to other institutions around the world. When the unwise debts collapsed, because the debtors couldn't pay [predictably], calling in the debts didn't work. So the value of the derivative assets collapsed at the same time and hundreds of banks suddenly found they had less or no credit to lend. So household and industrial borrowing had to be curtailed.
The present international policy of low interest rates is doomed to fail. There simply is no "real" money available and very low rates will not induce households and industry to borrow, because there is no confidence in official policy. The only way to stimulate economic activity is to put purchasing power back into the hands of households and industrial spenders. How? By reducing taxes substantially so that people and companies feel better off, not poorer.
You ask what will happen; official policy will force the recession to be prolonged - three or four years instead of the 18 months it could be if purchasing power were returned to the ultimate consumers.
Hope this is helpful.
