| As an investor, it is usually interesting, and | | | | But the American people have seen this movie |
| sometimes worthwhile, to pay close attention to | | | | before. Back in 2006 and 2007 Bernanke claimed |
| the messages coming out of the Federal | | | | that the problems in the housing and subprime |
| government. Government policies frequently | | | | markets were "contained." Everyone saw how |
| influence not only stocks, but also bonds, | | | | that claim turned out. Then in the summer of |
| currencies, and commodities such as the gold | | | | 2008, Henry Paulson claimed the financial system |
| price and silver price. Based on the significant, | | | | was "sound." The American people again saw how |
| unusual, and quite eventful economic | | | | accurate that statement was. So it appears that |
| developments of the past few years, the | | | | those officials responsible for overseeing the |
| government has taken on the role of reassuring | | | | largest economy in the world were either not able |
| the American public that things will be ok and | | | | to properly assess the dangers in the system, or |
| ultimately return to "normal." | | | | they were not telling the American public the |
| However, there is a relatively substantial and | | | | truth. Whatever the case may be, given these |
| growing contingent of market participants and | | | | missteps, people should turn to history before |
| economists who believe that the economy has | | | | merely taking the government at its word. One |
| entered a "new normal", which involves | | | | only need look back to the famous 1930 quote |
| considerably less debt and leverage in the system. | | | | by Herbert Hoover in which he assured everyone |
| That goes for both corporations and consumers. | | | | that things would return to normal, only to see |
| These people cite low interest rates and | | | | the country subsequently suffer an entire decade |
| encouragement of homeownership for all by our | | | | of economic depression. It therefore seems that, |
| government as some of the main causes for the | | | | less than a year after the most recent crisis, a bit |
| blowup of the debt bubble in 2007 and 2008. And | | | | more time must pass before announcing that |
| they go on to say that this type of debt fueled | | | | everything is back to normal. |
| economy is not coming back for a long time | | | | What does this all mean for the average |
| because of the destruction caused in 2008 with | | | | investor? It means that the potential exists for |
| the threat of the financial system unraveling. | | | | more pain ahead, especially after a 55% rise off |
| Instead, a new normal has arrived, consisting of | | | | the March 2009 lows (which at the time was a |
| more government intervention in and regulation of | | | | 58% decline from the October 2007 high). It also |
| the financial markets, coupled with a scared and | | | | means that investors should seek out asset |
| cautious consumer. They say this because the | | | | classes that will benefit from the government's |
| psychology of the average person on Main Street | | | | ever-increasing role in the financial markets and |
| has changed, after seeing his/her investment | | | | economy. Accordingly, based on the most recent |
| portfolio cut in half for the second time in less | | | | Federal Reserve meeting, the Fed provided little |
| than a decade, the value of his/her home decline | | | | indication that it was ready to withdraw the easy |
| dramatically, and perhaps even his/her job | | | | monetary policies it has used to combat deflation. |
| disappear. | | | | This type of language suggests that the Fed will |
| Against this dichotomy, financial markets (and the | | | | continue to keep interest rates low and expand |
| stock market in particular) play a large role in | | | | the money supply whenever it feels necessary to |
| validating or falsifying the claims of these | | | | improve liquidity. These types of measures will |
| competing groups because the markets have a | | | | continue to put pressure on the US dollar and |
| large influence on the collective psyche of the | | | | benefit the dollar denominated gold price the |
| nation. Currently the stock market is making new | | | | ultimate benefactor of money printing. In fact, |
| highs for 2009, several pieces of economic data | | | | gold and mining companies leveraged to the gold |
| have improved, and consumer confidence is back | | | | price stand to perform particularly well in this type |
| to levels last seen just prior to the start of the | | | | of environment, as investors seek out a safe |
| recession. Obama also just reappointed Bernanke | | | | haven from the fiat currencies created out of thin |
| as Fed Chairman, a few days after a recent | | | | air. So the next time one hears the government |
| financial headline stated "Bernanke Saved the | | | | claim that the coast is clear, he/she should remain |
| World", and the President claimed that Bernanke's | | | | skeptical and consider those areas that will benefit |
| "creativity" helped him to prevent another Great | | | | from a rising gold price. |
| Depression. | | | | |