It seems that even Nobel-Peace Prize winning economists also lack a proper understanding of inflation, and gold. Paul Krugman is the biggest example during these times. As Peter Schiff, whose podcasts are not only recommended on this blog and who is also famous(or infamous, if you ask CNBC, Art Laffer and/or mainstream financial commentators and investors) for predicting the 2007-2008 Great Recession years in advance, comments in his latest podcast episode, Krugman believes that gold’s record rise beyond its former all-time 2011 high of $1,920 per ounce has nothing to do with investors’ expectations of more inflation, as per this tweet. Nothing to do, wow Paul! Krugman didn’t even say that inflation expectations have a negligible or insignificant impact, instead he is saying none. He also claims gold has risen because bond yields have fallen.
Here, Krugman exposes his ignorance on the cause of gold’s rise and historically, and ridiculously, low bond yields – both are caused by higher inflation, contrary to the beliefs of the Nobel-Peace Prize winning economist. As Schiff adds, the reason bond yields are at near-zero levels is because the Federal Reserve(FED) is inflating, in another word increasing, the money supply to buy up these bonds at such low levels. Since the 2007-2008 Great Recession, the FED has been the majority buyer of U.S. treasury bonds, the only entity foolish enough to lend the increasingly indebted and constantly irresponsible U.S. Government at such low interest rates. In a normal, functional market, lenders would need to have considerable savings in order to have the ability to lend at low interest rates, especially the ones at the near-zero levels of current U.S treasuries. However, thanks to the FED’s ability and willingness to inflate the money supply, inflated money supplants large savings as a means to price U.S. treasuries at such low yields. Furthermore, inflation diminishes the value of the currency, such as the U.S. dollar, which causes the dollar price of many other assets to rise. One of those assets is gold, which since the year 2000, has experienced a compound annual growth rate(CAGR) or at least 9%, largely due to inflation, contrary to Krugman’s incorrect tweet.
For a more detailed explanation of inflation, go here. Also go here for a supplementary explanation.
Furthermore, how does Krugman know the motivations of gold buyers when he himself doesn’t buy it? Does he survey buyers, such as this author? No, he is just guessing. His reluctance to interview and talk to real owner of gold and silver exposes his lack of mastery of basic economics, contrary to what his Nobel Peace Prize award would lead many to believe.
This is a major problem. People like Krugman, who apparently doesn’t understand one of the most rudimentary concepts of economics, inflation, get awarded the Nobel Peace Prize. Too many associate those who win the Nobel Peace Prize as ultimate authorities of intelligence on the subject in which they win the award. However, not only considering the case of Krugman and also the receipt of the Nobel Peace Prize by former U.S. President Barack Obama, who created ISIS but, in 2015, became the biggest arms dealer since WWII, it should be clear that the Nobel Peace Prize is not worth much value at all. Clearly, you don’t have to be a knowledgeable expert, as in the case of Krugman regarding economics, or a truly peaceful person, as in the case of Obama, to receive the price. This means the Nobel Peace Prize is a misnomer, and rather than being lauded, it should be viewed as a mark of shame to receive the award, or at the least, not regarded as prestigious to any degree. Why don’t people who did accurately predict the Great Recession of 2007-2008, guys like Schiff or former Congressman Ron Paul, get the award instead? Probably because they actually do understand fundamental economic, unlike Krugman.
As someone who majored in economics and also has an M.B.A. degree to his name, Krugman is often promoted in academic circles as the top guru of economics, as his textbooks and other works are also required reading. Krugman should neither be considered a guru, nor should his readings necessarily be required, especially with the amount of logical fallacies in them. Making Krugman’s works required reading and failing to expose students to alternative economic schools of thought, like the Austrian School of Economics, or even Peter Schiff’s Podcasts, diminishes the value of economics degrees. This author learned far more about economics outside of academia, and by listening to Peter Schiff’s Podcasts, this author has gained a better knowledge of economics at a lower cost in terms of both time and money. Furthermore, this post provides good quality education exposing the pretentious wisdom of over-promoted mainstream economists, like Krugman – oh yeah, and this education, unlike mainstream academia, costs you neither several years nor an arm and a leg.
On a final note, the brilliant Krugman also believes that if aliens attacked, the economy would improve and recover just because of all the spending needed to counter the aliens, totally discounting the inevitable destruction of war and the productive and peaceful investments that get supplanted by wartime spending.