Gold rose in response to the second Greek bailout. It is clear that the European Central Bank will inflate. This will increase demand for gold, investors think.
A one-time move is not significant with respect to gold’s price. The upward demand is coming from new buyers, increasing;y in East Asia. As they get richer, they buy more gold. But the move up is a vote of no confidence by investors, who see that the bailout will not work, and that central banks around the world will have to inflate.
Why will the bailout not work? Because the Greek government is politically unable to balance its budget. If it could, it would have done so a year ago.
In this respect, Greece’s government is like the U.S. government. We are headed down the same road to default. The voters do not want their favorite government boondoggles cut. They resist all such cuts. In Greece, they take to the streets.
There is another factor. In Greece, there is a resurgence of the Communist Party. The surrender by the socialists to northern European politicians is giving the Communists a chance to build political strength. There is nothing like this here, nor will there be.
The Greek voters want to be subsidized forever by foreigners, just as Americans want China and Japan to buy our government’s debt. The Greeks think northern European taxpayers owe them lifetime subsidies. They are just like American voters, who want our trading partners to buy our IOUs. The Greeks have no way to pay off these debts. Neither do we.
The Greek economy is constantly running a trade deficit. So is the United States.
The politicians in Europe have no solution, other than more taxpayer-funded bailouts. Neither do American politicians. So, gold keeps rising. It was $257 in 2001.
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