Guest Post: Gold Manipulation: The Logical Outcome Of Mainstream Economics Part 1
February 21, 2013 - 5:34pm
Submitted by Martin Sibileau of A View from the Trenches blog, This is the first of three articles I will post on the suppression of gold. What drives me to write about the topic? I am tired of seeing endless proof of suppression (i.e. the typical take downs in the price at either 8:20am ET or at 10am-11am ET, with impressive predictability) and at the same time, it is unfair that anyone who voices this suppression be called a conspiracy theorist. Therefore, these three letters will give a rigorous theoretical support to the claim. The first letter will show that, under mainstream economic theory, the suppression of the gold market is not a conspiracy theory, but a logical necessity, a logical outcome. From the publication of this letter onwards, the onus to prove the contrary will fall upon mainstream economists. The conspiracy theory will actually be the opposite: To claim that suppressing gold is not necessary. The second letter will show how that suppression takes place. For those familiar with the gold market, this letter will offer nothing new and perhaps, it will even be incomplete. But at the macro level, I will seek to offer an insight. The third letter will examine the consequences of this suppression and rigorously, prove that the claim of the gold bugs, namely that physical gold will trade at a premium over fiat gold or gold paper is also not a conspiracy theory, but the logical outcome of the current paradigm. Before I begin, I would like to say that I think proving the logical implication from mainstream economics that gold needs to be suppressed is perhaps comparable to Von Mises demonstration of the impossibility of economic calculation under socialism. Both are very intuitive, of consequence, and a necessary intellectual step. Without further ado, let’s start with the first thesis: The suppression of gold is a logical necessity, under mainstream economics. Axioms of mainstream economics 1.-Policy makers believe that there exists a general level of prices, and it can be measured by a price index (Ludwig Von Mises absolutely demolished this notion, but this is outside the scope of this letter. What is relevant is that price indices are “measured” and published by every nation and the market trades on them). 2.-Policy makers believe that in the long term, growth in the supply of money is neutral (Even David Hume laughed at this notion back in 1752) 3.-Policy makers use the general-equilibrium framework introduced by Léon Walras 4.-There exists a gold market and within this market, there are investors who see gold as money, as gold has been money for thousands of year 5.-In global trade, there is no relevant single price index, but relative prices, affected by cross exchange rates. Thesis If axioms 1-5 hold, both a global monetary coordination (as opposed to currency wars) as well as the suppression of the price of gold are required, for the global economic system to remain stable. Demonstration Between 1874 and 18...
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