Thinking Excercises About Gold

I was about to write a piece using Occam's Razor to explain the recent rise in the price of gold when I saw that North Trust beat me to it yesterday in its Daily Economic Comment (PDF) by announcing the beginning of a new era, another dawning of the Age of Aquarius.

Upon reading the article, I realized right away that they are not using the same razor. The idea that gold is the real thing, that paper money is immoral and the American economy as we know it will soon end is even older than James Grant, Jimmy Rogers and the rest of the Gold 1000 crew. Ever since I entered the investment business, it's been the droning of "the trade deficit is too big", "the budget deficit is too big", "the U.S. dollar will collapse", and of course, "the foreigners will stop buying our bonds". OK, ok. I got it...back in 1986!

For all their self-appointed contrarianism, their arguments are, in fact, conventional mainstream thinking. It is repeated by politicians and news anchors on a daily basis. If the proverbial taxi drivers and the shoeshine boys can recite this view, then everyone must know it. And don't forget, all this was supposed to end in a deflationary death spiral, not an inflationary one. Remember the liquidity trap?

If we are to manage our money successfully, we need to begin by examining the process of thinking because we are bombarded with invalid arguments and fallacies everyday, often by experts. Just because an idea is popular and accepted, it does not mean it is true or correct, even if we see it printed in the newpaper.

Independent thought is a precious commodity and we must use it to evaluate everything we read and hear. No exceptions!

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