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July 05, 2005

Buy Inflation, Not Growth
by Ed Bugos

Below is an extract from a commentary available to subscribers at www.goldenbar.com on 5^th July 2005.

Gold prices got hammered during Canada day (Friday), and I couldn't help thinking how ironic and telling it is that the yellow metal of liberty be clobbered right before the celebration of the birthday of America & Canada, nations born in freedom; and that the writers who are most bullish on stock prices still absolutely hate the metal and bow to the central bank. It proves Rothbard right in his claim that the business cycle is solely the product of inflationism (intervention), and its impact on the "money relation."

Recall: "Boom / bust cycles are caused - not by the mysterious workings of the capitalist system - but by govern-mental interventions in that system." - Murray Rothbard

The proof being that perma-bullish stock and bond traders (who almost by definition hate gold bugs) know where their bread really comes from.

It doesn't come from real economic growth because monetary policy undermines it - especially when it's easy for long stretches - as should be obvious from the data in the table. That bread is bad. It comes from the fact that the Fed remains unrestricted in expanding money and credit which causes the value of money to fall, and as a consequence causes the value of goods (including capital goods) to rise.

The harm that this does to the prospects for real economic growth (and your freedom) is something that I write about all the time. But there are a lot of morons running around out there who do not even partially understand those consequences - all they know is that the Fed prevents stock market crashes.

They think that any institution that is pro-stocks and pro-greed is pro-capitalism and good for their pocket-book.

Capitalism is about making money after all and no one makes more money than the Fed does - literally: as it runs off its printing presses. It is true many of them will acknowledge the existence of eternally rising prices but the causes that they point to are confused, and besides they say, stocks beat inflation... all that one has to do is to speculate correctly and he can then participate in the wealth transfer that begins with monetary policy.

He can bud in line if you will.

But capitalism is really about accumulating capital, making real profits and creating wealth.

Not that there's anything wrong with making money - money is what we measure our profits in... PROVIDED THAT IT IS SOUND. But it isn't sound. The profits are temporary & illusory, as are the gains in asset values.

For recognizing this and telling people this I get to be called a "gold kook."

Edmond J. Bugos
GoldenBar.com

Ed Bugos is a former stockbroker, founder of GoldenBar.com, one of the original contributing editors to SafeHaven.com and former editor of the Gold & Options Trader. He continues to publish commentary on market and economic trends; and provides gold, economic and mining research to private clients worldwide.

The editor is not a registered advisory and does not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While we believe our statements to be true, they always depend on the reliability of our own credible sources. We recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.