What a Bubble Looks Like

This picture screams "bubble!" to me...

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I lived through the late 1970s bubble. I remember how people I knew started chatting incessantly about gold and silver prices. I even knew people who foolishly bought the stuff convinced that it would go up forever. They lost a lot of money.

The problem with speculation and mania is that it is the ones who can least afford it who lose the most (proportionately speaking). The smart money is in early and out early (except on the odd occasion when the fail to read the tea leaves right). It is the Mom & Pop "investors" who hear all the chatter and have spent months and years watching prices crawl ever skyward who get convinced they are missing something big and get that burning itch to "get in on the action" and "make some easy money".

Sadly we live in a world that allows the markets to freely work to take advantage of people. When I was a kid the "nanny state" of the 1950s -- a mostly right wing, conservative government time -- outlawed drugs and gambling to protect people from their own weaknesses. But I've watched over the years as the government is lured by the promise of "taxing sin" to loosen up and allow gambling and ignore the "soft drugs". Worse than these, the government has always allowed shills and manipulators take advantage of markets to create bubbles and fleece the unsuspecting.

It is happening again. A criminal like G. Gordon Liddy freely sells gold as an "investment" to suckers. Media hacks who build their career on manipulating the credulous (like drug addict Rush Limbaugh and Apocalypse preaching Glen Beck) also push gold as a solid "investment". It isn't. For the small guy, there is always a very expensive premium over the public "gold price" to buy and there is always an expensive premium over the "gold price" to sell. It really isn't a "commodity". It is a speculator's wet dream because historically gold was "hard currency". But it isn't today and will never be again. It doesn't pay to hold it. It costs you to hold it. It can be stolen from you. And you will always pay a very hefty premium to buy or sell it. It is fool's gold.

Here's Paul Krugman on Glen Beck:

Glenn Beck was financially intertwined with Goldline, and therefore had a financial stake in pushing fears of hyperinflation. And he had many, many viewers. So there was a direct channel through which conservative Americans were being pushed into buying gold.
Market prices almost always tell you something useful. But sometimes what they tell you is that there’s a marketing scam in progress.

Yep... it's a bubble.