DMR–A word on the ten-year anniversary of the Lehman Brothers’ collapse

DAILY MARKET REPORT

Gold pushed back below the $1200 mark this morning in lackluster trading – down $4 on the day at $1198. Silver is down 4¢ at $14.14.

Much of the news and opinion the past few days has centered around the Lehman Brothers’ collapse ten years ago this weekend. One of the more telling features is the amount of analysis pointing to a repeat crisis before 2020. JP Morgan, Ray Dalio, Moody’s Analytics, SocGen are prominent among a group warning of a Lehman moment at some point over the next two years. Even former Fed chairman, Ben Bernanke, says there will be a Wile E. Coyote moment in 2020.

The rush to the podium (so to speak) among analysts to make sure they are on the record with their warnings is something to behold. It is a much different spectacle from the financial elite’s We-Didn’t-See-It-Coming mantra first uttered in 2008 and religiously ever since. The Queen of England was among the group to hear that rationalization. Her response was classically discreet: “People had got a bit lax, had they?” Today, the financial elite display great care. The general public though has become alarmingly lax. Complacency is a word often bandied about in this context. In 2008, it was the other way around: The financial capitals were lax but the public was vigilant – as evidenced by the strong gold demand at the time.

Day to day, financial media tend to center their gold coverage around the price. The safe-haven argument for gold is offered but routinely muddied in the same paragraph. We tend to forget that the real reason to own gold is not to make speculative gains, but to protect against the kind of excesses the Lehman moment represents. The aftermath of 2008 is testament to gold’s role as the asset of last resort. The Queen’s question fittingly came, by the way, during a visit to the Bank of England’s gold room in 2012. The sight of all that gold must have set the wheels in motion. . . . .

Quote of the Day
“Why then is so much writing on the subject of money so needlessly complicated, with dense, impenetrable language and equations that make sense to only a handful of academicians? And why do so many people insist that bad ideas about monetary policy, like ‘inflation is needed to increase employment,’ are as settled and unassailable as scientific principles?” – Steve Forbes and Elizabeth Ames, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It

Chart of the Day

Chart note: ““When President Nixon closed the gold window at the U.S. Treasury on August 15, 1971,” writes Economic Prism’s MN Gordon, “he told several whoppers. He said it was to, ‘defend the dollar against the speculators.’ He also said the action would, ‘suspend temporarily, the convertibility of the dollar into gold.’ Furthermore, he told Americans that, ‘your dollar will be worth just as much tomorrow as it is today.’ Nixon’s actions came on the heels of 60-years of gradual steps to remove gold’s backing of the dollar. In effect, $1 today has the same buying power that $0.16 had when Nixon took these ‘temporary’ actions. Over this same period, the U.S. national debt has run up from about $398 billion to over $21 trillion, and the economy has been utterly warped.” We sometimes become so immersed in the short-term ripples that we forget the long-term waves.

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