Ron Paul Was Right!

David Weigel | September 17, 2008

They all laughed at him. Then they panicked and went looking for gold.

Gold's huge rally — prices shot up over 8 percent — came as the government moved overnight to rescue troubled insurer American International Group Inc. with an $85 million bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector.

Fearing more tightening of credit markets, investors reacted swiftly and began dumping stocks and socking money into gold, silver and other safe-haven commodities. Gold is especially attractive during times of crisis because the metal is known for holding its value.

Gold for December delivery jumped $64.50, or 8.25 percent, to $845 an ounce on the New York Mercantile Exchange, its highest trading level since Aug. 29. Prior to the rally, gold had fallen 25 percent since surging to record levels above $1,000 an ounce in March.

"The same market participants who got out of gold are coming back in now. This is the start of an upward move," said Carlos Sanchez, analyst with CPM Group in New York, who predicted prices could climb back to $1,000 by year's end.

I've contacted the Campaign for Liberty for comments from Paul on the AIG rescue mission and the gold price spike, but you'd have to be deaf and blind not to know what he's thinking. Back in the primary, I think Paul surprised Republicans by offering a Rothbardian critique of the economy that sounded pretty good next to the bland "fundamentals are strong"-isms of McCain, Romney, Rudy, and the Sleepy Fred Country Express. But it sounded good because Paul acknowledged structural problems with the financial system, not because he was 100 percent right.

If you want a smart take on the role that gold had in worsening the Great Depression, I'd point you to this paper by Ben Bernanke. Yes, that Ben Bernanke.