Currency

Quick! Call the Regulators! Those People Are Buying Gold!

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Unwashed

Let's play a game with this bizarre, elitist Steven M. Davidoff column in The New York Times, shall we? Let's swap out the word gold and replace it with variations on the dollar. Here goes:

It is clear that speculation has been driving the dollar's rise.  […]

This speculation is aided by the financial revolution. Previously, dollars could be bought by retail investors only through dealers and street shops. Now anyone can go on the Internet, click and buy currency in the market through exchange traded funds. […]

[I]t is sometimes referred to as the barbarous relic. You can't eat paper money. Its industrial uses are limited. If someone else doesn't assign the same value to the dollar that you do, you are out of luck. For those who predict it will be valuable if society completely collapses, guns and canned goods might come in handier.

The greenback's relative uselessness has helped spur talk of a bubble. The problem for regulators is whether this speculation is natural, prudent hedging or people irrationally piling ever more into a bubbly asset.

Davidoff is good enough to point out that gold prices are not actually at their all-time high, that we actually might not be in a gold bubble at all, and that "limiting the type of media barrages we see is also impossible in a free society." Still!

Ominous

If you watch cable television, it would certainly appear that gold is in a bubble. Commercials abound for buying gold. Commentators on CNBC talk about gold hitting $2,400 an ounce, which would be a genuine record […]. In fairness, other CNBC commentators have said that this is foolish and that gold prices are too high. Still, the marketing of gold to the masses is an ominous sign. […]

[I]f regulators are going to stop the next bubble, they will need to act aggressively. Of course, they shouldn't act in every circumstance, but when we see volatility and speculation as is the case of gold, acting to curb these forces through limiting leverage in cooperation with international regulators would be a prudent course. This would ensure that if a crash does come, it does not have aftereffects on banks and other institutions. Even if the Commodity Futures Trading Commission is hesitant to take such steps, it could, as an initial foray, take to the media to try to "talk down" the speculation.

Otherwise, we're left hoping, without much basis, that people have learned that this time will not be different[.]

Remember back when we let bubbles burst without bailing out the irrationalistas?