Cognitive Dissonance – If it feels Good, Believe It!

Despite the price of gold being trashed for many decades, its price increase has continued over time to reflect at least in part the destruction of the dollar. In other words, gold hasn’t gained value. Rather the U.S. dollar as declined in value as the U.S. has continued to encourage Americans to follow Keynesian economics and live beyond our means. We have on a massive scale borrowed from future generations to enjoy a hedonistic lifestyle today.

Even though there has been constant manipulation and anti-gold propaganda spewed out to the public, orchestrated through Keynesian lies in university economics classes, until 2013 over the longer term, gold managed to more or less keep pace with the growth of U.S. debt and money supply growth. The chart on your left, which is based on St. Louis Fed data and passed on, compliments of Dan Oliver’s Myrmikan Capital, shows this very strange departure of the relationship gold had with the federal debt. From 1971 when Nixon discontinued gold backing of the dollar and thus removed it from the global monetary system until 2013, with a 250 day lag, 94% of the rise in the gold price was explained by the growth in the U.S. debt. Had that relationship continued, gold would now be north of $2,000.

What happened in 2013 to cause gold to turn down relative to U.S. debt growth?  My belief is that Wall Street and Americans as a whole, prompted by a mainstream media that is so ignorant and disinterested in economics and objective truth in general, simply followed Fed propaganda, which would have you believe real rates of interest are destined to rise because of an improving economy, not because of a lack of buyers of U.S. debt.  And as I have documented repeatedly in this letter, a rise in real rates of interest is very bearish for gold. And I’m quite sure a major measure of cognitive dissonance is in play by the masses here. “If it feels good do it!” That was a saying of the 1960s, which translates into close your mind to anything that doesn’t please your immediate gratification. Who runs the world now but the children of the ’60s? Cognitive dissonance is defined as a tendency of individuals to seek consistency among their beliefs and opinions. When there is an inconsistency between attitudes or behaviors, something must change to eliminate the dissonance. In this case the masses have decided to believe a lie, namely that T-Bond rates are rising because the economy is strong, not because of the real reason, which is a shortage of Treasury buyers at ridiculously low rates. In other words, I believe Michael Oliver’s description of the T-Bond being a Judas Goat is definitely in play. 

The Fed’s James Bullard isn’t following the Judas Goat

Now this morning I’m reading the views about James Bullard, who is a non-voting member of the Fed. He used to be the most hawkish Fed member. He now suggests that the Fed is heading in the wrong direction by hiking rates because the economy is definitely not doing well. In other words, at least Mr. Bullard is not following the Judas Goat to the slaughter as most of America seems to be doing. From what I can see, the problem the Fed has is that there are fewer and fewer people willing and able to buy Treasuries at these ridiculously manipulated low reduced rates. The only answer? A massive currency destruction.  I can’t think of a more bullish case for the yellow metal. Can you? 

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.