Barbaric Relic
Gold is under $900 now. It will hit $20,000. That was the message of an email I received the other day. The figure was based on some strange ratio between paper money and what the price of gold ought to be. The logic would be very appealing to those who think the world is coming to an end: to stave off the housing and credit crises, politicians have increased the amount of paper (and electronic) money in our financial system. If you double the number of dollars in the system, then the market should make you pay double the number of dollars for an ounce of gold. Since the paper money in circulation in the world is $100 trillion and the total volume of gold is five billion ounces, the price of gold ought to be $20,000. Simple.

Gold buffs make such arguments all the time. They work out ratios of oil and gold or Dow Jones Industrial Average and gold to predict how high gold can go.
This book quotes many of these gold buffs (like Doug Casey and James Turk) and assembles a wide variety of information about gold and economy to tell you why you should buy what John Maynard Keynes had called the ‘barbaric relic’. The credentials of the author are not printed (“manages a financial research and advisory company”) and the book provides no long-term comparative returns between gold and other assets. Here is one. Gold was over $800 in early 1980s and is $900 now. The Sensex started at 1,000 in 1986 and is 16,000 now. You know what works over the long term. – D.B.

Economic Primer
For the past few months, Indian investors, managers and businessmen have been rudely reminded of something that we normally find dry, forbidding and remote: macro economics. Inflation, balance of payments, fiscal deficit and GDP growth are not exciting things to talk about but, since politicians and policy-makers plan poorly, are not accountable and often erode the efficiency of many institutions, we frequently fall into an economic quagmire. At such times, suddenly, newspapers are full of dour economic headlines such as ‘fiscal deficit has reached alarming levels‘; ‘the rupee is depreciating‘; ‘inflation is shooting up’ and ‘interest rates are rising‘. At times like these, it is good to have a handy tome of economics. A Concise Guide to Macro Economics by David Moss, professor of economics at Harvard, may serve that purpose. It is a slim volume of two sections. The first one has three chapters that describe output (measuring it and why it goes up and down), money (interest rates, exchange rate and inflation) and expectations (how it influences inflation, output and other variables). The second section has articles on selected topics which are all US-centric such as history of monetary policy in the US, fundamentals of GDP accounting, reading a balance-of-payments statement and understanding exchange rates. A good primer. – D.B.

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