Yesterday was a big day in Italy – 63 years ago. That was the day that Mussolini was shot, along with his mistress. They were hung upside down in Milan. What went wrong with Benito?
“What always seemed to go wrong,” said our guide on Sunday, “was that they ran out of money.”
She was speaking about emperors. She might have been speaking about elected presidents or dictators. When they run out of money, trouble follows.
This week, the United States opened its largest and most expensive embassy ever – in Iraq. It is like the Vatican City, say reports, a country within a country…both heavily fortified and luxurious…ready for a siege or a party.
The Vatican was attacked by its own Holy Roman Emperor, Charles Quint, in the 15th century. He had put together an army of Protestants, at whose head; a general carried a noose – ready to hang the Pope.
But the Pope wasn’t giving up without a fight. With the help of his Swiss Guards, he slid down a back wall of the Vatican and raced over to the Castello San Angelo, where he was able to hold out until the siege was lifted. His Swiss guards, however, were not so lucky. They fought almost to the last man to protect him.
But let us return to our beat – money. Alas, nothing much happened in the world of money yesterday. Instead, markets stood still – as if waiting for something to happen. The Dow eased off only 20 points. The price of oil stayed at $118. The dollar held at $1.56 per euro. And gold rose $5 – remaining where it has been, below $900.
Gold is correcting. Is the bull market over? Readers will remember what we can’t forget what happened to gold in 1980. The price of gold shot up over $800…but then began a bear market that lasted 20 years. Many people think it is happening again. But we also remember that the United States had a positive current account in 1980…and that Americans owned more of foreigners’ assets than foreigners owned of theirs…and that Paul Volcker pushed lending rates above 15% in order to protect the dollar!
Look to the left, dear reader. Look to the right. Do you see Paul Volcker at the Fed? Nope. Volcker is still alive – warning that there is a painful adjustment coming. But at the Fed itself, there is only Ben Bernanke, promising to drop dollars from helicopters, if necessary, in order to keep the economy bubbling along. And since the United States lives so far beyond its means…and owes so much money to so many people…the likelihood that a Paul Volcker will come along to protect the dollar is probably about as likely as Alan Greenspan being elected as the new Pope.
No, fear not. The Fed is unlikely to fall victim of a sudden attack of monetary integrity. The dollar is unlikely to rise very far against gold.
Elsewhere in the news, we find that OPEC has said $200 oil is a possibility. It hit $120 over the weekend. And truckers are protesting high gasoline prices. In other places, mobs are protesting the high price of food. You might think that these people don’t realize how markets work…that they don’t know that prices aren’t set by popular demand. In fact, what they know is how government works. If you can make a big enough stink about something, the government will intervene in the markets on your behalf. In fact, governments are already controlling prices for fuel and for food all over the planet. But there is no problem so bad that government can’t make worse.
Markets and Money