Austrian School economic prophesy

Is the world and U.S. economy in a bubble which will inevitably break?

This article maintains that it is, based on the work of the Austrian School of economics:

Austrian economics

I don't know, of course. And just because the current leaders of the Austrian school think we're in a worldwide bubble, doesn't mean Hayek and van Mises would think so if they were still alive.

The dislocations which the author mentions all result from the drastic lowering of the value of the U.S. dollar. Perhaps India's stock market is valued more than the U.S. stock market in part because so many financial newsletters, including some from Agora, Inc -- the author's employer -- emphasize how much India and China's economies are growing in relation to the rest of the world.

If India were as economically developed as the U.S., its stock market obviously would be worth a lot more than the U.S., since India has 3-4 times as many people.

The advice to put 20% of your portfolio into gold, I think is crazy. Especially after reading Peter Bernstein's book The Power of Gold, which is a terrific argument against everything "gold bugs" such as this author say.

My own advice is to put all of your portfolio into income-generating investments such as stocks that pay dividends, if if you need to use DRIPs (Dividend ReInvestment Plans). Gold is just a metal -- it doesn't write you any checks, and it costs money to store safely.

I'm not saying the price of gold won't go up in the future -- perhaps tremendous just as the gold bugs are predicting.

But the problem with that is the same problem I have with buying stocks and other investments for capital gains. You can't realize your profit without selling the gold/stocks. And then you miss out on future gains, plus you must pay capital gains taxes.

There's at least one gold mining stock -- BHP Billiton -- that does pay dividends. If gold goes up, its dividends will likely go up. So you could buy shares of that company if you want to hedge your portfolio with gold.




Austrian doom and gloom
Austrian doom and gloom