Back in November 2014, Willem Buiter, who has so far been wrong in his recent gloomier forecasts about the fallout from the Eurozone mess, or his predictions about a global economy, decided to become a commodity expert and announced that "Gold Is A 6,000 Year Old Bubble." The irony is that while virtually every other asset class in the span of these 6,000 years has risen, risen more, in many cases indeed formed a bubble, burst, fallen, and ultimately turned to dust and forgotten, gold remains and furthermore has seen its value in recent years soar.
What is interesting is that almost two years later, Buiter may have realized just that, and in an interview with the Epoch Times' Valentin Schmid, the Citi strategist admits that he "would hold gold" due to the global tidal wave of negative interest rates:
“I will never argue with a six thousand-year-old bubble. So gold, in times of uncertainty and especially in days of uncertainty laced with negative rates looks pretty good."
Looks like we have another post-conversion Alan Greenspan on our hands. Here is his full interview, courtesy of the Epoch Times.
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Citigroup’s Willem Buiter Says ‘Would Hold Gold’
Famous gold skeptic says gold wins against fiat currencies in negative rate environment
However, in a recent interview with Epoch Times [Skip to 38:00 in the video], he presented a much more nuanced position and said he would even own gold as part of a diversified portfolio of currencies.
“It competes with other fiat currencies, the dollar, the yen, the euro. And if these currencies now yield negative interest rates or are at risk of negative yields in the U.K. and the United States, then the currency that at least has a zero interest rate, looks better.”
Gold, in times of uncertainty and especially in days of uncertainty laced with negative rates, looks pretty good.
He still maintains that gold is a fiat commodity that has limited intrinsic value because it doesn’t have many industrial uses, and only has value because people say so. But he admits this is true of all paper currencies and bitcoin as well and gold may even have an advantage right now.
“I will never argue with a six thousand-year-old bubble. So gold, in times of uncertainty and especially in days of uncertainty laced with negative rates looks pretty good,” he said.
Bubbles are the essence of fiat money economies.
His definition of a bubble is also interesting and he again includes all fiat currencies in this category.
Citigroup Chief Economist Willem Buiter at an interview with Epoch Times
“The fundamental value of an intrinsically valueless good is zero. For every fiat currency if it’s value is positive, it’s a bubble. There are good bubbles when they are stable. There are bad bubbles when they are exploding upwards and downwards.”
And he says there is some positive value to having fiat money or gold for transactional purposes.
“There is nothing wrong with a bubble. Fiat money as a positive value is a very beneficial bubble. It’s much more efficient of course to produce paper money without cost if it can be managed well, rather than the costly way to extract and store gold. But bubbles are the essence of fiat money economies.”
Maybe what Buiter means is exactly what Scottish economist John Law explained in his work “Money and Trade Considered” in 1705.
Instead of calling gold, paper money, or silver a “beneficial bubble” Law simply stated that precious metals (in this case silver) have value because they are the best at being money, not because they are used as a metal in industrial processes.
“The additional use [as] money silver was apply’d [sic] to would add to its value, because as money it remedied the disadvantages and inconveniences of barter, and consequently the demand for Silver encreasing [sic], it received an additional value equal to the greater demand its use as money occasioned,” writes Law.
This is true of gold and paper money as well with the notable difference that paper money gains superior value as money by government decree (fiat) and because people are forced to use it. Gold and silver have been in use as money because of their natural properties (scarcity, malleability, divisibility, and durability).
Out of the 118 elements in the periodic table, gold and silver win as monetary instruments according to University College London chemistry professor Andrea Sella. The have just the right degree of scarcity and a low enough melting point to make them into coins he told the BBC.
Another advantage: “Gold is unbelievably beautiful.”
Willem Buiter agrees: “You can’t increase [the supply], maybe an advantage for those who like it … It is costly to store and all that but yes, you can put it in your nose and that makes it good.”