WHAT THE CHINESE HOUSEWIVES AND THE LITTLE DWARVES KNOW THAT THE PAPERGOLDBUGS DON'T

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One could not watch the events in April surrounding the massive naked shorts issued on gold, the sharp plunge in the price, and the subsequent gold rush for physical gold,  without shaking one's head at the astonishing levels of delusion demonstrated by the guardians of paper fiat. What did they think was going to happen when, like gangsters,  they put out a contract on gold and whacked the price overnight? People cheering in the streets?  Accolades and praise?

Perhaps they were expecting  a general panic and rush for the door.  Certainly they did not expect the Chinese housewives to lead a charge, not for the door, but deeper into the room to grab all the physical gold they could like so many little dwarves.  But that’s the thing about dwarves – they like gold.  The kind you can touch and bite and rub.

There is a form of cognitive bias referred to as ‘attribution bias’.  This describes a cognitive bias in which individuals see their own responses as the reasonable response to a situation.  In other words, you think that everyone else sees the world in the same way that you do. 

Attribution bias becomes a real problem when reinforced by ‘groupthink’,  especially when the group that is doing the groupthinking also thinks that it is cleverer than the rest of humanity.  And when there is no-one in the group to play devil’s advocate, to shout, “Hey, the emperor has no clothes!”, then you get the kind of reversal of expectation that the masters of the paper fiat universe suffered in April.  

Clearly the little dwarves did not get the message the masters intended : “See, your gold is worthless!  Get rid of it now before it loses even more value!”

Indeed, the masters of the universe must have felt a little less masterful when the sheer volume of physical gold being snapped up all around the globe, especially in the East and near-East, drove the price right back up, with one crucial before-and-after difference:  more real gold was now in the hands of the little dwarves than there was before.  I can actually hear those masters contemplating the aftermath of the gold rush and sighing (with a certain John Cleesesque on-the-out-breath tone):  “Right…” as they turned back to their drawing boards.

What these mighty masterful morons don’t get (and maybe this is a side effect of million dollar bonuses) is that while the little dwarves might not be clever, they do have common sense.  And common sense tells you that something that has retained its status as a store of value since homo sapiens replaced bartering with coin, that unlike paper money cannot be printed at will by a central bank or government, stands an infinitely better chance of continuing to store value than pieces of paper that have been around for less than a century, especially when the reliability of those pieces of paper as a store of value is faced with a very clear and present danger . 

While ordinary, non-economist-type folk  may not be able to articulate their sense of that clear and present danger using the opaque language of econospeak, they nevertheless know, down in the very marrow of their bones (where common sense lives), that the danger is very clear and very present.

Perhaps the little people know only to well that, unlike the masters of the paper fiat universe,  they will not be bailed out when  the dollar, the pound, the euro and the yen are  used for confetti  at weddings.  They know this, not as an intuition or a suspicion; they know it for certain, because when the dung hit the fan in 2008, instead of being bailed out, they saw their taxes being used to bail out the very masters that had caused the problem in the first place, while they, the little people, lost their homes and their jobs. And a few years later, when the government of a  certain little island in the Mediterranean needed more cash, they saw that government simply reach into the savings accounts held in its banks and steal the cash.

So when the banksters  issued that contract on the price of gold and it got whacked, rather than mourn and lament the price’s  passing, the little people cheered and charged.  You could almost hear them from around the globe:  "Get gold!  As much as you can.  The kind you can touch and bite and rub.  And then dig a hole in the cellar of your house and bury it like a squirrel buries acorns for the winter."

Because that’s another thing those little people know:  Squirrels might not be clever, but they have a lot of common sense.