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Source link: http://archive.mises.org/1114/new-book-on-bubble/

New Book on Bubble

November 17, 2003 by

I  recently purchased a copy of the book Why the Markets Went Crazy: And What it Means for Investors.  This book is by an English economist named Tim Lee.  Lee’s economic views are quite mainstream (not Austrian at all). Yet in spite of his theoretical handicap he manages to make a lot of interesting points.  He does get that the bubble was inflated by an excessive fiat money creation.  His explanation of this is very nuanced, taking into account the interplay between inflation expectations, low interest rates, Fed credibility, and the self-reinforcing nature of the bubble itself. Nothing new here to members of this forum but quite well done.

He devotes about half a chapter to explaining the role that the gold price played in keeping the bubble inflated.  He argues on behalf of the monetary properties of gold, the role that gold plays in financial markets as an inflation signal, a concerted central bank campaign to suppress this signalling property. The plan consisted of a selling program by the UK and Switzerland near the peak of the buble designed to have maximum impact on the price, bullion leasing by central banks, the obvious manipulation of the gold price after the Washington Agreement, and the fact that a rise in gold prices would bankrupt a number of the bullion banks. 

Posted by Robert Blumen

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