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The FED Has No Idea About Gold....Or Anything

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I am currently taking a course in econometrics, which is the “naive attempt by mainstream economists to make economics seem like a hard science.” If one isn't careful in obtaining what they thought was an economics degree, they may end up knowing quite a bit about applied mathematics and very little about economics and what little they know is dreadfully mistaken. 

 

An alumnus who previously worked for the U.S. Federal Reserve came in as a guest lecturer this week in this applied math course of mine. It was a rather uninspired lecture regarding some of the statistical methods used by the Fed. Surprisingly, he admitted the woeful limitations of the models that they create and also how poor they are at predicting anything. The next thing that he said demonstrated why.

 

He said one of the current projects at the Fed is creating a model that will project the crash of gold! The implicit assumption, or what’s necessary for this to happen, will be a dramatic decrease in the price of gold relative to the dollar. The only way I can imagine this happening is if the dollar increases in purchasing power, or at the very least holds its value (since its inability to hold its value is one of the main reasons gold is so attractive in the first place). What I cannot see happening is both gold and the dollar decreasing in value with gold decreasing more quickly than dollars.

 

Perhaps his assumption is due to misconceptions of why people buy gold: are they speculating or are they hedging? This misunderstanding will lead people to the misconception that gold will crash. Also part of this is the Fed’s total misunderstanding of what causes bubbles in the first place.

 

Would the claim that one would be better off believing the exact opposite of what the Federal Reserve says be hyperbolic?

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