Voice

The Apocalyptic Sweet Spot for Gold Bugs

Your humble blogger occasionally likes to poke some fun at "gold bugs" -- those actors that decide to hoard gold and the commentators who misperceive the situation

I see I have some company this a.m., as the Guardian's Suzanne McGee puzzles out why people are continuing to hoard/buy gold despite its falling price: 

For centuries – even millennia – people have turned to gold in times of trouble. Its advantages remain numerous: it's ultra-portable (no matter how far they roamed, Marco Polo or famed Moroccan traveller Ibn Battutah could use gold to buy food and shelter for themselves and their camels); it's fairly lightweight relative to its value; it doesn't spoil over time. Heck, it doesn't even tarnish.

But gold is very different from other commodities in which people can invest. You can use corn to feed livestock or make Corn Flakes; copper has countless industrial applications, from power transmission wires to building material; and many of us rely on coffee to jump-start our working day.

Gold, however, doesn't have this kind of "fundamental" demand. Sure, die-hard fans of the precious metal will argue that the transformation of gold into jewelry represents a kind of end-user demand, especially in countries like India. The problem with that argument is that, for the most part, jewelry is simply a decorative form of gold coins and bars. It's still serving the same role: preserving wealth.…

So why own gold at all?

It boils down to fear – or at least, to emotion. After all these centuries, gold's price still depends largely on how people feel about other investments, wether [sic] they be stocks, bonds, real estate or industrial commodities – and how they feel about the broader economic environment. "Gold is a place where people go when they are scared of other assets," says Uri Landesman, president of the hedge fund Platinum Partners.

I'd even push back on the portability point somewhat -- below a certain level of value, the portability argument seems valid, but as any devotee of the fake game show Gold Case knows, "gold is heavy." The point is, if a real apocalypse happens -- the kind where law and order break down and cats and dogs start living together -- having a giant cache of gold won't do the owner much good. It's still pretty heavy and, to get all Marxist, has very little "use-value." 

Indeed, if you think about it, for gold to be a smart large-scale investment, you need a kinda sorta apocalyptic sweet spot. On the one hand, there has to be sufficient levels of discord and inflation fears for a non-interest-bearing asset to look attractive. On the other hand, there has to be sufficient levels of stability such that the gold can still be protected and used as a medium of exchange and store of value.

And looking at the last five years, one can see when exactly that sweet spot appeared to be met. 

I LOVE GOLD!!!!

So it looks like the immediate post-2008 years were the one time when it really made sense to invest in gold. There was just enough economic uncertainty and wildly exaggerated fears of inflation that it seemed worth it! 

The thing is, gold bugs tend to hold that precious metal for way too long … whereas sensible investors find interest-bearing assets that, over the long run, vastly outperform gold. 

Still, as talk of U.S. government default re-enters the lexicon, I'll tip my cap to the gold-buggers who, in October, might experience a brief uptick in their portfolio. But no matter what Glenn Beck tells you, remember -- for large caches of gold to be useful, the apocalypse can't go too far. 

Daniel W. Drezner

Why a Populist Grand Strategy Might Be Unpopular

I've written in the past about the disconnect between the liberal internationalism of America's foreign-policy elite and the more realpolitik worldview of the American public. With a flurry of diplomatic moves, as well as his stemwinder of a U.N. General Assembly address, it would seem that President Obama is signaling to the rest of the world that he's shifting closer to the American public's way of thinking on grand strategy.

Naturally, this means it's time for the news analysts to start talking about an "Obama Doctrine" again. Enter the New York Times' David Sanger:

His speech Tuesday at the United Nations signaled how what some have called the Obama Doctrine is once again evolving....

At the United Nations on Tuesday, Mr. Obama drove home the conclusion that he came to after his own party deserted him over a military response to the chemical weapons attack that killed more than 1,000 Syrians: The bigger risk for the world in coming years is not that the United States will try to build empires abroad, he argued, but that there will be a price to be paid in chaos and disorder if Americans elect to stay home....

Mr. Obama had absorbed some bitter lessons. His decision to stay on in Afghanistan had not enhanced the perception of American power in the region, and Libya, once the bombing was over, descended into new chaos. Mr. Gates said last week that he saw, in the Syria gyrations, a president absorbing the lesson of a decade of American mistakes, and coming to the right conclusion after the worst possible process.

“Haven’t Iraq, Afghanistan and Libya taught us something about the unintended consequences of military action?” [Former Secretary of Defense Robert] Gates asked.

The question left hanging now is when Mr. Obama will be willing to use force after five years of decidedly mixed experiences. His message now is that the failure of allies and regional neighbors to join with the United States has had a steady, corrosive effect on the American public’s willingness to act.

It's funny Sanger should bring up American public opinion, because the Times just ran a survey on that very question. With the obvious caveat that this is just one poll, let's dive in. As Sanger suggests, one would expect that the public should be delighted that their president is gravitating more closely to their position on the use of force. The results? Let's go to Dalia Sussman:

About half of Americans disapprove of the way President Obama is handling foreign policy, a new high as he confronts a diplomatic opening with Iran and efforts to remove chemical arms in Syria, according to the latest New York Times/CBS News poll.

Forty-nine percent disapproved of Mr. Obama’s foreign policy efforts, up 10 points since early June, and 40 percent approved.

The president’s negative rating on foreign policy has grown among Americans of all political stripes, with disapproval up 8 points among Democrats, 10 points among Republicans and 13 points among independents.

The poll also found that 52 percent disapproved of the way Mr. Obama was handling the situation in Syria. On his handling of relations with Iran, 39 percent approved, while 44 percent disapproved.

AHA!! Doesn't sound like the president's new foreign policy actions and words are all that populist to me!! In your face, Sang-- wait, what's this bit deeper down in the story?

On Syria, 82 percent of Americans supported the agreement between the United States and Russia to have Syria turn over all of its chemical weapons. Nevertheless, most — including those who supported the deal — lacked confidence that the Syrian government would do so.

Yet most Americans do not think that failure to comply is grounds for military action, underscoring the public’s deep resistance to involvement in the situation in Syria. The poll found that just 34 percent (including 46 percent of Democrats) support airstrikes against Syria if it does not turn over its chemical weapons, while 57 percent (including about 6 in 10 Republicans and independents) say the United States should not launch airstrikes against Syria at all.

This is interesting, and suggests two things about American attitudes towards Obama's foreign policy. First, one reason for the decline in American attitudes about Obama's foreign policy is that it's still not populist enough. In the run-up to Syria, the president brandished the threat of military force to enforce the international norm against the use of chemical weapons. The Times poll suggests that neither component of that policy sat well with the American people. Americans are happy that Obama agreed to negotiate, but they're decidedly unhappy that he threatened force in the first place.

Second, the poll suggests the ways in which a even a thoroughly populist grand strategy will not necessarily be all that... popular. On the one hand, it's clear that Americans approve of the president's decision not to use force in Syria after threatening to do so. On the other hand, Americans aren't naïve. They know full well that the odds of diplomatic successes in Syria and Iran are not great -- even if that's the option they prefer.

So, to sum up: Americans are deeply skeptical about the use of force, and pretty dubious about the use of diplomacy among adversaries. In other words, Americans remain stone-cold realists.

So what does this all mean for the future of American foreign policy? As I noted last year, Americans used to put up with military actions they disagreed with provided the outcome seemed like a victory. The post-Iraq, post-Afghanistan, post-Libya sentiment, however, has shifted the political constraints:

As Libya demonstrated, presidents still have some latitude when choosing to use force. The political risks for presidents to invest political capital into foreign affairs have clearly increased, however. Unless foreign interventions yield immediate, tangible results, Americans will view them as distracting from problems at home. If far-flung military interventions bog down, public support will evaporate. This will make any president regardless of ideology more risk-averse about projecting military power and persisting with it should difficulties arise. For strategic culture, this means a reversion back to the days of the Powell Doctrine and a continued appreciation for economic coercion.

Am I missing anything?