THE DOLLAR IS BACKED BY AMERICA, GOLD BY RAINBOWS:

Whatever the short-term turbulence, a more subdued price for gold (and commodities) bodes well for the future economy.

 

There is no end-of-the-world scenario here, as there was after the financial meltdown. Nor is there an end-of-the-U.S.-dollar scenario, as many investors fear, nor an end to euro. Nor is there any massive inflation scenario, supposedly from the Fed cranking up all those printing presses.

 

The reality is that all those QE reserves from the Fed never circulated through the economy. Most of them are on deposit at the central bank. Because everyone is still risk-averse, the demand for cash is so high that the turnover, or velocity, of money keeps falling.

 

Last I looked, the M2 money measure was growing at less than 7%. The Fed's favorite inflation target, the personal consumption deflator, was only 1.3% over the past 12 months. The much-heralded printing-press/roaring-inflation episode hasn't happened -- at least not yet.

 

The U.S. economy is growing slowly at between 2% and 3%, but at least it's growth. Profits have propelled stocks to all-time highs. Housing is gradually recovering. Jobs are erratic, but rising. Even the dollar is up over the past year against the broad trade-weighted index of currencies.

Follow @brothersjudd