- And what do you
do? - I ignore the biggest bubbles in history, ma'am...
SO, LIKE the Queen asked, why didn't anyone
see it coming?
"At every stage," replied Professor Luis Garicano,
showing Her Majesty the LSE's new £71 million ($140m) faculty building in November 2008,
"someone was relying on somebody else and everyone thought they were
doing the right thing."
The British press snarled and barked at his sorry excuse for an answer. But
given a few days – and then a few months, and then a few years –
the economics profession finally got its explanation together...
"The simple response is that many people
did see it coming."
- Prof.Garicano, defending himself in The Guardian a week
"Many people did foresee the crisis...but nobody wanted to believe
- Open letter to the Queen,
summarizing a Royal Academy seminar of experts, July 2009
"The answer is extremely simple: no-one believed it could happen."
- Mervyn King, governor of the Bank of England, BBC Today lecture, July 2012
(no doubt reprising his own 2009 audience with Her Majesty)
So many people, such simplicity! But oh, so
much disbelief too!
Contrary to what celebrity-economists would have you think, most people did
in fact see the crash coming. Ask anyone you know. I promise they'll say they
knew what was coming. It's just that, well, they didn't do anything about it.
It wouldn't have been a crash if they had. Because they would have got out of
the way, or – if they had any say in the matter – they would have
done something (raising interest rates, trading more cautiously, reining back
lending standards) to stall the bubble long in advance.
But contrary to the professionals again, a few people most definitely did
believe it would happen. What else do you think drove the 150% rise in gold
and silver investing prices in the half-decade before Northern Rock blew up?
Reviewing global finance in the August 2007 edition of his Gloom, Boom & Doom
newsletter, Marc Faber – a long-time advocate of buying gold –
listed 13 clear warnings of trouble ahead, starting with the 2001-2006 period.
"Ultra-expansionary US monetary
policies," wrote Faber of Alan Greenspan's response to the Tech Stock
Bust, "with artificially low interest rates lead to bubbles all over the
world and in every imaginable asset class.
"First Warning: The price of gold more
That red line marks the credit crunch of 9 August 2007,
which all too rapidly for the all-knowing disbelievers became the Northern
Rock bank run of 14 September. Over the preceding half-decade gold and silver
had doubled in price. Over the following 5 years, they've both gone on to
So being early was smart – or lucky...or just doom-n-gloomy...depending
on whether or not you got in. But buying even as the crisis broke has seen
gold and silver investing deliver as expected, albeit with ugly swings in the
meantime just to keep new buyers on their toes.
"I realised early in 2007 that the economy was
going south," writes John, a BullionVault user
since September 2007. "I had an endowment that was going sour, so I
cashed it in and bought my gold."
Phillip, who also began buying gold when Northern Rock hit the headlines
– 5 years ago this Thursday – says that "The high level of
personal and public debt had concerned me since 2004, and I realised that there was only one solution: money printing
and currency devaluation. But it was only in 2007 that I found BullionVault and saw how simple it could be to own
"Given what's happened in the last 5 years," adds Armand, a British
user of BullionVault since September 2007 who now
lives in Spain, "I'm surprised more individual investors haven't bought
bullion as a direct result of the crisis.
"I'm not a doomer, it's a question of confidence. To me, owning gold and silver
is the only option in a financial environment heading for collapse in one of
two ways: rapid, unexpected hyperinflation, or a long, drawn-out
Now, that kind of gloom might sound all too common today. Newspapers and
their comments section are after all full of savers moaning about zero
interest rates, politicians panicking over money-printing, and economists and
investment strategists fretting about hyperinflation. But look again at the
first 5 years of this financial crisis. How many of the new know-it-alls
– who now say they saw it coming – have actually done something
about it, and chosen to buy gold or silver, the best-performing asset class
by a country mile since 2007's credit crunch began?
Sure, precious metals might be edging into the
presidential debate. But amongst investors and savers, they remain very much
a minority sport. No doubt because, quite simply, no one really foresees the
crisis continuing. And amongst those who do, no one believes it. Not enough
to take action.
To quote The Economist
Exchange blog, 11 September 2012:
"We have learned that in most situations
central banks are more than capable of controlling inflation on their own.
Markets [today] show no sign of a fear of looming high inflation."
Phew! That's alright then. Economists and the
financial markets don't believe there's a problem.