Magical thinking seems to be a basic human trait. There is some innate optimism that makes us think that we can “defy the odds.” There is no better tribute to the power of magical thinking than Las Vegas.

I used to be quite a gambler myself. For some reason I thought that some Higher Power would make the dice hop down the table and come out my way. I didn’t just think that I might win. I EXPECTED to win. Sometimes I did and sometimes I didn’t. But my intellectual understanding that the odds were against me never shook the feeling that I was going to get lucky.

I eventually learned, however, that my wishes and desires are not a factor in the way things turn out. I still like to gamble, but now know that I need to be “lucky” and (a) it won’t happen more often than it will, and (b) whether it happens or not has nothing to do with me. It’s simply part of the laws of probability that sequences favorable to the player will occur in the short run, if you are in the right place at the right time. But all the rabbits feet in the world won’t make that happen if it’s not your day.

I say all of this to introduce a sad reality — that a bull market in gold is the harbinger of economic problems. To put it another way, if gold goes to $2500 an ounce it will do so in the context of a much altered and very troubled world. It will probably mean that people’s wealth is being rapidly eroded by powerful inflationary forces and that the poor and those on fixed incomes will (as usual) suffer the worst. It might signal a collapse of the international monetary system and a worldwide depression. Whatever it is, it won’t be pretty.

I have decided, however, that I won’t feel guilty for, as they would say in craps, “betting the don’t.” I am not rooting for all these troubles. I am just investing in accordance with a reality that I did not create.

It is possible, of course, that there could be a positive economic turn of events and that gold would languish or even crash. But that would entail a flushing out of the massive debt in our economy. It would require money to become valuable again and that, in turn, would require money to become “tight.” Many many people would lose their homes and businesses and the country would slide into a major recession or even depression until the system repairs itself. Those are simply the wages of economic sin. Debt must either be defaulted upon or paid. There is no other option.

In my opinion that scenario is highly unlikely. There is no one with the political will to pay that sort of price. Money printing and deficit spending are much easier than budget cutting and monetary tightening. Beyond that, Fed Chairman Bernanke, a student of the Great Depression, will not want to be known as the man responsible for another one.

The likely outcome will probably be the usual: inflation. Rather than suffer defaults on the mountain of debt it will just get paid off with cheaper dollars. Will there be a repeat of the hyperinflation of the 1920’s in Germany? Probably not. Just a long sickening slide into economic mediocrity with people having their pockets picked by inflation day after day and week after week.

As for gold, it will, as always, be the ultimate money. Gold may fluctuate in price when reckoned in terms of printed money, but it will never become valueless.

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