If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Case for $2,500 Gold in 2012

In a recent New York Times editorial, Christina Romer, former chair of the Obama’s Council of Economic Advisors, essentially dismissed the view that manufacturing was a crucial component to any economy. Readers will recall my most recent essay on the boom in US exports, The Price of Growth, in which I also highlighted the skepticism of the economics establishment toward exports.

Subsequent to that essay, Annie Lowrey, the new reporter covering economic policy at the New York Times, wrote a fine overview piece that essentially echoed my own view: The US has a new industrial policy to bring back manufacturing and boost exports. The two are obviously inter-related. And it’s revealing how many mid-career professionals in America are completely oblivious to the newest thinking on the subject. Indeed, we are learning more about the crucial dynamic mentioned briefly in Part I, which is that a relationship between design and manufacturing requires a close physical proximity to flourish.

Here is Alexis Madrigal on the subject as early as 2010, in an Atlantic piece, Key Question: Can the US Innovate Without Manufacturing?

An audience member asked a simple question with deep implications: if manufacturing continues to move offshore, can the United States continue to innovate? The premise behind the question, as Splinter explained, is that manufacturing isn’t just where ideas are put into practice, but a key part of the innovation ecosystem. (He should know: he once ran Intel’s top chip fab.) It’s possible, the question suggested, that the factory itself is a site of innovation because the people closest to the work of building things know how to make them better. That view is a challenge to the simplified idea that research, product development, and manufacturing are discrete steps.

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Between you and me, I think I’ve shown that the US is only at the very start of a long road back to recovery, which will not only establish a New Normal, but will have to include exports, manufacturing, and an economy with less surplus capital. The same holds true for the other two major players in the OECD puzzle, Japan and Europe.

So what does this mean for the financial markets, and in particular, gold?