Hedge fund manager Eric Sprott says there is nothing wrong with throwing a little money at a problem to make it go away.
"But what happens if you throw a lot of borrowed money at a problem, and the problem doesn't go away?" asks the bearish manager at Toronto-based Sprott Asset Management Inc. in a co-written monthly commentary.
"If you've ever experienced a situation like that, you can probably understand how Europe feels right now. It just unleashed a magnificent $1-trillion bailout and the market responded with a sell-off by the end of [last]week! "
Mr. Sprott argues that the markets' reaction is confirming that these bailouts provide next to no long-term value.
"They don't produce real jobs. They don't improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so a tremendous cost to taxpayers."
Gold's recent strength merely confirms the market's doubts over government intervention in the financial system, he suggests.
See his explanation of the three glaring examples of the busted "bailout and stimulate" formula in action.