Posted on 07/18/2011 9:28:02 AM PDT by milwguy
As Ludwig Von Mises once famously postulated ...."Paper is the only commodity that government can render worthless merely by applying ink".
In our current economic environment, our merry band of incompetents, Obama, Benranake, and Geithner are intent of proving Von Mises correct.
In his testimony before Congress last week, Bernanke got into an argument with Ron Paul about his overuse of the gov't printing presses. Bernanke actually told Paul that 'gold is an asset, it is not money".
This kind of hubris by the man charged with running the Federal Reserve has been noticed by the rest of the world, as evidenced by the spike in gold prices since Helicopter Ben made those comments. Gold shops in the Orient and developing countries are being swamped with buyers, even with gold at $1600 an oz. Obviously nobody has told the Chinese man on the street that gold is not money.
One need look no further than the current race to the bottom in terms of fiscal recklessnes between Europe and the US to see that the rest of the world has figured out that PAPER is NOT money, and tangible assets like gold and silver are.
I lost a good deal of money two years ago betting that that Boy King Barry's stimulus would have to result in a spike in interest rates. How could gov't print that much money and throw it into the economy without igniting inflation and thus making interest rates go up?
In my calculations, I forgot that the 'bond vigilantes' who have served in the past to punish countries who are so reckless with their monetary policy would be trumped by the Federal Reserve. The Fed bought up bad mortages, US Treasuries, and anything else they deemed necessary in order to keep interest rates at 0. The 'bond vigilantes' were not strong enough to fight the Fed. Greece or Portugal are one thing, the US debt market is another animal altogether.
Given that the Fed operates outside normal rules governing monetary physics, how can the rest of the world show their displeasure with US monetary policy. If the Fed can buy all the debt Barry and his miscreants can piles up, what other option does the rest of the world have?
If interest rates were not suppressed by the Fed., how high would they be right now? The answer is too high for the US Treasury to finance without cutting off the military, senior citizens, etc.
Since the US Gov't is 'too big to fail', and the Fed controls the debt market for US Gov't debt, the bond vigilantes' have decided to branch out into gold and hard assets. Soros, who made a fortune betting against the British Pound, has in the past couple years gotten big into gold. Central Banks, especially China, have increased their gold holdings dramtically.
The biggest change is the 'mom and pop' investors around the world who see inflation ravaging their savings (India, China, etc). While Helicopter Ben and the gang at the Fed claim inflation is not on the horizon, the truth is that high oil prices and the rise in gold are a direct result of our failed monetary policy. We have exported inflation to developing countries, but that is only temporary, because high oil prices are really starting to feed into the entire US economy now.
My conclusion is that as long as the Fed keeps up its manipulation of interest rates and keeps funding Barry's prolifigate spending, gold will continue its rise.
I had hope that the republicans would grow a pair and stand up to this budgetary and monetary madness, but it appears McConnell is in the process of caving. If that happens, and no real budget cuts come about, look for gold over $1750 by September 1.
Somebody out there might be paying 1700/oz for gold in the near future but it won’t be me. The perceived value of gold is based entirely on psychology and psychiatry and not on economics or physics, it’s easy to steal and, once stolen, easy to simply melt down and recast so that it has no history or traceability. The idea of basing money on gold didn’t work in the past and would work a lot worse now for any nation stupid enough to try it.
Actually he got the quote wrong. “Government is the only entity that can take a valuable commodity like paper and make it absolutely worthless by adding ink.”
The value of gold, like value of anything, is based on the price a willing buyer will pay for it. Gold is over $1600/oz because buyers everywhere, via market mechanisms, have determined that’s what it is worth. It is more a reflection on the decreasing value of the dollar than anything else.
“it’s easy to steal and, once stolen, easy to simply melt down and recast”
Gaddafi is sitting on 144 tons of gold in Libya. What
happened to the wealth in Iraq? Like I said before, it’s
all in the commodities now. The ultimate value for the
dollar will be tons per ounce of gold at the recycle center.
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