America is more bankrupt, leveraged and vulnerable than Europe. And to finance its debt, one branch of the state (Treasury) borrows money from another branch of the state (the Federal Reserve) and everybody thinks this is the norm -- they call it quantitative easing (QE) as the Fed embarks on a third round of quantitative easing which could eclipse the first one's trillion dollar cost pushing America closer to the fiscal cliff on their mountain of debt. America's debt as a share of GDP excluding the debt of Fannie Mae and Freddie Mac is already over 100 percent. Although the cost of servicing that debt is only 1.4 percent of GDP because of low interest rates, half of America's debt is in foreign hands and so interest rate levels around the world are important. If America had to pay the rate of comparable sick countries, say six percent, the debt burden alone would exceed the spending on Social Security, Medicare or national defense. ...
To avoid such woes, the world needs a currency backed by assets, not by faith. Gold of course, reached a record high just a year ago and flirted with the old highs last month. Throughout gold has risen against all currencies, especially the dollar. Gold's stellar performance is due more to the fact that the dollar has fallen in terms of gold. Gold's performance is a measurement of the world's view of the dollar value which is weakening with every printed IOU. Gold is simply an alternative investment to the dollar by central banks and savers alike. As a result, hopes have been raised for a new order with a return to a gold standard. Nostalgia buffs tell us that a gold standard simply limits the central banks' ability to print money in unlimited quantities. True, but is it practical today?
The idea of a gold standard is enjoying a renaissance because it takes policy away from central bankers who lately are more adept at printing money in copious quantities, than maintaining the value of their respective currencies. And that is the problem. Empty promises show empty results. We believe that a return to a gold standard is less radical than the helicopter money printing exercise of the Fed which has fueled the public's distrust of politicians, central bankers and money. The relentless pressure from the markets leaves governments little breathing space to implement the difficult and controversial measures needed. Needed is a reliable store of value. Even the state of Utah has recognized gold and silver as official means of payment. Monetary financing of governments has to become more conservative and dependent upon reserves and their currencies must be anchored to some system which they can respect and cannot duplicate. America's biggest creditor, China is now actively pursuing alternatives promoting the cross-border use of the renminbi in trade and investment. The People's Bank of China once commented, "to prevent the deficiencies in the main reserve currency, there's a need to create a new currency that's delinked from the economies of the issue." Next? Gold.
To avoid such woes, the world needs a currency backed by assets, not by faith. Gold of course, reached a record high just a year ago and flirted with the old highs last month. Throughout gold has risen against all currencies, especially the dollar. Gold's stellar performance is due more to the fact that the dollar has fallen in terms of gold. Gold's performance is a measurement of the world's view of the dollar value which is weakening with every printed IOU. Gold is simply an alternative investment to the dollar by central banks and savers alike. As a result, hopes have been raised for a new order with a return to a gold standard. Nostalgia buffs tell us that a gold standard simply limits the central banks' ability to print money in unlimited quantities. True, but is it practical today?
The idea of a gold standard is enjoying a renaissance because it takes policy away from central bankers who lately are more adept at printing money in copious quantities, than maintaining the value of their respective currencies. And that is the problem. Empty promises show empty results. We believe that a return to a gold standard is less radical than the helicopter money printing exercise of the Fed which has fueled the public's distrust of politicians, central bankers and money. The relentless pressure from the markets leaves governments little breathing space to implement the difficult and controversial measures needed. Needed is a reliable store of value. Even the state of Utah has recognized gold and silver as official means of payment. Monetary financing of governments has to become more conservative and dependent upon reserves and their currencies must be anchored to some system which they can respect and cannot duplicate. America's biggest creditor, China is now actively pursuing alternatives promoting the cross-border use of the renminbi in trade and investment. The People's Bank of China once commented, "to prevent the deficiencies in the main reserve currency, there's a need to create a new currency that's delinked from the economies of the issue." Next? Gold.
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