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Gold (ETF:GLD) is one of the most fascinating and talked about assets on the planet. There are more conspiracy theories and story lines behind gold than just about anything on earth. Heck, the followers of the asset even have their own club: the goldbugs. You can't go a day without seeing a commercial about gold. If you google "buy gold" you get almost as many results as if you search "buy real estate" (15.4MM vs 16MM).
But gold has been acting funny lately. The conspiracy theories have been running even crazier than usual (from government conspiracy to backwardation) and the goldbugs are angry. As the world economy deteriorates and the U.S. prints money like it's going out of style, gold has not appreciated. If you had told me in December of 2007 that the global stock market would fall 40% in 2008 I would have told you to buy gold and nothing else because of its safehaven characteristics. But a funny thing happened on the way to the demise of the global economy: Gold fell.
After rallying into the second quarter of 2008, gold went on a gut wrenching 6 month decline of over 30% - all in the midst of one of the greatest financial collapses ever. It was, if nothing else, quite a paradox. Even crazier, the US dollar stabilized and then rallied into the end of 2008. Why did this happen? How could gold fall in such an environment?
Gold remains an anti-dollar investment. It's as simple as that. When you buy gold you're essentially buying a hard asset currency with the hope that one day it will become the world's choice of currency again. If the dollar (UUP) weakens or one day fails the likelihood of a gold based currency increases. In essence, buying gold is a way of betting against the greenback and U.S. economic dominance. You can argue the extent of my argument, but you can't really argue with the inverse correlation in the two assets:
Click to enlarge
The correlation is clear. If you're betting on a rise in gold you're betting on a falling dollar. I've been banking on a higher dollar for over 6 months for one reason: it's the best currency in a bad lot. Jim Cramer should change his area of expertise to currencies, because while there isn't always a bull market in stocks and commodities, there is always a bull market somewhere in the currency market. Trades are paired in Forex and unfortunately, it's hard at this time to make an argument in favor of other currencies over the greenback. And as long as the greenback remains strong it's unlikely that gold will make any sustainable run.
So why is the dollar the best of the worst? It's quite simple in my mind. Two major currencies on the planet now effectively bear zero interest: the dollar and the Yen. Of the two, the U.S. is the far superior economy. In essence, neither country can really devalue their currency all that much more unless they decide to print money to the point of insanity and although I believe the U.S. is printing wildly I am not incredibly alarmed as of yet simply because the destructive deflationary forces at work are so much greater than the inflationary response by the Fed. Inflation is certain to rear its ugly head in the coming years, but I suspect it will be relatively mild as the economic rebound is slow and the overall monetary destruction of this deflationary phase proves to be incredible.
So, getting back to the greenback - the U.S. was first to enter a recession and it now looks like the world is catching pneumonia from our cold. Unfortunately Europe and Asia still have relatively high interest rates (read: room for currency devaluation) and simply don't carry the same status as the U.S. - we are the reserve currency and the only true AAA nation. Yes, you can certainly make the argument that the U.S. is no longer a AAA rated country, but if we're AA then what does that make Japan (the world's second largest economy) or Germany? Much worse, in my opinion.
So what we're seeing is essentially a flight to quality in a time of financial distress? Yes, that's right, the U.S. dollar is a higher quality asset right now than just about any currency on the planet. And if you're a U.S. citizen you should be thanking your lucky stars it's THE reserve currency because this crisis would likely be even worse if that wasn't the case.
So, before you go placing bets on gold it might be better to research the greenback first.
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This article has 81 comments:
The US economy has run commercial deficits since the early 1980s. Germany is the largest exportator in the world and Japan is not shabby easier. I don't believe that all the entrepreneurial energy in the world can make up for shabby infrastructure, a spendthrift culture, and a semi-literate population.
Perhaps this is American's last hurrah?
Perhaps we will me more careful in the future to lend to individuals who can pay money back.(mortgage holders) We also should learn creating war is another way of over-leveraging an economy.
Fasten your belt this is going to be a rough ride. Anthony J.
If one was planning to take out insurance against the US government going bankrupt and the dollar collapsing who would be a reliable counterparty?
I am sure coming out of this crisis will be beneficial for the dollar, despite the threat of inflation. We'll have tighter credit, leaner spending habits, and some controls over money creation.
World reserve currency - hah
The fact is that America was lucky (and Europe and Asia stupid) with WW2. Of course that was long time ago and times have changed. Now the US has blew it. Have fun holding $ while it lasts. My guess is that in 5-10 years from now the $ will no longer be reserve currency. If I were China I would declare war on the US for all that printing, while the Chinese earned their $200 billion the hard way. This is a rip-off!
About your triple-A rated country - it has defaults already in 1971, if you dont remember.
God save America ;)
At some point the demand will increase to the point where there is no bullion availabe for sale. Were close to that point now with the long waiting lists to purchase any form of gold or sliver under 100 ounce quantities.
I buy it as a form of insurance that my retirement will be secure. If it isn't needed, I still have the metals and will be able to sell them probably for more than I paid for them.
However, with the huge deficits run up by the Bush administration and now even larger deficits on the horizon from the Obama administration, I find it difficult to believe that we won't have massive inflation. Just who in the world will buy our treasury bonds? China and the Saudis don't want them. In fact they are buying large quantities of gold. With the arabs looking to start a new bank and a new currency just what will that currency be based on? My bet is that it will somehow be linked to the precious metals. That will be the currency that oil will be priced in after the dollar falls from it place as the world's reserve currency.
Once we are out of this mess a strong dollar and a corresponding consumer demand for luxury goods will be good for gold. Look to the long term value in gold, not the short term gold hype.
On Jan 08 07:13 AM GORILLA800 wrote:
> But all fiat currencies are basically worthless and the dollar wins
> by default .Not a great reason to be in fiats.
According to this article: www.todaysfinancialnew...
Schiff puts it in plain terms: "Paper dollars are technically Federal Reserve Notes, which means they are liabilities of the Fed. When it puts newly minted notes into circulation it does so by buying assets, usually U.S. treasuries, which it then holds on its balance sheet to offset that liability. By swapping treasuries for mortgages, the Fed effectively alters the compilation of its balance sheet and the backing of its notes."
If you then look at the chart presented here:
www.frbatlanta.org/eco...
you can see that the quality of the securities backing your fiat FRN's has been drastically reduced over the course of this crisis, since the Fed has loaned out (swapped) its Treasuries in exchange for mortgage-backed securities in an effort to prop up the quality of the balance sheet of member banks. It has probably engaged in these swaps at face value (otherwise they wouldn't have had the desired effect), trading a $Billion in Treasuries for a $Billion in MBS or other junk "for which there currently is no market".
If you wish to place your life savings in a debt instrument currency that is ultimately backed by the ability of a landscaping employee in California to pay off his $600,000 mortgage, be my guest. The fact that our fiat doesn't suck as bad as anyone else's fiat should provide you sufficient comfort to be able to sleep at night.
All other things being equal, cash is a good hold in a depression. But we now have an activist Fed who has taken the bit in its teeth and run out of the ring. Dollar bulls should watch this recent Bloomberg interview with Bill Poole:
www.bloomberg.com/avp/...
Pay special attention to the part where he says:"The Fed has been encouraging the bond market to think the Fed is going to be in there supporting Treasury Bond yields. That can't be because the implications of that commitment are too simply horrendous to think about."
Or perhaps six months of worsening economic data would convince a few major players that a long-term depression is unfolding, and that seeking a safe harbor would be wise. Or perhaps it will become conventional wisdom to have 5% (or more) of ones assets in gold. If this advice were widely accepted, it would gradually move gold's price up. (This trend is already in operation, on a small scale.)
On Jan 08 09:44 AM John Polomny wrote:
> The only problem with your analysis is that gold has been up every
> year for the last eight years. That includes the 4.8% gain last year.
> Your analysis that the dollar is the best of a bad lot is correct
> however a paradigm shift is slowly occuring. Every fiat monetary
> system in history has failed and this one will also. One most keep
> in mind that just because something is certain doesnt mean it is
> imminent.
To save itself it is debasing its currency. The rest of the world recognizes this and, rather than let theirs rise, are debasing along with them.
The yardstick that will measure ultimate decline is the oldest and most trusted standard in the world.
Gold.
Yep we’re AA alright – my name is the US dollar, and I’ve been a debtor nation for over 20 years.
The government has take and or supplied banks with 8.5 trillion in 2008 alone. The banks are failing and will continue to fail this year at an accelerated rate. Huge stimulus packages will need to be implemented and frequently.
The government is supposed to finance about 40% of its existing debt and about 2 trillion of new debt next year. Who is going to pay for these bonds at 3% interest rates. We were consuming 2/3 of the worlds savings in 2006 and now we are asking for more than twice as much at the same time importing fewer goods. There will be less imported dollars to buy these bonds with. The foreign countries will need to print more money just to buy these bonds and incur inflation in their own countries.
Finally, the US not the only player in the game. There are many others now, although not as large, that are significant in size. There are other gold and silver exchanges now and the US government will have a hard time controlling them. Inflation in other countries will cause their population to reach for gold as a safe haven for wealth. Besides when the true extent of the corruption of the US stock markets becomes known the US will no longer be viewed as a safe haven for investments. We may, in the future no longer, be the only large center for world finance.
Oh really? Which is the more highly leveraged? Japan didn't fall so far into the trap, since it was still digging out from its own banking issues of the last 10-15 years. And who has more manufacturing capacity? The U.S. has become a largely service-based economy. I don't know what your definition of "superior" is...but I'd suggest you find a more objective one!
I think Carl is right on. Yes, gold is a good investment. But, we may see a prolonged period of deflation and deleveraging. Dollars are disappearing. They have to in order to reboot our banking system. Anyone doubt it's highly over leveraged? Anyone thing reserve banking can support infinite debt? Nope. As in a related article on SA, recessions are necessary. This crisis is necessary.
The dollar has been slowly depreciating against the euro for a decade, due in large part because we created so many of them.This is unwinding. Now, what better happen, and I am hopeful will happen, is the fed and the Government will take this opportunity to get a handle on money creation. In the coming decade or so, we will not have the excessive easy money of the Greenspan years.
But, reigning in the money supply will take time to come about. It will probably happen after deflation eases and inflation kicks in. Yes, we may see a period of inflation, maybe hyper inflation. But, when? This is the question. I am betting Bernanke will fight inflation as aggressively and as creatively as he induced it.
A fiat currency earns it strength through government enacting laws stating it will be used as a medium of exchange. One can go to jail for not accepting a dollar in commerce within the US. Externally, the dollar has value not because it is backed by anything, but faith the government will not alter it's value significantly. Ok, argue the Fed is inflating like mad men. Yes, they are. But, so are other nations inflating. And dollars leveraged are disappearing. So, the net change in value depends on supply, which has both diminished and grown.
I've had my windscreen washed at traffic lights. And China is not going to declare war on the US or dump it's reserves. Did you get that info from a gold bug blog? China is a lot of things, but it's not stupid. I wish Jim Cramer well on his investments there...LOL. Think the dollar is weak, try the yuan. Now, there is a conspiracy to debase a currency. Look, China is already suffering millions of lay offs and reversed flow from the urban job market. And all this from a US recession.
User is correct. Beggar thy neighbor has begun. It almost has to.
Yes, there are some major differences between Japan and the US going into QE. They complicate the results we can expect.
By all means, buy gold and hold into it. I say, buy the actual metal, not promises of future delivery. But, why does it seem every gold bug can find reasons to thwart the dollar and give examples of investors scrambling back to the cliff? I guess we find ways rationalize what we want to believe. (also guilty as charged.) It gives us hope and something to talk about over dinner...
China will just have to make do on single digit growth in the coming decades. And you guys holding a lot of gold will do just fine. So will the dollar...once the trash is taken out. But, it will be a bumpy ride. Anyone following the volatility in the currency markets? Jeeez, I feel like giving up.
If we're superior then why do we need to borrow money from the inferior Japanese Economy just to stay afloat?
The U.S Economy is a Ponzi scheme that is rapidly falling apart.
On Jan 08 01:28 PM bosun.j wrote:
> China just began settling international trade in Yuan. As you know
> the Chinese never do anything on a "trial basis". China's longterm
> goal is to break American hegemony. I'm glad they are. It's well
> past time somebody did! China will be the world superpower in my
> lifetime.
tyo.ca/islambank.commu...
Especially this line: "Once established, the GCC leadership may decide to invoice their hydrocarbon sales in the new common currency, moving away from the current dollar pricing system."
The current predicament is worldwide and the perception is that the US economy will recover first. With that in mind, the future of the USD is related to the future predictions for US economic recovery.
The Deflationary conditions currently in place have not had time to filter into our economy, but some signs are certainly visible to all: Milk/gallon $2 vs $3, Gas less than $2 vs over $4, housing, rentals, etc.
As long as the dollar remains strong and if it gets stronger still, regardless of reason, Deflation is the result.
All imported products will eventually cost less. The Japanese may be an exception of the Yen's valuation but otherwise, the USD is in the process of importing deflation as well as experiencing it internally.
IMHO
I think you are wrong to focus on the deflationary pressures you point out. It's not those that I fear, it is the Fed's response to them. I am not the only one who is afraid; as I pointed out just above, the Chinese and the Gulf States seem anxious to denominate their trade in something other than dollars.
It is time for someone to wake up and smell the coffee .....
I Know all of this "fiat" money is going to cannibalize the future and lead to hyperinflation. I expect that will be higher than the previous round.
The attempt to curtail that inflation? I'm more afraid of that than anything else. Will Interest rates have to rise to 25%? How far down will the USD drop or the Stock market?
2-3 years down the road on the present path, Gold may well approach $1500 and oil $200. BUT not now.
GOLD ANNUAL CHANGE
USD AUD CAD CNY EUR INR JPY CHF GBF
2001 2.5% 11.3% 8.8% 2.5% 8.1% 5.8% 17.4% 5.0% 5.4%
2002 24.7% 13.5% 23.7% 24.8% 5.9% 24.0% 13.0% 3.9% 12.7%
2003 19.6% -10.5% -2.2% 19.5% -0.5% 13.5% 7.9% 7.0% 7.9%
2004 5.2% 1.4% -2.0% 5.2% -2.1% 0.0% 0.9% -3.0% -2.0%
2005 18.2% 25.6% 14.5% 15.2% 35.1% 22.8% 35.7% 36.2% 31.8%
2006 22.8% 14.4% 22.8% 18.8% 10.2% 20.5% 24.0% 13.9% 7.8%
2007 31.4% 18.6% 10.4% 23.0% 17.9% 17.5% 24.7% 21.5% 29.2%
2008 5.8% 32.5% 32.4% -1.1% 11.9% 30.4% -14.9% 0.2% 44.3%
AVG 16.3% 13.3% 13.6% 13.5% 10.8% 16.8% 13.6% 10.6% 17.1%
Any investment still returning an average of 10% – 17% percent after this past eight years is a winner in my book.
Regarding backwardation, it isn’t a theory, it is a fact due to a drawing down of physical inventory. So many people were taking delivery in December that the price of gold for immediate delivery dropped below the future prices.
“If you had told me in December of 2007 that the global stock market would fall 40% in 2008 I would have told you to buy gold and nothing else because of its safe haven characteristics.”
Any investment including gold requires attention be paid to the dynamics of: money, markets, and the economy. Broad trends are one thing; timing is another. The Nasdaq crashed in March, 2000, and the Fed did what it always does. It lowered interest rates and increased the money supply. But, gold did not jump right away. Gold was only up 2.5% in 2001. It takes a while for increases in the base money supply to manifest in broader measures of money supply, price inflation, and the price of gold. Don’t expect immediate results in 2009 until the credit freeze begins to thaw or foreign governments begin to dump dollar reserves.
”[Gold fell, and the dollar rose.] Why did this happen?”
The dollar rose in a counter-trend rally because the banking sector tightened credit and the market crashed. No credit meant businesses, hedge funds, and individual investors had to raise cash to operate and service existing debt. Weak investments were sold first, then stronger investments. Everything fell except cash and 5-10 year bonds. Gold fell as hedge funds sold stocks and futures to raise cash, but it fell less than most stocks. Forced selling led to demand for dollars, raising the value of the dollar. Gold is now still off its peak, but the only thing that outperformed gold year over year in 2008 was 5-10 year bonds.
Gold IS the anti-dollar, but it doesn’t rise on increased Fed Base Money supply alone. There must be evidence that the base money is finding its way into the economy via lending and multiplication due to fractional reserve banking. Currently, there is little evidence the base money increase is going anywhere except to bolster bank reserves, pay executive bonuses, and buy out other banks.
“When you buy gold you're essentially buying a hard asset currency with the hope that one day it will become the world's choice of currency again.”
Sort of, but not really. Gold need not ever become the world currency of choice to protect against several dangers. All that is required is that people remember gold is easily concealed, portable, a store of value and insurance against: inflation, loss of confidence in paper assets, and civil unrest.
So, your basic premise is basically correct, to understand where the price of gold is going, the dollar is important. But where is the dollar is going and when? That is the question. Right now, I would bet all paper currencies will see renewed inflation in the second half of 2009, but nothing in life is certain.
Times require that we be wary and maintan our composure. Good Luck
On Jan 08 06:54 PM Mike10613 wrote:
> Two options spring to mind. Buy gold from a bullion dealer - it will
> probably double in value in the next year. If you can buy pounds
> sterling! It will increase in value against the dollar; especially
> if the FEDS printing presses - that priint greenbacks happen to breakdown!
Paul is correct about perceptions of the US economy recovering first and the strength of the dollar. But, there is more to it and it's deflation related.
SW, that's interesting (good subject for further research.) But, can you imagine the strength of the yaun if this were true? It appears to be against China's interests. With China's huge exports, to settle in yuan means a lot of yuan will be repatriated. China cannot inflate it's way out of that appreciation. And if it tried, would you invest in yuan based assets?
Look, if the Gulf states developed their own regional currency, fine. It will suffer such appreciation too and oil prices will go through the roof. I know they'd love that, but... Regional currencies have inherent weaknesses in that they are dependent on the performance of member states. The euro has this weakness, too.
Furthermore, the euro will never displace the dollar, either. EU demographics are all wrong and the EZ could not sustain the resulting huge trade deficits and currency appreciation. Nope, the dollar is poised to remain the world's reserve currency. It's the only one with the strength to do so, despite this correction.
As for the blog above stating the Fed is trading paper for MBS's, I don't know if this is much of a problem...backing dollars in real assets rather than promises. Okay, yes, the assets are worth less and falling in value. But, at some time in the future, the housing market will recover. So, balancing the Fed's books with worthless securities today may prove beneficial in a few years.
I still feel most gold bugs tend to not get the point (I may be wrong) the dollars created from decades of excesses are actually disappearing as deleveraging progresses. The question is, how far will this go? This will help determine the value of a dollar in years to come. The proverbial dam has sprung a leak and Bernanke has his fire hose trying to refill the reservoir. He can't keep up, especially with banks hoarding cash.
Now, I am not saying don't by gold. It's a great investment. But, what I am saying is take into account the dynamics of the dollar. We have to put our love for gold and dollars...and country...aside, as one blogger said, and face reality.
Ah, there goes my credit rating. Supporting the dollar always knocks off a few points in "gold" posts...LOL
Think about it. We had a 6 trillion dollar deficit. It's supposed to go to 13.
13 -6 =7!!!!! Now why manipulate price of gold. Logical, they let gold loose the cat's outta the bag. People be running to gold, not dollars. US wants all it's dollars back before implementing.
If this is true WOW!!!!
Since I think inflation will be much worse, it may take that much more to stem it. I will expect the dollar to be dropping steadily at that point. My target is 40-50.
For now however, the deflationary perception will continue to rule.
Kitco.com has a section devoted to Gold Precious Metals. In that section you will be able to read excerpts from various Gold related Newsletters, Faber, Ruff, Aden Sisters, etc.
Read what they have to say about the USD and Gold.
Gold has not yet felt the full extent of the rise in the Dollar and as both the CPI and PPI headline numbers come out in the future, I expect the deflationary trend to manifest itself further. (Headline not Core)
PS Petrol in Europe, Ex-Taxes, costs about the same as it does in the USA. The Europeans made a decision a long time ago to force their citizens to use more efficient, higher mileage cars. I do not know what the tax rate is currently but imagine it is still more than 50%.
Nobody was predicting in 2008 for oil to drop to where is now when it was trading at $140
With the US economy tanking, predictons were for the US$ to drop...it rose.
When gold was at $1000 last year, predictions were for a fast rise to $2000, it also dropped.
Now, I have been hearing predictions of stocks to advance since all the bad news is "out", really?! Is it?! How long will the advance run?
I don't think anybody really knows what they are talking about.
If we are all to start using gold and silver as currency instead of fiat money, how does one check against counterfit coins or bars? Hell, if a dollar bill can be printed up counterfeit so well as to fool the average person, then counterfeit gold and silver coins, plated or otherwise would surely start being produced. Just a thought. Dont get me wrong, I firmly believe in buying gold, but more so silver. Gold is too expensive even now to be buying it to use as currency (if you believe in fiat collapse). One ounce of gold in a coin is $850ish. Buy it as an investment, but silver would be easier to use for day to day purchsases.
I think I will enjoy taking my vacation in Mexico next week, paid for with my "dollar", while it still is worth something. You should do the same. I think that is the best advise I have read so far.
Therefore, it appears the Pragmatic Capitalist is either ignorant of or in denial towards key material information or is complicit in the rig.
At all times and in all circumstances gold remains money. It has always proven to be the most powerful currency in the history of the world. Why should it be any different this time? Sure, the FRN$ is putting up a rather strong 38 year fight but gold is undefeated over the past 5,000 years. The FRN$ is on its way to fiat currency graveyard like all of its predecessors and when viewed in proper historical context the FRN$ will be yet another immaterial challenger to gold's dominance as a currency.
Gold only has real value when it is converted into currency.
Besides- we don't really know if the gold we invest in actually exists. What is to prevent a company from buying $100 million worth of gold, sell securities tied to it, and then sell the gold out the back door?
Trace is right about gold, too. It has stood the test of time. No arguments. Get some.
Bruce, you are exactly right. I've argued Bernanke is trying to unstick the credit markets by flooding it with dollars and removing the logs. Absolutely. Any better ideas? Gold bugs, speak up...
Velocity will be out of control, thank you for saying that. Interest rates don't create money so much as provide lubrication to the wheels. But, the Fed, despite pop fiction believe to the contrary, is nto stupid. they will fight it when it shows. By then, the MZM supply may have shifted to bank reserves. Oh, yea, inflation threat is real.
I realize I may have misspoken about the yuan. Contracts to China are settled in yuan, so demand for the yuan is already there. It's the printing of new yuan and buying dollars that have filled China's reserves.
EU Petrol, (Ex-Taxes) is NOT anywhere near the prices in the USA.
US Petrol, (Ex-Taxes) is 4 times cheaper.
CH Petrol, (Ex-Taxes) is 3.2 times cheaper than EU prices.
(I live in Switzerland and compare frequently ! )
But Paultaut is correct: Petrol Tax represents more than 65% of sales price!
On Jan 08 11:50 PM Paultaut wrote:
>PS Petrol in Europe, Ex-Taxes, costs about the same as it does in
the USA. The Europeans made a decision a long time ago to force their
citizens to use more efficient, higher mileage cars. I do not know what
the tax rate is currently but imagine it is still more than 50%.
I was in Lithuania in June of 08 and diesel prices were about the same as ours. I just assumed that those prices were reflected in Europe ex taxes since the Lith's do not have the same tax structure.
The world’s stock markets tanked, as did some of its biggest economies. In such an environment, they thought, gold should have risen. After all, gold is widely considered to be a safe-haven investment when everything else is spiraling south.
However, Money Morning Contributing Editor Martin Hutchinson – an investment banker with more than 25 years’ experience on Wall Street and a leading expert on the international financial markets – understood perfectly what other investors did not.
“Gold is not a safe haven against recession,” said Hutchinson. “It’s a safe haven against inflation.”
www.contrarianprofits....
It really amazes me that gold's move from $250 to $1000 without a meaningful downside correction (a down year), elicits howls of protest.
It seems to me that they should be complacent in their outlooks. Instead, they protest more than ever.
Hey, 3 months from now some will be right, others will be wrong. LOL to the losers, IMO
Aha, here we go, dear short sellers keep your breath, I have good news for you - the collapse of GC market can not happen today, because the Fed and Central Banks in Europe don't know how to get around it.
On one hand their price of GC is 200-300 an Oz. but investors are eating it at 800$ so they will keep feeding gold bugs end of the world conspirators as long as they have the buck to buy at crazy price, when the balance will shift and bugs will be full of GC, then the Gold will crash so fast that haircuts of bugs will look like Einsteins.
Let them buy, there are still few hundred thousands tonnes in the vaults and productions from cash squeezed mining giants is piling the COMEX pit with the speed of light.
If you are short, stay short as Gold bugs are too weak to push it even through 900$.
America is the daughter England which is the birthplace of capitalism. America overtook England around 1900 as the world center of capitalism and has never looked back.
Russia dominated half of the world from 1945 until 1990. America won the cold war. The Russian empire is in almost total collapse and her former colonies are begging to enter into the European Union.
Japan was a backwater country until it defeated Russia in the 1905 war. After World War I, Japan had the misfortune to ally itself with the Nazis in hopes of dominating all of Asia.
Prewar Japan and Germany were fascist, which means that their businesses were controlled almost completely by the government and army which is almost the definition of a totalitarian government.
In World War II, America crushed Japan and Germany who have since become quasi-democracies and economic colonies of the United States, with very strong authoritarian traditions which are more closely adapted to fascism than free market, democratic capitalism.
As everyone knows, Europe committed suicide by fighting two insane, internecine world wars which ended Europe's uncontested world dominance.
After World War II, the baton of Western civilization was gladly handed to America by a grateful, shameful, defeated and disgraced Europe.
Europe and Japan have virtually no armies or nuclear weapons.
Two rhetorical questions:
Should America encourage Europe and Japan to rearm?
Is their history more hopeful than ours?
On Jan 08 02:09 PM 12345 wrote:
> U.S Economoy Superior to the Japanese? Really?
>
> If we're superior then why do we need to borrow money from the inferior
> Japanese Economy just to stay afloat?
>
> The U.S Economy is a Ponzi scheme that is rapidly falling apart.
Unfortunately for the rest of the world, our form of government provides economic strengths and benefits that simply are unmatched in the socialist European nations and communist China. If we try to remove the USA from the equation the whole house of cards crumbles.
The rest of the world has a lot of economic maturing to do before any other currency can be trusted as the reserve. Either that or global capitalism is the wrong course to be on....
On Jan 08 09:23 AM William Feader wrote:
> I think your logic is baked. The current US debt to GDP ration is
> 100% and will grow by at least 10% a year. As one columnist put it;
> only the US currency could survive a situation like that, but not
> for long. You keep on holding your US$'s and I will keep on holding
> my gold. We'll see who's right in the end.
>
> World reserve currency - hah
On Jan 08 11:29 AM Merigolden wrote:
> I wish I could be as optimistic as the writer of this article. I
> would be having fun playing the market instead of buying gold (not
> near as interesting!). When you take a look around at the opportunities
> available, and you lack a crystal ball, it makes good sense to be
> defensive with gold and silver. Mr. Pragmatist is very much off
> the mark here, since in my view, the state of affairs in the United
> States and in the world at large, is far too dark to warrant his
> rose colored glasses.
On Jan 08 04:21 PM Robert Cassidy wrote:
> I don't know what kind of tobacco the author is smoking , but the
> massive ...and intrinsically unpayable private and public debt runaway
> dictates a substantial dollar devaluation ..Yes - all currencies
> are fiat ...but Gold is not ...I bought a new car 50 years ago for
> a thousand dollars today the price in dollars is twentyfold ...but
> in gold - unchanged !
> It is time for someone to wake up and smell the coffee .....
As with any religion, its value increases with the number of its converts.
Gold is also a permanent reminder to fiat currencies to be on their guard. Because if the central banks abuse their positions sufficiently, gold will find the critical mass of converts.
Then you could 'buy' dollars from me with gold and I could 'buy' gold from you with dollars without the need to report to any government that my gold or silver had appreciated in value and therefore my transaction had a capital gains tax associated with it.
Would that satisfy the gold bugs?
Note, there would be no OBLIGATION for me to give you any gold for your dollars (or any other commodity) but if I chose to do so, I could WITHOUT a capital gains tax obligation.
Would that put the gold/silver question to rest?
Why should anyone be FORCED to produce ANY commodity for dollars or for any other 'fiat' currency?
On Jan 09 07:58 PM mkreisel wrote:
> Ah, gold is not just a commodity, it's a religion.
>
> As with any religion, its value increases with the number of its
> converts.
>
> Gold is also a permanent reminder to fiat currencies to be on their
> guard. Because if the central banks abuse their positions sufficiently,
> gold will find the critical mass of converts.
Paul - Yes I know. But at 20% we cannot afford to make the interest payment on our debt. We have much more debt then we had in the early 80's and our debt is now in short term treasuries!
we're caught between a rock and a hard place and we have nowhere to move...
Inflate or die
On Jan 08 11:14 PM paultaut wrote:
> 12345: If the inflation rate rises to the levels of the last time,
> the late 70's through early 80's, It took interest rates of almost
> 20% to turn the tide.
>
> Since I think inflation will be much worse, it may take that much
> more to stem it. I will expect the dollar to be dropping steadily
> at that point. My target is 40-50.
>
> For now however, the deflationary perception will continue to rule.
>
>
> Kitco.com has a section devoted to Gold Precious Metals. In that
> section you will be able to read excerpts from various Gold related
> Newsletters, Faber, Ruff, Aden Sisters, etc.
>
> Read what they have to say about the USD and Gold.
>
On Jan 09 03:09 PM Malkiel wrote:
> To expand on Richmond's line of thought, which would you rather have--a
> currency based on real estate or a currency based on gold? Real
> estate is a permanent source of value--homes, land, and commercial
> sites are the very fabric of the country and will always be there--whereas
> gold's meager intrinsic value seems to be limited to jewelry and
> occasional industrial coatings. The current crisis contains the
> seeds of a brilliant solution--rather than having the country's currency
> be backed by the promises of a national bank based on prior performance
> the promises could be based on real legal ownership of the country's
> land and infrastructure. The idea suddenly makes me start to like
> the bailout better. Owning gold is just another form of fiat by
> commodity, owning the land and infrastructure is the most tangible
> form of wealth...
On Jan 09 07:45 PM The Pragmatic Capitalist wrote:
> The only problem with the doom and gloom argument is this: if the
> US is doomed, the world is beyond doomed. Assuming that a now capitalist
> world can function well without America is like assuming that you'll
> be okay without a functioning heart. Can China and Europe really
> afford for us to go down in flames? I think not.
On Jan 09 07:39 PM The Pragmatic Capitalist wrote:
> Perhaps you are correct. But I just don't see how the world transfers
> to any other currency as its reserve without a devastating economic
> impact. Is the 10 year old Euro stronger than the dollar? Trichet
> alone has proven the incompetence of their ability to manage the
> world's economy. Is the Yuan the reserve? I think that's laughable.
> Is the Yen worthy? Is a basket better? Perhaps. Perhaps not.
>
>
> Unfortunately for the rest of the world, our form of government provides
> economic strengths and benefits that simply are unmatched in the
> socialist European nations and communist China. If we try to remove
> the USA from the equation the whole house of cards crumbles. <br/>
>
> The rest of the world has a lot of economic maturing to do before
> any other currency can be trusted as the reserve. Either that or
> global capitalism is the wrong course to be on....
Gold will have no value to us while it is in foreign hands and foreign lands!. There is no 'real' regulation to protect it from leaving the country. We are being dooped, and it's being done, not behind closed doors anymore, but rather, in our face! We are being informed by intelligent leaders and we worry yet don't know what to do because our represetatives are complacent enjoying a lifestyle instead of being the 'guards of their constituents and of America! ...Many years ago, the gol of the country of Mexico was being generously exported to The Vatican in Rome, Italy...Until the people woke up and said::"no more!"...People from other countries don't and can't handle illegal alien free loaders...nor allows others to take the place of their own citizens' available jobs! They will welcome anyone who comes with their owm money to invest. That is what the United States of America must do! We are at the point that a feather could break the camel's back! Cordially, ac
Asleeper, we meet again:
"When you buy gold you're essentially buying a hard asset currency with the hope that one day it will become the world's choice of currency again.”
"Sort of, but not really. Gold need not ever become the world currency of choice to protect against several dangers. All that is required is that people remember gold is easily concealed, portable, a store of value and insurance against: inflation, loss of confidence in paper assets, and civil unrest. "
My question at this point would be "What about Platinum?" It is easily concealed, portable, a store of value, and insurance against all that...AND, it has utility. Furthermore, it is 30x rarer than gold. Yet, it is priced at near parity with gold today.
The only argument I can bring as to why platinum has not benefited as much is that the US reserves are based in gold. Anyone have any thoughts?
BTW, your comment just gave all of the advantages of some sort of fiat monetary system over a barter system.
Gold is fiat by definition: "an arbitrary decree or pronouncement, esp. by a person or group of persons having absolute authority to enforce it: The king ruled by fiat."
Wikipedia (emphasis from me) "THE TERMS FIAT CURRENCY AND FIAT MONEY RELATE TO TYPES OF CURRENCY OR MONEY WHOSE USEFULNESS RESULTS NOT FROM ANY INTRINSIC VALUE or guarantee that it can be converted into gold or another currency, BUT INSTEAD FROM A GOVERNMENT'S ORDER (FIAT) THAT IT MUST BE ACCEPTED AS A MEANS OF PAYMENT.
Good luck with your investments.
It is something man has to find, that even a single man with a pickaxe and a pan can still find. The California Motherlode is coming alive again, with men completely down on their luck laying it all down to buy a small piece of ground, an old staked out, but not played out, mine.
Gold has properties that draw us to it that we aren't even conciously aware of. In alternative medicine, gold and silver are deeply healing, have an energy.
Colorful designs on paper just don't have juice.
How to hedge for dollar, I guess, you can not use Gold or other currencies, since dollar is still the best currency and will remain so, for a long time, if not for ever. Real assets is one probably, I still think that real estate is a better bet than Gold, at least real estate can be used for some real purpose, what do you do with Gold.
On Jan 09 10:34 AM Long John Silver wrote:
> As economies around the world race to zero interest rates, the currency
> game will collapse if the Middle East creates a new currency backed
> by gold, with oil priced in it. That will tip the balance on currency
> manipulation. All I can say is that when the archeologists uncovered
> 264 gold coins in Israel the other day, those coins were still worth
> something....
Plot Lost. Your best investment would be a map and compass!
On Jan 11 01:23 AM punk_ash wrote:
> How to hedge for dollar, I guess, you can not use Gold or other currencies,
> since dollar is still the best currency and will remain so, for a
> long time, if not for ever.