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Dr. Robin McCutcheon
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No matter what Econ101 teaches us -- my tips for you: Follow the money - you'll always find the right answer. Do your own research - do lots of your own research so you know the truth when it hits you in the face. When the data points you in a particular direction, forget theory, go that direction.
  • Bernanke Said "No - GOLD IS NOT MONEY" - how that helps in the debt crisis 0 comments
    Jul 15, 2011 11:56 AM
    You have to admit that the long pause between Ron Paul's question, "Do you think gold is money?" and Ben Bernanke's answer, "No," was quite pregnant with expectation. (link to the conversation here, here, and here)

    Note that Dr. Bernanke takes a long time to answer Rep. Paul. Can you just hear the thought going through Dr. Bernanke's head? Hmmm...If I say yes, then central banks all over the world are finished, and the price of gold will skyrocket within minutes. But, it is an asset! Gold is an asset that we hold in our system as a financial reserve. An asset that for six thousand years men have imbued with intrinsic value BECAUSE we have to expend time, effort, and energy to dig it out of the ground. We don't hold diamonds or any other raw material if it doesn't have some unique physical properties. Unique physical properties that allow the asset in question, the substance, to be subdivided an unlimited number of times without changing the chemical make-up of that item. The substance must be scarce, difficult to obtain, must be resilient, and must be recognized as an item of value. The substance must be exchangeable for labor and for other goods and services. Even Keynes knew that gold was an unshakeable guardian of property rights; an idea that needed to be over thrown before Statism could continue its languid walk across the globe. Only Greenspan knew the secret of gold and economic freedom, and he’s nearly gone anyway. So, I cannot say “yes, gold is money.” I must say “No, gold is not money.”


    So, can you just hear that conversation going on in his head? How about the next set of questions from Rep. Paul? “Why do you hold gold as reserves?”

    “Well, it’s tradition, … long-term tradition,” replies Dr. Bernanke. That answer followed closely by the inside-the-head-conversation: Darn!! Why did I say ‘tradition’?!? Gosh it all…’tradition’ …sheesh! We hold gold in our vaults because it’s the money of last resort. That if/when this whole central bank idea gets flushed down the toilet, we’ll still have gold to back up the currency! We’re the bank of last resort, and we’ll still have gold, and more of it than anyone else, too, by the way, to do transactions around the world. Surely I could have come up with a much better answer than ‘tradition’! “People hold gold to protect against tail risk, really, really bad outcomes,” is what I said. Maybe no one will notice what I really said.

    And Bernanke thinks that Treasury Bills are not money, either! So, the head of our central bank doesn’t think that T-Bills are money, yet they’re traded on a minute-by-minute basis on the idea that they are money. It makes you wonder what Dr. Bernanke thinks money really is.

    Watch the video clips I've hyperlinked above and see if you see it on Bernanke's face like I did; the recognition that Rep. Paul finally got Bernanke that gold really, truly is money, that all central bankers think this way as well, and that sooner or later common folk will figure it out too.

    How does this help with the debt crisis? Dr. Bernanke doth protest too much about gold. At the end of the day, someone will realize that the Treasury has over 8,000 tonnes of gold in Fort Knox. With every minute closer to an impasse and no resolution to the debt debacle, gold goes up in dollar terms. Someone will realize that the US already has the asset to back its currency (much like the Swiss). In order to see the actionable advice here, you must read between the lines! You must be able to see that Dr. Bernanke just admitted that gold IS money. If you thought gold and silver were expensive three years ago, when they were averaging $800 and $15 per ounce, just think where the price will go when people figure out that prices coordinate supply and demand. It's going to be really difficult to break out of 6,000 years of habit while nations watch their debt pile up and the value of their currencies crash.

    At the time of this writing the price of gold and silver in nominal US dollars is $1630 and $40 per ounce. Now is the time to buy gold and silver stocks! Just based on fundamentals, I'm still long gold and silver stocks; Great Panther Silver, and Paramount Gold and Silver. (Fundamentals being that debt is debt; someone owing you money is not money.) You must know, however, that raising the debt limit does not eliminate the debt; the problem is not solved; the drama will continue.


    Both GPL and PZG are lively precious metals companies, coming off their 200-day moving averages. See my earlier post here.


     


    Disclosure: I am long PZG, GPL.
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