Crank Monkey

What's John Paulson Buying Now? Hint... Think Gold

I'm wondering whether the Wyeth position could be an arbitrage that involves selling Pfizer and buying Wyeth.

U.S. Debt Default, Dollar Collapse Altogether Likely

Default probably isn't the correct word, as the US government would be able to print as many dollars as necessary to repay creditors.

In theory there could be a run on the dollar. This would mean that something other than the dollar would become the world's reserve currency.

What seems more likely than either of these alternatives is that rates on government debt would be pushed up to very high levels.

There's probably some slight chance of a return to the gold standard. If this were done today, it would mean pricing gold over $5000 an ounce.

One factor that should be considered is that the US has military assets that might be used in a crisis.

The End of Gold, Part Two

Gold has served as a kind of reserve currency as recently as the last century. The advantage it provides is that there is some limit on how much the currency base can be increased. Central banks are not limited in their ability to issue new currency. This does not pose an issue so long as people have confidence in the central bank. If the world went back to a gold standard, then the price per ounce would increase. Deflation serves to cool monetary velocity, and this works against efforts by the Fed to increase the monetary base. The problem for investors is that they could lose capital as a result of either deflation or inflation, and it's hard to predict the severity and duration of these conditions.

Citigroup Sees Gold Reaching $2000

FDR destroyed the gold standard though confiscation. This is no longer an issue, so there's no particular reason for the government to take gold rather than wages, bank and brokerage accounts, or real property.