If it took an average monthly yield of over 14% to rein-in gold back in 1980, what do you think the rate will have to go to this time? Using Tom's trusty inflation calculator (government CPI) we see that for 1980 what once cost $800 (gold), now in 2006 would cost us $2,154.
So, then, if it took an interest rate of +14% to pull the US$ back from the cliff then, what sort of an interest rate can we expect this time if gold only goes to its inflation-adjusted price of $2,154?
For this answer we have to go into some heavy algebraic math: 14%/$800 = X/$2,154, answer = 38%
And that would only be enough to adjust for the inflation catch-up. What happens if gold spikes as it did in 1980? How high will it go? Will any interest rate be high enough to save the US$?
When you see the deep chasm on the chart now separating gold & the T-Bond rate your anxiety level heats up a couple of notches, doesn't it? US dollar bondholders, fixed income investors, and foreign central banks are not going to put up with being screwed by low interest rates much longer. In November of 1976 the nation's reported M2 money supply was $1,138trillion. For November 2006, M2 was $6,976trillion. And that's without the additional debt - this is just for money in circulation! Gold then was just launching from its 40+ years of price suppression at $35/oz.
If your home, health insurance, a Coke, or small Mac fries can triple in value for these past 26 years, why can't gold?
Even using a $300 gold price for 1979, and the CPI calculator, gold would be $900 in 2006. Back during that period of dollar rescue effort, remember the US Government had more gold than it does now - - and that's even if they have what they claim to have without an independent audit! Silver's a whole nuther story, far worse than the gold situation. Can our Treasury & Fed hold out long enough to shove the whole mess into the new amero, have Mexico and Canada share our debt, promise "compensatory adjustments" to foreign central banks, and stiff Americans with the bill? Do they have the muscle to keep the con going that long? No answers for that. Sorry.
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