-- Published: Thursday, 3 July 2014 | Print | Disqus
By GE Christenson
Will gold regain its monetary standing and will it again back a major currency as in previous centuries?
Readers on www.deviantinvestor.com responded to my question about the creation of a gold backed currency by July 2017. The voting shows about 78% believe that within 3 years there will be a gold backed currency – perhaps issued by China, Russia, or even the United States. This is sensible because readers on the DI site are generally pro-gold and suspicious of unbacked debt based paper currencies.
For additional perspective on gold, consider what Bill Holter stated in his always insightful column. Here are a few quotes from his article:
“JP Morgan was in my opinion trying to convey the idea that gold was the money itself and everything else was a ‘derivative’ (derived) from this money.”
“He understood that any currency, any debt, any equity or receipt had counterparty risk.”
“Counterparty risk is the risk that whoever you are doing business with does not or cannot perform his side of the bargain.”
“… the world must run on ‘trust’ but there is now a problem. The problem is that credit has engulfed the world. And the danger that a counterparty cascade begins because the risk of a default has never been greater than it is now.”
“The derivatives chain will break and that everything financial will have a worth or ‘value’ far lower than it does now… because of counterparty failures creating a credit contraction.”
“… physical gold in your possession has no counterparty risk.”
“When the credit edifice comes down, people from all walks of life (including governments themselves) will seek safety.”
“Truly folks this is what it’s all about and why you own (or should) own gold. The financial system is mathematically going to come down and the best position to have when this occurs is to have ‘money’ [gold].”
Okay, he made convincing arguments. Gold is important now and will become essential when/if the cracks in the financial system widen and a massive crash occurs, which seems more likely each day.
But will a gold backed currency be the answer? Clearly central banks want to peddle their debt backed paper currencies that they create at no cost. We can assume the politicians are either owned or controlled by the banks, so what the banks want will be the deciding factor, not political rhetoric. So why would central banks want to abandon their mountains of paper assets and embrace gold?
They might do so because they had no choice – such as in the event of a massive financial crash. After “inflate or die” might come “gold – real money – or die.” Central banks will choose gold, no matter how distasteful to them, rather than extinction. Banks will find a way to remain profitable, viable, and in control. When gold looks like the only good option to reestablish trust in a failed financial system, they will embrace gold.
On the other hand, many non-mainstream thinkers, such as myself, could be horribly wrong about their concerns for the viability of our financial system – the system might continue enriching politicians and bankers for many more decades. It is comforting, but often delusional, to believe all is well, especially when so much data indicates otherwise.
But please ask yourself why the central banks and the citizens of Russia, China, India and many other countries are aggressively buying gold! I believe they more correctly understand the risks and the vulnerabilities of our debt based pyramid of paper that western governments and central bankers have constructed. I believe they have chosen to hedge their paper risks with physical gold.
Should you convert some paper or digital dollars, euros, pounds, and yen into physical gold? What is your “Plan B” in case paper currencies and over-valued stocks and bonds approach their intrinsic values – at much lower prices?
More to consider:
1) How much central bank gold actually remains in their (unaudited) vaults? Has most of it been shipped to Switzerland, China, India, and Russia?
2) The precedent for “bail-ins” was set in Cyprus last year. Further bail-ins could occur in Europe and the United States in the event of another financial crash. How safe is your digital bank account if global monetary systems repeat the 2008 Lehman experience?
3) You could trade digital currencies for physical gold and reduce your anxiety level.
You might also enjoy: Italian Government Explains How We All Can Be $250,000 Richer.
GE Christenson
The Deviant Investor
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-- Published: Thursday, 3 July 2014 | E-Mail | Print | Source: GoldSeek.com
