Paper Currencies Finally Redeemed for Gold

Paper Currencies Finally Redeemed for Gold
Tuesday, August 23, 2011 – by John Browne

John BrowneThe basic unwillingness of politicians to face economic and financial realities has caused the United States and European Union to face currency collapse. The politicians are content literally to paper over the problem with massive amounts of newly printed currency. This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being “redeemed” for gold in the marketplace.

For decades, fiscally irresponsible US Administrations have gradually reduced the world’s richest nation, with a currency perceived as ‘good as gold,’ to the position of the largest global debtor, with a debased currency. Furthermore, US stock markets have offered little real return. Indeed, the Dow stands just below 11K, down over 3K points from its all-time high on October 9, 2009. Discounting for inflation shows a loss close to 4K points, or a fall of over 25 percent from its all-time high. Meanwhile, equities in emerging markets have often shown handsome returns.

The recent political wrangling in Washington has damaged the financial credibility of the United States, prompting a long overdue debt downgrade by ratings house Standard & Poor’s. This removes a fundamental pillar supporting the dollar as the global reserve asset of choice.

In Europe, the unwillingness of politicians to face the fatal structural flaws within the euro is encouraging a fear-driven economic recession, sovereign debt defaults, a banking crisis, and, potentially, a currency collapse. This is hurting the euro’s formerly bright prospects of replacing the dollar as global reserve.

This week’s Angela Merkel-Nicolas Sarkozy summit meeting amounted to nothing constructive. The most popular topic was instituting a Tobin tax on forex transactions. This would, of course, drive financial markets out of the EU to more friendly environments. But more importantly, it leaves the major structural issues of a two-speed Europe unaddressed.

With nothing achieved by the EU’s ruling Franco-German axis, European banks are correctly seen as increasingly vulnerable to further EU sovereign debt defaults. Of course, former communist Merkel and her French ‘poodle,’ the socialist Sarkozy, will find no problem in transferring toxic bank assets to the public purse. But it will require more market anguish before they dare to do it. Once this happens, the euro will be locked on the same railway to devaluation as the dollar.

China’s yuan has strong fundamentals, but is not properly situated to vie for a place on the world stage. It is neither backed by hard assets nor freely floating. Though this policy is changing, it is not yet a true alternative to the dollar as it maintains a fixed exchange ‘band’ to restrain its true value.

Naturally, private investors and foreign central banks are turning to the very monetary instrument that they never should have abandoned: bullion gold. That is why the gold price is rising in $50 leaps per day, with only small corrections. Gold is being re-monetized.

Still, despite our continued warnings, and perhaps motivated by yield or a misplaced sense of safety, some investors still are tempted into dollars and US Treasuries, driving them to negative real yields of up to three percent. This may prove to be one of the largest financial traps in history, potentially devastating the savings of many investors. It reflects a fundamental investment strategy flaw.

It has been held that most wise investors should look not at yield and capital appreciation, but at total return. The only need to differentiate between yield and capital growth is for tax purposes. Some investors avoid gold still, because of its lack of yield. This can be a costly mistake when gold’s meteoric capital gains are taken into account.

Some are skeptical because of the performance of silver during the spring. However, it must be remembered that silver is still up some 125% year-over-year. The drop from $50 to $35 was directly related to an unprecedented triple-margin hike by the Chicago Mercantile Exchange. The exchange made the same move against gold, but the yellow metal shrugged it off through buoyant demand.

Indeed, while silver is temporarily hobbled by worries of global depression and a corresponding drop in industrial demand, gold appears to have no such reservations. Silver may ultimately surge well past gold as the emerging markets prove themselves able to stand on their own despite an ailing West. But gold is a pure monetary trade, and its signal is indisputable.

As long as politicians continue to paper over their problems by issuing more fiat money, gold will regain its crown as the king of monetary instruments.

http://www.thedailybell.com/2838/John-Browne-Paper-Currencies-Finally-Redeemed-for-Gold

Posted by robert wheeless on 08/23/11 07:10 AM

Posted by isalcordo on 08/23/11 06:48 AM
@John Bowne: “This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being “redeemed” for gold in the marketplace.”

This was precisely what I suggested for the US Treasury to do to help solve the US debt problem. These were what I suggested then and still do now:

(1) monetize whatever gold it was then holding or is now holding to print more paper money; (2) use the fiat paper money to buy physical gold, at $1,300.00/ounce at that time when I first suggested this here in DB/or at the present market price of $1,800.00/ounce; (3) gradually push the market price of gold to as much as $5,000.00/ounce by buying as much physical gold available in the market; then push the price to $10,000.00/ounce using more printed fiat paper US$; hold the price at this level by printing more money to buy whatever the market can offer;(3) at this point, pay off China and other creditors with the newly acquired gold priced at $10,000.00/ounce.

By doing this, the US could have easily paid off, and may still do so, some 2 to 4 trillions of its debts and still retain its original gold holdings that it monetized earlier to back up its trillion of fiat paper money used to buy physical gold.

Dr. I. S. Alcordo, Ph.D.
Click to view link

I’m glad you’re not teaching my children, Alcordo. Do you think the Chinese are dumb bunnies, that they wouldn’t see this rat immediately and flood the market with useless fiat US paper. They already own the gold you plan to monetize and would only smile at your stupid plan.

You must have missed economics 101 on your search for a Phd. of Stupid.

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Posted by isalcordo on 08/23/11 06:48 AM

@John Bowne: “This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being “redeemed” for gold in the marketplace.”

This was precisely what I suggested for the US Treasury to do to help solve the US debt problem. These were what I suggested then and still do now:

(1) monetize whatever gold it was then holding or is now holding to print more paper money; (2) use the fiat paper money to buy physical gold, at $1,300.00/ounce at that time when I first suggested this here in DB/or at the present market price of $1,800.00/ounce; (3) gradually push the market price of gold to as much as $5,000.00/ounce by buying as much physical gold available in the market; then push the price to $10,000.00/ounce using more printed fiat paper US$; hold the price at this level by printing more money to buy whatever the market can offer;(3) at this point, pay off China and other creditors with the newly acquired gold priced at $10,000.00/ounce.

By doing this, the US could have easily paid off, and may still do so, some 2 to 4 trillions of its debts and still retain its original gold holdings that it monetized earlier to back up its trillion of fiat paper money used to buy physical gold.

Dr. I. S. Alcordo, Ph.D.
Click to view link

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Posted by speedygonzales on 08/23/11 01:49 AM

“China’s yuan has strong fundamentals, but is not properly situated to vie for a place on the world stage. It is neither backed by hard assets nor freely floating. Though this policy is changing, it is not yet a true alternative to the dollar as it maintains a fixed exchange ‘band’ to restrain its true value.” Actually. China, Russia, Venezuela and so on are followin’ foot steps of nazi germany. Just tehy try to got into trap and they doing it well until now. I love Putin, I love commie leaders of China. Is such a great Grand Chessboard for me. I call it fishing. Throw bait and if fish got on it pull-lose it. I think BRIC plays great game as they throwed Libya and at the end there is Venezulean call for gold. They try to stretch the game as much as possible. Thats why Obak Barama backed off from attackin’ Libya. It was trap.

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Posted by speedygonzales on 08/23/11 01:42 AM

“With nothing achieved by the EU’s ruling Franco-German axis” Ye read my comments at all. Yes. Bankers got 2 horses on european soil. France, since the French revolution and Anglo-French pact 1800’s, and Germany since 1945 as occupied land or protectorate. Very good pointing!

http://www.thedailybell.com/2838/John-Browne-Paper-Currencies-Finally-Redeemed-for-Gold

2 responses to “Paper Currencies Finally Redeemed for Gold

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