Coins & bullion since 1973
___________________________________________________________

1-800-869-5115

We educate first-time investors.
Expert professional guidance for safe haven investors.

Celebrating our 20th year on the World Wide Web!USAGOLD Coins

USAGOLD Menu BAR



 

In uncertain times, all that glisters is a gold standard

by Gillian Tett, Financial Times

pdficon
Printable Version

 


 

"...the logistics of embracing a new gold standard would be mind-boggling. UBS, for example, calculates that the US reserves of gold are so small, relative to its monetary base, that a price above $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000."

A few months ago, Terry Smith, head of Tullett Prebon, the interdealer broker, chaired a panel at the World Economic Forum meeting in Davos which was asked to produce one concrete recommendation to fix the global financial crisis.

The top pick? Not anything on toxic assets or fiscal spending. Instead, this gaggle of leading financiers called for a new reserve currency, akin to an old-style gold standard.

"Two-thirds of the world's assets are denominated in a fiat currency issued by a country whose authorities are taking policy actions which seem inevitably to lead to its debasement," explains Mr Smith, noting that "it seems . . . the Chinese have now concluded that this is not acceptable".

Just a bit of pie-in-the-sky posturing of the sort that often occurs in high-altitude Davos? Perhaps. But Mr Smith is hardly a do-gooding, state-loving dreamer; on the contrary, Tullett Prebon is about as ruthlessly free-market as they come.

Moreover, these musings about a gold standard are currently cropping up in all manner of unlikely places. One savvy European property developer (who aggressively sold most of his holdings in early 2007) recently told me that he is now moving a growing proportion of his assets from government bonds into gold, even at today's elevated prices.

"The logical conclusion of where we will end up eventually is with some type of gold standard," he explains, arguing that future inflation will almost inevitably cause a future collapse in government bonds.

Half a world away in the Middle East, some sovereign wealth funds now say that they are stocking up enthusiastically on food and gold, due to similar reasoning.

Meanwhile, in New York a (still) formidable American hedge fund recently circulated private research that echoes the reasoning of Mr Smith. Most notably, this hedge fund points out that since the world abandoned the gold standard on August 15, 1971 credit creation has spiralled completely out of control.

But this four-decade long experiment with fiat currency is not just something of a historical aberration, it argues - but potentially very fragile too. After all, the only thing that ever underpins a fiat currency is a belief that governments are credible. In the past 18 months that belief has been tested to its limits. In coming years it could be shattered, particularly if the current wave of extraordinary policy measures unleashes a wild bout of inflation.

Hence that chatter about a gold standard. Indeed, as the debate bubbles up, some financiers are now even e-mailing each other an extraordinary little essay that Alan Greenspan himself wrote in support of a gold standard back in the 1960s, called "Gold and Economic Freedom".

In the years since he penned this essay, Greenspan has partly backed away from those ideas (and he blatantly ignored their implications when he was at the Fed.) But now they look prescient.

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets . . . [but] in the absence of the gold standard . . . there is no safe store of value," Greenspan wrote back then, pointing out that without a gold standard in place, there is little to prevent governments indulging in wild credit creation. "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Of course, for the moment all this muttering about gold is simply wild speculation. Even if western leaders suddenly were to decide they wished to turn back the clock, the logistics of embracing a new gold standard would be mind-boggling. UBS, for example, calculates that the US reserves of gold are so small, relative to its monetary base, that a price above $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000. Moreover, right now few western governments have any motive to even entertain the debate, given that inflation may soon seem the least bad way to tackle the current overhang of debt.

But what this debate does show is just how much cognitive dissonance - and utter uncertainty - continues to stalk the markets. It might seem almost unthinkable to propose a return to a gold standard, in other words. However, the key point is that the last 18 months have already produced a stream of once unimaginable events.

Given that, shell-shocked investors are increasingly reluctant to rule anything out, as they stare at such uncharted waters. So while I would not bet today on a gold standard returning any time soon, I would also not bet that the debate dies away. Nor would I bet that the gold price crashes too far from its current rate of $900, while so much fear continues to stalk the world.

Gillian Tett
Originally published 9 April 2009
© The Financial Times Limited 2009

Comments to: gillian.tett@ft.com

This article reprinted at USAGOLD by permission.

 

Return to the The Gilded Opinion Index Page

USAGOLD sider, what we have to offer

Great prices. Quick delivery. All the time.
Contemporary gold and silver bullion coins
Bullion-related historic gold coins
U.S. $20 gold pieces

Order Desk
1-800-869-5115
Extension #100
6am to 5pm USMT weekdays.

Prefer e-mail to get started?
orderdesk@usagold.com


Reputation Matters!
Few can match our golden credentials

Zero complaints
Unblemished
client review record
(All reviews verified by BBB)

bbb
A+ Rating
Click for details
includes client reviews

Gold coins & bullion since 1973
Better Business Bureau accredited since 1991
American Numismatic Association since 1975
Industry Council for Tangible Assets since 1985
Website in continuous operation since 1997
__________________________________________

Recipient of BBB Gold Star Certificate

for zero complaints 2003 to 2015
(Program suspended 2016)
_________________________________________

What separates us from the competition




Today's Prices Live
Gold coins & bars • • • • • • Silver coins & bars



The right portfolio mix at the right price


NV

News & Views
Forecasts, Commentary & Analysis
on the Economy and Precious Metals

__________________________________________

Monthly Newsletter
FREE SUBSCRIPTION

Immediate no-obligation access to current issue. Publication day e-mail alerts for future issues.
__________________________________________

In-depth, cutting-edge coverage of the gold and silver markets for over 25 years.
20,000+ subscribers.


Published by USAGOLD
Michael J. Kosares, Editor


silver
Silver Stackers Special
World's Top Five Silver Bullion Coins 2017

SETS of 20, 60 or 100 each
Now available for immediate delivery.
All pure silver. All IRA eligible.
Volume price breaks.

_______________________________________

Offer details
or call the Order Desk direct.





IRAYou're going to need more than a gold watch!

IRA/401k rollovers to precious metals

Quick. Painless. Secure. We can help.

IRAset-up@usagold.com
or call the ORDER DESK

Want more info? Detailed Q&A


OPEN ACCESS FILE
WHY GOLD, WHY NOW

For those seeking a deeper understanding of gold's role in the modern investment portfolio

dragon
The China Syndrome
The groundbreaking series on China's pivotal role in the gold market

swans
BlackSwans YellowGold
The standard reference on how gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation

compass
Gold Chartography 101
The case for gold ownership in ten charts you will never see on CNBC

decisions

How would you invest money you didn't need for ten years?
"Perhaps we spend too much energy trying to foretell the future, and too little trying to be resilient whatever happens."

keynes young
Keynes on the menace
of printing money

How the celebrated economist might have structured his investment portfolio today.

______________________________

mkMichael J. Kosares, the author of these articles, has more than 40 years experience in the gold business. He is the founder and executive director of USAGOLD (both the website and gold brokerage service), the author of three books on the gold market, and the editor of "News & Views, Forecasts, Commentary & Analysis on the Economy and Precious Metals," the firm's client letter. He has written numerous magazine and internet essays and is well-known for his ongoing commentary on the gold market and its economic, political and financial underpinnings.

ABC

"I keep six honest serving men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who."

– Rudyard Kipling –

Book Order Form (US)





Saturday July 29
website support: sitemaster@usagold.com / general mail: admin@usagold.com
Site Map - Risk Disclosure - Privacy Policy - Shipping Policy - Terms of Use
© 1997-2017 USAGOLD All Rights Reserved
Mailing Address - P.O. Box 460009, Denver, CO USA 80246-0009
1-800-869-5115