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  Jim Kingsland

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  Gold 20 years from Now; A brief Word about Rome

  8/7/12

  Gold has hesitated today. It’s not down my much – $3 or so. While the stock market clings to the hope of QE, further instilled by a Fed official who suggested that the next round of QE should be open ended, gold is not go along for the ride. Players remain skeptical, for now.

  However, I still see gold as a buy. For those who have waited to buy gold, or silver as a form of financial insurance, what are you waiting for?? If people are holding off on allocating some of their dollar wealth toward an easy to buy hard asset, then they shall never get it – until it’s too late. Gold and silver still represent the essence of true money.

  I was asked by a member of the press about where I thought gold would be 20 years from now. I turned the question around and replied something along the lines: ‘It’s a not a matter of whether gold will be worth tens of thousands of dollars an ounce, but that the dollar in two decades will be an obsolete and dead currency (read: worthless). It’s not a matter of being bullish on gold, for gold will always have value and be a medium of exchange; it’s really a proposition of being dollar bearish since our Central Bank will be forced to print the dollar into oblivion due to never ending deficits and the Ponzi nature of fiat currency that requires ever more money for bailouts of the system’. Whether or not my quote is used is one thing, but the reporter seemed to be shocked at the response that I gave.

  Even many gold apologists fail to grasp and emphasize the concept that the rise in gold is due to a decline in the buying power of the dollar. It’s the dollar that is being diluted in the face of what is a finite supply of gold. Which reminds me, aren’t we only about 20 years away from mining our last ounces of gold using conventional methods? Maybe by 2030 they will be able to beam gold up from the ground a la Star Trek?

  I am doubtful of the reporter’s premise of a 20 year time frame for the life of the dollar. An obsolete dollar (Federal Reserve Notes) could be a reality far sooner than many think. It will all be a matter faith. When the dollar was chosen to be the reserve currency at Bretton Woods after WWII, the dollar was as good as gold. Wow, has that picture changed. Even by 1971, when Nixon shut the gold window, faith in the dollar had fallen into question as nation’s demanded payment in gold and not paper notes. The one fortunate aspect to today’s situation is that everyone is fiat with the weakest being shredded first (eg. the euro). But don’t worry, the dollar is standing on that check out line of history and will be shredded like all the rest.

  Not A Roman Delight

  I was thinking about the mighty and fallen Roman Empire. It largely died because its money ran out.

  Ancient Rome stands out as an enduring example, albeit an extreme one, of how a country’s money can be devalued and then ultimately become worthless. U.S. Comptroller David Walker (now retired) regularly compared the United States to ancient Rome before its fall, saying the United States has a “broken business model.” Well before bailouts and special lending programs to keep banking instititions allow and cash flowing through them, the Term Asset-Backed Securities Loan Facility (TALF), the Troubled Asset Relief Program (TARP)[D1] , and unrestrained Federal Reserve money printing, Walker worried about future Medicare and Social Security promises. “We face a massive demographic tsunami that will never recede,” he said at the time.

  The debasement (drop in value) of Roman money nearly 2,000 years ago and the problems arising today from serious financial dislocations and lack of fiscal restraint do have similar characteristics.

  By 300 a.d., Roman society was torn asunder by a variety of social and fiscal ills. A steady stream of emperors found that maintaining an empire was a very expensive proposition. External security demands and a blooming internal welfare state were straining the empire’s coffers. It was deficit spending, Roman-style. Emperors ended up doing what many rulers have done in now-defunct empires, kingdoms, and nations: They created more “money” and in doing so devalued their currencies. In the short term, more money would be available, but the money was worth less and eventually would become totally worthless.

  Silver, in the form of the denarius (a silver coin), was the workhorse of the Roman financial system. As more denarii were created to keep the empire afloat, the value of the money decreased and merchants were left with no choice but to raise prices. With inflation, the real trap is that wages don’t go up in proportion to rising prices, making the cost of living a greater burden. In order to prevent a silver shortage with the flurry of new money, the Romans had to reduce the size and silver content of the denarius, creating the first fiat currency albeit in worthless  coin form.

  I could also say a word or several hundred about Continental currency of the revolutionary war era. But I shall save that for future posting.

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