Smoke and Mirrors Talk About The Gold Standard
Talk of bringing back the Gold Standard has made it into the news headlines last week - one of the apparent desires of the republican party meeting this final week in August (or to at least explore such a possibility). One of the heads of the two headed beast better known as the republicans and democrats wants us to feel warm and fuzzy about yesteryear’s gold standard. It did work. Dollar buying power remained relatively steady from the start of the new nation to the arrival of the 20th century. But things have changed a bit as society is now faced with a financial house of cards that one of these days will fall apart. The dollar now has a fraction of the value it possessed a little over 100 years ago.
I puzzled about this over the weekend. While on the surface this gold standard sooner rather later appears to be a worthy goal, look a bit deeper and one can only conclude that it’s political smoke and mirrors as usual. The instant gratification mentality of today seeks to wrap itself around a gold standard monetary system that had a stellar reputation in monetary history as if it can be turned back on with the flick of a switch. The circumstances when a real gold standard existed in this country were completely different. As it stands now, there is major reform that would first need to occur for a gold standard to work again.
A few immediate problems come to mind in the modern day:
In 1971 Nixon closed the gold window for good reason — gold was literally flying out of the country due to trade imbalances mostly with Europe (at that time). It would be a matter of months for the country’s stash of 9,000 tons of gold (if Uncle Sam has that much gold) to fly out of the U.S. due to trade imbalances primarily with Asian nations. The nation would have to stop trading with the rest of the world and force overseas manufacturing back to the U.S. I don’t think that’s about to happen. Really, we are going to tell China to jump in a lake; we are going to tell South Korea et al., to take a hike so we can go on a gold standard and become self sufficient overnight so that we don’t repeat the gold flight that happened in the late 60′s and early 70′s?? Very funny.
Fiat currency would have to come to an end. Yes, the system that has enabled the greatest debt bubble in the world. With only $7 trillion worth of gold in the world, there is not enough gold to back currencies, let alone account for massive sovereign debt. The U.S. alone, with $15 trl in official debt makes the magilla a problematic situation.
Another stumbling block to a gold standard at this point? Let’s briefly consider fractional reserve banking, 40x leverage in some places within the financial system and more, along with close to a quadrillion dollars in notionally valued derivatives. The present financial system is the antithesis of the gold standard – like oil and water not to mention that it is a ticking time bomb should credit events trigger derivative contracts. Are the republicans really saying they are going to undo the leveraged to the hilt banking system that keeps them and the democrats in power. LOL. A gold standard and the fiat money system with its currencies backed by nothing, piles of sovereign debt along with even more debt and leverage within the banking system cannot exist together. A gold standard represents limits and discipline while fractional banking is rooted in excess, financial sloth and gluttony that our political system relies upon.
And then there is the Federal Reserve System. It was created by the banksters themselves. There is nothing Federal about the Federal Reservel it is the greatest snow job ever placed into society by bankers and/or politicians with ties to bankers. Consider the quote from Woodrow Wilson after he realized his error of signing the Fed into law: “I have ruined my country.” Thanks, Woody, but a day late and dollar short (actually he should have shorted the dollar as the dollar has steadily lost value in the years since the Fed was created). Is the Fed going away anytime soon? I don’t think so, or only if the fabric of society of torn asunder.
The gold standard by itself is not the answer. The present and excessive fiat system is going to have go away… and that is going to be a very harsh future event. THEN we can talk seriously about some sort of modified gold standard. What you will hear this week will be nice to those looking for financial sanity, but a return to a true gold standard?? Not happening under the present corrupt and insane order of things.
And, yes, I realize that gold is being accepted as collateral in certain financial transactions and may become a Tier 1 banking asset. These are positive steps, but early formative baby steps.
For those not grasping this, please let me reiterate…
In my opinion, a Gold Standard needs to operate within a financial system that is sound and not an unbridled place of mass speculation. Am I being idealistic? I would be nervous, but such a financial system did exist in the annals of this nation’s history. Is it possible again? Who knows and given the power of the financial elite (the house that always wins and strives to make your money theirs) we may NEVER make it to a Gold Standard again. The uprooting and end to the financial system as we know it now in favor of sanity and perhaps the Gold Standard is not going to happen without conflict and it is the conflict part that could go out of control in a very destructive way – to the point of putting world human survival into question. The controllers of money are not going to cede power voluntarily. Yes, when push comes to shove, turning the financial system on its head will be a life and death gambit.
Gold is taking a breather after its recent run. It is now about $20 above its 200 day moving avereage. These pauses are healthy in order to keep the price of gold from becoming severely overbought too quickly. I see overall positive fundamentals for gold in the medium term and the long term. The dollar is likely to experience some degree of weakening as the so called fiscal cliff approaches and as the likelihood of European bond buying becomes reality. Once consolidation clears, another leg up of $100 would not come as a surprise in September to the October time frame.
The subject of the republicans and the gold standard was discussed on CNBS. The talking head spoke on cue and said there shall NEVER be a gold standard. Never say never. Expect full denial of a gold standard until the morning it is introduced in the future in some way shape or form. I suppose I can’t blame the gold standard deniers because it is so far afield from present day reality and hard to conceive, but these people who dismiss concepts complketely out of hand are just palin foolish and closed minded.
Market Top in Stocks??
Earlier in the week I cautioned that it was time to watch for a blow off top in stocks. It would appear that we at least have marked an intermediate term top in stocks. A surprise from Bernanke at Jacksone Hole, WY could reignite the rally though that seems doubtful. I would have like to have seen heavy trading volume with this apparent stock market top which was not the case. Is another September to remember in the making? The month with the worst reputation for the bulls is fast approaching. Have a great weekend.
Here I am in Williamsburg, Va. It is so much easier to send this message out by borrowing my daughter’s laptop as opposed to using a smart phone with my fat thumbs.I threw this trip together on Tuesday, we got here yesterday and will be here until early next week. I managed to secure excellent accommodations at a bargain price – highly unusual for late August around here. Last year at this same time it seemed packed here. Economic anecdote? In light of recent events, we are here to enable my wife to forget abou treal life for a little while.
The most remarkable aspects to the financial markets are being illustrated in the gold market. Spain is again about to go over a cliff with Banco Santander representing the deepest and darkest fears of the Euro Banksters. Even Germany appears willing to say Uncle and would ostensibly cjp in to some sort of bailout salve for spain. Such a gambit is better known as being backed into a corner. While this is not necesarily a check mate to the EU financial mess, it shall force the Europeans down the road to unlimited bond buying for however long thaat can last. Reflation is good for gold.
So this is why we find gold at $1660. We are getting a taste of what it is going to take to spur gold to record highs by the end of this year, or early next year.
Gold could break out of this nearly 1 year range sooner, but I am still suspicious the Fed will hold off on another QE round until the December meeting.I am not excited about what shall come forth from the Fed gods at Jackson Hole, WY. I see reason to be positive about the near term outlook and very bullish about gold’s long term prospects. I should remind that is still a long way to the $1900 top, but for better, or really worse the pieces are falling into place to push gold above $2k in the months ahead with the requisite downdrafts and updrafts. FWIW I mainly like b ullion and can tolerate the ETFs but cast a jaundiced eye on the miners and their stocks. Standout miners can be found and do exist, but I find following the ups and downs of gold to be time consuming enough.
oh, if Bernanke regurgitates QE earlier than I expect, be afraid, be very afraid for he would be tipping his hand to a bias toward being in an emergency mindset. Be carefuk what you wish for.
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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