Gold Starts To Reflect The Possibility Of A New World Order
Date : December 30, 2002
“Nothing will ever be quite the same again.” These were the prescient words heard after the attack on the Twin Towers in New York nearly 16 months ago, though whether the speaker had any idea what those changes might be is doubtful. With the great advantage of 20:20 hindsight we can see what has happened over the intervening period, and it is not a pretty sight. The world’s economy is in a mess and we are involved in a war of attrition with is likely to last for years. And this war is not against single countries such as Iraq or North Korea; it is against a disparate enemy fed up with interference by the US.
The lesson that will be learned over these years is that nothing in this life is permanent. Over Christmas Minews stood on the Pont du Gard in Southern France. This is part of the aqueduct built by the Romans in 19 BC to carry water 50 kms to Nimes down a slope averaging 34.2 cms/km. The bridge itself is 275 metres long and 50 metres high and is built as three tiers of arches so strong that it withstood the floods that smashed their way through the region last autumn. The engineering skills are sensational, developed as Rome built its power base, and it is interesting to muse whether any of the team responsible for this great construction visualised at the time that the end of the Roman Empire was in sight.
Now the US is faced with the same possibility. The bombing of the Twin Towers highlighted the schism between East and West and war there will probably be. In the end, however, it will be a war won by those wielding most financial and economic power. In the East they had a chance to study America’s military power at first hand in Cambodia, Viet Nam and more recently in Afghanistan, so confrontation will not be the order of the day. The answer, as in many martial arts, is to probe for weaknesses and then exploit them to the full.
The greatest economic weakness in the States is that its citizens are borrowed to the hilt. According to the Financial Times the current account deficit has been financed by capital inflows equivalent to 76 per cent of the current account surpluses of the whole world. This is a fool’s paradise which has to unwind as the dollar weakens. But this process will take some time during which much will be written and said about the wisdom of US Government’s who succumbed to political pressure to print more and more paper dollars to feed the appetite for credit. And while America contemplates its financial navel, Asia will seize the moment to step in and drive global demand. According to a number of stockbrokers the young and increasingly prosperous citizens of China, India, South Korea and south east Asia are quite capable of taking up the running.
More than half the world’s population lives in the region which could be poised for rapid economic growth and offer great investment opportunities in the same way that maturation of America’s postwar generation powered the US economy over the past 50 yeasrs. Already China has taken over from the States as the recipient of the greatest part of the world’s capital inflow and its steel industry is growing at about the same rate as America’s is contracting. This is a strong hand for starters and China has not neglected to demonstrate to the western world that it is now open for business. A strong signal to this effect was the reopening of the Shanghai Gold Exchange after 50 years. And there may be more to this than meets the eye. The peoples of the Far and Middle East have long respected gold for its monetary value even when purchasing it in the form of jewellery. They have watched the inevitable swings from feast to famine of economies based on paper currencies and may have something else in mind. Already a gold Islamic dinar has been proposed and there is talk that China may initiate a gold backed trade currency.
Last year Ferdinand Lips, a well respected Swiss banker, produced a fascinating book called Gold Wars which is described in the sub-heading as “The Battle Against Sound Money as Seen From a Swiss Perspective.” In it he runs through the history of gold as the basis of currency from the Roman Empire, which started to go into decline when Nero debased the coinage, to the present day when gold is simply being ignored in favour of paper currencies. To the Western bankers and portfolio managers he poses two question, ‘What confused logic compels them to leave no room for gold in their portfolios? Do they really think that stocks of companies with no earnings or bonds in troubled currencies are sensible long term investments?”
His contempt for politicians who have pressurised central bankers into selling gold assets for paper is a recurring theme throughout the book. “ I will not ask anything of the politicians because they will never change. All they have done with their politics is to destroy the purchasing power of money. Free people will always believe in gold , and when the economic and monetary situation offers nothing but despair, they will want to get rid of the printing presses and the politicians.” Westerners are finding it difficult to appreciate just what a mess the present monetary system is in, so gold has so far made only a modest advance from US$270 to US$350/oz over the past year. But China and its friends have been accumulating bullion and this may prove to be only the beginning of the beginning of a new world order.
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