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Strategies & Market Trends : Classic TA Workplace
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To: nspolar who wrote (80322)9/1/2003 9:31:37 AM
From: skinowski  Read Replies (3) of 209892
 
NS - a question to you - or to anyone else who understands these things:

In a recent article Richard Russell states that: "Figured at a price of 360, there's about $1.4 trillion dollars worth of gold in the entire world."

My question is, How can this amount of gold possibly "support" enough currency which is needed for the modern economy? The present day world economy is simply too big. Clearly, banks would have to issue amounts of money and/or credit far in excess of what could be reasonably backed by the total existing gold reserves. The result would be that a gold-backed system of money might become unstable and eventually collapse anyway.

Instead, at present, the USD, being the "reserve currency", is playing the part which historically has been played by gold - it serves as backing for the credit which banks issue all over the world. Instead of the stability of gold - today's global financial system is based on the stability of the United States.

How wise is such a belief in the stability of the US is an entirely different question. Looked at from this point of view, the decline in the Dollar may have been caused as much by the perceived trouble during the last Presidential elections as by any economic reasons. Also, the belief by the current Fed and by the American political establishment that freely expanding money supply will solve the world's problems should inevitably lead to deepening dislocations.

But in any case, the dilemma mentioned above stops me from taking seriously the talk about a return to a gold standard. I suppose it also makes it more difficult to be very bullish gold. They say that Gold is the only "real money" - but how can it be so if there is relatively so little of it?
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