Gold is just an instrument like many others
Gold is only worth what people are willing to pay for it. Like anything else, it's based upon marketing and consumer perception in determining it's value.
But for the folks who bought Gold in the 1980's, they saw it's value plummet for years before it bottomed around 2001 at $271/ounce.
nma.org
But the Gold Bugs are good at selling their story of Gold as a storehouse of value, so the trade is working, for now..
I look at Gold much like I perceive oil (except that oil is a perishable commodity). Would be ever be tempted to back our currency with oil? No.
But is having a huge resource base of gold the best way to determine the strength of an economy? Imagine some little country discovers billions of ounces of gold within it's borders. Does extracting that Gold make for a well diversified economy? No. Not anymore than oil has led to diversified economies in the OPEC nations. It's only when they see that resource diminish that they take some of that wealth and invest in other asset classes/businesses. And like the history of Spain, having accumulated massive wealth through conquest doesn't make for a sound economic foundation.
The productivity of our people should be the determination of our economic strength. The ability to take resources or technology and add value by creating something which consumers demand even more of. To take on debt, which is paid off by profit from the items/services provided is a better measure of economic potential.
So while I acknowledge the perception the market has of gold, if our economic potential solely depended upon the quantity of the substance available to back our currency, it would be highly deflationary, and it would deny capital to those entrepreneurs who take on debt, and then pay it off through their operational profits.
And it's obvious that, for right now, our level of debt is extreme and not being matched by profit potential in many of our businesses so deleveraging is in order to bring things back into a reasonable balance.
And, of course, we need to get government to stop issuing debt and mis-allocating taxpayer resources. All they are doing is propping up the failed banks by lending them money from the Fed at near 0% and then having the taxpayers pay them interest on the increased national debt.
If government must become the borrower of last resort, then the money should be spent on R&D that yields a long-term ROI that the private market is unwilling to finance. And it should be spent on supporting our small businesses for the purpose of retraining and retaining worker skills. Investment with an ROI should be the standard for government spending.
Hawk |
