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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: I_C_Deadpeople who wrote (99525)	11/9/2008 12:40:15 PM
From: Hawkmoon	Read Replies (2) \| Respond to of 110194

Would that not depend on the price of gold? Well, who's going to set the price of gold? When you tie your currency to a gold standard, those who control it (governments/banks) set the exchange rate. To this day the US holdings of gold in Ft. Knox remain "officially" valued at $42/ounce. Yet, the total value of all known gold reserves only equates to (at Oct, 2008 prices) to $3.39 trillion. en.wikipedia.org Even at $1000/ounce, it would only equal $4 1/2 Trillion. Given that the US economy is roughly $14 Trillion all by itself, and the Japanese have approximately $14 Trillion in savings, how can anyone imagine using gold as a medium of exchange without creating a catastrophic deflationary spiral that brings economic potential back in line with the POG? And if we arbitrarily set the POG to some level comparable to the available money supply, how is that positive for anyone but the mining companies and those who hold physical gold? What about all the industrial users of gold who will go bankrupt because they can no longer afford to use it. Or if they just decide to pass on the costs to consumers of products that incorporate gold (electronics), then the result will be tremendous inflation in that sector that makes new technology even more expensive. Furthermore, if you devalue currencies against Gold, that will only create a speculative panic in the physical gold market as the financial system defaults back to this arbitrary medium of exchange. Backing currency with physical gold is certainly a restraint on excessive money supply growth. But so is sound banking practices on the part of the Central Banks and the reining in and regulation of the shadow banking system created via Credit Default Swaps and other derivatives. The question only remains as to the human cost that must be paid on the part of the individuals who will now find themselves unemployed and faced with the hard realities of feeding and clothing their families. They are the ones who will bear the ultimate cost of any attempt to satisfy the desires of the "hard money" goldbugs who are speculating in the physical gold markets in hopes of ultimately exchanging their metals for paper money which they will then use to buy other products and services. In sum, gold bugs are praying for inflation in the price of gold versus Fiat currency which is primarily valued according to the ability of people to produce goods and services which provide them the means of paying off debt incurred in the process of economic activity. Hawk