By an anonymous subscriber to the munKNEE.com bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner of page)
For a very long time government have been doing whatever it takes to keep precious metals prices contained and to ensure that the movements in price were not volatile. They didn’t want attention to be drawn to the precarious nature of the global monetary system or the inherent deficiencies in their currencies relative to gold, the standard and traditional reference. Now, however, they have little choice given the level of debt, the clear inability to service it or to pay it off, and the need to create a mechanism for an orderly restructuring and reset of the global monetary system.
The unprecedented debt of first world economies, both in government/sovereign debt, private sector debt including consumer debt, is all caused by virtually unlimited credit and arbitrary low and official zero and negative interest rates imposed by central bank decision makers. It has so overwhelmed our economies and financial systems that no amount of positive growth in these economies, or the most outrageously high new taxes, can possibly service the accumulated debt.
So how do first world nations cope with this untenable situation without devolving into dead beat banana republic ‘solutions’? The banana republics such as Argentina merely dismissed the debt arbitrarily. Effectively they said to creditor banks abroad to ‘stuff it’. They denounced their debt outright or offered them 10 cents on the dollar to be paid over thirty years in peso equivalent values on the days of payment.
What ‘responsible’ first world nations do is something more nefarious, but nonetheless arbitrary and damaging to the standard of living of their citizens? They appear to take their debts seriously by paying them off. But how? Simply by devaluing their currencies against other currencies and against something that is a common reference. This is where the issue of gold comes to the fore.
Just as James Rickards has been saying in his two best sellers on currencies during the past four years and in his current ‘New Case for Gold’, he outlines that if the gold price is arbitrarily set jointly by central banks and global monetary agencies (think IMF SDR’s and the new weighted basket of currencies of which China has recently been provisionally admitted), it solves the government debt problems because the US, Germany, France, Italy, Russia, China, the IMF and others which have gold. (Countries without gold though have a challenge of gigantic proportions…think Canada, UK and many others who have sold their gold or others which never accumulated much.)
Rickards’ point is this. The global debt problem in first world nations is ‘solved’ through ‘revalued’ gold because in relative terms it ‘devalues’ their respective currencies. This is exactly what FDR did in 1933 as soon as he was sworn in as President when he arbitrarily raised the price of gold from $20.60+/- to $35.00. That 70% devaluation of the US dollar made life difficult for citizens, but it bailed out the government. FDR also made it illegal for US citizens and private institutions such as private banks to own gold paying them $20.60 when they turned it over to the government.