Can Gold Save the World From the Credit Bubble?

In a financial world of contradictions, chaos, and confusion, perhaps a “gold-centric” perspective will provide clarity.

The media is filled with comments from notable “gold-bashers” such as Benjamin Bernanke, Warren Buffett, and Bill Gates.  Their criticisms of gold (in my opinion) boil down to:

  1. Gold has no real value – you can’t eat it or do much with it except make jewelry. It is a barbarous relic etc.
  2. Gold makes no sense. Why dig it from the ground, refine it, and then lock it in a vault where it sits producing nothing?
  3. Gold prices are volatile.
  4. Gold is an unsafe investment.
  5. Gold pays no interest.
  6. 101 more criticisms of the oldest money in the world.

However, if the “gold bashers” were correct then why are the following true?

  1. Wealthy Hindu temples such as this one are repositories for much of the $1 Trillion US worth of privately help gold in India – about 22,000 tons, according to an estimate from the World Gold Council.” The temples have accumulated 1 $Trillion worth of gold, but “gold bashers” claim it has no real value.  I think gold has value.
  2. Prime Minister (India) Narendra Modi’s government is looking to monetize India’s vast hidden wealth…The gold, officials said, would be melted down and sold to jewelers.” If gold has no real value, but jewelers want it, and the government wants to monetize (sell) it and convert real gold to fiat currency to support the government, then the “logic” escapes me.
  3. El Salvador’s central bank sold about 80% of its gold reserves last month to diversify risk and take advantage of the metal’s appreciation, a central bank official said on Friday.” Really?  Gold in dollar terms is down 40% and the central bank wants to take advantage of the metal’s appreciation.  They sold gold and converted it to fiat currency to diversify risk.  I doubt it.  They need the cash and the gold is valuable or there would have been no buyer.
  4. Greece and their financial troubles: “… upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.”  In summary, print euros, lend them to Greece, take Greece’s gold upon default, and the result is the euros are spent, Greece’s gold is gone, and the lenders possess real gold, not digital euros.  What a simple and brilliant plan to convert paper into gold!  If gold is so useless why demand Greece’s gold?

We can find many other examples of the real value of gold and the global recognition of such.  Ask yourself:

  1. What happened to Libya’s gold after the bombing and NATO invasion?
  2. What happened to Iraq’s gold after the US invasion?
  3. What happened to the Ukraine gold after the revolution in 2014?
  4. What happened to Kuwait’s gold after Iraq invaded in 1990?
  5. Why has China purchased many thousands of tons of gold in the past 5 years?
  6. Why has Russia substantially increased their gold reserves?
  7. If gold has so little value and use, why was Fort Knox built?

Can Gold Save The World from the Credit Bubble?

It has been reported that global debt is about $200 Trillion.  Central banks supposedly hold about 30,000 tons of gold.  If the total debt were backed by central bank gold at 40%, that would price gold about $80,000 per ounce.

In the US, the official gold reserve, which has not been audited in about 60 years, is about 8,200 tons.  Official national debt is about $18 Trillion.  If the official gold backed the debt at 100%, the price of gold would be about $70,000 per ounce.

Interest rates are at multi-generational lows.  It has been reported that over $5 Trillion in sovereign debt “pays” negative interest.  German 10 year debt pays less than 0.20% per year.  Some European mortgages have negative amortization.  Clearly credit, debt and currency bubbles have been created.  All bubbles eventually pop, often with disastrous results.

The credit bubble has grown so large that the supposed central bank gold would have to be valued at $40,000 to $80,000 per ounce to back all the debt.  Revaluing gold higher by a large factor may become necessary in the future to reestablish confidence in currencies.  However a revaluation certainly will not be welcomed by central banks, governments, or most individuals.  The transition to $80,000 gold, or even $10,000 gold, would be very traumatic.

But can the world increase debt forever, inflate the sovereign debt and global credit bubbles even further, and not create an equally disastrous hyperinflation or a severe deflationary depression?  Something is likely to break.

Governments and central banks created the credit and currency bubbles.  When fiat currencies crash in the next crisis, backing currencies with gold could “save the world” and restore confidence in fiat currencies but only after significant trauma.

Perhaps central banks will do the “right thing,” but only after they have exhausted all other alternatives.  It will be a long and difficult wait.

Read:          Bill Holter   Gold Really Does Matter

Gary Christenson

The Deviant Investor

21 thoughts on “Can Gold Save the World From the Credit Bubble?

  1. 1. Currency has no real value – you can’t eat it or do much with it except pass it on to the greater fool. Drop a $20 in the garden and it will rot away. Currency’s value is completely dependent upon confidence in the issuing agency.
    2. Currency makes no sense. With the trend to de-cash society, we lock it in a vault where it sits producing nothing?
    3. Currency prices are volatile. Forex?
    4. Currency is an unsafe investment. See #5 below
    5. Currency pays no interest. It in fact depreciates in direct correlation to increases in quantity. Should confidence fail, currency returns to its true value; zero.

    Can gold and silver save us from credit bubbles?
    No, not without elimination of the ridiculous level fractional reserve banking in existence today. 80% backing would be sufficient. Of course this would eliminate consumer credit, most business loans, buying on margin, etc. Interest paid on deposits and interest charged on loans would increase substantially.

    Evidence? Did bubbles ever exist while the world was still on gold/silver standard? Look it up for yourself.

    How high would gold and silver need to go to cover the debts? The world will default on its debts. So why would anyone attempt to value gold and silver in an obsolete and unusable currency? Do we compare the USD to the value of shells and bone needles. Both were currency.

    It is NOT, “He who owns the gold that makes the rules”. It is “He who controls the gold makes the rules”. You can’t control what you don’t physically possess.

  2. For all the discussion about the amount of gold
    and currency there is lost the reason for gold …
    as an ANCHOR for MONEY.

    Money anchors all currencies, (via bid/ask ratios) ,
    Each country uses Currency, (basis of tax laws).

    You work for currency, (not money) … you buy sell
    with currency … (you do not go into McDonald’s
    with a tiny speck of Gold or 1/10th oz of Silver.

    The MOON could be an Anchor (for ‘Mooney’ …
    as it can’t be counterfeit, it can’t be stolen ..
    it is fungible (equally divided per person in the
    world by geo-position contract … (4 square feet
    tapered to the center of the moon with mining
    rights to each person).

    While Gold is poor as an Anchor … it is the
    best Anchor … it is bid/ask daily … it has
    5000 years of history. It is periodic-table-stable,
    element, rare, does not rot, or rust, nor attract bugs.

    You guys know all that stuff … but you really need
    to redefine Money as an Anchor … that currency (‘s)
    is not money (just a coupon for money … It should
    be anchored by Government’s agreement and contract

    Movement of Gold is minimal as it is the sanctity
    of contract (ownership) and the ACH clearing of

    Gold would not be wholly owned by Governments …
    nor by banks … rather they provide the legal
    basis that gold is money … the world-wide
    anchor for all currency based on world bid/ask.

    Gold is the best Money, (as Anchor for all Currency(s).

    • Harold Coffman: Yes, you did used to go into McDonald’s or someplace similar and buy a hamburger with silver – two silver dimes, or maybe a silver quarter and got change back – until 1966-67.
      And currency can only be anchored by government if it’s convertible, otherwise ‘anchoring’ is meaningless. In any event, contract law means nothing to the government – they just rewrite the law to conform with what they need to do. The ‘gold bond’ episode in the 1930s is an example of that. The government defaulted on its bonds by refusing to redeem them in gold, as promised, but simply gave ‘new’ paper dollars (after devaluing the dollar from 1/20 to 1/35 oz gold).
      Anyway, the ‘contract’ as it exists now is simply that a dollar is a dollar. You cannot convert it into anything but another dollar, or loose base metal change.

  3. There is more to the future than Gold & Silver, far more. They may or may not present wealth, it will depend on how the Technocracy chooses to project collective confidence. I would suggest they are failing on balance and yet the majority remains contained for now.

    Food will be a far greater issue in my humble opinion Gary. If you would enjoy learning to Grow Your Own and advance winning from “other” points on the “Curve” I’ve launched a Forum to assist you.

    Presently Silver appears to be a better investment longer term than Gold, it has far more practical utility in both industry and as a medium of exchange. It should easily outperform Gold by 400-800% over the long term.

    The window will close in the next year or two at the outside and whether one pays $20 or $15/oz for Ag will be of little consequence.

    Choose your path wisely, the decisions you make today will be your tomorrow.

  4. Read this not-too-long speech by Howard Buffett, father of Warren, and see a classic case of the son rebelling against the beliefs of the father who argues the case for gold and convertibility:

    Then think of the empire created by Warren, who hates gold, who loves to collect dividends but never pays them – whose BRK-A shares dropped in value by almost 50% 7 years ago and now sell for about 300% of that bottom but describes gold as ‘volatile’; who uses shareholders’ money in the treasury to buy back shares (but never pays a dividend).
    Then observe the crowds who come to his annual gabfest to see him play the banjo, tell stories, and offer a free ice-cream-on-a-stick to the worshipful gathering. Is this not a cult?

  5. Some interesting ideas ,but don”t believe that governments infinite powers. Right now ,still enough people have ok life styles.But when it gets bad for most of us, there will be demonstrations , and other unrest, and people will demand changes.History proves, that nothing last for ever, and that goes for our present day rulers . Nobody ever thought , that the soviet union can fall, and what happened ?Or the eastern block countries .When the day coms , the house will be swept clean, and hopefully we will have a more honest system.????

  6. Much of the thinking about gold and precious metals in general was formed at a time when world population was much smaller. Human freedom, dignity etc all had a well defined meaning at that time. This has all changed. An extreme example: Many hundreds of years ago, armies fought each other on the battle field with few casualties in the civilian population. In comparison, modern warfare is the opposite: It aims at killing large numbers of civilian populations, destroying infrastructure and avoiding fights with the opposite army. This trend started with WWI, accelerated in WWII and still did not reach its peak. Example: Hundreds of Thousands (some even say millions) of dead women and children in Iraq and only a few thousand dead US soldiers. The notion “weapons of mass destruction” is has a real meaning. It also reveals how the political elite thinks about civilians: “masses to be killed”.

    The ultimate cause for this development is the rising world population. In order to feed all these masses, economic growth must be maintained at all costs. The power of governments must be secured in order to deal effectively with all the problems resulting from overpopulation. Gold is just an obstacle to that policy. The purpose of gold is to give the public greater control about credit in the banking system. But control by the masses is unthinkable. We need the opposite: control of the masses not by the masses.

    The present times are still great because we are still allowed to purchase gold. One day that will be history and the possession of precious metals will be made illegal (for national security reasons). In Nazi Germany and in Russia under Stalin, possession of gold was punished with mandatory death penalty. That will come one day in the west to. Hopefully not in our life times.

  7. People do not understand the meaning of debt. Debt is an asset which produces an income stream from the interest payments. The more debt the better. Interest payments are a tax on economic growth.

    Already our great president Ronald Reagan said “Deficits do not matter”. He was right. In modern monetary system, debts are never repaid, their are rolled over by issuing new debt. Whenever somebody wants to produce or to consume, debt is easily created.

    In the past interest rates were fluctuating between 3% and 20%. In the future, due to saturating economic growth, interest rates will fluctuate between 0.01% and 2%. The higher the debt, the lower the interest rate must be in order to avoid default on the debt.

    By removing paper money from circulation and announcing gold backup for every Dollar in the banking system, there will not be any need for private precious metal hoarding. The money can never be removed from the banking system. The elimination of bank runs allows also for the creation of infinite amount of debt. Hyperinflation will be avoided by regulating the amount of money consumers can withdraw from their bank accounts.

    The fiat money system will be saved at least for another 100 years. How about the next 200 years ? Well, according to Keynes, in the long run, we are all dead. What difference does it make therefore ?

    • Thanks for your comment. Interesting but I don’t think we are on the same page. “Gold backup for every Dollar” would be nice and I hope central banks come to that conclusion, but I think the intervening trauma will be horrendous.
      The Deviant Investor

    • woopee… deficits don’t matter and debt can be infinite. We’ve discovered the goose that lays the golden egg. No need to actually save… we can borrow at near ZIRP and roll our personal debt over forever. We can buy yet more planned obsolescent junk and call it “wealth”.

      • Yes, debts can become infinite as long as the interest on that debt does not exceed GDP. The greater the debt, the lower interest must be. The size of the debt does not matter as long as the debtors service it, that is, interest and principal payments are made.

        Personally, I prefer to be debt free. However, understanding how the system works, we need also to admit that the economy can not be debt free. Repaying all debt means removing all money from the economy. That is because money enters the economy as debt. If that would not be the case, we would have an incredible misery in the country. People who can not find a job would not be able to eat. That can be avoided in a debt based monetary system. You can eat today on credit and pay for it next month. A gold based system would mean that you first need to earn the gold before you are allowed to eat.

        Regarding “planned obsolescent junk”, my advice is: do not buy it. Instead, buy gold. In a paper based system, it does not matter what you buy. The more you buy the better.

  8. The article also makes a strong case for holding some recognizable U.S. Mint fractional gold coins, as well, since gold could potentially get re-valuated to $5,000.00 or $10,000.00 or even more, given the massive global debt. However, silver seems to be even more highly undervalued than gold, and so, it seems a savvy contrarian investor should have a position in both silver and gold, with greater weight on the silver side – long term.

  9. !) Will Central Banks Abolish Cash?

    2) A ‘Cash-Less Society’ = Bullion Confiscation

    Takeaway: If our schizophrenic (Khazar-Zionist) socio-pathic and psychopathic control-freak government and the “elites” they serve/represent decide to go full-tilt TOTALITARIAN on us – they may just decide to dispense with the whole “collectible” exemption, and just confiscate everything. However, for those who are willing to defy any and all attempts to control them, and remain as far removed from the matrix as possible, it may be a good idea, to hold say, 90% silver “mercury” dimes, pre-1965 washington quarters, franklin halves as legal/u.s. mint “collectibles” which can also be used as fractional silver in trade. Just saying.

  10. we are going into a very painful reset of the global monetary system and mankind has to learn the lessons,never ever to install a financial system like this again–the new one will work without interest rates,commodity trades to some extend only etc……

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.