You Can't Keep Promises By Pronting More Dollars

Forget what you hear and read in the press about a gold bubble. I can virtually guarantee that there will never be a bubble in gold for seven simple reasons:

1. Buyers of gold rarely borrow to buy gold and hence cannot create the same fallout that over-indebted real estate is suffering from. Buyers of gold are gradually realising that gold is an inter-generational wealth asset that defies the quirks of politics, economics and human stupidity.
2. The number of gold investors and their average investment is miniscule compared to the number of real estate and share market investors and the investments that they make. Moreover, gold is valued by everyone.
3. The galloping deficits, the accumulated debt of the government and its unfunded liabilities cannot be reined in due to the fact that the compounding interest and demographic decline will outrun any meagre improvements in economic conditions. The bottom line is that the government will not be able to keep its promises no matter how many dollars it prints.
4. The only collateral the government is left with is the printing press, as it is highly unlikely to either slash its spending or markedly increase taxes. The intrinsic value of dollars as a store of value (either as dollars or Treasuries) is therefore NIL NIL NIL in the longer term.
5. Interest rates will remain at depressed levels to avoid a housing implosion. If a rate rise triggers an implosion, gold will still hold its relative worth, manoeuvrability and international appeal better than most assets.
6. Then there is always the possibility that manipulation of the gold market either through one of the exchanges or the various ETF's might be proven and uncovered beyond dispute.
7. Finally, if gold is in a bubble why do the Russians (publicly) and the Chinese (furtively) keep accumulating it?

The above arguments more or less hold true for silver investors as well.

On the other side of the gold owners are the "living dead". I hear you asking, "WHO, are they?"

They are the people who expect that the pensions and social security promised to them in dollars at some point in the future will be adequate to ensure a civilized existence. It is now becoming increasingly apparent that reality will fall far short of expectations.

The living dead also include people who invest their dollars in some kind of savings, checking, money-market or certificate of deposit account. Bloomberg reported last month that the average rate of interest paid on these accounts fell to the lowest point in ten years in July. Do you want to know the rate? A paltry 0.99%.

If you invested your money in the US stock market (another species of the living dead), you would have made around 1%-2% for the year to date, providing your heart could take the wild roller coaster ride.

Do you want to try housing, an office building or a shopping mall? I guess we don't need to comment here.

The ultra-low rates of interest on deposits to prop up real estate, is a Federal Reserve contrivance that is tantamount to a violation of basic property rights, just like free trade without limitation is a contrivance to demolish wages in the name of consumer satisfaction.

To provide a practical picture of what is happening, consider the following:

A Ford Escape Limited FWD costs around $21,000 to buy but this in reality is not its true price. You see a car needs gasoline to run on, otherwise it serves no purpose. This car does 21 MPG in city driving and takes 16.5 gallons. In other words it does around 347 miles on a tank which costs $44.55 at a gasoline price of $2.70 per gallon. That translates to $2316 per year for a tank of fuel per week.

If you have your money invested at a rate of 0.99% you will need to invest an amount of $257,334 in order to earn $2316 with which to meet your yearly fuel bill. Now I am not sure what insurance and other costs a car owner incurs in the USA, but it looks like the poor old saver needs close to half a million dollars (maybe a lot more) invested with a bank just to keep his car on the road.

This is what Mr Bernanke and his predecessors as well as successive governments have done to your dollar and to your savings. In the meantime, the snakes dressed as commentators, try to take your eye off the game by loudly proclaiming a "gold bubble". There is no gold bubble...only dollar trouble and heaven help anyone who has a stock of these in a bank.

Just think about this, they borrow your money at 0.99% and on lend it for housing at 4.5% and for much more to business and credit card borrowers, yet they are still being put to sleep by Sheila Bair on a weekly basis. That is one hell of a sick banking system if they can't keep their head above water despite such great margins.

Anyone who requires say around $50,000 per annum, to keep his household going, needs to invest over $5.5 million in a bank to achieve this income without even considering income taxes. And then the snakes dressed as commentators have the gall to say that gold is in a bubble or that it pays no interest.

May I remind the Nadlers, Roubini's and Soros' of this world that gold opened at $1,092.10 on January 1, 2010 and closed at $1,274.70 on September 17, 2010. That is a return of 16.72% year to date or 375% over 10 years. Even the strongest performing currencies of Australia and Switzerland during that period still saw gold prices increasing by 170%. Did someone say currencies are a store of value?

They can hammer gold as much as they like. These are the people who swing between berating gold for not having kept pace with inflation since 1980 on the one hand and then calling out "gold bubble" on the other.

The truth is that the new all time nominal high in gold is only in US dollars only. In Euro terms and Australian dollars for example, it is about 10% off their previous highs.

What these Einstein's should be saying is that the U.S. dollar has fallen quite markedly against other currencies. In fact what we are seeing is an acrimonious race between currencies to the bottom. At the bottom they will all have achieved parity to one another because they will all be worthless.

Any fool that believes that you can increase intrinsic value, keep promises and mend the economy by creating more dollars in the form of debt on the national ledger, or by a helicopter drop, is a traitor to his nation, a disgrace to his profession and a destroyer of his children's and grandchildren's future.

The persistent onslaught by commentators against gold should always be seen for what it really is....a siren's call that has been repeated again and again for over 10 years by the same people with the same outcome.....gold wins and they lose. They have no shame in repeating their clueless mantra and you should be ashamed to respond to it.

Gold and silver are not a cure all for the ills besetting society. They are simply the first step in restoring fairness and sustainability in transactions between individuals, corporations and nations and the best means of curbing expenditures and activities that are destined to destroy lives and resources without enduring benefits for man and civilization.

Until next time.....

Sydney Australia

P.S. I hope readers will forgive me for not responding to their recent emails as I am just recovering from a bad cold that I caught from getting caught by the rain whilst on a long walk. If I survive you will hear from me.