Sunday, October 7, 2012
Julian D.W. Phillips
When Nixon closed the gold window in 1971, he was relying on oil being priced in dollars only, making the dollar a necessity.
If a currency is measured solely on the performance of its government and Balance of Payments, it is vulnerable to market forces that react to that measurement. With oil as backup, that vulnerability fades—until profligate printing of the currency becomes so obvious that it cannot be ignored. This is where the US dollar now stands.
Over the last 42 years, gold has multiplied from $35 to $1,770. That's over 50 times in 42 years, and there’s more to come. This is a statement on the failure of the currency experiment and currencies' ability to measure value.
Pension funds are measured on money in versus money out. The assets in the middle should rise to cover the cost of paying pensions when workers retire, as well as cost of living increases. If more money goes out than comes in, the fund heads toward insolvency. Unfortunately, with the baby boomers retiring, this is where most pension funds now stand.
Worldwide, QE is accelerating in the hope of stimulating faster, sustainable growth; but money printing lowers the value of a currency and savers are the victims of such a policy.
Some believe that certain currencies will retain their value, i.e. the yen or the Swiss franc. But both these governments have moved to lower the value of their currencies internationally, so they can retain a competitive trade advantage. Thus, the concept of a currency as a measure of value has now departed completely.
Such currency market changes allow for gold and silver to act as that measure of value, as currencies fall against them. Gold’s price differential from 1970 to today translates into a 100%+ gain every year for the last 41 years. This is also a measure of the decline in currency value over the same period.
Some analysts believe gold will triple in the next few years. That would change the rise from $35 to 317% per annum. What will that say about the value of currencies the world over, and what does it mean for the future.
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