The New Wedge Issue: Gold


As public concern mounts over Fed Reserve Chairman Ben Bernanke’s policy of unlimited and unrestrained printing of currency, the political focus on gold is increasing. Each month now, our currency expands by over $80 billion. Each year, the amount that comes into circulation equals the total money supply that was in circulation in 2007, before Bernanke went crazy with the printing press.

By excluding food and fuel from the calculations, he has managed to bring in the Consumer Price Index at less than his 2 percent annual inflationary target, but few doubt that the dollar is fading fast.

From abroad, the BRIC nations (Brazil, Russia, India and China) have committed to using gold — not dollars — in their trade with one another and Australia has agreed with China to base its trade on the value of the Yuan, the Chinese currency.

Domestically, Arizona and Utah are passing laws allowing gold to circulate as legal tender in their states. The University of Texas Investment Management Company has bought $1 billion of gold as part of its investment portfolio, and a bill backed by Governor Rick Perry would store it in a newly created Texas Bullion Depository. The facility would also accept deposits from individuals and could become the basis for an emergency currency should the need arise. The very fact that people are thinking in these terms is indicative enough of the uncertainty Bernanke is catalyzing.

The saving grace of the dollar in today’s markets has always been that every other currency is worse. The euro is dissolving before our eyes. The yen and the pound are too limited a basis for global transactions and China deliberately keeps the yuan weak so as to procure trading advantages.

This situation has led the International Monetary Fund to issue Special Drawing Rights as a global currency based on a market basket of the world’s currencies. Over a trillion dollars of SDRs are now in circulation, largely in poorer countries, where the IMF has sent foreign aid in the form of SDRs.

Other nations cannot print money as we do since theirs’ is not the universally recognized global currency. But the Fed is abusing our prerogative to print so blatantly that one wonders how long the world will accept the dollar at face value.

The Fed is trying to hold down the price of gold so as not to stoke fears of inflation and to reassure us that all is fine despite its profligacy. But the potential for a banking collapse and a dollar crash are looming ever larger.

The world has an economy worth about $80 trillion. But banks have wagered $1.6 quadrillion in derivative trades. If, or rather when, those bets come crashing down, banks will not be able to make good their losses. And governments will be hard pressed to do so either.

Enter Cyprus, where we are all seeing what happens when measures like even the massive TARP lending prove inadequate to protect banks. There, the European Central Bank (ECB) — the Euro equivalent of the Federal Reserve — is invading private bank accounts and seizing up to one-third of the amounts on deposit (a practice usually limited to asset forfeiture in drug cases) to shore up the banking system. This step is sending chills down all of our spines. FDIC insurance would be worthless in the face of a global policy to seize accounts.

Let’s face it. Politicians have abused the right to print money. We cannot trust them to limit their power and to face fiscal facts. The abuses of President Obama and Bernanke illustrate this grim fact for all to see.

Gold is coming!

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