Tuesday, September 7, 2010
In a world with a “gold standard”, this isn't a problem. With currency which is redeemable in gold (or silver), the value of a currency (i.e. its purchasing power) is anchored by the gold and silver backing it. However, in a world of nothing but “fiat currencies” (i.e. money backed by nothing), a loss of public confidence in paper “money” is the worst nightmare of bankers.
This fear can be most easily illustrated by simply looking at the example of Alan Greenspan. In 1966, Greenspan was a respected academic, who wrote a famous essay extolling the virtues of a gold standard, where he simply stated the evils of “fiat money”:
“In the absence of a gold standard there is no way to protect savings from confiscation through inflation.”......read on
Frank Holmes interviewed on Mineweb.com......listen here
"People will switch to gold as a shelter," said Le Xuan Nghia, vice chairman of the National Financial Supervision Commission, which advises Prime Minister Nguyen Tan Dung. "The current situation with the dong will spur people to increase their gold holdings."
"The dong's depreciation, which has been about 5 percent already this year, plus declines in stocks and uncertainty in the property market, will prompt investors to put their money in gold," said Dinh Nho Bang, chairman of Vietnam Gold Traders' Association, which has more than 100 members. "We've seen some economic growth, but it's still not certain enough."
As I have mentioned numerous times in the last few years, the debasement of currencies have been and will remain the main driving force behind the strong gold prices. But there are a slew of reasons why the gold price is poised to move higher over the coming months and years for that matter......read in full
"The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.
“More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems,” he told Europe’s policy elite.
Dr Roubini said the US growth rate was likely to fall below 1pc in the second half of the year, despite the biggest stimulus in history: a cut in interest rates from 5pc to zero, a budget deficit of 10pc of GDP, and $3 trillion to shore up the financial system.
The anaemic pace compares with rates of 4pc-6pc at this stage of recovery in normal post-war recoveries.
“We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009,” he said, describing a self-feeding process as the real economy and the credit system hurt each other......read on