Sunday, December 13, 2009
Spengler on Gold
"Even a rather wobbly reserve currency is a better asset than gold, whose price again crossed the US$1,000 mark last week. Gold is far less liquid than US Treasury securities, costly to store and insurance, and above all far more volatile in price. ... In a functioning world financial system, in which investors trust governments to control extreme instability, even an indifferently managed reserve currency with a broad capital market behind it is better than gold. ... Strictly speaking, gold isn't an investment but an insurance policy against a breakdown of the functioning of the world financial system. ... Divided by the US Consumer Price Index (CPI), the price of gold trades at half its 1979 peak, when the world had cause to believe that America would lose the Cold War. ... America's position in the world today is far less subject to challenge than it was in those dark days at the end of the Carter administration. ... The scurrilous fringe of financial journalism likes to speculate as to when China will dump the dollar, without asking the obvious question: what would China do in the absence of the dollar? ... Gold will have no official role unless America's international role really does collapse, and the world is reduced from a system of trsut (or imperial dictates, which amounts to the same thing) to a kind of barter at the international level. ... Everyone owns too many dollars; by definition, a problem in the resrve currency means that the whole world is long as asset they no longer want. But the dollar is so large that nothing can substitute for it", my emphasis, Spengler at Asia Times, 14 September 2009, link: http://www.atimes.com/atimes/Global_Economy/KI15Dj08.html.
I am a 30-year card carrying member of the "scurrilous fringe of financial journalism". I assert China will dump the dollar and buy gold. I disagree, gold is better than any (paper) currency. Gold has fallen in real terms since January 1980, true. But the dollar has fallen 98% relative to gold since 1933. Is gold rising or the dollar falling? Gold is as "volatile in price" as the dollar. Who cares what gold's "official role" is? Nothing can substitute for the dollar. Interesting. Think about that.