Armstrong, Rickards, Sinclair, and FOFOA say gold is going much higher. How high depends on how “free” gold becomes. It seems that Rickards believes a flexible gold standard is possible, where gold forms a basis for fiat currency (40% or more). Gold would compete in a quasi fashion as an alternative store of wealth and its price would float within a band determined by the Fed, specifically limited to say 2.5% above or below pegged price. When price exceeds the given range, open market operations to either buy or sell gold would be utilized to bring price back into the acceptable range. Jim Sinclair also sees something similar to this.
This type of “gold standard” may be viable for a time, depending on how high the reserve is set at, but in the end it will fail. Pressure will come again to de-value and politicians cannot turn away from temptation. The dictated price range would be strained initially and ultimately abandoned. Any number of “emergencies” would qualify to enable “temporary” non-observance of the dictated gold to dollar exchange rate. Truly free gold gold as espoused by FOFOA is the only sustainable solution to creating a monetary system that will last the test of time and application. Gold must not be pegged in any fashion to fiat currency where credit is created. It must be completely independent and float purely in response to supply of money and credit. The market would determine the appropriate price, not a governing board of a central bank.
Martin Armstrong believes in the cycle of money and in the cycles of all things. I agree with his view that mankind through their actions create and fuel the cycles we witness. History shows us that money has a lifespan and initially begins as an honest exchange system. It then proceeds to be debased in response to the public demand for credit. Eventually government and special elite interests find that their self interests are furthered by giving the public what it demands. Unsustainable debt is the result and the inevitable crash occurs. To regain confidence, a new money is presented with real and tangible backing and the process begins anew. So I believe Martin also sees a quasi-gold standard in our future where gold’s price is managed at a level that enables servicing of debt, and then the eventual destruction of that gold standard. IOW, same old same old.
The question is whether we have evolved to the point where we can alter the cycle. If we have then Freegold will happen. I believe as FOFOA does that mere devaluation will not suffice this time without structural changes that limits the ability to inflate. The current structure of global finance will in short order overwhelm any attempt to fix gold’s price. The gold standard solution would not last very long at all. And, that is assuming the very entities that have squandered the trust of maintaining value in our money can ever regain that trust. If they cannot regain that trust, the market will embrace itself and its ability to maintain value of money.
Gold must be free of our money and it must be reserved for a single purpose, to store value. It cannot be used to generate credit through fractional reserve banking.
By Greg Hunter’s USAWatchdog.com
At the beginning of this month, the G20 met in France to try to find a way to solve the European sovereign debt crisis. It ended with world leaders in disarray over a way to come up with a solution. At first blush, it appears that nothing of any importance came of the meeting of the 20 leading economies of the world, but that is not the case. (more…)