Canada in the near future
Part IV
Philippe Bérubé
Ottawa, Canada
People around the world are starting to notice the sustained progress of gold. The metal seems to be headlining the financial pages more often these days and none could blame the media for this editorial choice, since our beloved metal closed at an impressive $324 U.S. per ounce yesterday. Back in April, I was pleased to hear that a wide majority of Canadians acknowledged the high level of political corruption in our federal government (today a poll showed that more than 90% of them believed the current government's proposed ethics guideline would do little to reduce corruption) and this week, I was most delighted to notice that the mainstream investor was apparently considering gold stocks, coins and bullions as a worthy placement.
However, I am not so supportive of the general arguments big media have put forward to educate the masses on the topic of precious metals. A French article sent by a media analyst friend this morning toted that "gold, during the past seven trading days, mostly benefited from the growing tensions in Cachemire and from fears that new terrorist attacks could be perpetrated in the United States". As a political scientist, I recognize the importance of geopolitical elements in the metal's breakthrough, but I would rank these at number 3 or 4 in my personal "reason list". Many of you have elaborated pertinent theories (my reason #2) on the fact that a rise in the price of gold will often closely follow a rise in the price of oil and other commodities (these items according to many will experience great inflation while the price of houses, automobiles and other big ticket items will plunge). But among gold bugs, the first thing we acknowledge as a "sous-entendu" before even starting any discussion on the causes for the current bull market in gold, is the importance of the 2001 NASDAQ crash and the subsequent record 11 consecutive slashes in interest rates of our North American central banks. Those giant red flags, unfortunately, are the type of background information that is not given to the general public in most mainstream gold-related articles.
Funny that some financial analysts who've just "rediscovered" gold this month describe it as this "mysterious and unpredictable element" that rises and falls capriciously with each wedding season in India, each new turmoil in the Middle East or each apparent weakness of the U.S. dollar (the business world's currency of choice). They first need to realize, along with John and Jane Doe, that gold is not simply an investment, it's MONEY. Leave aside for now the not-so-accessible-to-the-general-public-financial-knowledge needed to analyze moving averages, volumes, prices and other fluctuations. Journalists need to go straight to the nitty-gritty and tell their readers that fiat money is just paper backed by faith in a government ! The majority of investors must somehow start to think out of the box and realize that saving only in paper is futile in the long run, whether it's in your $60,000 CDN insured RRSP, Treasuries, your bank account or in some soon-to-be-trashed stocks.
People who accuse me of preaching for my age group only (the twenty-something) while insulting the intelligence of boomers have greatly misunderstood my civic humanist approach to saving. By believing that individuals should take control of their financial freedom instead of following the herd, I'm simply supporting civic responsibility and not, like too many people out there, quizzically gazing at the rise and fall of interest and inflation rates without realizing that some puppeteers, up there, are pulling the strings. Offer and demand determine the price of both paper and gold, but no one seems to ask what is backing paper aside from good faith. True, the price of gold has also been rigged by a gold cartel for several years, but isn't mine production currently declining, while demand is increasing (production of dollars is booming while the demand for them is decreasing) ? Furthermore, isn't it true that other Enron-type bankruptcies (and God knows Enron was only the tip of the iceberg), more accounting crises or the ultimate insolvency of entire banking systems like Japan's are enough to create much stronger interest in precious metals and push more investors into gold?
For reasons I have elaborated in previous articles, it is obvious that the U.S. currency will crash too, the only question is when. It is also inevitable that this country's trade deficit and levels of national outstanding public debt (hovering around 6.07 TRILLION)/outstanding debt per household are unsustainable. Just like in the early 1930's, low-interest rate induced credit spending is going to cause a lot of suffering in North America. The recipe for a strong and lasting economic recovery is SAVINGS. When after a long decade and a half of penny pinching, America emerged from the Second World War, it was ready for a boom. Stocks were undervalued and people had money in the bank. Today, like in the late 1920's, stocks are grossly overvalued, people have borrowed heavily to boost the economy by spending on items like computers, cell phones, pagers, etc. (that are like the radios and household appliances of the 1920's) which are not going to be replaced next month. Once you own these items, you won't need to buy a new one for months or even years to come. That would explain all these zero down, pay later sales that are still prominently advertised in our shop windows today. They are not helping the economy (whether or not you've succumbed to the patriotic fervor shamelessly linked to many of them), they're a recipe for disaster. I also hope that Canada won't go into deficit again and that America won't let theirs grow any larger (it is now climbing at an alarming rate). As long as our corrupted leaders feed this central banking monster, we are doomed to see the money supply inflate and the value of our savings shrink.
At this point, all I can say and repeat to my friends is that gold was and remains the only long term edge against inflation. In the future, the U.S. and CDN currencies will not retain their value, nor will they provide for a comfortable retirement, unless they are backed by some form of tangible assets. And yes, Messrs. Mainstream financial analysts, I am personally very interested in learning more on the evils of hedging, but to the general public, you better stick to the basics for now.
Philippe Bérubé
M.A. Political Science
Ottawa, Canada
epb1886@hotmail.com
27 May 2002
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