Gold Or Crushing Paper Debt?

Market Analyst, Author, and Founder of The Deviant Investor
October 22, 2014

A Yahoo headline:  Pentagon Readying For Long War in Iraq, Syria.  More war means more debt and higher inflation.  Increasing national debt is as certain as death and taxes.  Increasing consumer prices follow.

National Debt Since 1971

CPI – Less Food and Energy, of course

Then the “something for nothing” crowd adds to the trauma.

  • More programs are funded by government – Medicare, disability, military contractors, “war on poverty,” banker bail-outs, “food stamps,” and many more.
  • Central banks “print” currency (something for nothing) and pretend that new dollars, euros, yen, and pounds are valuable. The result is more currency in circulation, higher prices, and more economic distortions.
  • “It’s all good” propaganda from governments and banks disorients the populace.  The antidote is truth.  (Thanks to James Quinn at www.theburningplatform.com)

Governments respond to problems with more spending (stimulus), central banks support the bond and stock markets (QE), and we pretend debt and deficit spending can increase forever (delusional).  The U.S. official national debt is nearly $18,000,000,000,000.

Occasionally a 1987 or 2000 stock market crash occurs, a 9-11 event changes the world as we know it, a housing bubble deflates, and major wars are created.

What could dramatically change our world – again – like 9-11 did?

  • Smaller wars expand to become bigger wars, or even global wars.
  • An Ebola pandemic, or merely the fear of a pandemic, temporarily paralyzes the global economy.
  • Loss of confidence in fiat currencies and never-ending debt causes a major depression or financial collapse. What could create such a loss of confidence?  Insolvent governments, a global pandemic, derivatives implosion, massive bank failures, financial melt-down, crude oil price spike, debts that will never be repaid, and leaders who don’t lead – are just a few.
  • Stocks peak and crash as they often do about every 7 years.

 

Could Anther Crash Occur?

Our financial world seems more unstable and more dangerous than usual.  Which has been safer under difficult economic and political conditions during the past 3,000 years – gold or debt based paper?

Consider the following graph of gold (log scale) since 1968.  Note the rally into the mid 1970s and the subsequent correction.  Is that pattern similar to the rally into 2011 and the correction since then?

Our financial world is dangerous and volatile.  It is possible that:

  • The S&P will rise for another decade.
  • Middle-east wars will resolve into peace and prosperity.
  • The Ebola panic will fade away.
  • Confidence in paper currencies and dodgy debt will persist for another decade or two.
  • Global peace and harmony are just over the horizon.
  • The US gold supposedly at Fort Knox and the NY Fed is still there.
  • Derivatives will continue generating revenue for banks with only positive consequences to economies and the 99%.
  • Governments will expand the funding for the “something for nothing” programs to buy votes, all without consequences.
  • And we will tax and legislate ourselves into wealth and prosperity.

But I doubt it!

I think gold will survive as a store of value far longer than any government, fiat currency, or debt-based paper investment.

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The Deviant Investor

GEChristenson

Gary ChristensonGary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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