Gold is hated more than ever by both governments and the financial services
community. This is because it has now become imperative to keep the illusion
of confidence in sovereign debt and paper currencies. To that end, a gentleman
by the name of Willem Buiter, Citigroup's chief economist, shot into the media
spotlight by writing a note on the day before Thanksgiving stating his belief
that gold is in a six thousand year-old bubble.
Citi's chief economist penned this "brilliant" commentary in the days just
prior to the Swiss referendum on increasing the percentage of gold reserves
held by its central bank. In a clear attempt to influence the gold vote, Mr.
Buiter also stated on November 26th that, "The Swiss vote is ridiculous and
no self-respecting central bank should ever be putting a large chunk in a single
commodity."
This hatred for gold spurs from his belief that gold has no intrinsic value.
But how can one individual have the hubris to believe he can erase thousands
of years of human experience and knowledge that has maintained gold's intrinsic
value stems from the fact it is the perfect store of wealth?
Mr. Buiter went on to exclaim that, "Gold has become a fiat commodity or a
fiat commodity currency, just as the U.S. dollar, the euro and the yen." He
continued, "The main differences between them [fiat currencies] are that gold
is very costly to produce, while the production of additional paper money has
an extremely low marginal cost." So, here we have this paragon of the Wall
Street and banking community saying that gold is no different from fiat currencies.
Since his body of work clearly shows he is aware of the definition of the
word fiat, the only conclusion one can reach is that Mr. Buiter is being brazenly
disingenuous. The word fiat means by decree or edict -- from the Latin "let
it be done." In reference to currencies it means that governments and banks
can create money at virtually no cost and at will. Gold is the exact opposite
of a fiat currency. Mr. Buiter admits this in the very same commentary by stating
gold is costly to produce.
Our collective human conscious has for millennia deemed gold to be valuable
because it is; portable, divisible, beautiful, extremely rare and virtually
indestructible. How many things on this planet fit those criteria? The answer
is nothing else except precious metals; fiat currencies fail miserably when
it comes to the rare and virtually indestructible part. This is what gives
gold intrinsic value and what makes it so vastly different than fiat currencies.
In the near future, I believe Citi's chief economist will be embarrassed by
his remarks, especially when comparing gold to pet rocks. He also claims that
gold, since it is just another fiat currency, can reach zero value just as
paper money can lose all its worth.
But contrary to what this gentlemen thinks, the value of gold is about to
soar because central banks and governments have become trapped. These market
manipulators need to keep asset bubbles inflated in order to keep the wealth
effect in place and sustain whatever anemic economic growth they have been
able to achieve. Most importantly, they need to keep sovereign debt out of
public hands in order to keep debt service payments remain low. This means
governments have no escape from their massive and unprecedented money printing
campaigns. Therefore, the value of fiat currencies is set to plummet when compared
to precious metals
These haters of gold are becoming more bold and desperate in their attempt
to maintain confidence in government issued debt and currencies as asset bubbles
have reached dizzying heights and debt levels have exploded into record territory.
Inflation has become the goal of every central bank on earth. This makes the
mean reversion of interest rates inevitable, which will lead to a global sovereign
debt crisis. To illustrate this point, the U.S. national debt officially eclipsed
$18 trillion this week! This equates to a trillion dollars + per year just
on interest payments once the Treasury is forced to pay a more normal rate
on all that debt. Economic chaos and soaring inflation will then follow, which
should send U.S. Investors flocking to gold en masse.
Buiter's concludes his inane commentary by stating that gold, "has had positive
value for nigh-on 6000 years." "That must make it the longest-lasting bubble
in human history." But history has proven the real bubbles have manifested
in sovereign-issued debt and currencies; never in gold. Since the rate of debt
accumulation and government money creation is exponentially greater than at
any other time in human history, I can state with confidence the "bubble" in
gold has only just begun.
