QUESTION #1: Marty,
___ ________ makes the argument that if “the government” raised the price of gold to $5000/oz it would start and inflation that would wipe away the debt.
Don’t they have to ensure convertibility as well? He kind of skips over that. And isn’t that pegging the dollar to gold, and no peg holds? At that price the dollar would become incredibly cheap, and world demand for it would soar to arbitrage trade into goods, I would think.
Anyway, how does his proposal compare to the 1934 and 1971 devaluations.
ANSWER: This proposal is insane and it would not work anyhow. In 1934, it was the link of gold to the dollar that CAUSE deflation. When Roosevelt devalued the dollar, then inflation took place. If you suddenly fixed gold at $5,000, so what? He would be doing the opposite by creating deflation and then the national debt would become payable in gold.
The 1971 closing of the gold window by Nixon cut the link to gold ending Bretton Woods and then inflation unfolded. This is why Europe is in trouble for they keep trying to create a strong Euro which means assets decline and that produces deflation.
I just do not get the reasoning of these people. They clearly have no real world experience. They want to forecast markets without ever leaving their bedroom.
QUESTION #2: I have been bullish on gold until recently. It seems that to cheer gold we have to cheer the end of the world. If that is our fate for us all, then gold won’t matter. As you said, a $1,000 in gold in 1980 is worth $1350 today less storage fees. A $1,000 in the Dow back then is $22,000 plus all the dividends. Do you really think gold will ever go up? With North Korea fading out, what reason do we even have for gold? Deflation dominates the world and taxes keep going higher and higher so there is less disposable income. It does seem gold is on its deathbed. Any comment?
ANSWER: All of that is true. We have to wait for the next cycle. Tax reform is absolutely critical to the future. The next cycle things will change.