Sunday, November 22, 2009

Claus on Gold

"Of course we know that gold does not pay interest. Nor does crude oil, wheat, or any other commodity. But we also know that this shortcoming does not forestall rising prices. And yes, gold is a non-productive investment. It doesn't help economic development. Gold is the ultimate inflation hedge. However, its usefulness is very different: Gold is insurance against the follies of government, especially against inflation. No more, no less. If you have ever glanced through a history book, you may have read how governments all over the world implemented foolish and dangerous policies time and again. Unfortunately, today we're living through one of those sad times. Economists and historians have examined the important topic of inflation. And their findings are clear: Inflation is always a monetary phenomenon ... it does not appear out of thin air ... and it's always the result of specific monetary and fiscal policies. Empirical studies have plainly shown that all big spikes in inflation had two common characteristics: 1. Fiat money, and 2. Strongly rising budget deficits mainly financed by monetizing government debt. Both characteristics are present today, and not just in the U.S. but globally. Historically, most monetary regimes were based on money backed by gold and silver. But now the whole world is using money based solely on promises and faith."
Claus Vogt - Weiss Research Inc.

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