Creature from Jekyll Island (The Fed’s History)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called the printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” –Ben Bernanke

The problem is that, as the 2007-2008 experience teaches, the lag between financial turbulence and economic damage may be fairly long, of the order of a year or more. In the meantime, the economic indicators may remain positive.” –Stephen Lewis.

The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved. — Confucius (551 BC – 479 BC)

The Gold and Debt over the next decade chart shows the projection of U.S. debt, assuming gold will continue the same close relationship with debt as demonstrated in the historical gold and debt chart discussed earlier.

Conclusion

Gold’s price is directly proportionate to the massive amount of debt that is being created to keep the current fiat system alive. This will likely continue until a crisis, such as a severe global recession or hyperinflation, strikes one of the major developed economies. Either event will be bullish for the gold price, but for different reasons. The price is being driven by the physical market in the developing countries, especially India and China. China has to continue buying as much physical gold as possible if they expect to eventually compete for world reserve currency status.

CSInvestor: Do you see any problems with the above analysis?

3 responses to “Creature from Jekyll Island (The Fed’s History)

  1. I will pay $1 million in gold bullion to anyone who can post a better history of the Federal Reserve and what REALLY is the Fed’s purpose. An excellent video on the Fed/Govt./Banking Cartel and a lesson on the banking system.

  2. Yes. There is a problem with your “analysis” …

    1. Where is this gold/debt correlation coming from? Just historicals? Why should the correlation necessarily hold up in the future just because its been there in the past?

    2. How do you know what the price is being driven by? India has been buying gold since a few centuries now. Nothing much has changed recently except import duties on gold by Indian govt. I don’t see how that’s bullish for gold (except in denominated in INR).

    3. So what’s the correct value of gold? “Higher” is not a good answer.

    By the way … you still haven’t posted anything around how to value gold miners. Stock slacking off.

    • Yes, correlation is NOT causation. Pakistani National Team cricket wins have a 98% correlation to the US stock market. If the increase in debt is financed through the creation of fiat currency (electronic or paper) then there is a cause. If the debt is paid by taxes then no cause.

      Agreed on India. For every buyer there is a seller.

      Gold’s trend will ALWAYS be higher under a fiat money system backed only by government promises you just need to take a ten-to-thirty year view. See the chart:

      http://www.notorious-rob.com/wp-content/uploads/2012/02/WGC-Gold-price.png Since Nixon severed the dollar link to gold in 1971 can you guess the trend? The trend changes as soon as the gold price in U.S. Dollars goes under $40.00. Don’t hold your breath. All other things held constant, if the total amount of gold ounces increases 1% to 2% per year while US dollars are growing 4% to 15% per year over 42 years, the ratio of U.S. dollars to gold will change over time to more dollars to purchase an ounce or fewer ounces to obtain the same amount of dollars. Because of the demand to hold dollars vs. demand to hold ounces of gold, there is no one-for-one direct correlation. Demand AND supply of gold and dollars interacts in any exchange ratio.

      You can’t fight human nature. If you were a politician with a printing press, what would you do? And God said, “So shall it ever will be.”

      Miners and gold rising above my value range. I might have to wait until the next bear market.

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