By Arnold Bock
That governments will want - and will NEED - much, much higher gold and silver prices in the future is counter intuitive, given that they have done everything within their power till now to throttle back and to keep a lid on bullion prices. Let me explain why.
Although we have seen eleven consecutive years of gold bullion price rises, such increases have been incremental, measured and at levels which make the remainder of the commodities and equities markets look volatile. Governments have used their preferred bullion banks as agents in the paper futures markets and their central banks, in conjunction with their respective Treasury bureaucracies, to limit the inexorable rise in precious metals prices as much as possible to keep gold - the only 'real money' - from drawing unfavorable attention to their own failing fiat currencies and uncontrolled sovereign debt.
Recently central banks have become net purchasers of gold bullion after many years being net sellers. In 2011 central banks purchased 430 tonnes of gold, five times more than in 2010 and the highest since 1964. Much of this new demand has come from 'emerging markets' central banks like Mexico, Russia, Turkey, South Korea and of course China and India.
This causes one to speculate as to why governments would suddenly, however quietly, turn into buyers rather sellers of gold.
--Could it be that gold is the only 'real money' in a world comprised of paper money backed up only by faith and confidence, or lack thereof?
--Are 'paper money bugs' losing their confidence and swagger?
--Are governments positioning themselves for a period when paper money loses its value faster than they can create additional digital versions of it?
Countries want to cheapen their currencies
The owners of the globe's respective currencies, especially the important and freely traded currencies, are constantly, deliberately and competitively devaluing their currencies against those of other nations. They don't admit that is what they want and are doing, which is to make their goods and services more competitive in international markets, because voter reaction would be too politically unpalatable.
Even more important in the future, will be the need for governments to be able to meet the promises made to their own citizens for pensions and health care as well as payments for past debt to bond holders. What better way than to pay debts than with nominal devalued dollars, euros, yen and pounds?
Financial repression is a tried and true public policy mechanism designed to take care of the massive debt following WWII. It works its magic simply by keeping prevailing interest rates lower than the real rate of inflation. Well managed, it allows for the imperceptible and inexorable devaluation of the currency. Implemented with precision and stealth by governments and their central banks, it works magically over a relatively short period. It allows governments to pay for their promises and obligations with constantly devaluing money...almost unnoticed.
Given the role of asset inflation, citizens may even think they are getting wealthy as the nominal price of their investment assets increase. Instead, it is a form of taxation and confiscation invisible to the average person. Government statistics using arcane methodologies such as seasonal adjustments, 'headline' and 'core' inflation numbers, hedonic adjustments and substitution are all facilitators of this deception.
A new global reserve currency is coming
The US dollar is in the process of losing its special status as the means of pricing and paying for the goods and services traded internationally. This is happening daily with special bilateral arrangements between trading partners which use something other than the US dollar for political and financial reasons. Before long:
--The US dollar will be replaced by a basket of currencies, appropriately trade weighted, including International Monetary Fund SDR's (Special Drawing Rights).gold will also be a featured element of this new multipronged global reserve currency. Given that gold remains the only real money in a world of the crumbling paper variety, a thick veneer of gold is essential. Member nations of this new global reserve currency, of course, will not want the constraints or discipline of a full-blown gold standard, only its appearance for reasons of credibility.
--The new global reserve currency will no longer be American which will be a big win for the internationalists and globalists who value multinational alliances and who will no longer have to defer to one dominant nation, namely America.
--Better yet, any institution comprised of several members will make it extremely difficult to assign blame, which in academic language means responsibility and accountability. Clearly a global currency used in foreign trade, operated by a committee of nations, will be perfect for dispersing blame.
--All nations will continue with their own faltering currencies for all internal pricing and transactions. National fiscal and monetary policy will remain with individual nations thereby avoiding untenable constraints currently faced by countries such as Greece and Portugal in the Euro zone.
--Interest rates will invariably rise from their current arbitrary, market manipulated and unprecedented low levels in response to the growing concerns of bond holders about risk.
--Individual nations will point their fingers accusingly at other nations and especially at the global committee of nations responsible for the new reserve currency.
--Political scapegoating will become national pastimes designed to justify high taxes, lower currency values, price inflation and low economic growth all resulting in much lower living standards of the citizens. Confused citizens will be inundated with multiple reasons for their deteriorating circumstances.
