Wednesday, January 09, 2008

Moneyweek: A Gold Standard One Way or Another

The idea of tying our money system to a commodity will gain ground as people begin to realize that inflation isn't the 2-3 percent that the government is claiming, the fact of the matter is, it's closer to 10-12 percent (shhh, don't let anyone know until I move my 3 leperchauns and their gold out from the basement). With people abandoning the dollar as the reserve currency of the world, China may be the logical choice for those with means to move their assets. Particularly if they tie their money to gold:

Asia has the "second mover advantage" of being privy to all the Western World's mistakes. They are able to see where profligacy and runaway entitlement programs have led. Their top-down orientation will enable them to rein in expensive entitlement programs or, better yet, curtail young ones before they grow bigger. Not being as mentally and emotionally tied to the workings of empire and the capitalist welfare mentality, Asia will successfully cut the cord faster. In doing so, Asia will also rely on its citizens' natural propensity to trust precious metals and hoard them as a store of value in the first place.

Last but not least, Asia's relative lack of capital market structure - its underdeveloped backbone of lending networks - will make a de facto gold standard that much more attractive. By going straight to gold, Asians get the "trust" that is already built into the metal...they can skip all the financial engineering, or get to working it in later.

While Keynesians see the rise of gold as temporary - and will continue to assert their naysayer views as gold rises further - it will soon come to light that the 'world reserve currency' idea was the temporary thing, an anachronism of the industrial age.

The whole thing is here.

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