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On Gold

Previously I said that I’m not a gold bug. That was before our European politicians and central bankers did everything to destroy the Euro and the European banking system. Now I’ve changed my mind. I realize that people search for “save havens” in a world of paper money gone wild. Gold is attractive, as it seems to be the most practical and inflation-proof way to store personal wealth not in paper money and outside banks.

I still believe that gold is too expensive under normal circumstances. But we don’t live in times of normal circumstances. We live in a time of degenerating financial systems and degenerating governments. We’ve had the Asian crisis, the dot-com bubble, and the credit crunch of ’08. Every crisis got bigger and I fear that the mother of them all is still to come, since the world did next to nothing to unwind (or deleverage) all the mess that has been accumulated over the years. All economic/governmental parameters, except growth and inflation, look worse than in the 1930s. You can wait for the two parameters to catch up with the rest. If that happens and you still got your wealth stored in paper money, you better pray that governments do the deflation thing of the 1930s, not the hyperinflation thing of the 1920s. Predictability of outcome: Zero.

Now I even think that a gold standard may be the second best solution for our monetary systems, at least if it’s applied only in some countries, not on a worldwide basis. The reason why I’ve changed my mind? I still don’t know how to construct an ideal monetary system, and the economists of this world don’t seem to know either. Further, I see that politicians (and democracies) destroy our monetary systems and go on a spending spree as soon as the hands are not tied by some kind of tight-money system. Sadly, mankind still knows only one  monetary system that is able to tie up the hands of politicians: the gold standard.

So, perhaps we should go back to the gold standard until we come up with a better solution.


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