Thursday, 4 June 2009

Gold for cocaine

Has the spontaneous remonetisation of gold* already begun?  When cocaine dealers start demanding gold as payment rather than rapidly devaluing US dollars, you certainly have to wonder.

Hat tip for this story goes to Bernard Hickey whose Top Ten at Ten this morning is well worth a read – particularly for the comments by Fed Chairman Ben Bernanke who is belatedly warning that “the government couldn’t keep borrowing forever and the Fed wouldn’t help by ‘monetizing the debt’ (ie printing money to buy government bonds)”; and Auckland art philanthropist and “hedge fund guru” Julian Robertson, who reckons it’s already too late and the inflationary genie is already out of the bottle.

* What does “the spontaneous remonetisation of gold” mean?  Briefly: “As inflation becomes perceived as a serious problem, a growing demand for gold and silver develops as an "inflation hedge"-i.e., as a store of value. Once this demand reaches a certain level, the stage becomes set for a spontaneous remonetization of the precious metals. For, just as in the process by which the precious metals became money in the first place, once enough people want to own gold and silver as an inflation hedge and thus are willing to accept them in exchange for their own goods and services, others become willing to accept them too, even though they themselves do not wish to hold them as an inflation hedge or as a store of value.  Conditions exist, in other words, for a growing acceptability of the precious metals, to the point at which they become universally acceptable, i.e., become money once again.” George Reisman, Capitalism.

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