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By Ronald-Peter Stoferle, Incrementum AG Liechtenstein

April 25 (King World News) - The Monetary System At The Crossroads – On The Way To A New Gold Standard?


“The modern mind dislikes gold because it blurts out unpleasant truths” Joseph Alois Schumpeter


We have pointed at the gradual remonetisation of gold since our very “In Gold we Trust” Report.  While it had formerly been up to a handful of critical minds to question our monetary system, high-profile politicians and central bankers have meanwhile offered their opinions, too.  During the last few years we saw numerous signals which indicated the fact that gold was gradually becoming “politically correct.”  Robert Zoellick, President of the World Bank and former member of the Bush cabinet, had this to say about the gold standard:


“The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.  Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.  The development of a monetary system to succeed “Bretton Woods II,” launched in 1971, will take time.  But we need to begin.”....


Continue reading the Ronald Stoferle piece below...




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Such statements would have been unthinkable only a few years ago.  Since the mid-1970s hardly any high-ranking US politician has mentioned the gold standard in a positive context.  This confirms the broad paradigm shift we are currently going through. Unfortunately many people interpreted the World Bank President’s statements wrongly, and he was immediately discredited.  He did not argue in favour of an explicit return to the gold standard, but he commended its stability.  On top of that he just wanted to launch a discussion and critically question our monetary system.  We assume that Zoellick is thinking of a basket of goods that among other goods contains gold.


“People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.” Jean Monnet


The thought of a currency not pegged to gold would have probably been absurd 100 years ago.  That’s how illusory a gold standard sounds to us today.  However, 20 years ago mobile telephones with internet connections, digital cameras, and a digital music collections (aka Smartphones) were equally illusory. And we are in a similar situation with regard to the gold standard today.  Today even the thought that back in 1971 every 35 US dollars were backed by one ounce of gold is absurd.


We believe that a return to the gold standard is no major economic or organizational problem.  Rather, what we have on our hands is a highly political and philosophical question of principle that has to be answered.  We therefore believe that the strain has to become much bigger still before specific action will be taken.


Money is measured in terms of gold – the price of gold vs. the price in gold.


The central feature of a gold standard is the fact that gold is used as measuring unit, much like litre, kilometre, kilogramme etc.  To this extent, a system that measures gold in units of euros, dollars, or globos cannot be a gold standard, given that it refers to a paper money standard.  This is what Nikolaus Kopernikus confirmed already in 1517 when he said, “Money is coined gold or silver and is used to calculate and pay the prices of items for sale, whether fixed by society or the ruler.  In a certain way, it is therefore the measuring unit for valuations.  But said unit has to be of a fixed and stable magnitude, or else the order of society would certainly be disrupted.”


Gold is therefore in the centre of the system while the currencies oscillate around it.  In his classic work “When Money dies,” Adam Fergusson writes “Nevertheless, it was the natural reaction for most Germans, or Austrians, or Hungarians – indeed, as for any victims of inflation – to assume not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms; not that their currency was depreciating, but – especially in the beginning – that other currencies were unfairly rising, so pushing up the price of every necessity of life.  It reflected the point of view of those who believe the sun, the planets and the stars revolve with the moon around the earth...”  Therefore we could see a future where rather than asking for the price of gold, people will much more often ask for the price in gold.


Gold, as antagonist of uncovered paper currencies, remains an excellent hedge against worst-case scenarios.  Low real interest rates and high counterparty risk provide the perfect environment for gold.  Both are clearly the case at the moment, and we expect this scenario to last.  At the current real interest rates, gold is an obvious alternative to short-term government bonds, current accounts, or time deposits.  After many years of a chronic low-interest-rate policy, we do not believe that interest rates, along the lines of Paul Volcker’s, would be possible without the system collapsing.  Therefore this time the gold bull market should end for different reasons than at the beginning of the 1980s.


IMPORTANT - KWN has many more interviews being released today.


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Eric King

KingWorldNews.com

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