The global monetary system is based upon confidence in the full faith and credit of insolvent governments, but not on hard assets like gold or oil. That should encourage people to question the credibility and viability of fiat currencies.
There has been much discussion about the amount of gold that remains in western central bank vaults – real physical, unencumbered gold. Based on exports, Asian demand, shipments via Switzerland, imports into Hong Kong, and a dozen other sources, there is good reason, in my opinion, to question how much gold remains in London, New York, and Fort Knox. Confidence in the credibility of bankers, central banks, and governments is weakening.
Does Germany still confidently believe their gold remains in the vaults at the NY Fed after being told it would take 7 years to return that gold?
What about the request from Austria to audit their gold held at the Bank of England? Would such a request occur if confidence in central banks was solid and unshakable? Is there good reason to question that the Austrian gold is actually in the vaults? Or has it been shipped to Switzerland, melted down, and sold to China? We may never know but such unanswered speculation does not inspire confidence.
The unwillingness of central banks and governments to audit the physical gold bars and publish the results also does not inspire confidence. Inquiring minds ask “why?”
Rob Kirby: “There’s been a breakdown in trust (between central banks) …. This is now a distinct pattern, and I expect it will accelerate as time goes on.”
What about the confidence in the US dollar in creditor countries like China, Japan and Russia? Is declining confidence in the dollar the explanation for why the Federal Reserve has been buying more than half of all Treasury debt? What would happen to the dollar if the Fed were not buying most of that Treasury paper? What will happen to the purchasing power of the dollar, euro, and yen if their respective central banks continue “printing” currencies?
Governments in the US, Europe and Japan are spending their unbacked digital currencies as if those currencies can be created in nearly infinite quantities. Of course they can be created easily, but what will be the cost to their economies, the savings of their citizens, and confidence in the viability of their currencies?
Interest rates are at generational lows. The US 10 Year Note yields about 2.6%. That sounds like investors maintain a great deal of confidence in both the dollar and the US government. Or is there another story – such as the Fed buying most of the debt and suppressing interest rates? Do YOU have enough confidence in the dollar that you would lend actual savings to the US government for 10 years at less than 3% per year? What about lending to Spain, Italy, Greece and Japan?
Confidence is fragile – slowly earned and quickly lost. Are we losing confidence in:
- Fiat currencies, backed by nothing but faith and credit;
- Central banker assurances that the gold is still there;
- Economies running on fumes and supported by central banker bond monetization;
- Foreign policy that alienates foreign governments;
- Promises, promises, and more promises;
- Quantitative Easing and “printing money?”
GE Christenson | The Deviant Investor
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