Gold is ridiculously undervalued at its current price of around $1500/ounce. My belief is that once the dominos start to fall, starting with the PIIGS nations, the ultimate result will be a recognition that the US is no better, and there will be a currency crisis. In the event of such a crisis, the only thing that will be trusted to settle international trades will be gold, and I believe that the governments of the world will clamor to obtain it by any means for use in trade. After confiscation fails to bring enough gold into their coffers, they will ultimately be forced to trade value to coax it from private hands, and gold will be recognized (and PRICED!) for what it is: the only non-debt money with no counterparty risk.
This article discusses the “shadow price” of gold, how it was valued by nations during the Bretton Woods era, the implications for its future value in a return to gold-settled international trade, etc.
If you want a succinct summary, this post on ZeroHedge provides highlights:
Yanis Varoufakis The Global Minotaur: America, The True Origins of the Financial Crisis and the Future of the World Economy
Zed Books, October 2011. 170 pp.
I found a flaw… . a flaw in the model.
–Alan Greenspan, October 2008
It’s almost three years since the bubble burst. If understanding really does abhor a vacuum, something about why it happened ought to have been learned. Much has been written on the subject, to be sure, lots of it terrifically trenchant. Journalists like Matt Taibbi (in his superb Rolling Stone screeds) and Andrew Ross Sorkin (Too Big Too Fail) establish incontrovertibly that there was colossal greed at work on Wall Street. (The bankers, one can’t help noting, admit as much. It’s only the criminal charges they’re a little defensive about.)
But moral narratives alone will never suffice; what’s being reckoned with here, recall, is arguably the greatest systemic failure of all time. The bankers cannot have been the only ones responsible. A more circumspect explanation is to be found in what might be called the “regulatory capture” version of the moral tale, found in books Simon Johnson’s 13 Bankers or Joseph Stiglitz’s Freefall. In this version of the crisis, self-interested elected officials and the regulators they appointed are (quite rightly) seen to have stood aside for the banks.
Such finger-pointing accounts are even less satisfying in view of our situation today: The global financial system still teeters on the brink of collapse, and virtually nothing has been done to avert another disaster. One would have to be pretty cynical to accept that only greed and personal political ambition are to blame for such thoroughgoing paralysis. In view of the spectacle of “extend and pretend” presently unfolding in power centers from Washington to Frankfurt, what needs explaining is why even the well-informed and quite high-minded remain committed to so unpromising a status quo.
At long last there is progress in this area: Two new books, conjoined twins of a kind but each of them quite extraordinary in their own way, from a trio of economists fronted by Yanis Varoufakis, who teaches at the University of Athens and writes with great command of the European debt crisis on his blog. The first is Modern Political Economy: Making Sense of the Post-2008 World, co-authored by Joseph Halevi and Nicholas Theocarakis, an astonishing tour de force of math, metaphysics, and political economy in the grand tradition, all unfolded in fugal counterpoint. The second, just out from Zed Books, is The Global Minotaur, Varoufakis’ short course for a more general reader, Modern Political Economy minus the more abstruse material. According to both, the 2008 financial crisis was the result of two more or less mutually reinforcing conditions: First, a major reorganization of the global economic order in the late twentieth century; and, second, the inherent limits of what economics can say about the outcome of such shifts. The great insight here is that, along with whatever reckless self-interest was at work, the crisis occurred and persists because an alternative was and is mostly unthinkable.
U.S. Treasury official Harry Dexter White is best known as one of the leading architects of the Bretton Woods system that shaped the global economy after World War II. But he was also a spy for the Soviet Union, providing secret information and giving advice on economic issues. Why did he do it? Newly uncovered documents show that this champion of postwar global capitalism was actually a passionate believer in the success of the Soviet experiment with socialism
Ron Paul spoke with Bloomberg and said that we are in a currency war and we have been for decades. He noted that governments have always competed against each others’ currencies even under Bretton Woods. It has always been a form or protectionism and will make people want to export more.
On the next U.S. Treasury Secretary, Jack Lew, Paul says, “We don’t need an intervener. He should have a strong dollar policy by defining it, and not by propping up the market. Don’t devalue a currency. It is then that you hurt savers and cost of living goes up. This only damages the middle class and the poor no matter what welfare programs you have because they lose purchasing power.”
After all, Ron Paul says for over 6000 years of history gold is always money and paper money fails. (7:10)