Monetization of Treasury bonds to the tune of $300 billion will not be nearly enough to solve our country's financial problems but it is enough to placate the Chinese for now. We can surmise what they whispered in Billary's ear while she was getting the cold shoulder in Beijing about a month ago.
For those of us with investment in hard assets, the question becomes: What does the monetization of U.S. bonds bode for the price of gold?
- It leads to volatility in the gold price that is simply amazing.
- The monetization of debt is simply massive currency inflation.
- The net result of an inflated U.S. dollar is simply devaluation of consumer buying power. This is positive for the price of gold in U.S. dollars.
- In real terms, gold will not gain but will only retain its constant buying power.
Gold cannot be breathed, drank, eaten, provide shelter, or run your internal combustion engine. It is not used for anything that is essential for survival. It is simply a store of value.
Gold has value today because it can be exchanged readily for paper money, which then is used to purchase the essentials of life. It has unique value because, like no other monetary instrument, there is a limited supply in the world (as opposed to all fiat currencies) and there is no significant industrial or agricultural use.
Gold is simply an insurance policy and safe haven to protect against an uncertain economic future, financial calamity, and worldwide economic collapse. It makes no difference whether that might occur within a deflationary or inflationary context.
This is the very reason that I continue to urge family and friends to own physical gold. A 10%-20% portion of any financially viable family's net worth should reside in physical gold.