The dollar is back by the United States government, while gold isn’t backed by anything, and therefore it is a more comfortable investment, according to this very pretty Canadian reporter:
Actually, the US dollar is backed by the balance sheet of the Federal Reserve bank. See this post for another explanation of international monetary policy.
According to Zero Hedge, Chavez run on physical gold may drain the banks of their physical assets, and thus result in a run on physical gold. This would result in a parabolic rise in the price of gold, and as I suggested in an earlier post, if all the paper gold were to turn into demands for physical gold, the value of the dollar could drop to 1/56,000 of an ounce of gold.
Last week, Zero Hedge mentioned that CME increased margin requirements for gold traders. This had an only temporary lowering effect on the price of gold; eventually, as margin requirements can be raised to the point that cash money will be able to buy gold or silver. But this will not prevent the run on physical gold, in my opinion.
The dollar fell to 1/1800 of an ounce of gold last night in overnight trading and these posts, celebrating incremental price decreases in the dollar, are becoming exponentially more frequent.
In any case, the US government deficits and monetization of those deficits by Ben Gold-is-not-money Bernanke is what is causing this devaluation of the dollar. What has it bought us? This guy (hat tip: Monty Pelerin my favorite economics blog):
When government supports such deadbeats it becomes a co-dependent: they give them money for votes. Government becomes the enabler. This is a problem of addiction–the deadbeat is addicted to the free money and the government is addicted to giving it away. This is what we sell our birthright for.
Zimbabwe money has no intrinsic value either
Gold hit $1700 in overnight trading last night, and it is time that I write a post celebrating this $100 incremental increase. This is only a mere three weeks after thanking Ben “Gold-is-not-money” Bernanke for $1600 gold. It used to be that dollars were fixed in price to money, gold and silver. Then, it was taken off the precious metals standard and become “money”–but it is what is called a “fiat” currency, a currency that has nothing real backing it. This means that the dollar has no “intrinsic value”. Nouriel Roubini and the other bright luminaries with PhD degrees have said that gold has no intrinsic value, and thus I created this series to remind them that the dollar is not money. It was once a note that gave the bearer the right to money on demand, but now it cannot be used to demand money any more.
This is a basic economic fact that I’ve known since my teen years when Carter was president and the US Federal government was likewise devaluing the dollar. It took Paul Volcker and severe interest rates and austerity to put the dollar back on track. Now the United States has suffered a belated downgrade in its credit rating from AAA to AA+ and we are seeing a renewed debauching of the currency. Still, there are those who claim that it is gold that is in the bubble, because look at how high the price is in dollars! I would remind people that the dollar has no intrinsic value, and the fact that we measure things in a currency with no set value is a form of reification–the value of the dollar is an abstraction because it is the ultimate derivative product, which has no discernible reason that it should be worth anything except that it can be used to pay debts and taxes. To measure gold, which has real intrinsic value, in dollars, which have none, is reification, the assigning of a concrete value to an abstraction.
The U.S. dollar has no intrinsic value. O sure you could use it for wall paper like people in the past have done with other failed currencies, but it would make for a very ugly wall.
The Righteous Investor 