http://www.financialsense.com/editorials/fso/042804.htmlLast year investors purchased a record amount of gold. Preliminary estimates for 2003 indicate that investors purchased 33.9 million ounces of gold. That is the largest amount of gold purchased since 1967. The year 1967 was a pivotal year for the gold markets. Investors bought so much gold that they forced central banks around the globe to close the private sector gold window, which allowed private investors to exchange their currencies for gold. This eventually was the beginning of the end of the Bretton Woods dollar-gold standard. It also gave birth to the modern day gold market.
Here we are today almost 37 years later and we are witnessing the beginning of the end of the free-floating dollar exchange standard. Like the earlier London Gold Pool, central bankers are trying to forestall the inevitable. Inflation is rampant everywhere as evidenced by the rise in commodities. Central bankers have printed enough money and have injected enough credit into the system that inflation has finally spilled over onto Main Street. Inflation has manifested itself throughout the financial markets in the 90's as reflected in the stock market bubble of that era. More recently it can be seen in asset bubbles in the stock and bond markets, mortgage markets, real estate, and in consumption by debt-laden American consumers. Even now inflation is visible in doctored inflation indexes such as the CPI and PPI, which are now running at annual rates of 6-7% a year. The current federal funds rate of 1% stands in sharp contrast to economic growth rates of 4-5% and inflation rates of 6-7%. Investors are now receiving negative after-tax returns on their money by investing in cash, bonds, and in stocks.
Now investors must prepare for the inevitable unraveling of the current free-floating dollar standard. The beginning stages of its unraveling are now in place. The twin U.S. deficits in trade and at the governmental level are untenable. This year’s government budget deficit will amount to $740 billion! That's a number you will not hear anywhere. On Wall Street they only talk about a $521 billion number. This number excludes $200 billion in planned borrowings from Social Security and other government trust funds. In the next four years the government will borrow $1.5 trillion of Social Security just to keep deficit levels at respectable minimums--whatever that may mean. We are heading for $1 trillion a year deficits into perpetuity and we haven't even begun to face the Social Security and Medicare crunch that accelerates after 2008 when the first batch of boomers enter the retirement market.
On the other side of the ledger, concerning our mammoth trade and current account deficits, there doesn't appear to be any sign that the dollar's fall has corrected these imbalances. Much of the U.S. trade deficit is structural from energy to capital goods since very little is manufactured here anymore. In fact, the U.S. will have to compete and import more of its energy needs as production continues to fall in this country. It is one of many reasons why we have two aircraft carrier battle groups in the Middle East and have over 100,000 troops deployed in Iraq. It will take more than a 50% decline in the dollar from here before we make any significant improvement in remedying our current trade imbalance....more...
This is another classical Puplava editorial and pretty much on the
money (no pun intended).
I'm still VERY curious to know what the hell is going on within the
gold market as a whole. Either way, this whole thing stinks.
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