WEBVTT

NOTE How High Can the Price of Gold Go?

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This talk is going to be kind of a dry run for my talk at the Las Vegas conference next week,

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the Mises Institute's conference on Austrian economics and financial markets.

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I'm going to be one of many, many speakers.

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All of the Austrian financial people, just about every one of them is going to be there.

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So it's definitely something to get to or to tune into if you can possibly do it.

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I agreed to do this talk with this title late last year.

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Things haven't gone so well with gold since then.

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The price has been in decline so far in 2005 and the market does seem gloomy.

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I guess it's around $420 an ounce, but there are a lot of bright forecasts for gold out

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there for the year 2005 and beyond.

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One gold expert expects gold to be in the $430 range for this year, with a 30% probability

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The average price being as high as $470 an ounce. Other analysts have targets of $465 an ounce for the average over the year.

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And then over the last couple of years we've heard and read forecasts of $500 an ounce, $600 an ounce, $650, $750, $1,000, $1,200 an ounce.

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So, there are some people who are wildly bullish on gold despite its recent declines and gloom.

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So how high or low can the price of gold go?

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My thesis today is that all of the above-mentioned forecasts are correct and they are all incorrect.

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I anticipate the price of gold going to $430,000, $465,000, $470,000 with almost, you know,

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pretty certain for the year 2005.

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And I also have to admit that there's a good chance that the price of gold could continue

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to soften this year as well as even dip back below the $400 level.

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But will we reach 500, 600, 1000 or perhaps even $1200 per ounce? My answer is almost

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certainly yes. However, the reason for this affirmative and quite bullish answer also

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implies that the price of gold will go even higher than $1200 an ounce. In fact, it implies

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that gold will go to $5000 or $10000 per ounce. Discounting any numismatic value of dollars,

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The ultimate price of gold will be infinity. That's correct. Those in charge of the printing

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press will continue to print up dollars until they drive the value of the dollar to zero,

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making the price of gold infinite in terms of dollars. They will destroy the dollar because

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they have the power to do so. Now you might be thinking that I'm crazy or that I'm planning

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to publish a book along the lines of Dow 36,000. Surely you would think that the powers in

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Washington D.C. had better sense, that they would look at the situation rationally, that

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they would pull back, that they would not ruin the goose that laid the golden egg, that

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in effect allows them to write bad checks and to get away with it to the tune of trillions

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of Dollars. But I'm not calling in to question their rationality. They will indeed pull back.

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They will indeed get together with their monetary buddies all around the world, Britain and

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Japan especially, but the EU, China, Canada and so on. They will sign agreements for the

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purpose of re-establishing monetary stability and to realign exchange rates. But they will

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will not truly mend their inflationary ways.

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What I am bringing into question is the rationality of the people, you and me, all of us.

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Eventually we the people will realize that the politicians and their central bankers

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have no real plans to stop inflating.

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This realization means that people will hold fewer dollars and that this will fuel the

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The depreciation and the declining purchasing power of the dollar and a higher dollar price

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of gold. As many of you know, the value of the dollar has lost over 95% of its purchasing

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power between the founding of the Federal Reserve in 1913 and today, as measured by

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the Consumer Price Index. We also know that the CPI, the Consumer Price Index, is a flawed

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that systematically underreports price inflation to help cover up the activities of the Federal

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Reserve. Most mainstream economists actually think that CPI overreports inflation, but

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this is because they are rewarded for coming up with new ways to adjust or calculate price

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inflation over time. If an item in the consumer's price basket rises in price, it can be dropped

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It can be dropped from the calculation, but when the consumer turns to cheaper substitutes, they get included in the statistical basket.

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Quality improvements, technological advances, gains in productivity all need adjustment, according to Washington, D.C., so that inflation can be measured more accurately.

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But this tainted view of CPI by mainstream economists basically takes the benefits of the market economy and uses them as justifications to underreport the impact of monetary inflation.

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It's really a cover-up story. Help the Fed cover up the signs of its nasty practices and you will be well rewarded.

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If you didn't give the Fed credit for all these gains in the market economy in terms

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of consumers being cautious with their money and spending it properly, or in terms of quality

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improvements, technology, productivity, we can easily see that the dollar has really

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lost more than 99% of its value.

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There is a story that if you throw a frog into boiling water that it will jump out.

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But if you place a frog in a pot of warm water and slowly raise the temperature that the

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frog will allow itself to be cooked and killed.

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To the best of my knowledge, this is an urban legend.

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If you throw a frog in a pot of boiling water, it will be killed.

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And if you place a frog in warm water, it will only stay as long as it's comfortable

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Woodrow, and then jump out long before it's actually cooked.

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I'm not exactly sure who tested this theory, but I'm quite sure that it's correct.

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Yeah, maybe Woodrow, the infamous Woodrow.

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I'm also quite sure that the frog can be seen as analogous to the people in inflation.

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If the economy is thrown into hyperinflation, and is killed, or at least thrown into shock

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If the people are exposed to low rates of inflation, they can be quite comfortable, at least some of them, like our frog in warm water. However, when the rate of inflation is driven higher, eventually people will jump out.

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The rate of inflation that I talked about earlier has already risen faster in more recent decades as compared to the early days of the Federal Reserve.

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Our dollars have lost about 1 percent of their value over the last 90 years, but most of that loss has occurred since the early 1970s

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When Nixon closed the gold window and took us off the Bretton Woods style gold standard, since that time the dollar has actually lost 80% of its value.

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Monetary inflation continues to pace and some measures of the quantity of money depict even higher rates of monetary inflation.

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The case against the dollar, there's a lot of factors that go into this, the federal

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government deficit continues to increase, the federal debt continues to increase, the

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There are problems of institutions like Social Security, Fannie Mae, the growing U.S. population of tax eaters, Social Security recipients, government employees, government retirees, people on welfare, government contractors, non-governmental organizations.

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That segment of our population continues to grow.

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Rebalancing of World Economic Power

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Problem of Empire

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Like the Romans and the Britons, the US is under a continuing strain to defend and maintain,

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if not extend, its worldwide empire of democracy.

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and then there's also the issue of the U.S. dollar as a reserve currency.

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A lot of countries which once placed great

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importance on the U.S. dollar as a reserve currency

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are now considering other options

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and I think it's worthwhile to go through

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and when we look at this case against the dollar

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particularly since going off the final linkage to the gold standard

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The Brentwood System in 1971,

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What's Happening to U.S.

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Financial Conditions? And the first slide here

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is the federal budget deficit or surplus.

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And you can see,

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this is 1970 right here, you can see that prior to 1970,

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the government was generally

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in a balanced budget situation.

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But since that time, if you draw the downtrend line here,

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you see that basically the trend for government budget deficits

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shows an increasing pattern.

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And would be really the only lone exception

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there in the late 1990s, near 2000,

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when tax receipts were greatly increased

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as a result of the boom in the economy, the stock market bubble, all sorts of tax revenue

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flows were increased because of that boom and that bubble. Wages went up so income taxes

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went up, social security taxes went up, and of course capital gains taxes were also increased.

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So, with that exception, we see a down trend line in that situation, and of course, that

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feeds into the stock of government debt.

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But, that last diagram just proceeds versus expenditures, does that include debt services

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in relation to other countries?

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I'm very surprised to find that line zeroed out all the way to the 70s.

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Well it's not actually zeroed out.

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You see World War II right here, and in comparison, but of course the dollar was worth so much

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more that this is not adjusted for inflation. In real terms, it would look a lot different.

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Yes it does. It does. So that the social security receipts are also included in here.

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Yeah, in the late 90s it helped get it above the line if without social security receipts that line would have not come into balance.

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Yes, they are included.

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That's right. Yeah, it would be below zero, but relatively flat. And then you get to this period, which I think is the key issue of showing that decline after we go off the gold standard.

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Social Security, the so-called using the trust fund, spending from the trust fund, talk about that came during, most of it I heard during the Clinton administration, but it was always, they just always spent and always included it, they just came up with the idea, we're going to, one of the fixes, we're going to fix Social Security and create a trust fund.

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That's right. That's right. They have a special federal obligation bond that when Social Security taxes come in and exceed expenditures, that Social Security is given an IOU, essentially, from the Federal Government.

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of Government.

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That IOU does not go into this picture.

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That's not included.

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It's not included in this picture.

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That's kind of like an off-budget item.

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And wouldn't you like to take your house payment off-budget or your car payment?

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And again, we see now this is in nominal terms again.

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So it's a little biased in that respect, but basically federal debt here is relatively small.

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It starts to grow in the 1960s and become an issue because the federal government is

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running regular, but relatively small, $10, $20 billion a year.

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Today that seems much like a drop in the bucket, but here's the gold standard.

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If you go off Brenton Woods, there's an immediate jump up and you can see the pattern has basically been, you know, up and up and up.

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It sort of levels off here a little bit during the boom of the late 1990s, but it's an upward spiral basically.

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No, I don't actually. I'm not sure what the social security transfer debt is. It's come down a couple of times to relatively low numbers when they've had to come in and fix social security with higher taxes.

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But right now they're definitely in the black and the first sort of measure of the demise of Social Security is when they first run out of their IOUs on the federal government and then have to start drawing directly from the direct treasury funds, which means of course more borrowing, but that's all in the future, near future.

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Future, near future possibly. We can look at the household here. This is billions of

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dollars of the household sector. Their total liabilities of market debt outstanding. And

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you know, the policies of the federal government have a like effect in terms of the private

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Sector as well. That private debt is fairly low here when we go off the Brent Woods gold

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standard system, but the consumer seems to have caught on quite well to this paper money

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scan. And, you know, with credit card debt, mortgage debt, all that combined, you can

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You can see that we're up in over $10 trillion of household debt.

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And of course, the consumer price index shows a similar picture with regard to inflation.

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The consumer price index was relatively level through the 40s, 50s, 60s.

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You can see it picking up in the late 60s, about the time they stopped, I guess about

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the time they stopped issuing silver coins, wasn't that in the late 60s?

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And we go off Brenton Woods and Consumer Price Index which, as I mentioned before, underestimates

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price inflation and the economy has been ever higher.

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So we're talking about a level of down in year 25 in the 1950s and now we're talking

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consumer price index as massaged by government economists closing in on 200.

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They have the, yeah, the I bonds.

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Yes, and a lot of things are, you know, social security, cost of living adjustment, yeah,

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they can, by making that look less, they can, and benefits, and for federal, yeah, all sorts

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of things.

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So they have a tremendous incentive to underreport, to underreport inflation, and you know, frankly,

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Outside of Austrian circles, you don't see anybody talking. When it's in the news, when

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it's in the mainstream news, they're always talking about how the CPI overestimates inflation.

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It's just amazing.

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My biggest test is, when are they going to start excluding costs on the CPI?

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That's a good one.

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That's where my biggest increase is when it comes to unemployment.

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Exactly.

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We see a similar sort of scenario.

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It doesn't go back to 1970, but before 1970,

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when we were on Bretton Woods, the number

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was 100 all the time, basically.

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It was 100 all the time.

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No wiggle.

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By definition?

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Yeah.

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And then since that time, you can see,

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I've drawn a trend line underneath here.

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and so if you take the trend back to

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seventy-one it's at one hundred

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and i'm not sure why they don't have the data in there for

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the early seventies but

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we had a big run-up

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uh... in the value of the dollar

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in the early nineteen eighties

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uh... we had monetary deep control

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uh... act passed in the early eighties two of them and that

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might have uh...

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and of course this is this also reflects inflation in other countries other countries

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are on a paper standard, and so the value of the dollar is always seen as the strongest

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amongst all of these other competing currencies, and yet we're still showing a downtrend,

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and we're actually above trend now, so that even though we've seen a pretty good decline

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in the value of the dollar, more than a third of its value has been lost in the last couple

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in the School of Years, we're still above trend. So even if the long run trend remains intact, we can see that we're heading lower here by a factor of at least another 15 to 20 percent just to get back down to the trend.

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Of course, what's behind all this is the actions of the Federal Reserve.

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Amongst all the monetary aggregates, they all look the same general picture.

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So I've included the largest measure of the money supply, M3, which includes just about

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everything, even some things that really shouldn't be considered real money.

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And we start in the 60s with less than one trillion dollars in the M3 money supply and

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less than a trillion still with the breakup of the Brentwood system in early 70 and then

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down here and then we're up to ten trillion now.

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So I mean that's the main engine which is driving all of this.

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I also include a measure of the monetary base, the basic ingredient of the inflation of the

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money supply.

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It's all built on this base, and that base is continuing.

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You can see the little blip up here, I believe that that was associated with the Y2K scare

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when the Fed added so much emergency reserves into the system at that one point in time.

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And then there's a St. Louis style monetary base which depicts a very similar picture

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of that same issue.

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And then another issue which is of prime importance is the trade deficit.

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We set another record this year, over $600 billion in the trade deficit.

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That's three annual records in a row.

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Four out of the last five years we've set record highs in terms of the trade deficit.

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And again, the arrow pointing to 71. Before that, we basically have a balance. Any time

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it gets out of balance, the line wiggles in the opposite direction. And then after that,

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it gets increasingly out of control. And of course now, this is showing over 150 billion

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dollar quarterly trade deficit. So these numbers are on a quarterly basis, so you'd have to

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to multiply them times four to get the annual figure, and that's why we're well over $600

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billion in trade deficit for the last couple of years.

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Now let's get back a little closer to gold itself, what's been happening to gold and

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and so on. The next slide is the gold stock index, the XAU, which is a stock index including

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the major gold and precious metal mining companies and this data goes back to 1984 and it shows

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There's a rumbling pattern sort of from 84 to the late 1990s and a fairly steep drop

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as we go through the bubble period and beyond basically the gold stock index is basically

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is bottoming close to the same time the stock market is topping. The stock market is topping

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right about here and the gold stock price index bottoms out a couple of quarters later

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and then since that time, since late 2000, we've been in an uptrend and what I would

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describe as a secular bull market in gold. There are short term trends, there's intermediate

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A secular market trend refers to market trends that last 10 or more years, possibly 20 years,

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but my best guess is that at this point we entered into a secular bull market in gold.

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Now we go back just a little bit further to the gold price from 1975 to the present.

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In this case, we see gold topping out over $800 an ounce and then again a wavy pattern

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for a fairly long period of time and then this is the area of late 1990s when the gold

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Gold Stock Price Index was bottoming in this area and then the price of gold has been going

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up and of course gold stock prices have been going up in line with that.

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I've drawn another trend line in here across the two tops and this is often used by market

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technicians just to get a handle on where the market is going and basically when you

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draw it across these two tops from the top in 1980 and here, you come down basically

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What it tends to indicate is that when that trend, that downtrend line is broken,

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that the long-term trend in the market is also broken. So, basically, we have an uptrend from 71

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to 80, and then a downtrend line from 1980 to the year 2000.

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And then we've set another uptrend in the price of gold and gold stocks.

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The conclusions that I've drawn from looking at... Yes, John.

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You may have said, I'm sorry if I didn't hear,

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this doesn't appear to be controlled per inflation.

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If you control per inflation, have I moved that radical?

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No. Especially if you adjusted it from the value of the dollar.

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The value of the dollar and the price of gold move in the opposite direction of each other so that any time the value of the dollar goes down, the price of gold goes up and likewise.

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If you control for the value of the dollar, you'd see a very stable series.

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Yes, that's right. That's right. A lot of these charts and graphs are not adjusted for inflation. They're not adjusted in logarithmic scale, most of them.

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Oh yeah, yeah very much so. Now I'm not going to tell you to sell everything and buy gold,

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bullion, as much as I'd like to. This scenario, the demise of the dollar could take decades

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to finally play itself out. And of course also gold is a volatile commodity, even though

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this is largely because of the government's erratic inflation policies and welfare tendencies.

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The price of gold is still volatile in both directions.

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Traditional investment advice says to hold 5-10% of your money in gold and other inflation

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hedges.

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The danger level, however, now is much higher than traditional levels.

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So that the percentage should also be adjusted for that fact.

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If I were Tom Ridge, I would call this an orange alert or possibly a red.

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Certainly over the next two years we are looking at more borrowing by the federal government,

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higher prices, lower dollar and a recession in the economy.

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Right now, the economic scenario out there is as rosy as it's going to get.

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Financial jobless claims are at a multi-year low. Google is selling for over $215 a share.

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A lot of the economic indicators that politicians and the news media care about, such as unemployment,

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such as the CPI, things of that nature, it all looks very rosy, but over the next two

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A friend of mine has a job where he basically helps promote gold sales and tells people,

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he tells people, to buy gold with money that you cannot afford to lose.

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For most Americans, this would mean everything they have, except for ordinary expense money

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in their checking account.

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The really scary thing is that as we enter the next few years, the majority of Americans

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are net debtors.

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They owe much more money than they actually have available to them.

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No savings whatsoever, even those who are going into retirement.

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These are symptoms of inflation, an inflationary system and the bias that is created by things

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like social security and the tax code.

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I'm never sure about my own predictions and forecasts and I'm always amazed when

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they come true.

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If you want to hedge your bets, then only put fifty percent of your money in gold.

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Then you are at least partially covered if gold skyrockets and partially covered

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if it flounders over the next couple of years.

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With at least fifty percent of your assets in inflation hedges like gold,

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every drop in the dollar will generally be compensated by increases

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in the gold price.

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Inflation hedges, like art and real estate, do provide some protection against inflation,

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but they have disadvantages as well. So if you have those in your portfolio, you need

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to know what those dangers are. Personally, I am 100% invested in some form of inflation

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hedge or another. Right now, oil is the hot commodity. Despite these dire words, I have

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have some optimism for the long run in our economy. I even hold illusions, perhaps delusions,

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that future politicians will see paper money fiat systems for what they are and make rational

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decisions to shut down the central bank, recall its paper, renounce its monetary authority

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and disgorge itself of our gold and balance the budget. Like I said, delusions.

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Gold and gold mining stocks have corrected and could be in a short-term bear market.

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Likewise, the dollar has stabilized somewhat and could strengthen in the year 2005.

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Not coincidentally, efforts are underway in Washington D.C. to curb the budget deficit and to fix Social Security.

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However, I view both of those efforts and the support they lend to the dollar as cover-ups.

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Federal spending and borrowing will continue to grow and privatizing Social Security does

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nothing to fix, even if it were to pass, does nothing to fix the long-term financial problems

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of the system.

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The long-term outlook for gold and other inflation hedges looks bright.

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There is a secular bull market in gold that started in the year 2000 and is still in place

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and could continue for a decade or longer.

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Nothing but the return of the gold standard will prevent this continued inflation, eventual

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hyperinflation and the ultimate devise of the dollar.

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That's it.

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Thank you very much.

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Well, I know that's, it's hard to grapple with the problem in terms of graphs and percentages.

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You have to, but when you think about the dollar losing 99% of its value already, you

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know, when you take that percentage approach, it can sometimes play games with your perspective.

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They'll always have a percentage left to destroy until people completely lose their faith in paper money.

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Mises said that inflation will only stop once everyone, once the people, realize that the central bankers are never going to stop inflating.

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Once that realization hits, the game is over. People just drop their dollars and the system will have to get restarted somehow on a different monetary system.

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And, you know, when I say the people will realize it, I'm not sure if it's going to be started by, quote-unquote, the people.

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It will probably be started by markets, capital markets, big players.

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They will be the ones that get out the door first basically.

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I mean, I wonder how the range of emotions, there are so many people in this country relying upon the government for some of their social security or whatever it is.

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But the average person, in my mind, when we're talking about things that are actually going to get before the average person decides that there's no need for them to be a social security recipient or whomever it might be.

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It seems to me, while what we talk about is rational commonsense and everything, if I'm dependent upon the government to pay me something every month, I'm not going to switch the goal, I'm going to keep trying to get my blood from the gut or whatever I'm supposed to get.

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But it's so important, and like I said, I can't picture how distant that situation is going to be, when all of a sudden the reality is it's gone, on either one that, you know, it isn't coming, I'm not getting it, or what I'm going to get will only bind my local bread, you know, my pay for my rent, you know, I don't know where that is yet, or how close we are to that, but that seems like it, because markets go up on both streams, it almost seems to me that this culture,

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We're not that close to it because we're still giving cost of living allowances and things of that nature.

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I think, to get an idea, what you'd look at is Russia, where the Russians were still getting their paychecks, were still getting their benefits checks, and things of that nature, but they weren't really worth all that much, and they were government employees, retirees, that had everything provided for them, and their income was paying for

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and you know their direct expenditures and they were slowly but surely getting squeezed and you know by and large they were as long as they were getting that benefit check they were happy of course in a lot of cases they weren't so happy and demonstrated and complained and that sort of thing but government employees and retirees are the dumbest frog in the pot.

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basically and so they're the ones that are going to move the last it's going to

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be the the smart people that are going to get out the door first and you know

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and then they'll be you know as markets dictate dollar falling gold rising others

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will catch on but there will be a lot of people who won't catch on until it's far

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Somebody is going to be left holding paper. It's a game of kind of like Ring Around the

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Rosie or something like that. Somebody is going to get left holding the bag. The bag

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is filled with paper dollars that aren't going to be worth anything. The bag will be worth

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Well, I think the monetary inflation is much more than 2% a year, and they've gone through

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through a period of the sort of the advantageous part of the cycle where in some cases the

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Fed could do nothing wrong.

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Everything they did was sort of a winning proposition, and...

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I went to the AURAL current economics discussion for the first time this quarter. It's a big group and it's a pretty smart group. I made a mistake in suggesting the gold standard.

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I bet Sark saw no problem.

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Well, like I said, George, right now, the economy is as rosy as it can get. The stock market is up, housing prices are up, the CPI, as being reported, is relatively low.

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New jobless claims are very low, you know, everything that they're receiving, all the

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information that they're receiving is positive, and so they're not going to be looking for

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solutions.

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I'm not going to look at the positive piece of information.

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When I look at Ruth's head in Wall Street, he's like a guy with steroids that everyone needs.

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And so, I'm not going to say anything bad about him because they don't want their little thing that they're party to stop either or what there's left of it.

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And again, I was saying that, in general, we feel good news is bad news, or until all of it is bad news.

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You know, I don't see it yet changing, you know, Wall Street or whatever,

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until we read what used to be positive news or bad news.

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But even, like, the arena on the day with Bill Patrick, I thought she was a darling for years.

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Now, all of a sudden, because she's gone, they thought that was good news.

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__________

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It's clearly not.

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And like I was saying with George, there is these cycles when the Fed can do no wrong

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and then there is the other side of the cycle where it can do no right.

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If it raises rates, things get worse.

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The Federal Reserve, fiat money, fractional reserve banking,

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Government, how much money is it having to borrow? Are consumers borrowing or saving?

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You know, the reports now are that if consumers start saving, it's going to be bad for the economy.

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And if they don't continue to spend at an accelerating rate, we're in trouble.

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And so you want to look at the federal government, you want to look at the household sector, and you want to look at the Fed.

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the Fed, you know, what is it doing in terms of the money supply, what is it doing in terms

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of interest rates, those sorts of things. If it's keeping the federal funds rate below

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the rate of inflation, then that creates sort of a negative outlook for the future, you

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You know, and it's never going to hit the proper interest rate on a consistent basis.

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The bond market, I know there's a lot of relationships here between the foreign central banks buying our debt, maybe artificially keeping long ways down because of that, but if all of them, and they're a team of inflation, why isn't the bond market, what is suppressing the bond market right now?

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Is it foreign central banks buying up our debt to keep interest rates going, to keep our consumers to purchase? Is that really what's keeping it going? Why isn't the bond market reacting to all of the things we've talked about?

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and that doesn't surprise me I mean I think there's it's definitely in the

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cards that there's a recession in five or six that seems like a all but a

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certainty of course you can't say that because who knows what they're what

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they're doing and the other thing must be that they're the foreign central banks

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are continuing to buy up U.S. government bonds to keep their currencies valued or linked,

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in the case of China, to the dollar to keep basically exporting their goods.

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China is in a very difficult situation.

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It has an immense amount of debt in their economy building all these factories and skyscrapers.

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They've got to continue to export that stuff in their own mind to keep these things going.

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So they are in a full court pressure mode to try to keep everything rolling along.

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And they don't, they haven't had the experience of what if those dollars, all those government

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and how the bonds start depreciating in value, that's what they're worried about, but right now they're just continuing that process of buying U.S. government bonds.

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One of the things I want to take a look at is how are U.S. government bonds doing relative to other types of bonds as an indicator of which of those two factors is outweighing the other.

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That is the critical question, and my paper on the skyscrapers and business cycles, in

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Taiwan they just completed what is almost the world's tallest building, which would

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indicate the beginning of a worldwide economic depression.

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but it's only, it's four, it's like four feet short but China is working on

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buildings that will actually set a record and if that indicator holds true

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which in my mind I'm not wedded to that in any way but if it does hold true then

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We're probably in the early stages of the beginning of a global depression starting and if you look at the Chinese stock market, it's already been declining at a fairly significant amount over the last couple years, basically since these buildings started.

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Well, we're in the proposal stage. So, yeah, that's going to be a key factor.

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Do you think this is a great possibility, I guess?

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in deflationary modes and that could very easily get carried over into a lot of

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product lines as well. But I think the general tend of monetary inflation is

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going to continue if not accelerate and I think the trend in prices for things

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Things like oil and gold are going to be fairly, at least in an upward trend.

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Yeah, the M3, the difference between the monetary base and the M3 is the process of money creation

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Banking, where the banks are lending and all those loans that are out there, they're able

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to do what they've done primarily because everything is sort of backed up, you know,

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Fannie Mae, Freddie Mac and all those people are backing things up and the FDIC and the

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government is backing up deposits, so they're making pledges and promises to back all this

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stuff up and which is one of the reasons they've been able to pump it up so much is through

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these promises to pay so it's it's not going to be I don't really foresee deflation being

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the problem I just basically foresee you know if you get a depression situation or a severe

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The recession situation and all of these promises to pay have to come due, well the government's

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going to do all sorts of things on the monetary side and the fiscal side, bailouts of huge

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proportions potentially that will keep the system going, but that's bad medicine so

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to speak.

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It doesn't really clean up the problems and so you'd have a situation where you're

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Do you think there will be an actual open devaluation, or is it going to be sparse?

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And it doesn't, it doesn't, I guess that does something for the government to, you know,

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in a sense.

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I should have put this in my slides, but I'm just a novice at PowerPoint, as you can tell.

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So I grabbed this picture out of my Civil War book on money and prices in the Confederacy,

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1861 to 1865.

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And it shows basically flat at the beginning and then the upward trend develops and then

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eventually it goes ballistic.

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But there's this period in here where it kind of levels off and they did a kind of a devaluation

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Scheme to try to clean up some of the debt and reduce some of the paper and that kind

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of thing.

407
00:54:10.660 --> 00:54:19.220
So those, yeah, those things, those things work and temporarily I could find no actual

408
00:54:19.220 --> 00:54:27.020
benefit to the economy as a result of this, but it's something that no one's thinking

409
00:54:27.020 --> 00:54:33.080
about now, but in the process that I'm laying out of the demise of the dollar over the next

410
00:54:33.080 --> 00:54:35.220
many years

411
00:54:35.220 --> 00:54:42.220
something like that is likely to happen

412
00:55:03.080 --> 00:55:32.080
Well, it is going to go up or down. Well, George, my best guess is that we've come down and touched the trend line, and I'm thinking and actually hoping that it goes higher from here, but I wouldn't be surprised if you couldn't buy gold at five to ten percent lower prices in 2005.

413
00:55:32.080 --> 00:55:48.080
But I think there's a lot more, obviously from my comments, I think there's a lot more upside potential in gold and gold stocks than there is a lower.

414
00:55:48.080 --> 00:55:58.080
When you're talking about a five to ten percent discount from current levels, you know, gold stocks are up over three percent today.

415
00:55:58.080 --> 00:56:01.080
something simpler than that, I think we're going to want an answer

416
00:56:01.080 --> 00:56:03.080
one from all of these talks in Canada

417
00:56:03.080 --> 00:56:05.080
something simple

418
00:56:05.080 --> 00:56:07.080
like that, wouldn't that do it?

419
00:56:07.080 --> 00:56:09.080
yeah, that would do it

420
00:56:15.080 --> 00:56:18.080
you're getting at the heart of the complaint, right?

421
00:56:18.080 --> 00:56:20.080
the reason why you're sitting out there

422
00:56:20.080 --> 00:56:22.080
sounding sort of schizophrenic

423
00:56:22.080 --> 00:56:24.080
is

424
00:56:24.080 --> 00:56:26.080
we tend to not really think about

425
00:56:26.080 --> 00:56:28.080
The Theory of Money and Credit

426
00:56:56.080 --> 00:57:11.080
There's also problems with transferability and fluidity and all that other sort of stuff, with art and real estate and all that other sort of stuff, but the whole premise that you're trying to say is, gold's a signal for bad times coming, and you're absolutely correct.

427
00:57:11.080 --> 00:57:20.080
And you keep looking for this signal, and what I'm trying to say, and I'm not saying it particularly well, is people have learned other ways to deal with it.

428
00:57:20.080 --> 00:57:35.080
Last time, or not last time, but sometime, I think it was in the 90s when I was watching it, when you saw the Fed want to play games with the money supply, that the markets were so well greased that people went in stable currency, whatever it was at the time, the mark began.

429
00:57:35.080 --> 00:57:43.080
Now the scary thing is the EU, I think, is going to destroy that competition in currency, and that may dry up.

430
00:57:43.080 --> 00:58:00.080
But just because you don't see gold at $800 an ounce, doesn't mean that the situation is still dire, I don't know if I'm making myself clear now, because gold isn't the universal accepted place for folks to run to, that it was one year ago.

431
00:58:00.080 --> 00:58:07.080
No, but it's right now that, yeah, that what, what, what, what?

432
00:58:07.080 --> 00:58:13.080
You know, an input for, you know, being a low conductive electricity, input production process and all that.

433
00:58:13.080 --> 00:58:16.080
So you've got all sorts of other things that may be in there.

434
00:58:16.080 --> 00:58:22.080
But you know, if everybody's sitting here saying, well, gee, things aren't that bad because gold was at $800 an ounce again,

435
00:58:22.080 --> 00:58:25.080
well, you know, where's that coming from, right?

436
00:58:25.080 --> 00:58:34.080
Right? People, you know, there's more things available. There's different edges out there today than there was in the 70s or the 80s.

437
00:58:34.080 --> 00:58:35.080
That's right.

438
00:58:35.080 --> 00:58:41.080
I think you make your paper, you make your position much more strong when you go ahead and throw that caveat out.

439
00:58:41.080 --> 00:58:49.080
I don't know if there's anything in the literature to see what's happened to the number of inflation papers and how many more people are unionized.

440
00:58:49.080 --> 00:58:59.080
But that surely does, I think, and adds to your credibility that things are worse than what in fact they appear to be. Look, when you have data like that.

441
00:59:19.080 --> 00:59:49.080
India, New Zealand, Australia, Ireland. When people were asking, you know, what kind of stocks would you buy? I'm not sure. I think it's worked pretty well for me. And I think, you know, most of those markets, Canada and so on, have done fairly well. And I think they're going to continue to do well for a variety of reasons. If you wanted to invest in stocks, those are good countries to invest because you're out of the

442
00:59:49.080 --> 01:00:00.080
You're in English-speaking, advanced economies, stable governments, liberalizing governments, resources, agriculture, and so on.

443
01:00:00.080 --> 01:00:05.080
I just thought that, on average, it would be a good bet.

444
01:00:05.080 --> 01:00:16.080
I'd like to say a few things. Imagine the mania that occurred in late 90s with the master of primitive gold.

445
01:00:16.080 --> 01:00:23.080
At some point, in a dire situation, God knows how that terrible curve would go, and you have no idea what it is.

446
01:00:23.080 --> 01:00:27.080
You would probably overshoot, because of the best of extremes sometimes.

447
01:00:27.080 --> 01:00:30.080
Well, the word that is, I don't know if you're going to come up to me.

448
01:00:30.080 --> 01:00:38.080
I remember in the early 80s, Wall Street used to wait with bated breath every week when the money supply came in.

449
01:00:38.080 --> 01:00:45.080
And the bond market would have a hissy fit if they saw the Fed, the money supply going up too much.

450
01:00:45.080 --> 01:00:51.080
Nowadays, let's ignore it. Who cares? Or maybe even the more money in there, the better.

451
01:00:51.080 --> 01:00:58.080
It's almost the opposite. The more money that's shoved into the system, the happier they are, yet rates don't go up.

452
01:00:58.080 --> 01:01:11.080
Well, that's, you know, that's because of increases in the money supply means that banks are lending and builders are building and, you know, that kind of thing.

453
01:01:11.080 --> 01:01:18.080
But in terms of your first comment about overshooting, we've overshot our time here so we're going to have to call it quits.

454
01:01:18.080 --> 01:01:20.080
Thank you very much for coming, guys.