A Crucial Asset in a Sliding Economy
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Yesterday I started to tell you about insights I gathered at FreedomFest – Mark Skousen’s frenzied carnival of libertarian and conservative ideas and projects, investments, films, debates, dances, and magic tricks.
I had hoped that Herman Cain and Steve Moore, once both my and the President’s favorites for the seats on the Fed, would show us how to save the world economy from the clutches of central bankers stealing from the future.
Alas, they did not deliver. When they took to the stage, both Cain and Moore suggested “commodity-based money” as a solution. But attaching money to products already valued in money is a fruitless circle game which accomplishes nothing.
So I continued through FreedomFest, in search of different perspectives on real money.
Reforming the Current Monetary System Appears Inevitable
To judge the prospects, I invited the vice president of the Austrian Central Bank, Barbara Kolm, to a Vegas café in the Paris Resort.
Throughout her inflammatory career, Kolm has emerged as an advocate of real Austrian economics in Austria and in the world. Beyond her role as bank VP, Kolm is the founder and director of the Austrian Economics Center, president of the Hayek Institute, and impresario of a free market roadshow that unleashes some 400 Hayekian speakers around the world.
Kolm predicted danger for the Euro after the retirement of current director Mario Draghi, who pledged to save the European currency, “whatever it takes.”
In this pursuit, he made purchases of some 2.7 trillion in Euros, which are now valued roughly equally with the US dollar in a kind of suicide debt pact: “a huge bubble of collateral” now comprising nearly $250 trillion of global debt.
Kolm seemed to have little hope for Draghi’s successor, Christine Lagarde. A bureaucratic politician from France and the World Bank, Lagarde will try to smooth over the currency scene rather than reform it.
Meanwhile, Boris Johnson taking over in London will probably consummate Brexit, Britain’s exit from the Eurozone.
When Kolm told me to read Karl Menger’s theory of “time and value” in his Principles of Economics, I started to believe that perhaps we’ll ultimately return to real money after all. Perhaps, as I will explain in future prophecies, it will come through a return to gold, inspired improbably by Chairman Mao’s return to gold in China as his first act after taking power in 1949.
Meanwhile, this so-called “barbarous relic”, as Keynes famously dubbed it, is becoming a possible factor at last even at the Fed.
Unintimidated by the economics profession’s anathemas against gold, Judy Shelton can be a vessel for the stealthy return of actual money to the world.
She is already known for persuading Alan Greenspan of the viability of the Treasury issuing securities that can be converted into fiat or gold at the option of the holder. This device would exert some curb on monetary excess.
She is also audacious enough to shock and horrify her squeamish male colleagues by exposing her advocacy of the “gold standard” in public.
Gold is money because gold’s value is rooted in the time it takes to mine it, which has scarcely changed in millennia.
As Jude Wanniski put it, gold cancels capital and technology leaving the time to extract is as the underlying standard of value.
Achieving this effect is the fact that the more effective and abundant the tools employed, the more remote and diffuse the available gold deposits become. Meaning, gold enables money to translate into prices the inexorable scarcity of time in the economy.
As the world slides toward a debt crisis, one obvious course for investors is to protect themselves by buying gold.
Editor, Gilder’s Daily Prophecy