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business newsWhy Gold Is Not Just Another Commodity
Central banks clearly distinguish the yellow metal from commodities, voting that it is a currency that both stores wealth and diversifies fiat currencies.
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While Bernanke may be able to justify his words in his own mind, China, the Middle East, and the rest of the world see it as a blatant lie from a fading empire. Bernanke's denial accompanies Treasury Secretary Timothy Geithner's own denial that the dollar will not be devalued. Government denials have historically been wake-up calls and better events to sell than to believe.
Like a driver with impaired judgment, Bernanke is behind the wheel, pedal to the metal with every American family's wealth at risk, printing money at an exorbitant rate, even if he can't bring himself to accept this truth. Sound harsh? Tell that to the growing number of families who are seeing their lifelong savings devalued quarterly, blurring the perceptible wealth difference between the American middle class and those who have never saved.Devaluations simply make everything one wants to buy more expensive, unless of course the government is buying everything for you. China and other dollar-buying foreign governments view America's balance sheet with the hopeless understanding that if our generation contributed 100% of its income to taxes until death it still would not be able to pay off its debts.
Coverage of Bernanke's comments has focused on very limited questions regarding the debt overhang, directing the Wall Street conversation toward a myopic debate about the foreign exchange value of the dollar. But questions as to whether the dollar will outperform the euro, the yen, or other top-ranked fiat currencies only cause Americans to miss the real issue before them: the absence of any independent value behind our debt-based money. A look abroad confirms this.
While new currencies spring into reality on local levels throughout the world, and while nations such as Russia display early renditions of next-generation currencies, the exact structure of emerging currencies is for all intents unknowable. But if we use the adage of watching what such powerful organizations do rather than listening to what they say, we see virtual unanimity in the vote of global central banks that gold will play a role in backing emerging currencies.
Americans should also note that foreign central banks are also clearly distinguishing gold from commodities, voting that gold is a currency that stores wealth and diversifies fiat currencies rather than being just another commodity. Ironically the vote of central banks could be single-handedly driving a stake through gold bears' hearts. Banks are transforming gold into an asset that has utility value equal to industrial materials such as oil and copper, as the network effects of "acceptable currency" lift gold's value from its meager 1% of global wealth.
Bernanke does not have a seat at the table for any of these emerging currency negotiations just like foreigners didn't have any real say at Breton Woods. It's payback time, America, and we're on the short end.
Recognize that this is nothing new: This is a return to the classic standard of money. The fiat currency lab experiment of our lifetimes was the anomaly in history, not vice versa. There will be no return to "to the way it was" in our future.
Another telling tale about Bernanke's problems is manifest in the weakness of Treasuries since Europe announced it was proceeding with more money printing. If the debt markets were comfortable thinking that playing relative credits offered safety, one would expect Treasuries to have rallied since Europe's announcement. Instead they are down. It is also noteworthy that fund data reveals two consecutive weeks of outflows from bond funds. We are now on track for the first month of negative bond flows in two years.
It won't take much of those funds to flow into metals to make current metal prices look nostalgic like dollar prices for our childhood staples. Asian central banks are so far behind the rest of the world on the share of gold they hold in their portfolios that it would take years of allocating 100 percent of global gold production just to catch up to other foreign central banks.
Realize however, that the death of the dollar as the world's sole reserve currency and the reemergence of gold as real money are recuperative trends. Moving back to classic money is an integral step in restoring America -- Americans must control the real money in the country and when we do, Bernanke and company will no longer have the ability to torpedo your net worth with the push of a button. You will be able to demand fiscal responsibility and we will again have leaders rather politicians directing important offices such as the Fed.
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