In ’71, the US government seemed to have thrown caution to the winds, with a deficit of $23 billion. Fiscal conservatives gasped and clutched their hearts. They’d better sit down, because today the deficit is expected to top $1.6 trillion this year alone, up 7,000%. Debt per working person rises at the rate of $115 per working day – about what the typical worker takes home.
And yet, the yield on a 10-year US Treasury note was around 6% in 1971. Today, wonder of wonders, it is only 3.13%, as if US finances had improved over the last 4 decades!
Putting ’71 and ’11 side by side you have to admit that one is strange. But which one? Surviving gold bugs – viewing these facts through their bifocals, perhaps from the comfort of their retirement homes – have begun to twitch. The price of gold has risen every year for the last 11 years. But even now, what is remarkable about the gold price is not that it is so high, but that it is so low. It is barely ordinary. Adjusted for inflation, gold sells for less today than it did in 1980. To match its previous high – set when the US ran its penultimate budget surplus and Paul Volcker had already begun to tighten credit – the price would have to climb into the mid-$2000s. But did 1981 justify a $2,500 gold price (in today’s dollars) or does 2011?
Neither quantitative easing nor the Internet had been invented in Nixon’s time. The Internet was advertised as a triumph over abnormality. With the world’s wealth of wisdom at one’s fingertips there was no further reason for mankind to err in sin and darkness. He had merely to turn on the WWW to light his way. Want to know what quantitative easing is all about…or how previous episodes of printing press money, un-backed by gold, have turned out? You have only to consult Wikipedia. It’s free.
Just look for previous examples of successful pure-paper money systems. You won’t find them. Because the gold bugs were probably right all along; removing the gold from the world’s money system is almost sure to be a prelude to disaster.
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