Monday, January 23, 2006

Bill Bonner on Gold - Part 1

You can read the whole article here.

The big news so far this year is the steep rise in the price of gold.

The present international financial system is an experiment. It has only existed since 1971, when the United States cut the umbilical cord between the dollar and gold. Before that, gold almost always stood behind the dollar, and other paper currencies. Why? You might just as well ask us "Why do fools fall in love?" or "Why is there air?"

This is not the first time central bankers have tried a system of purely faith-based currency. Every previous experiment ended in the predictable way: the bankers created more and more "money." And as the quantity increased, the quality decreased. Eventually, the "money" was of such poor quality that people would no longer accept it. In recent history, the Argentine currency lost 90% of its value in a single year. In less-recent history, the German currency lost 999% of its value in a matter of weeks. Between the time a man ordered a beer and the time he finished it, the price might have risen two or three times.

In three years time, more dollars are added to the world's supply than the current price of all the gold ever mined since the beginning of time.

During the two terms of George W. Bush alone, the feds have borrowed more money from foreign governments and banks than was borrowed by all other American administrations put together, from 1776 to 2000. So too will more debt be added to the national burden in the eight Bush years than in the previous 224.

Gold guffaws...snorts...and chortles. It knows something, but it isn't talking. Yesterday, it rose to another new high – over $550. It's even higher than Google.


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