05/12/10 Stockholm, Sweden – Despite the debt crises facing several EU countries, governments around the world are still throwing money at the problem. In an attempt to eradicate the failure of already having spent too much, the governments are spending more. This kind of decision making undermines trust in fiat currency, ironic because by definition fiat currency is only useful when people trust it.
Further, euro weakness in the wake of the Greek sovereign debt crisis has turned attention away from what’s been a relatively soft greenback. With gold at new record highs, today at $1,245.40 an ounce, new signs of trouble remain on deck.
For more details on gold we turn to MarketWatch:
“‘The gold price has been supported over the past days by safe-haven demand on the back of ongoing concerns about Europe,’ said Anne-Laure Tremblay, metals analyst at BNP Paribas in London.
“‘While Monday’s announcement of an EU fund calmed immediate fears about risks of contagion of the Greek crisis, markets remain doubtful about the capacity of governments to cut their deficits swiftly,’ Tremblay said in e-mailed comments.
“Spain’s government on Wednesday announced a series of measures to lower its deficit, which reached more than 11% of gross domestic product in 2009. […] Gold is traditionally seen as a relatively safe asset that keeps its value, and investors tend to buy the metal at times of economic and financial turbulence. ‘The sheer scale of fiscal deficits facing numerous countries is likely to prompt further diversification from fiat currencies and should ultimately propel gold to fresh highs,’ James Moore, an analyst at TheBullionDesk.com, wrote in a note.”
Yet, this is hardly only a euro problem. The euro’s having the biggest crisis of its young life, but other major currencies are also struggling. The British pound, once the glory of the empire, is troubled by England’s hung parliament. The renminbi, the currency of up and coming China, is still not freely traded. And, of course, the greenback has an already impressive deficit. Fiat money has become the foundation our global economy is built upon but — if we lose our faith in these pieces of paper — they may all go to their intrinsic value of zero.
Visit MarketWatch to read more about how gold futures have broken all-time records.
Best,
Rocky Vega,
The Daily Reckoning
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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I own gold and silver. Bought from 1998 to 2003. I’m wondering, who is buying this gold now? Are billions of dollars worth of gold being bought with savings from pay checks, or is being bought with borrowed money?
When the last investor has bought, who is going to buy all this gold?
I am going to assume that gold is being bought like anything else these days. On credit. Sort of like the housing bubble. Many are thinking I know I am not going to be able to pay the IOU on this stuff but with luck it will rise enough for me to sell it, cover my debt and have some left over. A typical capitalist approach to profit. Will it work out? Who knows. As in any bubble those that buy at the top will lose the most. Of course central banks will just print some cash to buy it with.
Like .99 cents is so much lower than $1.00. Pathetic
“Fiat money has become the foundation our global economy is built upon but — if we lose our faith in these pieces of paper — they may all go to their intrinsic value of zero. ”
Talk about a contrarian! Fiat money is not a foundation for anything except butt wipe (and it’s not even very good for that either).
Our global economy will be just fine without fiat currencies. In fact, it will be more honest and transparent (meaning, you will know what you are really paying for something or earning, and your money will maintain its value over time).
Ron Paul for President! Deport Obummer.
Hi, Oldbill, actually at least one fellow (me) is buying PM on leverage. In the physical. Everything goes back to sunshine and lollipops, great! Sell some/most/all back, retire the debt, get back to bubbling. If I take a market loss, whatever…I consider it the cost of insurance in uncertain times.
Things continue on greased skids to the hot place, no problem! Sell a portion and retire the debt in cheaper dollars! Can you tell I’m working on my MJR entrance exam…