Today the USD hit a new all-time low of 20.02 mg. What more is there to say? Until real interest rates turn positive, or the US economy shows signs of real recovery, the appeal of the dollar is very limited. With the end of QE2 in sight, the Fed is faced with a tough dilemma: go for another round of money creation with QE3, or see the economy really start to fall apart around it. The true question is not "if" there will be more quantitative easing, but "how soon and how much".
The US Dollar traded in London at 21.67 mg on Tuesday afternoon, setting a new all-time low. Since the US Dollar was created by congress in 1790, with a value of 1600 mg of gold, it has lost 98.6% of its original purchasing power, leaving only 1.4% between here and total worthlessness!
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With fiat currencies all over the world being manipulated by central banks, prices are being distorted beyond all recognition. Successful investing requires having a good idea what things cost, and what they are really worth – and using the world's oldest and most stable form of money, gold, to compare prices is one way to get that insight. Below you'll find a sample of prices measured in grams or milligrams (1/1000 of a gram) of gold.
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On May 31st, Dr. Marc Faber, one of my favorite economists and a very engaging speaker, gave a landmark presentation at the Mises Circle on Austrian Economics and Finance. In this talk, Dr. Faber details the coming economic catastrophe, and what to do about it.
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I think it's time we all switched to using gold as our unit of account, as the fiat currencies of the world continue to be consumed in a firestorm of inflationary "money" creation. Whether or not we hold actual physical gold (which we should, as our bedrock cash position) we should be seeking to own stuff that is rising in value in gold terms. The real problem is that the signals we get from investments priced in EUR, USD, JPY, etc. are being seriously distorted by the massive issuance of these currencies, resulting in investors continuing to hold them and even add to them, believing their value is rising when it is in fact falling.
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Gold is a type of money, just like Dollars, Euros, Pounds and Yen. Unlike these other forms of money, gold has been around for thousands of years, while many fiat systems have come and gone. Because the amount of gold in the world cannot be increased without finding and mining more of it, its value is fairly constant. This is in stark contrast to the fiat monies which can be created on command by governments and central banks.
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The first part of this interview covered Paul van Eeden's background and laid out his views on gold, inflation and interest rates. In this final segment, we'll discuss what to do about this situation – how to translate this view of the world into investment action.
More on Gold, Inflation and Interest Rates continued – Episode 5
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Last year, in July of 2007, I attended the Agora Financial investment Symposium in Vancouver, BC. There were a lot of excellent speakers and sessions covering all aspects of investment, with quite a bit of emphasis on natural resources and a strong international flavor. One of the speakers who impressed me the most was Paul van Edeen. On my return home I subscribed to his newsletter – which has since become one of my favorites.
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