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Published on Gold Anti-Trust Action Committee (http://www.gata.org)

Are markets arranging a de-facto return to the gold standard?

By cpowell
Created 2012-04-23 20:51

4:50p ET Monday, April 23, 2012

Dear Friend of GATA and Gold:

He doesn't quite put it that way, but in his new commentary about gold's competition with U.S. Treasuries for recognition as a default-proof and inflation-proof asset, University of Texas Business School Professor Lew Spellmake essentially makes the case for the gold price suppression scheme.

Spellman writes:

"For decades U.S. Treasury debt took over from gold as the market's preferred store of value. Treasury bonds mythically had no default risk and little inflation risk when central banks were not under pressure to be concerned about unemployment, lending to insolvent banks, or propping up the value of government debt. Moreover, U.S. dollar-denominated Treasuries not only served as the store of value but also sprouted interest payments.

... Dispatch continues below ...



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"But all that has changed, perhaps not forever but likely for the next four decades, as developed-world democratic governments will be under pressure from their constituents to make good on the social contracts of Social Security and comprehensive health care to the bulging baby boomer population. And, if need be, they will recapture the central banks (by legislative changes if necessary) if they fail to support U.S. Treasury prices. ...

"... The growth of gold as a collateral asset to debt-heavy markets is inevitably in the cards and is de-facto occurring. Gold is stepping up to the plate as 'good' collateral in a world of bad collateral. ... What we are witnessing is a sea change in which market forces are driving a de-facto return to the gold standard."

Spellman's commentary is headlined "Warren Buffet and the New Calculus of Gold: and it's posted at his Internet site here:

http://thespellmanreport.com/2012/04/21/warren-buffet-and-the-new-calcul... [2]

Elaborating on Spellman's commentary, FT Alphaville blogger Izabella Kaminska remarks, "We've played around with the idea of a global mind-meld toward the re-collateralization of the system's liabilities before. It’s a theory that we would say explains a lot.":

http://ftalphaville.ft.com/blog/2012/04/23/970271/the-unwitting-move-tow... [3]

The Scottish economist Peter Millar more or less predicted such a "re-collateralization" of the world financial system seven years ago with his study "The Relevance and Importance of Gold in the World Monetary System." Millar wrote that averting a catastrophic debt deflation would require increasing the world monetary base by a factor of seven to 20 through an equivalent upward revaluation of gold. His study is posted at GATA's Internet site here:

http://www.gata.org/node/4843 [4]

Even the International Monetary Fund the other day identified gold prominently among the "safe assets" of which there is a profound shortage:

http://www.gata.org/node/11241 [5]

All these things suggest that gold investors have the right idea near the right time. But exactly what time that will be and whether gold investors will be permitted to be right for long may remain the most sensitive political questions.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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