At OEN, Jimmy Walter leads a short tour through history, part of his discussion about the trouble with gold.
Many people have added some gold to their portfolios, and it has often worked out well for many people, though not every person. The thought often recurs to me: What if people stop liking gold? What if they reframe gold as simply a shiny, but otherwise useless metal. As Walter states at the end of his article aimed at gold-lovers everywhere: “Gold is just a shiny stone that mesmerizes the naive natives.” What are the odds that this will become the prevailing wisdom? This exposes that the power of gold is not about the metal itself–it is mostly about the value people attribute to it, which is based, for the most part, on the value people assume other people will attribute to gold. Gold is not, in the end, really about gold. It is about predicting what other people will think about gold. It is tempting to say, then, that gold comes close to being a tangible symbol of wealth.
In this sense, gold is no different than stocks or bonds. They are all merely worth what people agree they are worth. A maxim in economics is that the value of a thing is what the thing will bring.
There was a time when a stock holder had a claim on corporate assents. But I have held stock through several corporate bankruptcies, where the directors got golden parachutes, suppliers got some fraction of what they were owed, stockholders got nothing, and then the company reformed and continued as though nothing happened. Like K-Mart in 2002. My 500 shares become worthless, and within weeks they sold new shares to new suckers. Shoppers were probably never aware that anything had happened.
As for gold, it has industrial value, as the most malleable and ductile and among the heaviest and most chemical-proof metals. No cheaper metal can block radiation like gold. It will never drop to zero, but I expect gold to drop to around $700/oz after this current panic subsides. That’s my WAG (Feral Donkey Hypothesis).
Right now, the people of Europe are very much opposed to deeper economic and political integration. For example, 76 percent of Germans says that they have little or no faith in the euro and one recent poll found that German voters are against the introduction of “Eurobonds” by about a 5 to 1 margin.
It looks like it may take a major crisis in order to get the people of Europe to change their minds.
Unfortunately, it looks like that may be exactly what is going to happen.
The following are 20 quotes from European leaders that prove that they know that the financial system in Europe is doomed….
#1 Polish finance minister Jacek Rostowski: “European elites, including German elites, must decide if they want the euro to survive – even at a high price – or not. If not, we should prepare for a controlled dismantling of the currency zone.”
#2 Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: “Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change.”
#3 EU President Herman Van Rompuy: “The euro has never had the infrastructure that it requires.”
#4 German President Christian Wulff: “I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence”
#5 Deutsche Bank CEO Josef Ackerman: “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”
#6 ECB President Jean-Claude Trichet: “We are experiencing very demanding times”
#7 International Monetary Fund Managing Director Christine Lagarde: “Developments this summer have indicated we are in a dangerous new phase”
#8 Prince Hermann Otto zu Solms-Hohensolms-Lich, the Bundestag’s Deputy President: “We must consider whether it would not be better for the currency union and for Greece itself to go for debt restructuring and an exit from the euro”
#9 Alastair Newton, a strategist for Nomura Securities in London: “We believe that we are just about to enter a critical period for the eurozone and that the threat of some sort of break-up between now and year-end is greater than it has been at any time since the start of the crisis”
#10 Former German Chancellor Gerhard Schroeder: “The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy”
#11 Bank of England Governor Mervyn King: “Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.”
#12 George Soros: “We are on the verge of an economic collapse which starts, let’s say, in Greece. The financial system remains extremely vulnerable.”
#13 German Chancellor Angela Merkel: “The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957.”
#14 Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: “Member states would be economically better off if they had never joined. European monetary union was generally mis-sold to the population of the Europe.”
#15 Professor Giacomo Vaciago of Milan’s Catholic University: “It’s clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that.”
#16 EU President Herman Van Rompuy: “We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.”
#17 German Chancellor Angela Merkel: “If the euro fails, then Europe fails.”
#18 Deutsche Bank CEO Josef Ackerman: “All this reminds one of the autumn of 2008”
#19 International Monetary Fund Managing Director Christine Lagarde: “There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken”
#20 German Chancellor Angela Merkel: “The euro is in danger … If we don’t deal with this danger, then the consequences for us in Europe are incalculable.”
Most of the individuals quoted above desperately want to save the euro. They are not going to go down without a fight. The overwhelming consensus among the political and financial elite in Europe is that increased European integration in Europe is the answer.
Socialism is also at fault…the governments cannot go back. Buy physical gold and silver…oh, and food too!