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Gold and the G20 Summit

Commodities / Gold and Silver 2010 Jun 29, 2010 - 01:31 PM GMT

By: Dr_Jeff_Lewis


World leaders met at the G20 in Toronto to discuss how they will work to get the global economy moving again.  If you're new to the global economic forums like these, you might think that they're actually productive.   However, if you've been around long enough to follow them for a few years, you'd realize that politicians from the top 20 economic countries show up just to lay out their idealistic plans that they'll never really complete.

World Banking Tax

One of the top items at the G20 was the world banking tax that several countries, the US included, wants to impose on banks to insure against another financial crisis. 

The irony here is that it was the government, not the banks (this time), that created the financial mess that originated in US real estate.  The government, in its infinite wisdom, decided to increase the availability of home loans to those people who quite frankly couldn't pay for them.  They then tasked Fannie and Freddie to lower their standards and buy any mortgage backed security they could get their hands on.  The banks, sensing a money making opportunity, made terrible loans under the pretense that Fannie and Freddie would buy them with no questions asked.  Of course, we all know how well that worked out.

There were more than a few objections to a banking tax, most notably from Canada, which had the simple (and correct) view that Canadian banks were not a part of the financial crisis, and in no way, shape, or form would they be punished for the mistakes of the United States.  To make a long story short, one of the headline items at the G20 was swept off the table, and each country was left to moderate banks however it pleased within its own borders.

Deficit Reduction

If you thought a world banking tax was laughable, just wait until you hear about the deficit reduction plan upon which all nations agreed.  The G20 members will all work together to reduce their deficits 50% by 2013.  Also, they'll work to reduce government debt to GDP by 2016, which means that they'll either have to grow their economies or actually run surpluses. 

President Obama took his G20 promise to the American press today, and he noted that next year the government will have to do something to reduce the deficit.  If you've looked at gold, you'd notice that some gold investors actually took this pledge seriously, with a sell off occurring in the early hours of trading the day after the pledge.

Believe it When You See it

The pledge to reduce debt, cut spending, and promote economic growth was nothing more than a pledge.  While we can agree that precious metals would be poor investments if the government did really work to fight the debt and inflation, we can also agree that never in history has any government completed such a quick turnaround. 

Buy silver with both hands, as the people in power are either going to have to take drastic steps to cure the budget, or they're just going to keep doing what they have for more than a century.  What do you think they're most likely to do?

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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