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Gold Benefits from U.S. Debt Monetization

Commodities / Gold & Silver 2009 Mar 31, 2009 - 10:39 AM GMT

By: Ned_W_Schmidt

Commodities Best Financial Markets Analysis ArticleThe world does not need a New World Money backed by government IOUs. We already have an ideal One World Money in the form of Gold. It satisfies fully all the requirements of money. And most important, it has clearly demonstrated durability as a store of value. Gold, however, has one failing that prevents it from it being adopted by the nations of the world as the One World Money. Politicians cannot “print” more of it with which to buy votes. Can anyone imagine a U.S. Congress denying itself the right to spend money?

Text Box:  As our first chart shows, some investors are enjoying the change brought about by the Obama Regime. The Shanghai Stock Exchange Index(SSE) continues to reward investors there. Why are investors there voting in a positive fashion and investors in the U.S. voting no? Could they possibly understand that the Chinese government promotes wealth creation while the Obama Regime favors wealth confiscation?

Gold and Silver investors have clearly benefitted from the new U.S. governing regime. Those markets recognize that “printing” money, the far left bar in the chart, can only lead to the dollar losing value. Creating more of a national money cannot possibly make the value of that money rise.

With the U.S. determined to create dollars at a rate faster than the quantity of Gold in the world increases, the price of Gold in dollars can only rise.

Being so negative on the U.S. dollars, emails ask our opinion of the Canadian dollar versus the U.S. dollar. To that we answer that they are worrying about the wrong relationship. Their concern should be the value of the Canadian dollar versus the Euro and the Chinese Yuan. The U.S. and Canada are congenitally joined economic entities, though politically separated. So as the U.S. dollar goes against other national monies, so will the Canadian dollar.

With the Federal Reserve abandoning any pretext of independence, full scale monetization of U.S. government debt is now in process. As the Obama Regime needs to sell more than $2 trillion of debt in the coming year to finance the national deficit, monetization of that debt is essential. Imagine the repercussions of a U.S. government debt auction failing, as did those of Germany and Great Britain!

Text Box:


Our second graph this week is the year-to-year percentage change of holdings of debt securities by the U.S. Federal Reserve. For years, the U.S. relied on gullible foreign central banks for funding. The Federal Reserve did not have a need to increase the size of debt holdings. That period might be described as “de-monetization,” and was the primary reason that U.S. inflation was reported as being low. That era has now ended.

As the vertical ascent of that plotting shows, the Federal Reserve is monetizing debt in robust fashion. The Federal Reserve is now allowing the U.S. Congress and Obama Regime to determine the quantity of dollars that will exist. Regrettably, they have determined that the quantity of dollars will quite simply be whatever amount necessary to finance their spending. No political limit now exists on the quantity of U.S. dollars that will be created!

Never in history in times of peace has the monetary hegemon so abandoned monetary restraint. Never in history has such an avalanche of money been created without its value falling. Is the coming destruction of the U.S. dollar's value intentional or due to ineptness? Whichever, the consequences will be the same.

Text Box:  Some worry had developed that the rate of increase of U.S. monetary inflation, as shown in the following chart, might be slowing. Such a development might have meant the price of Gold might rest, or slow its rise. Alas, that is not to be the case, as U.S. monetary inflation is continuing to rise. That points to higher $Gold prices in the future.

A move of $Gold price in the above chart to a new high would confirm that Wave V is in process of unfolding. That is the part of the wave structure for which many of you have patiently waited. Acknowledgment by so many government leaders of the problems with a U.S. dollar-centric financial system may mean a heightened role for Gold, and a far more exciting Wave V. Era of fiat money is passing, and investors should be adding to their Gold holdings in all periods of price weakness.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to

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