Jeff Berwick crunched the numbers, and there is no way to sugar coat the coming hyperinflation. Jeff has a suggestion for how to deal with it, and he’s not talking about anarchy either…
Imagine it was 1937 and you stored your gold with someone… let’s call them Uncle Sam.
After about 20 years you told Sam that you’d like to see the gold and make sure it was still there. He said sure; you can come and take a quick look. And you did… and you were satisfied that it looked like the gold was still there.
Decades then went by… more than 40 years in fact… and you told Sam that you’d like to make sure the gold is still there.
He replied, “Sure, but you can’t count it or touch it or anything. You can just look through the window and see it is still there.”
“Oh, and another thing,” said Sam, “We get to select the person who can take a quick look.”
You’d start to get quite suspicious, wouldn’t you? It had been more than 40 years since you were even allowed to see the gold and more than 60 years since the last time Sam allowed you to count it.
“Who do you select to take a look for us?” you asked, eyebrows furrowed.
“Steve Mnuchin,” said Uncle Sam.
That is exactly what has happened with the gold supposedly stored by the US government in Fort Knox.
The last time the gold was even counted was in 1953. And the last time anyone was even allowed to take a quick peek at it was 1974!
And just this week, Treasury Secretary, Steve Mnuchin, went on behalf of the American people to take a quick look and confirm the gold is still there.
After all, who could you possibly trust more than Steve Mnuchin. The man who spent 17 years working in investment banking, most notably with Goldman Sachs, was a business partner with George Soros and was sued over his involvement with Bernie Madoff securities.
Yet, in the most nonchalant way possible, this week, Mnuchin quipped to an audience in Louisville, Kentucky, “I assume the gold is still there.”
And then, he mosied over to Fort Knox, walked in, walked out and tweeted…. And I kid you not, “Glad gold is safe.”
That’s it! He didn’t count it or check to see the books to see if it had been leant out to anyone, didn’t have some assays done to ensure it was actually gold and not an alloy.
None of that. He just took a quick glance to see there was some gold there. Good enough! No need to check again for another 50 years!
What else would you expect from a US federal government whose own auditors say their books have been completely unauditable for 20 years. Or how the Pentagram still can’t find over 6.5 trillion dollars.
So now, after nearly 50 years of nobody auditing the gold, one of the most untrustworthy people in the world took a gander and declared that everything is fine.
And the mouth breathing, government educated, fluoridated, chem-trailed, GMO’ed and vaccinated tax slaves in the US were too busy working three jobs even to notice.
We’d make more of a kerfuffle about the whole thing ourselves if it weren’t for the fact that the total amount of gold held in Fort Knox, if it truly is still there and still owned by the federal government, if sold today, would only cover the expenses of the US government for less than two weeks.
At today’s price of $1290, the total value of the gold holdings at Fort Knox, if they are really there (again, the only one who has seen the gold in the last half century is Steve Mnunchin) are worth about $200 billion.
In June, alone, the US government spent $429 billion.
So, if all the gold at Ft. Knox was sold, it’d cover about 14 days of expenses.
So, in terms of the importance of the gold holdings in the US government’s balance sheet, it is actually negligible.
Some, though, might say the gold held at Fort Knox is important if the US were to ever go back to a gold standard.
Well, for one thing, don’t hold your breath for that to ever happen.
If the US government put the US dollar on a gold standard that was managed by itself or by the Fed or Treasury to the extent that it was adopted in the classical sense it would bankrupt the government and/or severely tie its hands.
While this would be the best news possible for nearly everyone on Earth… What are the chances the US government would destroy itself on purpose? Not very likely.
And, even if it somehow did, it still wouldn’t be easy, nor necessarily very free-market.
It is hard to predict how they would do it if they did. That is, would they choose to have the dollar be backed by a weight in gold or would the gold price be fixed? Would the government erect state banks as it did before the Fed? Or would it redefine and use the Fed to regulate the exchangeability between dollars and gold? Or would it be the Treasury directly? Another way that has been discussed is to incorporate gold as a top tier asset under the latest Basel guidelines, which implies little difference in the analysis. Or they could create a Fedcoin backed by gold, and the token could rely on a program of some type of inflationism built into it.
But it’s not likely they would abandon fractional reserve banking altogether.
Whatever the case, if it is a government directive it is not likely to be “sound.” It is likely to be rigged. It is likely to tilt the playing field, as usual.
Some gold bugs, though, would point out that if the US were to somehow go back to a gold standard, the value of gold would likely have to increase dramatically.
As I pointed out, at today’s price of $1290 the total value of the gold holdings at Ft. Knox approaches $200 billion, but the total value of bank deposit liabilities held by the US commercial banking system is $11 trillion.
Its total reserves in dollar terms are $2.3 trillion. Maybe the geniuses at the Fed decide to revalue the gold according to those reserves. If so, the gold price might then be fixed at $15,614 per ounce. That might go a ways in resetting the system and supporting the $11 trillion in commercial bank liabilities. On the other hand, required reserves total the same value of the value of that gold today, at just under $200 billion (the rest are “excess reserves”).
However, that requirement might not reflect total outstandings in savings deposits, which in the US are closer to demand deposits than in other places.
To be sure, a requirement is hard to figure anymore at all because the relationship between reserves and total deposit liabilities died even long before the 2008 crisis.
The Right Way
The right way to do it would be to let the market determine the ratio based on total dollar supply, which approaches $13 trillion. These dollars could be set to be backed by gold in weight. The supposed holdings at Ft. Knox equates to 4.6 billion grams. So you could back each dollar by 0.00036 grams and let the market decide on the value of that dollar. But in practice, that ratio would not work and if it did it would be fixed and managed by the Fed.
Still, ultimately this would mean giving the public back control over the reserves of the banking system and I don’t see that in the cards any more than outright repudiation of the public debt.
Anyway, the main point is that the only ratio that would work would be the market determined one. Any other ratio would cause problems depending on if it were too high or too low. And to the extent the central bank tried to manage this ratio, it would continue to impose a boom-bust cycle.
So, to summarize…
We still have no idea if the gold is really still at Ft. Knox. Also, we would like the word of someone a bit more respectable than Steve Mnuchin to confirm it is still there. Like Dennis Rodman. Or even Honey Boo Boo.
But even if it is still there, the actual amount is meaningless in terms of US government spending and wouldn’t last the Empire two weeks to pay for all its wars.
And while the chances of the US government going back to the gold standard is about as close to 0% as you can get, even if it did, that still may not have great results if they continue on with fractional reserve banking and don’t allow the market to dictate the peg.
If they did, though, to back the total reserves with gold, gold would have to be valued at $15,614 per ounce. Or about 1,100% higher.
TDV’s Senior Analyst considers the true value of gold based on our shadow gold price to be between $2,000 and $3,000 right now, but this price assumes that gold remains an asset in the present system. If gold were to become money, this value would likely be considerably higher.
So, to conclude, if the US does not return to a gold standard it will have to continue to inflate the dollar to pay for an evermore indebted federal government. This continuation of inflation will quite soon lead to hyperinflation and the value of gold will rise dramatically. A rise of 1,000% or more, in nominal dollar terms, would be easily foreseeable.
And if they do return to a gold standard we would also see the price of gold rise dramatically… and possibly more than 1,000%.
Those are the only two options available, by the way.
Given those are the only two options and they both result in gold rising in value by potentially 1,000% or more… we would suggest you get some gold.
We’ve made our book, Getting Your Gold Out of Dodge, completely free to you, to give you the information you need to not only buy gold, but how and where to store it as well.
You can download this book, normally valued at $44.95, for free, HERE.
In the meantime, I am trying to think of someone more trustworthy than Steve Mnuchin, who could possibly do a quick check to make sure the gold is still there at Fort Knox. It’s too bad Richard Nixon, Charles Ponzi and all the players from the 1919 Chicago White Sox are all deceased.
Maybe we can get a hold of Bernie Madoff to just do a quick double check.
Then I’ll know that the gold is there for sure and we won’t need to worry about it for another 50 years.