Dan Amoss has an interesting speculation on how gold may go to $10,000 an ounce with governments’ blessings:
There’s a plausible path to $10,000 an ounce gold. And it doesn’t require a breakdown in civil society…
Speculators see central bankers as modern-day superheroes, able to push markets around with a single phrase. In the minds of most investors, Ben Bernanke, Mario Draghi and Masaaki Shirakawa might as well be wearing tights, masks and capes. These superhero central bankers continuously swoop down into the financial markets to defend them from downticks…and to insure that they always deliver capital gains.
The reality, of course, is that these superheroes are frauds. They have no superpowers…other than the power of mass delusion. The powers of Mario Draghi and the other central bankers in Europe are waning. Excess debt is like kryptonite: Each new wave of printing has less impact on markets. As the popular phrase goes: “This is a solvency problem, not a liquidity problem.”
In other words, new money supply cannot restore health to sick loans and government bonds. The only way to restore solvency to the system is to deflate the economy or slash the amount of debt in the system through mass bankruptcy.
Or is there another way? Is there a “reset button” that central bankers can push (with the approval of political leaders) that would restore balance to the system?
Mr. Amoss’s speculations seem far-fetched and are unlikely to occur, at least as things stand today. However, there is no way out of the hole government has created for the economy other than a complete economic collapse which will liquidate the excess debt or inflating the debt burden away. Are we close to the inflation alternative? Probably not, at least not immediately.
As things become dicey (and the economy will continue to worsen), pressure will be on government to do something to get out of the crisis without an economic collapse. As far-fetched as Mr. Amoss’s plan seems today, it will become more attractive to the political class as than another Great Depression. It is a long-shot for this to happen, but you might want to read his piece to understand one option that could take the political pressure off.
When things become more dismal, the Amoss article begins to take on political attractiveness. It would represent the nuclear economic stimulus option, something possible if political survival is at stake.