Shove This Up Your Ass, Warren...

Reuters’ McGeever acknowledges how the “gold market is tiny” compared to “trillions and trillions of dollars worth of cash and assets sloshing around the world financial system.” He asks how can countries back “all of that” against such a “tiny and finite amount of gold?”  Butler responds by saying that “the amount of gold is finite by weight or volume, it is not finite by price   - article linked below

I will get to the article which is the source of the above quote below.  But first I wanted to link a speech given to the NY Fed by a guy named Robert Wenzel, who authors the Economic Policy Journal blog.  In this speech, he highlights the failure of Ben Bernanke's policies, why they are failing and why Government intervention in the economy leads to failure.  He does a brilliant job of translating basic economic laws and theories into layman terms.  With regard to the fact that Government "helps" the unemployed by taking taxpayer money and giving to the unemployed, he states rhetorically: 

In present day America, the government focus has changed a bit. In the new focus, the government  attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work?

I've made this comment to friends and colleagues many times.  He also cites work done by the recipients of the 2010 Nobe Prize in economics for work which shows that Government interference (transfer payments, regulations, etc) causes a higher rate of unemployment.

Here's the LINK.  If you only have time to read that today, stop reading this blog and read that.

On the quote at the beginning.  Goldcore.com posted an essay today making the argument that one of the BRIC countries is likely to introduce a gold-backed currency at some point in the near future that will replace the dollar.

I have always believed - and I have posted my theory in the past - that China would be the likely candidate for this once it had accumulated enough gold to enable it to make the claim as having the largest gold stock in the world.  The U.S. used that claim after WW2 in order to back its move to make the dollar the reserve currency per Bretton Woods. 

If this does indeed occur, the dollar will likely collapse.  Of course, the other interesting aspect to this would be that China/Russia would likely force the U.S. to make good on its claim that it still owns 8,100 tonnes of gold.  In that regard, Mr. Wenzel from above had this point to make:

I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General’s Office of the Federal Reserve and requested an investigation [12]. Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve [13] and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.

In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. [14] Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?

Clearly, the gold investing community is not the only one which would be interested to see an open, legitimate, independent audit of the U.S. gold inventory - something which has not been legitimately undertaken since Eisenhower was the President.  The Fed/Bernanke has jumped up and down like a lunatic promoting its new policy of "transparency."  How about making good on it rather than relying on the tenuous concept of "full faith?"

At any rate, this essay on Goldcore is another must-read:  LINK, as it responds with the free market, capitalist answer to the concern that there's not enough gold in the world to make a gold standard practical.  To that, the correct response is, "why not?"  The value of the gold is the key variable.  Value is calculated by the product of quantity and price.  If the quantity is relatively fixed, and there needs to be more "value," then the price has only one way to go...

Given the enormous amount of paper fiat currency in circulation globally that has been printed up since the last time gold was used to back money, it is understandable that from a value standpoint, that the price of gold is significantly undervalued....Warren Buffet can take my last statement there and shove it up his ass.