|
We all
understand that the future is unknowable. Events yet to come cannot be
predicted. Nevertheless, the outlook for 2012 is probably set in stone, and the
reason is simple. The financial crisis imperiling the globe for the past
several years has not been solved. Until it is, we can expect more of the
same – specifically, serial bailouts of governments and banks that, if
not already insolvent are bordering on insolvency. It is a distressing
prospect.
Perhaps the
outlook for the months ahead can be best summarised
by the Governor of the Bank of England, Sir Mervyn
King. In a recent interview on British television, Sir Mervyn
in a rare candid moment made a remarkably bold statement: “This is the
most serious financial crisis we’ve seen, at least since the 1930s, if
not ever. We’re having to deal with very
unusual circumstances.”
It is
somewhat odd that Sir Mervyn chose the word
“unusual” to describe the present situation. After all, banking
crises and defaults on their debts by sovereigns – princes and kings as
well as countries – have been a recurring feature of monetary history
even before the founding of the Bank of England in 1694. So there is only one
reasonable conclusion from his comment. He was obviously referring to the
severity of the today’s circumstances, meaning that the depth and long
duration of this present crisis have few parallels.
Sir Mervyn went on to add that it is necessary for central
bankers “to act calmly to [these circumstances] and to do the right
thing.” While his comment reads well, and may even extract a
sympathetic response from some people, do his actions confirm his words? More
generally, are central bankers doing the “right thing”? For the
answer, we only need to look at the price of gold.
Gold is a
barometer of the ill winds stirred by monetary problems. It is as reliable as
a canary in a coalmine. The rising price of gold flashes for everyone a clear
warning signal. And a rising gold price is what we can expect in 2012, for
the same reasons that it has been rising for a decade.
First,
central bank money printing continues unabated. It is the repeated answer
that central bankers offer to address all of today’s financial
problems, with the only outcome being the continual erosion of the purchasing
power of national currencies – what is usually referred to as
inflation.
Second,
people everywhere are increasingly worried about the safety of the bank in
which they have money deposited. Ever since the collapse of Northern Rock in
the UK four years ago, confidence in banks has been diminishing. The failure
of Bear Stearns, Lehman Brothers, MF Global in the United States and the near
collapse of Dexia, the Belgian-French bank, have only provided more evidence
that there is real reason to worry. These failures also illustrate that the
problem of insolvent banks is a global phenomenon.
Third, the
interest income one can earn on a bank deposit is not sufficient compensation
for the counterparty risk being taken. Even worse, the interest income is
less than the rate of inflation, with the consequence that bank deposits
result in the loss of one’s purchasing power.
I could go
on, but these observations made my point. To all of these problems,
and indeed, all the problems that plague national currencies, gold provides a
safe refuge.
To end as I
began, the future is unknowable. Consequently, we do not have solutions for
today’s problems; we only have choices. For 5,000 years, gold has been
the world’s preferred money. Being tested time and again over the
millennia, gold’s proven record continues to make it the preferred
choice for a future that is always uncertain.
|
