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Money, Paper & Metal: The Future of the Economy

Updated on June 17, 2010

Worth Its Weight

Which is more frightening: watching investors abandon paper currencies in droves, or watching central banks and the world's political leaders scramble to convince them that the paper will be worth something again in the future? People have rightly lost faith in the world's financial structure - even in the United States.

After the collapse of Lehman Brothers in 2008, gold prognosticators predicted its rise to over $1500 an ounce by 2012. The reaction was a collective snicker from mainstream media. But as gold hit $1300 an ounce this Spring, the snickers turned to watchful concern. Could it be true that our multi-generational Keynesian wager was a bad one after all? Printing money was supposed to be the solution for every financial crisis - why not this one?

An odd factor in the equation is the lack of gold on the balance sheets of the central banks in Asia. These countries have begun buying gold with a vengeance, and will continue to do so for the next several years in a tradeoff effort to try to protect their own currency.  until they have sufficiently hedged their own money supply, the financial systems of China, Japan and India are all at risk - even while they seem to have the most sustainable economic positions for the coming decade.

Between 1981 and 2007, the price of gold went practically nowhere. But that was before the central banks created a two headed beast by flooding the marketplace with bad loans on real estate, and then trying to cure that malady with a flood of paper money that ended up filling all the wrong pockets.

Now, as the European economy faces a long term depression, and America lurks in its wake - does a thoughtful investor want to pour money into stocks?  Meanwhile, municipal and corporate bonds are both in great danger due to unreliable credit ratings. And what about the dollar? It's true it may be the least ugly sister in a financial beauty pageant of homely siblings, but the dollar is no prize these days either.

Whether or not they are the wisest, the biggest players on the field are still the central banks. And while the dollar is their investment of choice for the moment - how long can they sit on a currency of a country that is losing the moorings of its market based economy so fast?

While Ben Bernacke floods the globe with paper images of our former Presidents, shrewd investors are making a move toward an investment that once seemed worth little other than to serve as an apocalyptic icon - gold.  But truly, in these times, and for the foreseeable future, gold may the best bet for good returns. 

This article is written as an opinion piece and is not intended to predict the future price of any investment. 


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