In an New York Times op-ed, “Easy Money, Hard Truths,” hedge fund manager David Einhorn lays out the case that we should not worry about future generations feeling the pain of a huge national debt, unfunded liabilities and a weak economy. Instead, Mr. Einhorn argues that the imbalances in our economy are going to get worse, because he observes “I don’t see the political will to steer the country away from crisis.” The most recent crisis that just passed was “fixed” by massive government “stimulus” and a heavy dose of easy money. And more easy money is on the way.
And that’s the rub. Both the political and financial elites want to maintain—or at least postpone—the day of reckoning as long as possible for either ideological reasons or financial self interest. Mr. Einhorn cites a high level Obama administration official who told him that our government can print money to avoid a major crisis. Presumably, this insider believes that the FED’s printing press is like Jack in the Beanstalk’s magic seeds—it creates prosperity. In addition, this official also believes implies that both Americans and foreigners will continue to hold on to U.S. dollars even if the FED floods the economy with multitrillion greenbacks to prop up the welfare state.
My own theory, call it conspiratorial if you want to, is that the proverbial ‘insiders” in government and in the financial world are loading up on “hard assets” so they can weather the financial storm when it hits in the next few years. I have to believe that insiders know financial history and how national currencies have collapsed because of the government’s printing presses running 24/7 to pay its bills.
What evidence is there that the elites are moving their assets into gold, silver, oil, and commodities in general? If they don’t know what is unfolding, they are the most incompetent people on the planet because they are derelict in their duty to put the federal government’s finances in order, and see the boom in gold and silver prices as a “bubble.” On the other hand, if the elites do in fact know the “end game” of the desperate attempt to keep the welfare state afloat, then they are loading up their portfolios with hard assets to protect themselves from a collapsing currency.
In short, the elites would be foolish not to act in their self interest if they understand what will be the consequences of the FED’s money printing, Obama’s massive budget deficits, and unfunded liabilities of Social Security and Medicare.
The FED’s massive money printing could propel gold to at least $6,000 per ounce and as high as $10,000 per ounce or more in the years ahead. This is based on several factors but the one that is compelling is what happened during the first dollar crisis from 1968-1980. The official price of gold was $35 per ounce until August 15, 1971 when President Nixon closed the “gold window” and reneged on the promise to redeem dollars held by foreign governments at $35 per ounce. Gold eventually climbed to $850 dollars an ounce in January 1980, an increase of 24 times.
The current bull market in gold began in 2001 at around $250 per ounce. Does anyone doubt that the magnitude of monetary and fiscal imbalances is now worse since Nixon and Jimmy Carter occupied the White House when the national debt was well under a trillion dollars? If we apply a factor of 24 to the price of gold at the start of this bull market, then gold should top out at $6,000 per ounce. However, if the #*#* hits the fan in the next few years, gold may rise 30 or 40 times as the flight out of dollar—and all paper money–becomes a stampede and propels the price of gold to as high as $10,000 per ounce—or more.
No one knows with absolute certainty where the price of gold will be in the future, but as long as government officials think that printing money is their “ace in the hole” to keep our debt laden economy afloat, then holding dollars and federal government debt for the long run is betting on the wisdom and intelligence of FED officials and DC politicians.