Lots of good reading on gold and currency

At Friend of Friend of Another (FOFA). So much good stuff.

I love this chart of money flow between the U.S. and China. (CB is “Central Bank”.)

It’s that Lucent-style Chinese vendor financing people talk about. Americans buy Chinese exports. Their American dollars flow to China. China uses the U.S. dollars to buy U.S. Treasuries (debt). That provides money for the U.S. government to pay for Social Security, Medicare/Medicaid, wars, social welfare, and corporate welfare. That provides jobs and money so that Americans can buy Chinese exports.

And the cycle goes round and round. This ain’t gonna go on forever, folks. Our options are:

1. Massively cut consumption and government benefits and/or raise taxes.
2. Inflate the hell out of the U.S. dollar to make it easier to pay back those Treasuries with cheap dollars. Very likely. Our central bank has inflated currency so that a century later 95% of the value of the dollar has disappeared.
3. Do something completely crazy with the currency, such as the sort of currency revaluation relative to gold that FDR engaged in during the Great Depression.

#1 won’t happen because any politicians who make those hard choices will lose their jobs, which means they won’t make those choices. #2 and #3 are both arguments for holding gold. Your options are to hope for noble politicians who will be supported by a wise populace looking to the future, or to buy gold. I recommend buying gold.