Putting it simple: as more trillions flow more likely will it be for gold to replace paper as long term wealth store medium.
Continuing on this tack, at some point the wholesale gold market will break and the paper gold (futures) value goes down to zero. If that happens it is game over - governments lose the ability to perform monetary policy and parking wealth in gold will be the greatest investment of all, thus killing trade and industrial activity.
Vencit omnia veritas.
Fekete ends with
I think Tom's greatest mistake is to interpret the move into backwardation, or gold to enter the `fever phase', as "gold's regaining fully-recognized monetary status". Unfortunately, just the opposite is the case. Whether officially recognized or not, gold's monetary status was never in doubt. Gold has always been the monetary commodity par excellence, due to the fact that it has constant marginal utility (or, if you will, the fact that the marginal utility of no other commodity declines at a rate slower than that of gold). What we are witnessing is a transition that deprives gold of its monetary qualities. Gold in hiding cannot and will not act as money. More to the point, absent gold, nothing else can or will. The disappearance of money, that can be trusted, fatally undermines the legal system, the sanctity of contracts, habeas corpus, any and all provisions of law and order that we take for granted. Under these conditions nobody can operate a gold mine, nobody can run a gold refinery, nobody can guarantee segregated gold deposits, and nobody can prevent the institutionalized theft of ETF holdings. Welcome to the Madoff economy! (See References below: Paul Krugman's column in The New York Times). Jail one Madoff, two others will jump into his shoes.
What we are witnessing is a transition that deprives gold of its monetary qualities. Gold in hiding cannot and will not act as money. More to the point, absent gold, nothing else can or will. The disappearance of money, that can be trusted, fatally undermines the legal system, the sanctity of contracts, habeas corpus, any and all provisions of law and order that we take for granted. Under these conditions nobody can operate a gold mine, nobody can run a gold refinery, nobody can guarantee segregated gold deposits, and nobody can prevent the institutionalized theft of ETF holdings. Welcome to the Madoff economy! (See References below: Paul Krugman's column in The New York Times). Jail one Madoff, two others will jump into his shoes.
Gold has always been the monetary commodity par excellence, due to the fact that it has constant marginal utility (or, if you will, the fact that the marginal utility of no other commodity declines at a rate slower than that of gold)
absent gold, nothing else can or will [act as money]
It may stay nice to look at for a million years, but you can't live on it, keep yourself warm with it, or use it to send emails - all of which I would call forms of utility.
The problem is that that a thousand economists probably have ten thousand definitions of money between them - certainly over time.... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Probably semantics again but what utility has gold?
Among other uses, gold is the material par excellance for coating connectors where low noise performance is required. I designed a connector that terminated 27 pair shielded audio cables into a connector socket with gold plated contacts. I used 80 micro inches RMS gold plating on the printed circuit board that terminated the cable. It terminated the cable for less than $1.00/shielded pair, including both connectors. That was in 1978. That would be over $10/ pair today. There are many commercial uses for gold beyond jewelry. These uses suffer from the consequences of gold also being seen as a de facto store of monetary value when gold prices surge.
Of course the drawbacks to gold as the standard of monetary value include its perverse inability to increase its quantity by a few percent per year. Another (barely) conceivable drawback is that, given that it is a naturally occurring element, it is always possible that some new discovery could vastly increase the quantity of available gold. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
I'd also point out that there is no reason to allow "gold to go into hiding." Governments have tanks and infantry divisions. Rich individuals have a pile of gold. I'm sure they can be persuaded to store said gold in the national bank for the duration of the emergency.
My interpretation of this is: gold is a non-ferrous metal, a gold coin lasts forever.
I think this passage means exactly that, I don't agree with him on that ... you know energy at least should do the same, if not better job.
Mind here that Fekete is not your regular economist and his way of thinking is hard to grasp even to regular economists.
And thinking about what Chris wrote, there's one simple reason why gold is (has been?) the ultimate currency: it is effectively impossible to falsify. It was the heaviest metal known to man for millennia I believe; even today heavier metals are more expensive, you can try a fake gold coin, but it will be costlier.
Gold has the double the density of silver for instance, which in its turn is easily falsifiable with lead... Vencit omnia veritas.
