If you look at the chart above it hardly appears as if the dollar is in a bubble. Yet when you consider that all the fundamental conditions (massive debt and deficits) that have caused the dollar to lose 98% of its value are accelerating it's tough not to notice that the dollar is still in bubble territory. To be precise, it is a massive Bubble of Confidence:Despite the horrendous performance of the dollar 98 % of Americans still carry 100 % of their wealth in dollar denominated assets.
Are you one of these? If so think hard about the future of your assets.
So: How many ounces of gold should a dollar buy?
The dollar was once worth 1.555 grams of gold. Then it was reduced to .888 grams of gold. Today it is able to purchase .02 grams of gold.
That it is able to purchase any gold at all is a direct function of confidence. Because as long as there is confidence that somehow the debt problem will be resolved in a way that allows the dollar to remain the world's reserve currency the dollar will still buy some measure of gold.
To quote from the brilliant FOFOA blog:
Total debt in the US, both public and private, is around $55 trillion. If we add in the government's unfunded liabilities (which definitely apply shear stress to the dollar's lynch pin), that number comes in around $168 trillion. And that is simply the promises to deliver worthless, purely symbolic tokens, at some time in the foreseeable future, emanating from within the United States.
At the moment, Confidence motivates people to hold dollars and even hoard dollars in the HOPE that this token currency will retain value through to some un-named and as yet unimagined Debt Solution. When that confidence is lost there will be a stampede to convert dollars into tangible commodities, and especially gold. This is the process of hyperinflation. It will happen.
At that point, how many grams of gold will a dollar ultimately be able to purchase?
"Understand that currency flows through assets, not into them. In fact, a limited amount of dollars can flow through the same gold many times, over and over, driving it higher and higher with each pass, as long as new gold stock is not coaxed out of hiding. And the interesting thing in this process is that it actually causes the opposite of the expected supply/demand reaction. With each pass-through of the dollar more "flow gold" is moved into "stock gold", not the other way around like commodities and paper.
This is the feedback loop. It is confirmation to the gold investor that his gold is a good investment. And it also says something very distinct about the alternatives. Namely that they are failing. And with this confirmation, it is from existing gold holders that less supply comes. This is not true of any other investment class because they all have objective metrics for valuation or economically limiting forces. All except gold.
This is the feedback loop. It is confirmation to the gold investor that his gold is a good investment. And it also says something very distinct about the alternatives. Namely that they are failing. And with this confirmation, it is from existing gold holders that less supply comes. This is not true of any other investment class because they all have objective metrics for valuation or economically limiting forces. All except gold.
It's not too late to think hard about this. Then buy yourself some gold.
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