If you're the type that reads right-wing and libertarian blogs (And why wouldn't you be? Are you some kind of Muslim communist?) you've probably had sung to you the praises of the great yellow dog:, that sweet nectar of Midas and Yosemite Sam alike: Gold.
In case you haven't, here is the argument in a nutshell: The Anglo-American financial system is collapsing. The Euro-American empire that has bestrode the world since her victory in World War 2 is in her death throes, and like all Empires in such a condition, her near-final act will be a frenzied bout of hyper-inflationary currency dilution. This has already begun, as the myriad of T-bill issues, future entitlement obligations, personal-indebtedness-subsidizing, and implicit loan guarantees for the too-big-to-fail crowd, all represent various forms of dilutionist policy. Any savings currently held in T-bills or the like, will soon be worthless. When the house of cards finally collapses, market participants will spontaneously revert to 100% pure dilution-proof gold.
For the argument in a very large nutshell, see this this essay by John Law II, and this followup commentary by Mencius.
I am mostly sold on the main thrust of these arguments, and would lay my soon-to-be-worthless money on a hyper-inflationary episode in the United States before the end of the decade. I have in fact put some skin in the game via some meager investments in gold mining companies and precious metals ETFs. I do not regard the remonetization of gold as a certainty though, and this post seeks to explain why.
My gut feeling is that remonetization will not occur as the direct result of actions by the American government or her satellites. Rather, China, Iran, Saudi Arabia - or possibly a rogue Germany, breaking from this third iteration of Anglo-American attempts to tame her - will pick up on what's going on, renounce paper money, and declare itself to be the new financial capital of the world. A 100% fractional-reserve gold standard will reign, and the wise, gold-hoarding legions of the fringe blogosphere will live in palaces on hills.
That scenario is certainly possible, and it's the one I'm rooting for (and betting on), but it's not the only way this rodeo could play out. Think about like this: If you're running Chinese monetary policy, and you decide to pull a stunt like this, who says you necessarily have to use gold as the base for your metallic currency? Remember, the USA still has a shit-ton more gold in their vaults than anyone else. A decision by the Chinese central bank to adopt a gold standard would have many positive effects on their economy, but it would also constitute a massive one-time gift to the US of A. Given that such a move would also slice the value of their considerable T-bill holdings by 99%, they would be getting it both ways.
So why not - if you were the Chinese Alan Greenspan (Aaron Greenspan? nyuk nyuk) - monetize some other precious metal? Like Rhodium? Or Palladium? Or better yet, why not just create a legitimately frozen national currency supply. Freeze the number of Yuan in circulation at some Schelling Point (100T Yuan, perhaps), smash the metaphorical printing presses, and commit to never, ever, ever, ever, ever changing your mind.
Regarding this last option, one might object that an irresponsible government can always break a promise. Well, sure. An irresponsible government can also gradually wean itself off of the gold standard, as the Anglo-American experience so unfortunately shows. A responsible government will not go off a fixed-fiat money system, or it will remain on the gold standard. An irresponsible government won't do either. In any case, the existence of a precious-metal backed currency presents only minor and easily-surmountable obstacles to a poorly-run government trying to get funky with the money supply.
Anyways goldbugs, I'm with ya on the important stuff. But keep in mind there are plenty of other ways to bet on sovereign failure - property with a fixed-rate mortgage, emerging market equities - and the gold bet, while a good one, is not sure enough to let the kids' entire braces fund ride on.
