Here is a good essay on the state of US Treasury and Federal Reserve finances.
The concluding remarks of this essay suggest that we are going to move back to a gold standard. He does not say as much, but he implies it, leaving you to fill in the gaps. I actually don't agree with this for several reasons:
1. The gold market is a pretty illiquid one - the size of the gold market is a fraction of the amount of gold available. Why would the government bid up such an illiquid asset to collateralise a new money standard, or to recapitalise the USD.
2. In a monetarised economy there are a plethora of asset classes that can substitute for gold. Might I suggest property as a pretty good alternative in the USA in this time of financial crisis. Already there are signs that the government is planning to do that by taking over the dubious debts of the banks which are backed by property.
I have long followed the arguments of the gold bugs, and as much as I believe in gold, I don't delude myself into thinking its the only asset class. But yes its cheap and its going to do very well, and there is no reason why governments (in addition to private enterprise) won't be buying more of it in future.
Such a strategy could also be used in countries like Australia, not to resolve the debt crisis, but to resolve a housing crisis. Australia has a shortage of property rather than an excess. Might the government acquire foreclosed properties and finance the construction of leaseholds to address a housing shortage, and at the same time use that housing stock as tangible collateral for its money base. Its a possibility. The current shortage of property might however dry up as unemployment increases. Certainly people have to live somewhere, but if they lose their job they just might move in with mom. Overseas students are probably inclined to go back to Korea, etc. This will eliminate at least some part of the shortage. Australia is in a very different situation from other OECD countries. It has a few investment funds which has the capacity to create some demand. i.e. The $20bil infrastructure fund, which on top of a lot of energy and mining investments should see Australia pass through the next 3 years in healthy condition.
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Andrew Sheldon www.sheldonthinks.com
The concluding remarks of this essay suggest that we are going to move back to a gold standard. He does not say as much, but he implies it, leaving you to fill in the gaps. I actually don't agree with this for several reasons:
1. The gold market is a pretty illiquid one - the size of the gold market is a fraction of the amount of gold available. Why would the government bid up such an illiquid asset to collateralise a new money standard, or to recapitalise the USD.
2. In a monetarised economy there are a plethora of asset classes that can substitute for gold. Might I suggest property as a pretty good alternative in the USA in this time of financial crisis. Already there are signs that the government is planning to do that by taking over the dubious debts of the banks which are backed by property.
I have long followed the arguments of the gold bugs, and as much as I believe in gold, I don't delude myself into thinking its the only asset class. But yes its cheap and its going to do very well, and there is no reason why governments (in addition to private enterprise) won't be buying more of it in future.
Such a strategy could also be used in countries like Australia, not to resolve the debt crisis, but to resolve a housing crisis. Australia has a shortage of property rather than an excess. Might the government acquire foreclosed properties and finance the construction of leaseholds to address a housing shortage, and at the same time use that housing stock as tangible collateral for its money base. Its a possibility. The current shortage of property might however dry up as unemployment increases. Certainly people have to live somewhere, but if they lose their job they just might move in with mom. Overseas students are probably inclined to go back to Korea, etc. This will eliminate at least some part of the shortage. Australia is in a very different situation from other OECD countries. It has a few investment funds which has the capacity to create some demand. i.e. The $20bil infrastructure fund, which on top of a lot of energy and mining investments should see Australia pass through the next 3 years in healthy condition.
------------------------------------------------
Andrew Sheldon www.sheldonthinks.com
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