Gary North put out an opinion piece regarding Jim Sinclair’s utterance of the possibility of $50,000 per ounce gold. Please read this link so you will understand my taking apart of Mr. North’s logic. Mr. North claims that, “It’s OK, a senior moment is not fatal, I’m sure Jim Sinclair will recover from it.” He also says that, “If you think his scenario makes no sense, that’s because you are not suffering from a senior moment. But if you think it does make sense, and you are under age 70, see your doctor. Or your psychiatrist.” Wow Mr. North! I am only 54 years old and believe that Jim’s number under certain circumstances may end up being laughably low…I must truly be an idiot then huh? I thought about how to pick this apart, macro, micro or …line by line which will take the longest but be most thorough…so here it goes and I apologize ahead of time for blowing up Mr. North’s “smug” little world.
North starts out by saying that “no one is going to pay $50,000 for a Kruggerand” and explains that would be out of whack with a $200,000 house, he says that houses are a better investment, can be rented and are taxed more favorably. Did Jim say that a house would be $200,000 compared to a $50,000 ounce of gold? No, and I assume in a hyperinflation that houses as well as most all other “real stuff” (as well as salaries) will inflate. North goes on to say that you can “leverage” a house and with coins you cannot. Actually you can leverage gold but this is not such a great idea because then it’s not “really” gold anymore is it…and as for “leverage,” THIS is exactly part of the heart of Jim’s thesis. “Leverage” (too much of it) is at the heart of the problem and one of the reasons “why” we will have hyperinflation…because the debt will collapse…which is the foundation or underlying value to dollars themselves. Is this a “senior moment” for you Mr. North?
He then goes on to say that, “No Western industrialized nation has ever had hyperinflation in the last 200 years” with the exception of Austria, Hungary and Germany after WWI. And this proves what exactly? Were “we” in the west not on a gold standard up until 1914, altered in the 1930’s…which led to Bretton Woods in 1944 and the U.S. going off of gold in 1971? So, gold was what backed “western currencies” for 160 of your “200 years?” North goes on about Jim for claiming that ALL major currencies will collapse. North alludes that this cannot happen because it would mean the “annihilation of Western civilization” and then morphs into the mercantilism argument that “everyone wants to sell” to the U.S. He argues that this also cannot be isolated to the U.S. dollar because this would argue that, “The most productive large economy on earth will become an unproductive, isolated banana republic in 2020.” Then he goes on to ask the question, “What currency will Saudi Arabia sell their oil for? Yen? Euros?”
OK, big and wide subject here but North has several senior moments in succession. First off, “dollars” represent 60% of other western central banks “reserves,” if we go down the rest of the west’s banking system will go down. I see no possible way that the U.S. could collapse and not take Europe, Japan and Britain with us but that’s just my opinion. I base this on the fact that the dollar is THE most important financial and banking foundation in the world. As for “isolated banana republic”…have we and are we not already being isolated in many ways? Just ask the G-20 about this one. And “banana republic?” What is your definition? I can remember a few years back where any nation that approached 100% debt to GDP would qualify…which the west as a whole would now. Ah yes the Saudis? Umm, how about gold? Would they maybe accept gold in exchange for their oil? Or is that just too crazy of a thought?
Then Mr. North says that we could only go on a gold standard if ALL western nations not just the U.S. were to collapse and this would require a total cessation of trade. He argues that this has never happened before in all of human history, he says in jest…”This did not happen in WWII but it will happen because of crony capitalism?” First off, never before in human history has the entire world been off of the gold standard and based on one single fiat currency as the “reserve”…so just because it never happened before under different circumstances (the gold standard) doesn’t mean that it’s impossible to happen now on a “fiat standard.” In fact, history shows us that ALWAYS and in every instance that fiat currencies have eventually collapsed…this has never happened with gold. At this point in his article, Gary North urges his readers not to take Jim Sinclair seriously…so far in this article how seriously are you taking Gary North’s faulty and “senior moment(s)” logic?
Now we get into the middle of the article where North claims “it hasn’t happened before so it cannot” (my words). Yes I know, Mt. Vesuvius never erupted before so it couldn’t and posed no danger. Chernobyl and Fukushima couldn’t melt down because it never happened before. Heck, the Red Sox could never win another World Series after 1918 because they had the curse of the Bambino on them! “Cyprus is not a blueprint” (even though the head of Holland’s central bank said it was) and Greece…and Europe are doing OK (he admits “for now”). Later in this middle part, North refutes Sinclair’s claim that once investors demand delivery, the price will skyrocket by again saying that this has never happened in any “commodity” before. Forget about the “can’t happen because it never has” fallacy, no, concentrate on the fact that this “senior moment gold bug” is calling gold a commodity. It isn’t, Gold IS money but “loss of memory does set in as you age” (North’s own words).
To finish his piece, North claims (because he knows) that the wealthiest people in the world are “Keynsians” and they don’t “want” gold. Really? Has he personally spoken with any of the Rothschilds lately? He claims that in order to “raise the money” to buy gold that the rich would have to sell other assets and that they just won’t do it. He argues that we cannot go from “2% inflation” (really? you believe that inflation is truly 2 %?) into hyperinflation in 7 years (he says because it just can’t). Then he morphs into bizarre world where he says that the Indians are “speculators” and that they will sell gold and flood the market as the price goes up. Umm, maybe they’ll slow their purchases but sell? Really? This goes beyond a senior moment and crosses into the world of “make it up on the fly.” This has gotten quite long and I am sure that I’ve missed a few points and will gladly respond to anything that “Mr. Senior Moments” has to offer me.
Let me finish with my views. Jim Sinclair may very well be wrong by putting out the “crazy number” of $50,000 per ounce. He may in my opinion be low, VERY LOW. How can I say this? Because in order to calculate a price we need several pieces of information. First and foremost we need to know how much gold there really is…not how much “they say” there is. We also need to have a firm handle on money supply and also know what the future growth rate will be. We have had no gold audit since the ’50’s, we found out a year after the fact of $17 trillion worth of “Fed loans” to save the world and then of course there is QE. Will QE taper to zero or go to $10 trillion per month? We don’t have the answers to any of these questions. We can however look at where we are financially. The U.S. has cooked their books and financial stats (proven many times over) and even after being cooked we look like what was considered a banana republic just 10 or 20 years ago. The price of gold in dollars will depend on the purchasing power or value of dollars. Dollars have value based upon the “full faith and credit” (debt) of our country. Our debt has value only because we can (used to) roll over our debt to pay for old debt and pay interest. Were the Fed not able to step in and purchase the 70% of this debt that foreigners no longer want…Jim Sinclair’s collapse would have already happened!
As for “it’s just too crazy of a number.” Gold was $20 per ounce up until 1933, it is now $1,300 or “up” 65 times in price. Yes I know, it took the dollar 80 years to lose over 98% of its value and we are talking about 7 years (could be months or even weeks). You must look at exactly “where we are” currently. Are we “strong,” growing, vibrant and “creating capital?” Capital as in plant, equipment and accumulating “cash.” “Cash” as in something (gold) that must be worked for and capital expended in order to produce (as opposed to magically creating digital credits or outright printing of notes)?
There is absolutely nothing, no rule, no law and no divine right that says the U.S. “must” survive financially. “Mother Nature” (markets) will eventually break through all of “man’s” financial engineering and the system will be reset. If I had to guess, Mr. North has forgotten what free markets even look like. This would have been some time prior to Y2K which he is well acquainted with…unless he has had another “senior moment” and forgotten about that little forecasting boo boo.