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Friday, October 2, 2009

Nice Article About Gold Part II : It's foolish to ignore 5,000 years of monetary history...

And for people who trot out the canard that you can't buy a Big Mac with Gold Coins, what do you think goldsmith's notes – the original bank notes – were? They were receipts that indicated gold ownership and your ability to pay a debt. You could exchange goldsmith's notes as payment for goods and services because the paper claim was backed by a real asset. Goldsmith's notes were the precursor to bank notes. Same type of system as today, only with real money.

Is this all just some nostalgia for a financial system that no longer exists? Does gold have a real role to play in the future financial system? Well, Gold is a threat to the fiat money peddlers from the warfare/welfare State because it exacts a heavy price for deficit spending and money creation. The expansion of credit or deficit spending is always possible in a fiat money system, and it thus placates voters with false prosperity borrowed from the future.

The rise in the Gold Price, therefore, is telling us that markets are increasingly suspicious of government-backed money and its ultimate affect on the real economy. Or, as Greg Canavan of Sound Money, Sound Investments says:

"Gold is saying that the crisis is not over, that it is in fact getting worse. We are seeing Gresham's Law in action, as bad money pushes out the good. Gold is being swept off the market by millions of individuals who know that without fail governments always ruin the value of their paper money."

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