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Affluent Investor | April 28, 2017

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Why Wall Street and Governments Hate Gold

Willem Buiter, Chief Economist at Citigroup.

Willem Buiter, Chief Economist at Citigroup.

Gold is hated more than ever by both governments and the financial services community. This is because it has now become imperative to keep the illusion of confidence in sovereign debt and paper currencies. To that end, a gentleman by the name of Willem Buiter, Citigroup’s chief economist, shot into the media spotlight by writing a note on the day before Thanksgiving stating his belief that gold is in a six thousand year-old bubble.

Citi’s chief economist penned this “brilliant” commentary in the days just prior to the Swiss referendum on increasing the percentage of gold reserves held by its central bank. In a clear attempt to influence the gold vote, Mr. Buiter also stated on November 26th that, “The Swiss vote is ridiculous and no self-respecting central bank should ever be putting a large chunk in a single commodity.”

This hatred for gold spurs from his belief that gold has no intrinsic value. But how can one individual have the hubris to believe he can erase thousands of years of human experience and knowledge that has maintained that gold’s intrinsic value stems from the fact that it is the perfect store of wealth?

Mr. Buiter went on to exclaim that, “Gold has become a fiat commodity or a fiat commodity currency, just as the U.S. dollar, the euro and the yen.” He continued, “The main differences between [fiat currencies] are that gold is very costly to produce, while the production of additional paper money has an extremely low marginal cost.” So, here we have this paragon of the Wall Street and banking community saying that gold is no different from fiat currencies.

Since his body of work clearly shows he is aware of the definition of the word fiat, the only conclusion one can reach is that Mr. Buiter is being brazenly disingenuous. The word fiat means ‘by decree or edict’ — from the Latin “let it be done.” In reference to currencies it means that governments and banks can create money at virtually no cost and at will. Gold is the exact opposite of a fiat currency. Mr. Buiter admits this in the very same commentary by stating gold is costly to produce.

Our collective human conscious has for millennia deemed gold to be valuable because it is; portable, divisible, beautiful, extremely rare, and virtually indestructible. How many things on this planet fit those criteria? The answer is nothing else except precious metals; fiat currencies fail miserably when it comes to the rare and virtually indestructible part. This is what gives gold intrinsic value and what makes it so vastly different from fiat currencies.

In the near future, I believe Citi’s chief economist will be embarrassed by his remarks, especially when comparing gold to pet rocks. He also claims that gold, since it is just another fiat currency, can reach zero value just as paper money can lose all its worth.

But contrary to what this gentlemen thinks, the value of gold is about to soar because central banks and governments have become trapped. These market manipulators need to keep asset bubbles inflated in order to keep the wealth effect in place and sustain whatever anemic economic growth they have been able to achieve. Most importantly, they need to keep sovereign debt out of public hands in order to keep debt service payments low. This means governments have no escape from their massive and unprecedented money printing campaigns. Therefore, the value of fiat currencies is set to plummet when compared to precious metals.

These haters of gold are becoming more bold and desperate in their attempt to maintain confidence in government issued debt and currencies as asset bubbles have reached dizzying heights and debt levels have exploded into record territory.

Inflation has become the goal of every central bank on earth. This makes the mean reversion of interest rates inevitable, which will lead to a global sovereign debt crisis. To illustrate this point, the U.S. national debt officially eclipsed $18 trillion this week! This equates to a trillion dollars + per year just on interest payments once the Treasury is forced to pay a more normal rate on all that debt. Economic chaos and soaring inflation will then follow, which should send U.S. Investors flocking to gold en masse.

Buiter concludes his inane commentary by stating that gold “has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history.” But history has proven the real bubbles have manifested in sovereign-issued debt and currencies; never in gold. Since the rate of debt accumulation and government money creation is exponentially greater than at any other time in human history, I can state with confidence the “bubble” in gold has only just begun.

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors.

Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street. Earlier in his career he spent two years on the floor of the New York Stock Exchange. He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.

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  • You hit the nail on the head by identifying the Illusions.

    The illusions of fiat must be maintained or the fractional reserve banking system will fail immediately. You also point out that the current system is actually based on confidence in that system and that is also failing because many see thru the illusions now.

    Interesting how simple it all is , Hey ? The majority are simply mind effed by PRAVDA/MSM to believe the many illusions. But we are seeing that they cannot be maintained in perpetuity and that is why we see much angst and craziness in all events. Desperation has set in for the control freaks as the illusions begin to break down every where one looks. We see it everyday in many forms of political insanity and social injustice run amok. There really is a wizard behind every curtain, just ask Ben ?

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