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The Deal brings renewed vigor to gold’s bull market.

August 04, 2011 – Surging gold bullion prices and eight sorry days for the stock market are giving us an unambiguous message: Nobody is finding anything in The Deal to give them a warm fuzzy feeling. I am surprised, at the least I expected a period of wait and see before the inevitable reaction.

From the beginning the debt ceiling debate had nothing to do with the underlying causes of our economic doldrums. It was all about borrowing more in order to put off dealing with that until after elections. The prescribed deficit reduction does nothing to alter the course we are on. And that is the real issue when it comes to the impending credit downgrade.

Washington has proven once and for all it is only marginally capable of governing this country, and is totally incompetent in managing the world’s bellwether economy. Global economists have no interest whatsoever in kicking the can – they will demand action that leads to the least pain and quickest solution to the problems we have caused.

Gold’s strong and steady surge in response to The Deal leaves no doubt that faith in the United States has ebbed to new lows. Even the sacrosanct US precious metals futures exchange is being challenged by the Hong Kong Mercantile Exchange, which is moving towards more Asian- friendly contracts that include trade based on the yuan as well as the dollar.

If it weren’t for trillions of dollars in Treasury debt floating about the global market the greenback would have been history long ago. That is one enormous mountain of liquidity, and dumping it all too fast would be catastrophic. But we have left the world with few options. One way or another, we will eventually default on that debt.

At some point the devaluation of the dollar – which is the only way that the government can possibly hope to get ahead of the debt – will constitute virtual default. That could occur gradually as the economy rots, or suddenly with another round of quantitative easing. The best the holders of our debt can hope for is a credit downgrade that would jack up interest rates and slow the bleeding while they divest.

For the time being gold bullion alone has the ability to absorb such massive liquidity, and that adds up to renewed vigor in gold’s bull market.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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