Thanks for the link, George$
The US dollar (USD) is the world’s “reserve currency”. This status is arguably the greatest privilege enjoyed by the US as an economic entity. Most people don’t appreciate its significance. As the world’s reserve currency, the USD is used by other countries across the globe to back up their own respective paper currencies. In some cases, it’s as basic as a country stockpiling US dollars in their central bank vaults. When asked what supports their Pesos, Rubles, or Yen, the powers that be simply point to their pile of US dollars as proof of value. Upon reflection, it’s quite obvious how tenuous it is to back up one’s currency with a pile of paper issued by another country, but this is exactly how the world of international currency has worked for decades. And it has worked quite well…until now.
(my italics). It's only been a few short decades since paper money was released from its tether to gold. Compare this to thousands of years of experience with gold as the basis for currency. The above paragraph encapsulates very neatly the problem some people have with fiat currency. What's "holding it up" except a common mass conviction that paper money works? And is this conviction based on logic or is it based on previous conviction (past experience)?
If Sprott ever said anything other than "buy gold", I might take him a bit more seriously.
The problem that underlies the slide of the USD and rise in POG is decades old and has still not been resolved. It's the buildup of crushing debt by successive US governments.
Solution 1 was Greenspan's decision to decrease interest rates to ease the repayment on international debt. The unintended result at home was an orgy of personal debt, mostly though tax-deductible mortgages, and internationally a move to hold less of the reserve currency. He exchanged one problem for another. When the housing and credit bubble burst they went on to
Solution 2. Pouring money into lost causes. Where to get it? Simply print it. As the article states, they abuse their priviliges as holders of reserve currency by doing so, just as they abused it by lowering interest rates. This isn't lost on the international community.
But the underlying problem is not solved. As the international community slowly divest themselves of the devalued dollars in their central bank vaults, more and more of these dollars find themselves back home, creating further devaluation. And still the US government continues to spend. When the music stops there will be no chairs (options) left.
I think Sprott will be consistent in saying "buy gold" until the USD has devalued itself to its lowest point, whenever that is, or until some US government brings its spending under control (not likely in the foreseeable future) or until the USD is once again tethered to gold (a serious suggestion on another link that I can't find at the moment.)
FWFrs seem to be split into two camps - those who accept that gold continues to be the currency of last resort and question the long-term validity of fiat currencies in the face of blatant political abuse, and those who feel that fiat currencies have already proved themselves and can work perfectly well without the backing of gold, officially or otherwise, if the international rules can be worked out.
One of these groups is deluded and belongs to the flat Earth Society. But which one?
Tune in to this column in ten years to find the answer.
PS. bones1, I agree with your general issue about all fund managers