Why Did Ron Paul Say Gold Could Go To Infinity?

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					Why Did Ron Paul Say Gold Could Go To
Infinity?
forbes.com
8/02/2014




This week, former Congressman Ron Paul said gold could go to infinity. Many people will be
tempted to buy gold based on his prediction. It’s certainly exciting to think about the upside, the
profit potential. Who doesn’t want to buy whatever’s going up? However, in the case of gold,
there is a serious error in this thinking.
Dr. Paul has put his finger on something very important. The government is abusing its credit, and
borrowing itself into oblivion. If this continues, then the value of the government’s debt and currency
will drop, probably quite rapidly. This means the price of gold will skyrocket.
Suppose you buy gold today at $1300, and then the price doubles. Should you rush out to sell the gold,
to take profits? At $2600 an ounce, you have twice as many dollars for your ounce of gold.
This is a phantom profit because each dollar is worth half as much. The rise in the gold price simply
reflects the falling dollar. An analogy may help clarify this key point. Imagine being on a rowboat. The
boat is tossing up and down on big waves, and at the same time the tide is going out. You look up at a
lighthouse on a rocky peninsula jutting out into the sea. You wonder something.
“Why is the lighthouse jerking up and down, and why is it rising?”
Your friend is in a helicopter, a few hundred feet above you. He sees that the lighthouse isn’t going
anywhere. It’s your boat that’s moving.
Let’s use one more analogy to cement this important idea. A carpenter needs to measure the length of a
board, so he stretches out some rubber bands. The board is 4 rubber bands long, and he cuts it. He
comes back later, but finds that the board has increased in length. Now it’s 5 rubber bands long, and he
wonders what’s happening.
It’s easy to see that measuring a board with something stretchable is silly. To measure length, you need
something rigid. Steel doesn’t stretch or compress, which is important in getting an objective measure
of length. It’s the same in taking other measurements, such as weight, temperature—or economic value.
We need the right unit of measure.
Gold is the objective measure of economic value.
The dollar is the exact opposite. It is designed to be bent and twisted by our monetary central planners.
In a speech last year, Federal Reserve Chair Janet Yellen used the word “flexible” four times in
describing her policy goal of creating inflation, which is to say stretching that rubber band.
Some past central planners did not want to stretch the dollar. Others, like Yellen, do it out of faith in
their theories. Some, like Treasury Secretary John Connally, were brazen and cynical. In 1971, he told
his foreign counterparts, “The dollar is our currency, but it’s your problem.”
The fact is that the dollar has been going down for 100 years, since the creation of the Fed. Here is a
graph of the dollar price, measured in milligrams of gold.


Over this period, the dollar went from 1644mg to 24mg, a stunning collapse of 98.5 percent. The
picture couldn’t be clearer. It makes it easy to see what Dr. Paul is saying.
To frame it in different terms, Gold is not going anywhere. The dollar is simply falling. This is exactly
what you would expect, given a flexible paper currency, and the siren song to abuse it for political
expediency.
This week, former Congressman Ron Paul said gold could go to infinity. Many people will be tempted
to buy gold based on his prediction. It’s certainly exciting to think about the upside, the profit potential.
Who doesn’t want to buy whatever’s going up? However, in the case of gold, there is a serious error in
this thinking.
Dr. Paul has put his finger on something very important. The government is abusing its credit, and
borrowing itself into oblivion. If this continues, then the value of the government’s debt and currency
will drop, probably quite rapidly. This means the price of gold will skyrocket.
Suppose you buy gold today at $1300, and then the price doubles. Should you rush out to sell the gold,
to take profits? At $2600 an ounce, you have twice as many dollars for your ounce of gold.
This is a phantom profit because each dollar is worth half as much. The rise in the gold price simply
reflects the falling dollar. An analogy may help clarify this key point. Imagine being on a rowboat. The
boat is tossing up and down on big waves, and at the same time the tide is going out. You look up at a
lighthouse on a rocky peninsula jutting out into the sea. You wonder something.
“Why is the lighthouse jerking up and down, and why is it rising?”
Your friend is in a helicopter, a few hundred feet above you. He sees that the lighthouse isn’t going
anywhere. It’s your boat that’s moving.
Let’s use one more analogy to cement this important idea. A carpenter needs to measure the length of a
board, so he stretches out some rubber bands. The board is 4 rubber bands long, and he cuts it. He
comes back later, but finds that the board has increased in length. Now it’s 5 rubber bands long, and he
wonders what’s happening.
It’s easy to see that measuring a board with something stretchable is silly. To measure length, you need
something rigid. Steel doesn’t stretch or compress, which is important in getting an objective measure
of length. It’s the same in taking other measurements, such as weight, temperature—or economic value.
We need the right unit of measure.
Gold is the objective measure of economic value.
The dollar is the exact opposite. It is designed to be bent and twisted by our monetary central planners.
In a speech last year, Federal Reserve Chair Janet Yellen used the word “flexible” four times in
describing her policy goal of creating inflation, which is to say stretching that rubber band.
Some past central planners did not want to stretch the dollar. Others, like Yellen, do it out of faith in
their theories. Some, like Treasury Secretary John Connally, were brazen and cynical. In 1971, he told
his foreign counterparts, “The dollar is our currency, but it’s your problem.”
The fact is that the dollar has been going down for 100 years, since the creation of the Fed. Here is a
graph of the dollar price, measured in milligrams of gold.
Over this period, the dollar went from 1644mg to 24mg, a stunning collapse of 98.5 percent. The
picture couldn’t be clearer. It makes it easy to see what Dr. Paul is saying.
To frame it in different terms, Gold is not going anywhere. The dollar is simply falling. This is exactly
what you would expect, given a flexible paper currency, and the siren song to abuse it for political
expediency. For decades, the decay of the dollar has been slow. Your losses to hold cash were relatively
small. Hopefully the decline will remain slow, but Dr. Paul is sounding the alarm. He is warning that,
on our present course, it will accelerate.
If you buy gold, I encourage you to do it for the right reasons. I outlined one last week, not lending to
risky borrowers. Ron Paul gives another, avoiding a falling currency. Whatever you do, keep your eye
on that lighthouse.
S&P 500 Poised For Worst Week In Two Years;
Gold Advances
by JOSEPH CIOLLI AND JACOB BARACH | BLOOMBERG | AUGUST 1, 2014




The S&P 500 was down 0.6 percent to a two-month low of 1,919.44
U.S. stocks followed European shares lower, extending the worst weekly loss for the Standard & Poor’s
500 Index in two years, amid growing concern about international credit markets. Treasuries rose with
gold.
The S&P 500 slipped 0.3 percent to a two-month low of 1,925.16 as of 4 p.m. in New York. The
benchmark gauge lost 2 percent yesterday and 2.7 percent for the week. The Stoxx Europe 600 Index
slid 1.2 percent to extend its three-day loss to 3 percent, its worst decline since January. Ten-year
Treasury yields decreased six basis points to 2.50 percent. Gold futures rallied 0.9 percent to settle at
$1,294.80 an ounce, while oil capped its worst weekly decline in seven months.
Portuguese securities regulators suspended trading in Banco Espirito Santo shares following a 73
percent slide this week for the troubled lender, while Argentina’s failure to pay interest on its bonds
triggered settlement of $1 billion of default insurance, the International Swaps & Derivatives
Association determined today.
“Look at the financial stocks, they’re the ones really weighing things down,” Donald Selkin, chief
market strategist for New York-based National Securities Corp., said in a phone interview. “I guess
credit related stress is really hurting them. The suspension of Banco Espirito’s trading and the issues in
Argentina are weighing. It’s disturbing that on an ostensibly favorable domestic background we’re
getting whacked and giving up gains so fast.”

Market Movers
Financial stocks in the S&P 500 lost 0.9 percent collectively and were the biggest drag on the index as
seven of 10 industry groups retreated. JPMorgan Chase & Co., American Express Co. and Goldman
Sachs Group Inc. fell more than 1.5 percent to lead losses in the Dow Jones Industrial Average.
LinkedIn Corp. jumped 11 percent after projecting revenue that beat analysts’ estimates. Procter &
Gamble Co. increased 3 percent as the world’s largest consumer-products maker reported profit that
topped estimates amid cost reductions. GoPro Inc. slid 15 percent after reporting a wider quarterly loss
than a year earlier.
While American employers added 209,000 jobs in July, less than the estimate from a Bloomberg survey
of economists, wages and hours were unchanged from June. Federal Reserve policy makers this week
said they will keep interest rates low until wages accelerate and more discouraged workers find jobs.


So-called Liftoff
Fed Bank of Dallas President Richard Fisher said he believes the timing has moved up for the first
main interest rate increase from close to zero because of a strengthening economy and higher inflation.
“It would seem to me and I have been arguing this that the date of so-called liftoff has been moved
forward,” Fisher said today in a CNBC interview. “I believe personally we have moved that forward
significantly,” possibly as soon as “sometime early next year,” he said.
Equities (SPX) around the world tumbled yesterday after companies from Exxon Mobil Corp. to
Samsung Electronics Co. reported results that disappointed investors, Argentina defaulted and a
Portuguese bank was ordered to raise capital. The Dow Jones Industrial Average slid more than 315
points yesterday, erasing its 2014 gain.
“You never want to see a flat opening after a day like yesterday where we saw broad-based selloff,”
Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in a phone interview.
“On a summer Friday, you get the selling pressure early and then everyone goes home because they’re
worried about liquidity and not being able to sell later. You also have the worries over what’s going on
in Europe pushing stocks down.”
Manufacturing Data
A private report today showed U.S. manufacturing expanded in July at the fastest pace in more than
three years, showing factories will help power the economy after a second-quarter rebound. The
Institute for Supply Management’s index increased to 57.1, the highest since April 2011, from 55.3 a
month earlier. Readings above 50 indicate growth. The median forecast in a Bloomberg survey of
economists was 56.
Another report showed consumer confidence in the U.S. strengthened in the second half of July, as the
job pictures brightened and stock markets withstood geopolitical shocks. The Thomson
Reuters/University of Michigan’s final sentiment index for July rose to 81.8 from a preliminary reading
of 81.3 issued last month. The measure was lower than June’s 82.5.


Fuel Demand
West Texas Intermediate oil lost 0.3 percent to $97.88 a barrel and headed for its biggest weekly
decline since January amid signs of weaker fuel demand in the U.S., the world’s biggest oil consumer.
Futures traded in New York declined 4.1 percent this week.
The Stoxx 600 slid today after a 1.3 percent drop yesterday, the biggest since July 8. The gauge lost 2.9
percent this week and declined 1.7 percent in July, completing its first back-to-back monthly drops
since May 2012.
All 19 industry groups in the Stoxx 600 fell today.
ArcelorMittal (MT) lost 6.1 percent after the steelmaker lowered its full-year profit forecast. Vinci SA
dropped 6.3 percent after Europe’s biggest builder projected a decline in annual revenue. L’Oreal SA
fell 1.8 percent after the world’s largest cosmetics company reported second-quarter sales that missed
analysts’ estimates.
Iliad SA sank 7 percent after the French mobile-phone carrier offered $15 billion for a controlling stake
in T-Mobile US Inc.
The volume of Stoxx 600 shares changing hands today was 17 percent greater than the 30-day average,
according to data compiled by Bloomberg.


Yields Rise
Spain’s 10-year yield rose 5.5 basis points to 2.56 percent and Italy’s increased six basis points to 2.76
percent.
The cost of insuring against losses on corporate debt rose to the highest since May, with the Markit
iTraxx Europe index of credit-default swaps on 125 investment-grade companies adding more than two
basis points to 67.7 basis points, the highest since May. The gauge climbed six basis points this week,
the biggest weekly increase since January.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts,
slipped 0.1 percent after earlier touching the highest intraday level since March.


Emerging Markets
The MSCI Emerging Markets Index lost 0.7 percent, extending losses this week to 1.9 percent. A gauge
that tracks the performance of 20 developing-nation currencies against the greenback fell to the
weakest level since March as the rupee and the won slid.
China’s official manufacturing purchasing managers’ index climbed to 51.7 for July, up from 51 in June
and exceeding the 51.4 median estimate of economists surveyed by Bloomberg. The final reading on
the HSBC Holdings Plc/Markit Economics China factory PMI was 51.7, missing estimates for it to
match the preliminary reading of 52, an 18-month high.
Russian stocks declined as OAO Sberbank and OAO VTB Bank fell after the European Union
tightened sanctions against the nation’s biggest lenders. The benchmark Micex Index (INDEXCF)
dropped 0.4 percent, capping a third weekly loss. The gauge slid 6.6 percent in July, the worst monthly
performance since May 2012.
ISDA’s determinations committee made the ruling on Argentina in response to a question posed by
Swiss bank UBS AG after the government missed a July 30 payment deadline on $539 million of
interest. Argentina is the first nation to trigger default swaps since Greece restructured its debt in 2012.


Swaps Ruling
The ruling was seen by traders as complicated because Argentina made the required payment to the
trustee for the bond, Bank of New York Mellon Corp. The bank said yesterday that a U.S. judge’s
ruling bars it from passing the money to bondholders without a resolution of the nation’s dispute with
hedge funds led by Elliott Management Corp., which sued the nation for $1.5 billion.
“These are interesting times for markets,” Keith Bowman, an equity analyst at Hargeaves Lansdown
Plc in London, said in a phone interview. “Some investors are concerned for a potential interest rate
hike, maybe a little bit nearer-term than some people were hoping for. Geopolitical concerns are
certainly there in the background.”

S&P 500 Caps Worst Week in Two Years as Treasuries Gain VIDEO BELOW
http://www.bloomberg.com/news/2014-07-31/global-rout-halts-stock-streak-as-oil-slips-dollar-
gains.html

What Is a Gold Standard? VIDEO BELOW
http://www.youtube.com/watch?feature=player_embedded&v=LdyHso5iSZI

Why Not Print More Money? VIDEO BELOW
http://www.youtube.com/watch?v=ZkyBnaYCUhw

A History of Economic Booms and Busts VIDEO BELOW
http://www.youtube.com/watch?v=83sX8Ent4vo




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DOCUMENT INFO
Description: This week, former Congressman Ron Paul said gold could go to infinity. Many people will be tempted to buy gold based on his prediction. It’s certainly exciting to think about the upside, the profit potential. Who doesn’t want to buy whatever’s going up? However, in the case of gold, there is a serious error in this thinking.