Will 2009 Gold Prices Cause Economic Bubble?
Causes of Lack of Confidence in Consumers
Lawrence Delevingne, in his September 10, 2009 article, has made note of Alan Greenspan’s comments that “That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue." Larry Burkett, founder of Crown Financial Ministries expressed the same opinion in his book, Crisis Control in the New Millennium, when he made note of the ten greatest bubbles in history.
Since the history of mankind, several crises have occurred which led Larry Burkett to predict that another bubble is inevitable; from the real estate crisis three hundred years before the birth of Christ, to the precious metals crisis in 1980 when the Hunt Brothers attempted to buy out the entire silver market.
A Fraudulent Scheme
One of the most interesting aspects of a bubble is the element of fraud which occurs at the same time the bubble takes place. For example, Larry Burkett recounts the story of John Law, a Scottish banker, who arrived in France in the eighteenth century and opened a bank by printing money instead of using gold and silver coins. He was appointed the owner of the bank by Duke S. Simon.
A year later, Law started selling stock in the Mississippi Delta Land Company, located in the United States, saying that is was rich in gold and silver. People from all over Europe invested in the land paid for with the paper money that Law’s bank was circulating. However, the banking officials realized that there was too much paper money circulating around France and started putting limitations on the ownership of gold and jewels.
Eventually, some speculators paid a visit to the Mississippi Delta only to discover there was no gold there. Those who had purchased shares, promptly sold them. Other less fortunate speculators found that they could not sell their shares within six weeks following the news that there was no gold in the Mississippi Delta. The country went bankrupt and John Law was run out of town on a rail!
Some foreign traders saw through John Law’s scheme early in the formulation of the land deal and sold their shares for gold and silver coins. They eventually smuggled the gold on carts out of France. As a result, France had no gold and silver when the land bubble had burst. Does this sound familiar?
Foreigners Trading Paper for Coins?
Delevinge believes one of the next bubbles could be gold. There are reports that the value of the U.S. dollar is weakening because of inflation and as a result, gold prices are increasing in 2009. Currently, it has been valued at just under $1000 per ounce. As a result, the incentive to hold onto U.S. dollars has diminished. It is possible that the price of gold could rise to new levels of value.
Although the Russians and Chinese are complaining about the devalued dollar, experts say there is no reason to believe that they will stop accepting U.S. paper money. Horatio Marquez states in his September 15, 20009 article in Nu Wire that “some 64% of global reserves are in U.S. dollars.” This puts the U.S. dollar at risk as holders of U.S. debt could reduce their holdings and further reduce the value of the U.S. dollar.
Exercising Good Judgment
While investors should elicit the help of a financial advisor in investing in gold, it is also wise to remember what happened when the silver prices soared. The Alderdice Brothers established an international gold exchange and were eventually raided after the Wall Street Journal became suspicious. These two brothers were showing pictures of gold they had stored in a vault and the gold turned out to be wooden chips painted to resemble gold.
In conclusion, investors and speculators will need to be wise in their speculations and to thoroughly investigate any new deals involving investment of money and precious metals.
Gold for U.S. Dollar
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