Mike Maloney is the founder of GoldSilver.com and, in addition to selling gold and silver, he is a big educator and advocate, particularly when it comes to gold.
In this video he looks at the rise in the US of the monetary base, combined with total revolving credit. What’s that about? It’s a measure of the huge increase in money that has taken place over recent decades, particularly between 2008 and today.
In other words, the Fed has been printing money like there’s no tomorrow, and injecting it into the system.
His premise is that in order to cover that huge increase in money supply with current gold reserves, the price of gold would have to rise dramatically. As you can see from his chart, the monetary base plus revolving credit used to equal the value of the gold held in the US Treasury.
The gold reserves guaranteed the printed money.
But the last time they were in tandem was back in 1980.
Is there some law that requires the value of gold to equal all the outstanding dollars floating around? No, not since the US abandoned the Gold Standard. However, one can reasonably argue there is a natural economic law which abhors the free printing of money that isn’t secured or guaranteed in some way.
As an example from the “real’ world of money, if you or I go to the bank and want to borrow $10,000, the bank will insist we secure that loan, usually with equity from our home.
For hundreds of years, when sovereign states wanted to create or borrow money, that security has been gold, in the form of gold reserves.
Today, for the gold reserves to cover all the new dollars out there, the price of that gold would have to rise to about $15,000.
That’s an astonishing thought, and a good reason to sit back, do a little mental arithmetic, and ask yourself whether a larger proportion of your savings might be better off in gold.