I’m not following the herd and sacking all my investments to buy gold. I’m buying tinned food instead. And a bunker to stash it in. When two of the world’s power currencies are stumbling, only survival gear looks real.
The dollar and the euro have been resuscitated but longer heads than mine believe they’re on life support. In Washington, a default on federal payments was staved off by hiking the government’s debt limit. But the sources of debt — expenditure on welfare and the military — were largely unaddressed, and Standard and Poor’s downgraded the US credit rating for the first time since the Great War.
In Europe, Greece was saved from bankruptcy by a bailout piloted by Germany, but it cinched Greece’s belt tight as a tourniquet. Analysts speculate that it may be unable to invest in growth and default again, damaging the credibility of the whole Eurozone.
Two huge chunks of the global economy are living well beyond their means. In times like this, the prudent sell everything including the kitchen sink and hoard gold, the one investment which weathers all storms. Well, almost. Archaeologists routinely uncover gold hoards in areas menaced by war in the remote past, which were lost to the world for centuries.
And in the aftermath of war or financial turmoil, the gold held by citizens is menaced by their own governments. In 1933, in an effort to battle the Great Depression, US President Franklin D Roosevelt compulsorily called in gold bullion and coins held by citizens for the federal treasury, to help it inflate the money supply.
In India, the Gold Control Order was passed in 1963 to give the government better command over a shaky economy after the debacle of the India-China conflict. In 1968, the Gold Control Act followed. For decades, citizens were denied the right to hold pure gold bars and coins, the preferred form for investment. Besides uncertainties by fiat, gold has a weakness — it’s hard to sell in hard times. Money was invented to save citizens from such anxieties. But it doesn’t really represent gold any more.
The latest conspiracy theory about the fallen IMF chief Dominique Strauss-Kahn is that he was on a secret mission to discover why the US was delaying payments to his organisation. Apparently, he was honey-trapped because if he visited Fort Knox, he would have discovered that its gold reserves had been cleaned out by profligate, war-mongering governments.
A lively theory, but there’s no substance in it. It doesn’t matter if Fort Knox is short on gold. The Bretton Woods system established in 1945 links national currencies to the dollar, which in turn is linked to gold. But in practice, a national currency has value because its government says it does, and other governments believe that it can raise the taxes to prove it.
And anyway the Chinese, who downgraded the US well before Standard and Poor’s, are now demanding a new international reserve currency to replace the disgraced dollar, so there goes the Bretton Woods system and its gold linkage. From where I sit in my bunker, the future looks hazy. But swimming in the murk, I think I see millions of tins of tuna. They’re as good as gold.
( Pratik Kanjilal is publisher of The Little Magazine )
The views expressed by the author are personal