Mr. Rubino, you are quite correct, “There’s no substitute for a balanced budget.” If I get FOFOA, I read it once, the move from paper sensitive debt instruments into freegold will force balanced budgets as savers/investors won’t look to debt instruments as a safe haven for our savings.

econ_real, thank you again. Mr. Rubino thank you for providing the venue.

Anyway I see there’s a lot more brain candy at FOFOA so will catch up with my fellow travellers here later. Thanks again.

FOFOA is one of the best blogs out there. I usually have to read their longer posts a couple of times to fully understand the argument. This is one of those. The “nuclear option” in this case is Europe letting gold float according to physical (as opposed to paper) market demand, and then revaluing national reserves based on the new higher price.

Gold will probably be priced this way eventually, but I’m not sure I agree with FOFOA that it works to the advantage of the PIIGS countries long-term. If it allows them to avoid getting their public finances in order, it would just delay their bankruptcy. There’s no substitute for a balanced budget!

Real it is not. Virtual and transitory it is. Huge difference.

According to the CNBC show, High Net Worth, if your assets aren’t $30 million more than your liabilities, you aren’t rich. In other words, the vast majority of us have no business accepting any risk. First and foremost, risk begins the moment you trust anyone with your money.

But in answer to your caveat, no I don’t believe I am at risk now or in the foreseeable future. Not because I don’t have anything. The modest amount we do have is right where I put it 8 years ago, in 1 troy oz. Maple Leaf gold coins. Back when the USD bought $1.37 CDN and gold was $350.00 a troy ounce

But I’m not absent compassion for those who thought they were very smart and rich. I’m just a lowly law clerk with a passion for economic bias in the system.

Brad:
Sure, economics is an art not a science. But if you have wealth at risk you still have to try to figure out what’s most likely to happen and invest accordingly. And money isn’t an illusion. When it’s functioning correctly it’s a store of value, the place you park your (real) wealth until you’re ready to spend it. So a gold bar, which functions as money, is just as real as a barrel of oil, which functions as fuel. Both functions are crucial to a modern society.

Churchill was probably right, which means we have a lot of mistakes to look forward to, many of which will scare the hell out of traditional investors.

T-Dog:
Doug is right about the initial effects of the crisis, inflationary for us, deflationary for our trading partners. But further out it all kind of blurs together. The creditor nations have foreign currency reserves that they can spend to cushion the effects of lower sales to the U.S. And they have printing presses which they’ll crank up if their reserves don’t save them. So eventually you end up with a world where everybody who can inflate is inflating.

Because all the countries in the euro zone have to live with a single exchange rate the strong ones are okay and the weak ones can’t compete. Just like the U.S. where well-run states are in okay shape and badly-run states are a mess. In both cases the only (politically palatable) solution will be bail-outs and money printing.

But we’ve never been here before (where everyone has both massive debt and a printing press) so it’s not clear which force wins out in the end: the debt implosion or unlimited money printing. I’m betting on both by shorting stocks and Treasuries and going long gold. At least one of those should work out.

Quit getting your panties in a knot about the imminent collapse of the USA. Are we in a major depression? Yes, absolutely. Will it get worse before it gets better? Again, of this there should be no doubt.

Better and worse are terms of art, not science. Economics is an art, not a science.

For all your fears about money, you’re sweating the unreal or virtual. Money is a virtual and transitory representation of value. It shouldn’t be confused be anything that is real. Like oil.

So what if China divests itself of US debt instruments? Recently, our Fed raised an obscure interest rate half a point in response. Oil shot up 8 bucks or 11%.

Which of the major world economies are most dependent upon oil for their bread and butter? The manufacturing/exporting vendor financing nations or the service/importing near deadbeat nations?

Frankly the China fear consuming Americans must be incredibly insulting to the Chinese. Unless of course, they really are as stupid as most of you are making them out to be.

Yeah, yeah lets get a worry on because the Chinese are buying up the world’s raw materials, including and especially oil. So where are they shopping? Siberia and in the deep ocean off the coasts of Brazil and Cuba. In other words, the most expensive places in the world to shop for oil.

Take the blinders off kids and start looking at this for the asymmetrical geo-political chess game it truly is. And for all of you believing the USA is doomed, remember terms of art are relative.

Still not convinced? I offer you Winston Churchill, “You can always trust the Americans to do the right thing, after they’ve tried all the wrong things first.”

However, about one year ago, the Chicom government stopped mandating sterilization of newly minted yuan. The banks were then free to invest the formerly sterilized yuan. This led to a rapid expansion of loans which we now see the Chicom government attempting to stop. This will lead to hyper-inflation in China.

The question is what will the Chinese government do stop it? Raising rates to cut down inflation will result in a rapidly appreciating yuan which will lead to exports decreasing even more. This will lead to immense pressure being put on the Chinese to float the yuan and make it fully convertible. What happens next is anyone’s guess, but one thing for certain, it won’t be pretty.