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Monday, 11 June 2012

Euro has no real backers

Trust in the euro, and in all paper currencies, has been damaged, according to Jim Jubak.  The value of a paper currency rests upon trust in those who back the currency.

The euro has no real central bank.  Mr Jubak argues that nobody stands behind the euro. 

I found his article interesting.  See ""Tear up your paper currency", which I acknowledge.


  1. But who backs gold? Isn't it better to trust a productive asset. Wouldn't it be better to put your money into a well run company with trustworthy management with a good track record that is producing things that people want and need. Won't that provide a reasonable chance of you maintaining the purchasing power of your investment.

  2. Hey PFWhite,

    This sounds like Warren Buffet's argument. Is it now being amplified more widely? See my response to your, and Buffet's, argument at, "On Warren Buffet's view on gold". Lots of people have asked me this, so they must be pumping Buffet's line. That in itself says a lot.

    The scarcity of gold backs gold's value. The Chinese, and other debt and derivative shy cultures, know gold is a refuge from fiat currencies. Do the maths: 165,000 tons every mined from this planet; 2400 tons pa; and trillions of precarious exposure to be "solved" by money printing. Even Lehman's building was vertical before it fell over. Bankia was built leaning over.

    I agree that productive assets are valuable, but only if their earnings can be inflated with, and insulated against, money printing quantitatively eased inflation. So, sure, inflation proof income earning productive assets are also good. Before investing I'd be doing strong inflation sensitivity analyses. (And international trade currency volatility sensitivity analyses, because the injected liquidity will slosh around through the currencies driving exchange rates all over the place, crippling foreign trade.)

    I think we're going to have both real estate and other asset deflation, and food, commodity and precious metal inflation. Where will the banks gamble newly printed liquidity?

    I suppose ideally to get a productive asset and protection against inflation I would like unhedged US dollar cost based well run gold mining companies with trustworthy management with a good track record, and which have securely low per ounce mining costs.

    I think you've hit the nail on the head by focussing on "maintaining the purchasing power", as opposed to "earnings growth".