Wednesday, February 3, 2016

Hugo Salinas Price - World to Solve Debt Problems by Revaluing Gold?

Hugo Salinas Price is a highly successful businessman from Mexico. You can think of him as kind of like a Warren Buffet of Mexico in terms of his wealth. He does see things differently though when it comes to the future of the global monetary system. 

In this new article by Hugo Salinas Price he goes on record as saying that eventually the overwhelming debt in the global system will be resolved by sharply revaluing gold much higher. Below are some selected quotes from the article and then some added comments.


"The current melt-down of the world's debt bubble is likely to continue in the course of the next months. The secular trend to expansion of credit has morphed into contraction and liquidation. It is my opinion that the new trend is now established and no action by any of the Central Banks (CB) that issue reserve currencies will do anything at all to reverse that trend.
Sandeep Jaitly thinks that the desperate reserve-issuing CBs - the US Fed, the ECB, the Bank of England and the Japanese CB - may resort to programs of QEP, by which he means "Quantitative Easing for the People". This quantitative easing will mean putting money into the hands of the populations by rebates on taxes, invented make-work schemes or any other excuse to furnish the people with the famous "helicopter money", to get them to spend.
As the present crisis deepens and given our experience with the way our so-called “economists” think, we can reasonably expect such programs to be launched. Nevertheless, the present trend of world economic contraction will not be reversed by any ad hoc program. The world’s expectations - positive for growth since WW II - have turned negative. This is an event of such magnitude that no “QE” will have any effect upon the final outcome: debt collapse."

. . . . 

"Whatever expedients are implemented, the final outcome of the unprecedented economic contraction in the world will have to be the revaluation of gold reserves, as desperate governments of the world resort to gold to preserve indispensable international trade. The revaluation of gold reserves held by Central Banks will be the only alternative for countries seeking to retain a minimum of international trade to supply their economies, whether they are based on agriculture, on manufacturing or on mining."
. . . . .

"The amount of gold held by any particular country will not be the important factor in maintaining operating economies, because even a small amount of gold will be sufficient for that purpose; . . . . . 

. . . . .

"We do not know the true amount of gold held by the world's central banks, because it is a closely held secret. However, we need not know that figure. Whatever gold there is in CB vaults will be sufficient, for the reasons we have given.
Nor do we know at what price, in dollars, the price will be set, or how it will be set. However, given the truly astronomic amounts of debt in existence, a very high price will be necessary to "liquefy" i.e. make payable remaining debt, whatever the amount remaining after the purge which is now in processThe very high price of gold will mean that all debt instruments will be subject to large losses in terms of gold value. The revaluation of gold will reduce the weight of the present debt overhang upon the world.
The revaluation of gold does not mean that prices of goods and services will rise in tandem with the higher price of gold. Established prices will by and large remain the same prices that existed before the revaluation. However, prices will have to re-adjust to reflect the new economic realities. Many goods that we have taken for granted will disappear, as their artificial cheapness vanishes."

. . . . .

"Once all currencies are "gold-backed" by revalued gold reserves, then gold is once again the international money, and the Dollar becomes nothing more than the national currency of the US, as quantities of gold become the international means of settling trade. We need not worry ourselves about how this will take place, because that it will happen is a certainty. All prices of goods and services around the world will really be gold prices, since all currencies will be redeemable at sight, in gold.
Such is the significance of the coming revaluation of gold."

My added comments: We have noted here on this blog that the idea of a significant upward revaluation in gold is an option (tool) available to deal with the the global debt problem. We suspect it would be a "last resort" type of action after everything else had been tried. Jim Rickards and others have not ruled out a sudden upward revaluation in the price of gold as we see from this article. Jim compares the idea of a revalued gold price vs. the use of SDR's as possible ways the monetary authorities could deal with future problems in this article (he mentions a gold price of $10,000 per ounce). Others suggest prices anywhere from $5,000 to $50,000 per ounce could be used.
In doing research on potential monetary system change there are two main ideas that you see for how future debt issues could be resolved. Most assume that a new global reserve currency something like the 'Real SDR' proposed by Dr. Warren Coats would be the first choice for monetary authorities (along with a possible debt forgiveness conference). If that failed to stabilize the system, they do have lots of gold available that could be revalued much higher virtually overnight by decree as a second choice.
Readers may ask how hard would it be for central banks and/or governments to revalue gold much higher very quickly? Not hard at all. The Canadian mint already sells silver coins that are about 1/2 ounce in silver weight with a $50 face value engraved on the coin. The coin can be used as legal tender. So that coin in effect revalues the silver in it to over $95 per ounce (over six times the current spot price for silver). It's not hard at all to engrave a higher price on the coin if desired. Of course, the same thing can be done to gold coins. It's just as easy to engrave a $20,000 face value on a one ounce gold coin as a $20 face value.
Jim Rickards points out that in 1934 the US revalued gold upwards from $20.67 to $35 per ounce overnight (a nearly 75% upward revaluation at a time when much less debt existed), so the historical precedent to do this does exist. Also, if you are wondering if central banks like the Fed ever talk about revaluation/devaluation of currencies, they do as we can see here. Please note this from the NY Federal Reserve article:

  • In a fixed exchange rate system, both devaluation and revaluation can be conducted by policymakers, usually motivated by market pressures.
Given all the above, the proposal by Hugo Salinas Price is not as strange as it may seem at first reading. Especially for younger readers who have grown up under a monetary system which is not directly tied to gold in any way. 
If I had to list in priority order how monetary authorities might try to deal with a major debt crisis, I would suggest the bullet points below in the order of what might be tried first:

- exhaust all existing monetary easing policies (QE, negative interest rates, etc) first
- propose a new global reserve currency based on the SDR used at the IMF (perhaps something like Dr. Coats Real SDR); possibly in conjunction with a global conference to write off and restructure global debts (a so called debt jubilee)
- add tangible asset backing to the new global reserve currency (gold + other real goods) along with institutional backing (like an FDIC guarantee) if needed to maintain public confidence
- if all else fails, revalue the existing gold reserves at central banks and the IMF much higher as needed to have tangible assets large enough to handle any remaining debt problems and restore confidence (something like the Hugo Salinas Price proposal above)

It would be possible for various combinations of the above to be implemented so the above list is a just a general concept to show the order in which I think monetary authorities would use various tools to try and resolve debt and stabilize the monetary system. The point being that based on the research I have done, I think they would use tools not involving direct backing with gold first and fall back on gold as a last resort. They could do this now that China and Russia have plenty of official gold reserves more in line with gold reserves held in the West. We'll continue to follow events here to see what actually does happen.

Added note: Greg Hunter interviews Hugo Salinas Price about this article. Click here to see the interview or watch it below. In the interview Mr. Price says he cannot predict the timing for the revaluation of gold, but he does say it will be after the current "contraction phase" ends, so it could be awhile in his view. Also, Mr. Price suggests the revaluation of gold will be a "last resort" as we noted in our comments just above.

1 comment:

  1. Thank you for putting an effort to published this article. You've done a great job! Good bless!

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