Credit for this to xerty, from his piece posted elsewhere:
Zoltan Pozsar (Credit Suisse) and Jim Rickards have written that a new world monetary order is forming, where gold will rise to $20,000 or $30,000, allowing highly indebted nations like the US to pay down their debt. What are your thoughts?
Murray Stahl: Before I answer it, let me just give you a number so you can put the discussion it context. The United States has roughly 286 million ounces of gold. That would be the U.S. government, not the Federal Reserve, that owns the gold. What would it mean if, as the authors suggest, gold were $20,000 an ounce? Well, 286 million ounces of gold times $20,000 an ounce, would be $5.7 trillion.
So, the theory is that gold goes to $20,000 an ounce, such that the United States, if it still owned 286 million ounces of gold, would have $5.7 trillion and that would enable it to pay off $5.7 trillion of debt. So, that part of it I can see. The math is a little more complicated than that, though, because today the United States of America by itself, not even counting the states, has over $30.3 trillion of debt right now, and it’s likely that within 12 months it’s going to be $33 trillion. So, even if gold rises to $20,000, one question is when, because who knows what the debt is going to be by the time it gets to that price.
Let’s even accept one year, in which case, out of $33 trillion of debt 12 months from now, with gold at $20,000 an ounce, the U.S. government determines to sell the whole gold position, and then assuming that it’s even possible for the market to absorb 286 million ounces, and also assuming it’s also willing to, then you paid off $5.7 trillion out of $33 trillion. So where are you? $33 trillion minus $5.7 trillion, puts you at $27.3 trillion of debt, a place we were at about, oh, let’s say 16 months ago. So, even if this could happen, you’re not getting out that way. Now, what if it the gold price only went to $19,000 an ounce or $18,000 an ounce? Then you’re not even there. And what if it took five years to get there. So, it’s not going to help the government to efface its debt.
Another problem with the whole analysis is that if gold ever were to be $20,000 an ounce without commensurate inflation to offset its real price, then goldmining would be unbelievably profitable. And all sorts of gold supply is going to come out of the ground, and that would reduce the price – you wouldn’t get to $20,000. On the other hand, if gold were to $20,000 an ounce and was accompanied by a tenfold inflation, then the national debt wouldn’t be $33 trillion one year from now – it would be some astronomically higher number. How so? This is why I talk about how severe the problem is. Because, historically, the expenses historically of a government that’s trying
to inflate were relatively discretionary such as for the military. But today the major expenditures are totally non discretionary.
For example, Medicare and Medicaid, in round numbers, is almost $1.3 trillion. What are you going to do about that? People are relying on it. They get sick and they need medication, or treatment; whatever they need, it costs what it costs. You’ve got to pay it. Social Security – people depend on that; you have to pay it. Interest on debt— it’s actually very low right now, compared with what it could be, yet we’re paying $428 billion of interest. Raise the rates just one percentage point and wait a year until we have a little more debt, and that number’s going to be a trillion dollars.
The money creation problem is such that if you really have the kind of inflation that would drive gold to $20,000 an ounce, then it’s frightening to calculate what the national debt would be and what the budget would be. I had never tried to calculate it, but I’m just doing it right now on the back of an envelope. It’d be horrendous if it happened. So, $20 000 gold is not going to solve the problem. To be clear, it’s not just an American problem; it’s a British problem, it’s a Canadian problem, it’s a Chinese problem. Brazil has the problem, Argentina has the problem, Colombia has the problem. Every country in the world has the problem except for Russia. Russia, has its own problems, but this is not one of them. They happen to have a balanced budget. In fact, that scenario would actually make Russia an incredibly powerful nation again.