Tuesday, October 9, 2012

Sell Bonds, Buy Gold

So, I have a suggestion to fix our exchange rate problems. It may be as whacky as the Greens one to print money, but here it is anyway.

What if we step out of the fiat  race to debase debate a little and do something more constructive with the current positive monetary position we find ourselves in. We offer high interest rates of around 3.5% on our bonds. Higher than most 'good' economies around, especially Europe,the UK and the USA.

So, if money supply is increasing worldwide, and if that money is looking for a safe home in high interest bearing bonds and funds, then why don't we grab as much as we can, short-term, and buy physical gold with it.

Oh, you say, that's weird. But stay with me a moment.

At present, when we sell our bonds, they are over-subscribed. Everyone wants our money. It's backed by our great soft-commodity economy; everyone likes food, and we have a relatively non-corrupt system.

So, we buy gold with all this extra money flowing in. Naturally, we would have to tell the bond buyers where their money goes initially. That could be an issue. Anyway, we could then use the gold to lever off, perhaps print on golds collateral value? We would make the gold collateral useful, and use that to rebuild Christchurch, or re-position our EQC Funds.

The upside? in this continuing world of increasing money supplies, gold is going to continue its upward price journey. So, we would be able to pay back those bonds by selling the gold and using the extra fiat gained (because gold in this ZIRP evironment will be worth more paper dollars we borrowed initially).

So, take all the fiat thrown at us by Sovereigns and  Funds and buy gold, lever the gold while we have it, then sell as much gold as necessary (probably less at a higher 'value') to pay back the original loans.

I know I'm missing something...

And just to finish, a race to the bottom is just that, you reach the bottom. At that point we have nothing to bargain with. Is this not the reason many alliances are shifting worldwide. Note our recent friendliness with the US Military. Is this not why the middle-east is alight with disorder right now? As the bottom gets closer, people get more desperate to grab the resources they need to survive.

We've seen it before, it's called war.

Gold in New Zealand dollars: $2161.93 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $41.48 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

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