Gold and the Bailout that Could Have Worked

It seems like a lifetime ago, (in debt years it adds up to about 10) when we got our first stimulus checks.Remember?Based on your 2007 return, some 130 million people either got $300 or $600 as individuals or $600 to $1200 for married couples.That provided about as much fuel for the economy as a cup of water would to an old steam engine.

That was estimated to cost $152 billion.No sooner was that plan implemented than the flood gates of stimulus opened up.To follow were plans for $200 billion of infrastructure stimulus,Cash for Clunkers, First Time Home Buyers Credits, Energy Efficient Windows, Appliances, then Tarp, and on and on.

All things thrown into the pot, some estimate the total of stimulus and bailouts, so far, to well exceed $10 trillion when you add in purchases by the Fed of toxic or worthless assets like Fannie, Freddie, other mortgage backed securities and then QE2.However, for purposes of this illustration, let's just look at the first $5 trillion of stimulus.

Let's first put this into perspective.$5 trillion comes out to about $17,000 per man, woman or child in the U.S.Did you get $17,000 worth of stimulus?We know the answer is "No" but had to ask to make the point.All of the stimulus (debt) created did not trickle down to consumers.A trickle of stimulus may have trickled down but that's it.

What I could never figure out is, if stimulus is being borrowed from me, and, I or my kids are responsible for paying back the debt, why didn't I and my kids each get $17,000.Can you imagine the spending frenzy.And what if, in doing so, government said we encourage some spending but, we also encourage some savings because some day we have to pay this back.Bear with me now with another "what if".And, what if government said, we also encourage at least some of the portion you intend to save be spent on Gold as historically, gold is a safe haven in times of inflation and economic uncertainty?

If this all started back in May of 2008, with the first $152 billion of stimulus, some of us would have owned gold at prices just above $700 an ounce.As much as half of your stimulus could have been spent on cars, houses, windows, refrigerators and whatever else earned you tax credits.Remember, one persons tax credits, when spent, turn into another person's job and income.Then spend the other half on gold.

With gold now at $1400/oz., give or take, the other half would have grown in dollar terms to what you started with. Theoretically, you could have paid back all the stimulus and have been better off for it.

Some may say, why would government give us money to buy gold?All it would do is drive gold demand and run up the price.To this I ask, why does the Fed intend to buy up $600 billion in Treasuries in order to encourage people to take that $600 billion to buy equities?Won't that drive up the price of Equities?

So what, if it drives gold demand and the gold price higher?The market would keep its own balance as people bought and sold according to the benefit of each.Buy low, sell high, pay off debt and have more money to buy more of everything.

Sound too simple?Why do you think the Chinese, first legalized gold ownership for their citizens about 5 years ago?Once this step was taken, why then did they begin to encourage all citizens to spend some of each paycheck on gold?Sure, this has served to drive the price of gold higher and you know what?If just Chinese demand grows to the proportion it's expected to grow, gold prices could rise to astronomical highs - in dollars terms that is!

Sure, this plan sounds simple, so simple that it could not have worked.Let me assure you.Millions of people are already following it.Maybe billions, on a global scale.It is this growing demand and the continued debasement of currency through stimulus, that will continue to drive demand even higher.

Don't get caught short.Don't be left holding the bag of debt while billions of others hold all the gold and make all the rules.

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