Beyond currency wars, the coming Global Gold Standard w/John Butler

Welcome to Capital Account. The S&P 500 stock index has had its best yearly start vis-à-vis gold in over a decade, and bond traders see a rebound for treasuries after the most tumultuous quarter since 2010. Meanwhile, Greenspan going to bat for his old right-hand at the Federal Reserve, Ben Bernanke, for all the criticism he has taken in recent months, in particular for criticism he has received by the republican primary candidates. But what does all this say about the direction of the us economy. Should we be optimistic or pessimistic, and what to make the dollar? After all, the performance of treasuries, as well as that of gold, is directly related to the value of the dollar. It's a dollar-denominated world after all!

Well, let's take a step back for a moment shall we? Let's take a look at the bigger picture. Let's start with US national debt, which in some of the latest figures we could find, stands at 15.6 trillion dollars – that's higher than US GDP. Most of that debt has been accumulated in the last 20 years, with only 7% accumulated before Ronald Reagan was president. If we stay on the path we've been going the national debt will reach 20 trillion dollars by 2015, and according to Jim Quinn of Burning Platform (posted on ZeroHedge) if interest rates were to normalize to levels that we saw in 2007 (5%), annual interest expenses would be 1 trillion dollars. This is 45% of current tax revenue. If you want something more official, the CBO says the deb will reach 21.7 trillion dollars by 2022. Still not very encouraging.

Now, an economy's health is not just a factor of debt. It is also a factor of jobs, and in that regard, the US isn't doing so well either. According to US census data, the share of the population that is working fell to its lowest level since women started entering the workforce in large numbers three decades ago…45.4% of Americans had jobs. Jobs continue to be an issue, and if you don't have jobs, you don't have a stable economy, and you don't have a stable currency. And the unfunded liabilities, including Medicare, Medicaid and Social Security don't help much either. They exceed 60 trillion dollars according to some estimates. 

So should we be worried about this, and how important is the health of America's economy to the future of its currency? To help walk us through these questions, is John Butler, founder of Amphora Capital and author of "The Golden Revolution: How to Prepare for the Coming Global Gold Standard." As his book suggests, he believes that a return to the gold standard is inevitable, and that America's economic health, its deficits (trade, budget, and confidence deficits) are a much larger issue than is the "money it has printed."

Follow us @