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How could a Dollar crisis and the federal deficit affect the price of gold?

Robert Wiedemer
December 6, 2006
Video Transcript

The danger that is different today from any time before that makes even the run up in gold earlier seem minor to what I think could easily happen in the next few years, think the run up earlier times 10, is obviously the dollar and the federal deficit. Both of those work together to cause huge problems in your monetary economic system; so the dollar is under pressure. As the dollar falls, even on a daily basis if the dollar falls a few pennies gold goes up. Well, if it really takes a fall and had it not been for Japan and China doing so much to buy dollars it already would have fallen a lot at this point. Let's keep that in mind. Some people say, "It hasn't fallen." Well that's because some pretty powerful forces were working to keep it up, that can't last forever. As it continues to get pressure from a trade deficit to an expanding and even if it doesn't expand and if it just continues at the high levels, the dollar is going to fall, that's going to push gold up. As the dollar falls and interest rates will go up because of that, because if the treasury wants to try to track money in here with the falling dollar it's got to raise interest rates to offset that. That's going to also start to push gold up.

Ultimately, you're running to a situation where, let me just go a little bit off the normal range of values and say, "What if interest was at 20 or 25%, I've certainly seen it in my lifetime at 18%?" Who’s the biggest holder of adjustable rate debt in the world? Our federal government. At $8 trillion, 20% interest, no caps, no limits, not like homeowners, it just goes up, you know most of that debt is less than a year, it goes up fast. That means that the government is going to have to put out a lot of money to pay that interest on that debt. They're not going to bankrupt, they'll pay the money, but that's going to create inflation. That's going to create more of what we had in the 80's times 10 in terms of pushing gold up. So I would say the dollar, the federal debt, all those two combined are going to work to make massive pressures pushing gold up over the next 3, 5, and certainly beyond. You're going to see growth in the short-term. In 5 or 10 years it gets truly scary.

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