7p ET Wednesday, February 21, 2007
Dear Friend of GATA and Gold:
While it is almost a year old, a study of the enduring importance of gold in the world economic system by R. Peter W. Millar, founder of Valu-Trac Investment Research Ltd. in Scotland (www.valu-trac.com), seems ever more compelling, and Millar graciously has agreed to let it be shared with you.
Millar stresses the periodic upward revaluation of gold as the mechanism for defeating a deflationary debt depression at the end of an economic cycle. Millar writes:
"The first cycle unfolded as follows:
"-- Phase 1: Stability under a gold standard until 1914.
"-- Phase 2: Inflation until 1921, which resulted in a buildup of debt.
"-- Phase 3: Disinflation, which brought stability and allowed asset inflation until 1929, but encouraged a further buildup of debt.
"-- Phase 4: Instability after 1929 caused by deflation of assets from overpriced levels and exacerbated by excessive debt levels, leading to depression of economic activity.
"-- Phase 5: Monetary reform enabled by a revaluation of gold to overcome deflationary debt depression.
"In the second half of the 20th century we saw a repeat of the first three phases of the same cycle:
"-- Phase 1: Stability from 1944 to 1968 under a gold standard.
"-- Phase 2: Inflation from 1968 to 1981, which caused and justified another buildup of debt.
"-- Phase 3: Disinflation from 1981 until the end of the 20th century, and maybe to the present.
"However, it appears that Phase 4 (instability and ultimately deflation due to excessive debt) may have started. If so, Phase 5 (revaluation of the gold price to raise the monetary value of the world monetary base and hence reduce the burden of debt) becomes likely or inevitable. The extent of that revaluation would need to be major according to our calculations, probably by a factor of at least seven times, possibly up to 20 times the current price of gold."
The price of gold when Millar wrote his study, in May 2006, was about where it is tonight.
Millar's study is titled "The Relevance and Importance of Gold in the World Monetary System" and you can find it in PDF format at the link below.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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