The world is laughing behind our back.

July 27, 2011 - If you really want a gut feel for the credit rating game and how it affects gold bullion prices, you have to get inside the heads of those who conjure up those mystical scores. Don’t worry, there’s plenty of room in there.

The first thing you will notice is that the score defines creditworthiness and not the other way around. If your cronies gamble on some truly ridiculous junk, rate them AAA so they can unload it all before they get burned. And if your country engages in some harebrained policy certain to trash the world’s reserve currency?

The first thing you do is pretend not to notice. Next you get very aggressive with every other country doing exactly the same stupid things. Then you come up with a story that everybody buys into simply because it is so lame that nobody can imagine you would ever create such a fiction.

The fiction, of course, is that our rating must be AAA because we alone can print the world reserve currency. We can never be out of money because we will always have plenty of checks.

The most bizarre thing about the forgoing is that it has worked for as long as it has. The world needed us to rebuild after WWII (it didn’t hurt holding the war on their turf) and our economic juggernaut was just getting underway. Our transition from premier producer to premier consumer was of little import to a world feeding off our largesse. Nobody saw anything wrong with global trade becoming inextricably tied up with the greenback.

Then one day the world awoke to see a naked emperor. Clearly it was time for a change, but everyone would suffer if he were dethroned. So when he declared “I am fully clothed!” they pretended to believe, but everywhere contingency plans were being put in place.

Do you honestly think that anybody other than our country’s own rating services believes we deserve a AAA credit rating? We are the suckers, not the world. The reserves of emerging economies are still heavily off balance in dollars and until they can surreptitiously replace them with hard assets they will keep the myth of the almighty dollar alive.

Eventually the services must downgrade our rating hoping to preserve their credibility. In truth, they have no credibility to lose and the world downgraded us long ago. But perhaps then people will finally begin to understand the wisdom of gold bullion investments.

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org