$10k gold, credit collapse, dollar devaluation: This is the "course of the empire" - Dan Oliver
(Kitco News) - The natural course of the U.S. "empire" is that of currency devaluation and an eventual credit collapse, said Dan Oliver, founder of Myrmikan Capital.
"What backs the dollar? The Fed's assets do, and if you look at the Fed's assets, what do they own? They own a bunch of Treasury bonds. They own the debt of an insolvent Congress," Oliver told David Lin, anchor for Kitco News. "If and when, I think when, the U.S. power starts to devolve, starts to fall apart, the market will say"what is behind that dollar?' and the answer is very little."
Even during an environment of severe dollar devaluation, not all assets will appreciate as far and fast as gold, Oliver noted.
He said that there are historical precedents for the expansion of the Fed balance sheet driving up the gold price to record levels.
"This has happened before. In 1980, when gold hit $650 an ounce, gold in the Fed's balance sheet backed its liabilities by 100%. That number is currently around 30,000. That wasn't sustainable, that wasn't the equilibrium price, but that was the craziest it got. People basically said, "we're writing off all these Treasury bonds to zero." So, we were effectively back on a gold standard," he said.
What's needed for gold to breach new all-time highs is more monetary stimulus following a market sell-off.
"What would really drive gold up to the next level, the $3,000 level, would be a panic…and then the Fed shows up and says"hey, $120 trillion, make it $500 trillion,' or a billion a month, whatever the next QE is or some other novel policy they didn't even announce," he said.
For more information on why a credit collapse is happening, watch the video above. Follow David Lin on Twitter: @davidlin_TV.