Editorial Don’t worry about gold – it’s real money

Much is being heard these days about the woes resulting from the massive debts that have been built up by the devloping South American countries, especially Brazil, Argentine and Peru. Even the interest on these has become virtually unpayable, putting extreme pressure and embarrassment on the North American banking system. Indeed the banks are now admitting the box they are in, and have commenced the painful process of writing off billions and billions of uncollectable dollars.

Brazil would go even further. After stating that it can no longer pay the interest on its debts, its finance minister now holds out a teaser, hinting that it might pay half of the $4.3 billion interest it owes for this year if only the banks will come up with more loans. (He’s looking for $6 billion more, just to finance this year’s interest on loans he now owes). This is t he kind of paper-castle financing that’s going on all over the world today — including right here at home. For we, too, have been building up whopping federal indebtedness at a scary rate. But not to worry, we are told, for the interest payments on this, while crippling, are largely payable right here at home. But this is getting pretty hard to swallow. For even more ominous is the rapid buildup of our foreign debts — the very villain now plaguing our South American counterparts.

By year end Canada’s foreign debts will be nudging the $200 billion mark, neck and neck with its internal debt. And there is the same worrisome situation in the United States. Together, we owe about a trillion dollars to foreign interests.

Unless this debt buildup is curbed or at least slowed — and we see no signs whatsoever that any such a thing is in the offing (witness this week’s Ottawa white paper on plans for defense spending) — there are going to be some dire effects, economists warn. These will almost certainly include a return of inflation, a still lower Canadian dollar and a slumping economy.

This is precisely why more and more astute investors are turning to gold these days (silver and platinum, too). For it’s the same old story that repeats when people lose faith in paper money.

This renewed interest in gold, coupled with the much more favorable financing climate thanks to government granted flow- through shares, has resulted in a great new exploration boom that is sweeping this country, as this junior mining issue so clearly shows.

In fact gold mining has now become one of the brightest spots in the Canadian economy. And there is every indication that its output will rise significantly over the next few years. We only hope that Finance Minister Michael Wilson won’t come up with anything in next week’s budget speech to slow this expansion.

But we have few worries about gold itself, for it is real money.