Chart Today's Uncertain Course With a Trusty Golden Compass

 | Jul 06, 2017 | 3:00 PM EDT
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Throughout the ages, we have circumnavigated the globe, charted the seas and explored the heavens by simply measuring our current position from certain clear reference points. Explorers of old made incredible journeys using just the sun, moon and stars to guide their way. And, even as science and technology have progressed, all course-plotting techniques require an outside reference point.

Navigating the complexity of our modern economic, monetary and financial systems is no different. All across the globe, people have placed their trust in the central banks' ability to chart the course to stability and prosperity. But what happens if their maps are flawed? How do we make our way out of the woods?

If there was any confusion why the Fed intends to keep hiking rates, even in the face of negative economic data and disappearing inflation, it was put to rest over the past week. Three leading Fed speakers (John Williams, Stanley Fischer and Bill Dudley) made it clear that the central bank's near-term objective is to burst the asset bubble.

Due to the reach of debt and credit throughout the financial system there are very few asset classes that have not been influenced by easy money. Borrow to buy has become standard practice. Asset prices from real estate, to stocks, bonds and collectables have been inflated by the easy access to cheap money.

If interest rates represent the cost of money, then money has never been cheaper. Interest rates have remained at or near historic lows for years. Stated another way, the future value of currencies has never been this low. And now, the Fed has suddenly become aware of the threat and is charting a correction course.

I'm not alone in my concern. Not by a longshot. Recently, it seems like every banker in the world is looking for a microphone in order to sound the alarm.

For example, Claudio Borio, the head of the Bank of International Settlements just said, "a new recession could come with a vengeance" and "the end may come to resemble more closely a financial boom gone wrong." Likewise, Mervyn King, a past head of the Bank of England, stated: "without reform of the financial system, another crisis is certain... sooner rather than later."

These are certainly not statements of confidence in an economy and financial system now eight years into the greatest "debt creation" and "fiscal stimulus" experiment the world has ever seen. Through the deliberate course charted by our central banks more money has been artificially created and injected into the system than ever before.

History instructs us that this type of experiment never ends well. It's astonishing that many of the same people who put us in this perilous spot are now sounding the alarm that we are hopelessly lost.

The good news is that we have a proven pathway through the dangers of currency debasement and financial instability. Precious metals, specifically gold, are real money in a world drowning in a sea of paper wealth.

In July 2007, Ben Bernanke, then Chairman of the Federal Reserve said: "Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend." We are all too familiar with the financial meltdown that soon followed.

Just recently, Fed Chair Janet Yellen predicted that another financial crisis like the one that exploded in 2008 was not likely "in our lifetime." Are we to believe her statement based upon the central bank's proven course or are we just supposed to blindly trust?

I think Thomas Mayer, former chief economist at Deutsche Bank, gets it right when he says: "investors would be well advised not to rely on the predictions by economists, but to take out insurance against events economists fail to anticipate."

Should we follow the path charted for us by the modern financial savants or should we pull out the old compass and map to chart our own course? In times of financial stress a store of value is paramount for transferring real wealth from one system to the next -- 5,000 years of financial history clearly illustrate that now is the time to preserve wealth.

Gold remains an unparalleled reference point of value. We are all going to need an accurate map to guide us through this perilous journey. The key to the map is gold. Rediscover its role and you will never be lost.

David Yoe Williams Jr. is a principal at Strategic Gold, a Naples, Fla.-based firm that buys and stores physical gold for investors.

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