Excellent answer, Peter, and I agree about inequality prospects, but if you say this:

"There is no relationship between either the price of gold or the total supply of mined gold. Gold is used to measure value of the items for which it is exchanged. It is a yardstick of value. The amount of gold in the world does not affect its ability to serve as money. Gold guarantees price stability"

How do you explain Marcel Lenoir findings? Or the different reactions of world finance and prices to the California and Australian gold influxes or that of South Africa? It is obvious, as I have noted in an earlier post regarding Keynes, that the Central Banks are supporting the stock market and assets while the lack of money flowing to the middle and working classes in jobs would work against inequality as we saw in the Great Depression.

"different reactions to world finance and prices" Lenoir traces investment and price changes over the 110 years with increased gold production.

Putting aside Marxian theories of economic collapse, which in my view are no more valid now than they were in the mid-19th century, there is a really interesting issue here. It has nothing to do with the price of gold, whose value until 1971 was determined by statute (a bit more loosely during the Bretton Woods period of 46-71 than during the classical gold standard), but the impact of monetary policy on the distribution of income. QE is a policy that the Fed hopes will depress long-term interest rates (short rates are already at zero) and boost equity and house prices. This means that current holders of wealth, if the policy has its desired effect, benefit at the expense of savers who are trying to build wealth but are getting low yields and seeing other assets rise rapidly in price. I am not convinced that QE was the cause to the 30% rise in US equity prices in 2013 but there is little doubt that holders of equities became wealthier relative to everyone else. Meanwhile, those living on fixed incomes see the current income plunge. What does a $1,000,000 one-year bank CD generate in income? Only around $5,000! $2,000,000 of assets in bank CDs doesn't get a person over the Federal Poverty Line (FPL) is the US! Since the share of equities in wealth rises as household income and assets rise, QE, if successful, makes the distribution of income more unequal.

Dear John:

You are right regarding CDs, while wealth management reports as seen in recent summaries for 2013 in the FT are running about 12 to 20% returns for people with assets above $1million. Hedge funds vary considerably with some producing losses and others above this. Nevertheless, if you have rental income from say $5million in apartments with little reinvestment in maintenance above the traditional 5% net, then you can easily not only live nicely off that (and say another $5million in dividends) but see your gross wealth grow substantially given the Reagan and Clinton tax breaks. The good thing about the Eisenhower tax was it kept wealth inequality from growing at anything but small rates except outside rentier investments which does produce jobs, reinvestment and opportunities for small businesses:

What does a $1,000,000 one-year bank CD generate in income? Only around $5,000! $2,000,000 of assets in bank CDs doesn't get a person over the Federal Poverty Line (FPL) is the US! Since the share of equities in wealth rises as household income and assets rise, QE, if successful, makes the distribution of income more unequal.

Dear Peter:

This is why people try and diversify and why "Trusts" were invented in the 1880s (now called Hedge Funds). Irving Fisher's books on the issue of currencies, gold and prices is still a classic you might find of interest, especially The Purchasing Power of Money, 1911 and The Rate of Interest, 1907. He was addressing in both the panics of the late 19th century and the collapse of 1907. Very useful today.

Dear Peter:

The National Debt is now over 14 trillion (about 62.9% of GDP according to BIS), the amount of sovereign debt in the world is estimated to be over 52 trillion USD estimated by the Economist (http://www.economist.com/content/global_debt_clock) but that is a soft figure. The price of gold is more tenuous given the amount of ETF gold paper (including CEFs and ETNs) which is estimated to be several times physical holdings. Jack Farchy's Financial Times article in March 2013 argues that ETF holdings alone out size those by all other forms but the US Fed and Germany's central bank at 2491 tons. I do not know where you found your figure of 45% but it is the virtual gold that is a problem and private physical holdings in India and China have risen dramatic in the past 5 years. As I point out in my book on the credit crisis, it is the amount of paper and leverage that has exploded the money supply. I have a chapter on the problems with M1, M2, M3 and now M4 and how they fail to track the total amount of credit and debt. If the Fed tapers there will be a crisis, but some countries, like Poland are experimenting with debt destruction, which like sins, is theoretical and depends on how people regard the loss of debt in relation to credit. The next year will be interesting. I also have a chapter tracing the creation of credit from Roman times and the nature of how government credit can be expanded like magic if performed in the context of people's understanding and confidence. What is essential ( and I give examples of this) is that people trust the governments and believe that the financial system will continue to work. This is why Canada's banks in the 30s did better than those in the USA and the bank holiday in the USA began on the state level not the federal. I detail this too in my book.

http://web.worldbank.org/archive/website01066/WEB/IMAGES/127527-2.PDF