As part of his series Making Sense of the financial crisis, NewsHour correspondent Paul Solman looks at how the weakness of the U.S. dollar has spurred a new interest in investing in gold instead of paper money.
With the U.S. printing money for stimulus packages and bank bailouts, some fear that creating more and more dollars will drive the value of the currency down. The dollar is currently holding less value than most of the world's other major currencies in 2009.
So many investors and savers are turning to hard assets like gold - assets that have intrinsic value.
"If you're worried about the U.S. government not being able to pay its debts," former IMF chief economist Simon Johnson told the NewsHour, "if you're worried about the dollar collapsing, if you're worried about worrying, you go out and you buy gold."
In this video, Paul Solman reports on the weakness of the U.S. paper dollar and talks to the people and markets that are looking towards gold as a source of stability in this fragile world economy.
Quotes
"I'm a Canadian, and I'm watching the United States from the outside. I have U.S. dollars -- not many -- and I'm an analyst of international capital and international flows. Everything that this country is doing is basically telling me that you're going to depreciate the value of those U.S. dollars over time." - Ian McAvity, Editor, Deliberations on World Markets
“Gold has long been regarded as a hedge against all kinds -- all kinds of risk. If there's inflation, gold's pretty good. If the government breaks down, you can bury some bars of gold and come back and get it later. If you're worried about the U.S. government not being able to pay its debts, if you're worried about the dollar collapsing, if you're worried about worrying, you go out and you buy gold." - Simon Johnson, former IMF chief economist
"We have had a lot of stimulus, which we're trying to use to make the economy grow. Once the economy starts to grow and begins to move ahead, then it will be very important for the Fed to unwind, raise interest rates, bring that credit back, bring the money back, so that we don't have an inflation problem down the road." - Ben Bernanke, U.S. Federal Reserve Chair
Warm Up Questions
1. What is gold?
2. Why would people buy gold?
Discussion Questions
1. Why is gold a store of value?
2. Why is it more commonly used as money than, say, diamonds?
3. Why is gold’s price going up in dollars right now?
4. What is the argument that gold’s current price is too high?
5. What is a financial bubble?
6. Do you think the price of gold will go much higher, or do you think it will start to fall soon, and why?
7. How much do you earn when you invest in gold?
8. How much do you earn in a bank account these days?
9. What would you rather put your money into: gold, or a bank savings account if the interest rate were 5% a year?
Additional Resources
