Tag Archives: Currency debasement

The upside-down world of currency, by Alasdair Macleod

Posted on November 19, 2022 | Leave a comment

Gold is money; everything else is credit. Get that one wrong and the next few years are going to be a whole lot of misery. From Alasdair Macleod at goldmoney.com:

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The gap between fiat currency values and that of legal money, which is gold, has widened so that dollars retain only 2% of their pre-1970s value, and for sterling it is as little as 1%. Yet it is commonly averred that currency is money, and gold is irrelevant.

As the product of statist propaganda, this is incorrect. Originally established in Roman law, legally gold is still money and the states’ debauched currencies are not — only a form of credit. As I demonstrate in this article, the major western central banks will be forced to embark on a new round of currency debasement, likely to put an end to the matter.

Central to my thesis is that commercial bank credit will contract sharply in response to rising interest rates and bond yields. This retrenchment is already ending the everything bubble in financial asset values, is beginning to undermine GDP, and given record levels of balance sheet leverage makes a major banking crisis virtually impossible to avoid. Central banks which are already in a parlous state of their own will be tasked with underwriting the entire credit system.

In discharging their responsibilities to the status quo, central banks will end up destroying their own currencies.

So, why do we persist in pricing everything in failing currencies, when that will almost certainly change? When the difference between legal money and declining currencies is finally realised, the public will discard currencies entirely reverting to legal money. That time is being brought forward rapidly by current events. 

Why do we impart value to currency and not money?

A question that is not satisfactorily answered today is why is it that an unbacked fiat currency has value as a medium of exchange. Some say that it reflects faith in and the credit standing of the issuer. Others say that by requiring a nation’s subjects to pay taxes and to account for them guarantees its demand. But these replies ignore the consequences of its massive expansion while the state pretends it to be real money. Sometimes, the consequences can seem benign and at others catastrophic. As explanations for the public’s tolerance of repeated failures of currencies, these answers are insufficient.

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Modern American Policy: Stupid or Sinister? By Matthew Piepenburg

Posted on August 12, 2022 | Leave a comment

A lot of both is our answer. From Matthew Piepenburg at goldswitzerland.com:

American policy has been acting in ways which suggest either a desperate ignorance or a sinister restructuring of the national narrative.

Surveying the Senseless

The USA is now staring down the barrel of four-decade high inflation, an inverted yield curve and the highest debt levels in its history as Wall Street recently enjoyed the strongest relief rally since 2020 on the bad news of yet another Fed rate hike (75bp) into a percolating liquidity crisis.

Huh?

In a Fed-led dystopia marked by years of printed rather than earned liquidity, bad news is now good news to markets who nervously seek pretexts for central bank stimulus rather than actual earnings or GDP.

In such distorted landscapes, positive jobs data creates sell offs and crippling rate hikes induce rising stocks.

For almost 2 years, while we and other candid market observers were warning of crippling inflation, our central bankers were describing it as “transitory” with a dishonesty similar to the current recession is not a recession meme.

Huh?

Meanwhile in DC, we see growing signs of a political culture less about public service and more about self-service.

Wealth disparity in the home of the brave has passed the highest levels ever recorded and points directly to the slow and empirical death of the American middle class.

The suburbs around DC are growing richer with lobbyist and polo-playing defense contractors buying concessions and second homes from politicians who openly sell votes for reelection in a democracy that more resembles an auction house than a house of representation.

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Gold As Cheap Today As In 1971 at $35, by Egon von Greyerz

Posted on May 19, 2022 | Leave a comment

Sooner or later people will turn to gold and silver as honest money to replace their rapidly depreciating fiat currencies. From Egon von Greyerz at goldswitzerland.com:

“Specie (gold and silver coin) is the most perfect medium because it will preserve its own level, because having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.”  – Thomas Jefferson

Since no current President or Prime Minister nor any Central Bank Chairman understands what money is or the relevance of gold, we turn above back to history and Thomas Jefferson, America’s third president for a proper definition.

Jefferson also understood that “Paper is Poverty, It is only the Ghost of Money, and not Money itself.”

As the world economy goes towards an inflationary depression exacerbated not only by epic debts and deficits but now also by war, the significance of gold takes on a whole different dimension.

So let’s dissect Jefferson’s statement:

“(GOLD) Will preserve its own level”

Gold is Constant Purchasing Power. As such, gold doesn’t go up in real terms. An ounce of gold today buys a good suit for a man just like it did in Roman times.

The graph below shows gold as constant purchasing power at the 100 line whilst all the currencies are crashing to the bottom.

All currencies are continuing to lose value against real money although it never takes place in a straight line. With higher interest rates & inflation, higher deficits & debts, poverty, cost of wars and increasing pressures in the financial system, the currency debasement will now accelerate.

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Two is One . . ., by Eric Peters

Posted on January 11, 2022 | Leave a comment

Swapping increasingly worthless fiat currency for real, tangible, valuable goods looks like a good idea. From Eric Peters at ericpetersautos.com:

Wealth is not necessarily the same thing as money – especially if money is just paper. You may have $10,000 in the bank today. It may not have any value six months from now. It probably ought to make you uneasy that the value of your wealth depends on forces outside of your control – when money is just paper.

Paper under the control of sinister forces – the government, for instance. Or rather, the “Fed,” the cartel of private banks that bought the government about 100 years ago and which has used it ever since – to mulct the public by various means, including the manufacturing of “money” out of thin air, which is then loaned to the government at interest – which you and I get to pay in the form of “taxes” and “inflation.” (For more about this, I recommend G. Edward Griffin’s Creature From Jekyll Island which explains in detail how the federal government was bought – and sold us out.)

Things of intrinsic value under your control are much better when the value of money isn’t.

Land – especially useful land (i.e., land that could be useful for raising things to eat) and a home (useful for keeping you and yours sheltered) are two very good examples of this. The value of your land/home may increase or decrease in monetary terms  but they will always retain intrinsic value, which is a priceless thing when money becomes a value-less thing, courtesy of the “Fed.”

Tangible things are another form of value that keeps the invisible rats of inflation – the tool of the “Fed” – at bay. If you exchange say $600 for a pistol you will have a valuable pistol, the value of which cannot be inflated away. Plus you will have physical possession of the pistol, a value in and of itself.

The same goes for tools, equipment, clothing, food – and so on.

The more such things in your possession, the better – as times get worse.  The things of value not in your possession may not be available and will probably  cost you more to acquire them, as the value of money wanes in conjunction with the manufacturing of more of it by the “Fed” – an entity that is “federal” in the way the Fed Ex is.

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Inflation is a monetary curse, Alasdair Macleod

Posted on September 3, 2021 | Leave a comment

This is a great explanation of what’s going on in and what’s going to happen to the world’s financial system. Own some physical gold and silver. From Alasdair Macleod at goldmoney.com:

Remarkably, in a speech on monetary policy given at the Jackson Hole conference last Friday, Jay Powell never mentioned money, money supply, M1 or M2. With money supply expanding at a record pace to fund both QE and intractable budget deficits the omission is extraordinary.

The FOMC (the rate setting committee) appears to no longer take the consequences of monetary expansion into account. But the fact is that rising consumer prices caused by monetary expansion have driven real rates sharply negative and are leading to pressure for higher interest rates.

This article looks at the consequences of policies which combine the maintenance of a wealth effect by juicing markets with QE, and funding enormous government deficits, which are now beyond control. A flight out of foreign-owned dollars and dollar-denominated financial assets, which currently total over $32 trillion, is becoming inevitable.

Will the Fed respond by increasing its QE support for financial markets, while resisting the pressure of rising interest rates? If so, there is no surer way to destroy the dollar.

The lessons from history combined with sound economic analysis tell us that markets will reassert themselves over the Fed, and for that matter, over all other central banks which have embarked on similar monetary policies.

Gold is the ultimate hedge against these events and their consequences.

Introduction

Last week, in his Jackson Hole speech Jay Powell grudgingly admitted that prices might rise a bit more than the FOMC previously thought. But it was too early to conclude that policies should be adjusted immediately. He said:

“Over the 12 months through July, measures of headline and core personal consumption expenditures inflation have run at 4.2% and 3.6% respectively— well above our 2 per cent longer-run objective. Businesses and consumers widely report upward pressure on prices and wages. Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to be temporary. This assessment is a critical and ongoing one, and we are carefully monitoring incoming data.”

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Doug Casey on Currency Debasement and Cultural Degradation

Posted on August 4, 2021 | Leave a comment

You can tell a lot about the quality of a country by the quality of its currency. From Doug Casey at internationalman.com:

International Man:  How instrumental do you think the debasement of their currency was to the eventual fall of the Roman Empire? How did it affect their culture?

Doug Casey: In ancient pre-industrial societies—just like today—you became wealthy by producing more than you consume and saving the difference.

One of the best things about money is that it allows an individual to set aside capital, the product of his labor, in a form that retains value. A farmer, for instance, can’t save fruit from year to year, nor can a baker save bread. Sound money is critical for lasting gains in wealth and economic progress. Sound money is why wealthy societies become dominant, and a reason other societies are poor and ripe for conquest and domination.

Rome provides a meaningful long-term template. The Roman government, in search of revenue, started debasing the denarius under Nero in the 1st century, taking it from 90% silver to 75%. As late as the reign of Marcus Aurelius, which ended in 180, the denarius was still about 75% silver. By the end of the 3rd century, it was pot metal that was simply plated with silver. The 3rd century was notable for numerous coups, civil wars, assassinations, and secessions. There are plenty of reasons political chaos goes hand in hand with economic chaos; they reinforce each other.

Roman coins weren’t worth saving by the middle of the 3rd century, and the collapse of the currency was a major cause of the collapse of the empire. In some ways, sound money was even more important in ancient times than it is today because they didn’t have sophisticated banking, financial markets, credit, accounting, or ways of measuring the rate of currency depreciation. Physical cash was king.

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A Trillion Here, a Trillion There, by Clifford F. Thies

Posted on April 7, 2021 | 1 comment

You get nothing of real value by inflating your currency. From Clifford F. Thies at aier.org:

The late Everett Dirksen, a long-serving Minority Leader of the Republicans in the U.S. Senate, is famously quoted as saying a billion here, a billion there, and soon we’re talking real money. That was back in 1969. At the time, a billion dollars was about one-tenth of 1 percent of GDP.

What about today?

During 2020, the federal government provided a total of $3.2 trillion of Covid relief, starting with a mere $8.3 billion, then adding $104 billion, then adding $2.2 trillion, and finishing off the year with another $900 billion.

We’re now three months into 2021, and the federal government has provided yet another $1.9 trillion in Covid relief; and, the Biden administration has just asked for $2 trillion for infrastructure.

To put these amounts into perspective: A trillion dollars is today about 4 percent of GDP.

Back in 1969, Ol’ Everett was being funny when he referred to a billion dollars. Back then, a billion dollars was already real money. In 1969, the newest nuclear-powered aircraft carrier, the USS Enterprise, cost $451 million, not even $1 billion. The cost of the Apollo 11 mission to put the first man on the moon wast $335 million, not even $1 billion. Only two companies made more than $1 billion in profits (General Motors $1.7 and Exxon Mobil $1.3). A billion dollars, representing one-tenth of 1 percent of GDP, was a fantastic amount of money. Ol’ Everett’s statement that a billion here and a billion there and soon we’re talking real money was a wild understatement.

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The World Needs a Gold-Backed Deutsche Mark, by Patrick Barron

Posted on February 15, 2021 | Leave a comment

One gold-backed currency would force the rest of them to shape up. From Patrick Barron at mises.org:

The seeds of sound-money destruction were sown at the 1944 Bretton Woods Conference, which established that US dollars could be held as central bank reserves and were redeemable for gold by the US Treasury at thirty-five dollars an ounce. This was the so-called gold exchange standard, but only foreign central banks and some multinational organizations, such as the International Monetary Fund (IMF), enjoyed this right of redemption. The system depended upon the solemn promise by the US that it would refrain from issuing unbacked dollars. The watershed event that ushered in a new malignant, pure fiat money era occurred on August 15, 1971, when the US abandoned the gold exchange standard in order to stop the drain on the US gold stock.

American money printing had begun in earnest in the previous decade in order to finance Lyndon Johnson’s “guns and butter” policy. The Fed monetized government debt to fund LBJ’s Great Society welfare programs while the government fought a war in Southeast Asia at the same time. Dollar claims in the form of government bills and bonds built up at central banks around the world. At the recommendation of French economic advisor Jacque Rueff, a free market economist and gold standard proponent, French president Charles de Gaulle ordered the Bank of France to redeem 80 percent of its US dollar holdings for gold, per the solemn promise made at Bretton Woods. Thus began a run on the US Treasury’s gold reserves that culminated in President Nixon taking the dishonorable action of abandoning the gold exchange standard. This set the course of unfettered fiat money expansion that has led the world to the precipice of monetary destruction.

This end to the Bretton Woods system—itself already deeply flawed—ushered in the age of competing fiat currencies worldwide. We are now headed toward the chaotic destruction of this system as well.

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Nixon Closed the Gold Window and All I Got Was This Lousy National Debt, by Michael Maharrey

Posted on January 29, 2021 | Leave a comment

Money backed by nothing goes to its intrinsic value—nothing. FromMichael Maharrey at schiffgold.com:

 

This year will mark the 50th anniversary of President Richard Nixon severing America – and the world – from its last tie to the gold standard. The rapid devaluing of the dollar is the most obvious result. But another consequence has been an enormous national debt that continues to grow at a staggering pace. Most people don’t realize it, but this is a direct and intentional result of the current fiat money system.

In 1971, Nixon put the final nail in the coffin of the gold standard, but President Franklin D. Roosevelt put us on the path. On April 5, 1933, Roosevelt signed Executive Order 6102. It was touted as a measure to stop gold hoarding, but it was in reality, a massive gold confiscation scheme. The order required private citizens, partnerships, associations and corporations to turn in all but small amounts of gold to the Federal Reserve in exchange for $20.67 per ounce.

This infamous executive order was just one of several steps Roosevelt took toward ending the gold standard in the US.

With the dollar tied to gold, the Federal Reserve found it difficult to increase the money supply during the Great Depression. It couldn’t simply fire up the printing press as it can today. The Federal Reserve Act required all notes have 40% gold backing. But the Fed was low on gold and up against the limit. By stealing gold from the public, the Fed was able to boost its gold holdings.

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Currency Wars Are Back, by Daniel Lacalle

Posted on January 26, 2021 | Leave a comment

The winner of a currency race to the bottom is inevitably the biggest loser. From Daniel Lacalle at dlacalle.com:

The biggest mistake the Biden administration can make is to follow the siren calls of its competing economies to massively devalue the US Dollar, print endlessly and go full-MMT (Modern Monetary Theory), which is not modern nor a theory. Destroying the currency’s purchasing power to finance bloated government spending has been used for centuries with the same final effect: Collapse of the economy.

After an unprecedented increase in debt and government spending, many countries face the almost inevitable prospect of more currency devaluations, which has triggered pre-emptive responses all around the world. A currency war?

What is a currency war? A currency war is a conflict between nations trying to artificially devalue their domestic currency in order to be more competitive internationally but also to hurt their opponents. Using the currency to make the other nations less competitive while at the same time weakening their power.

It is based on a myth. That devaluation helps competitiveness and that having a strong currency is negative. Devaluation is not a tool for exports, it is a tool for cronyism, and destroys the purchasing power of salaries and savings to benefit low productivity sectors and the government. It is a transfer of wealth from citizens to the government.

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