Tag Archives: Fiat currencies

Gold’s Middle Finger to Lying Currencies, by Matthew Piepenburg

Fiat currencies are crashing to their intrinsic value (zero) and gold will pick up the pieces. From Matthew Piepenburg at goldswitzerland.com:

Sensationalism, like central bankers and policy makers, has many faces, views and voices.

This may explain why so many want to hold their ears, hug their knees and beg the heavens for a beacon of guiding light amidst a 24/7 fog of info-cycle pablum masquerading as information.

Facts in a Fog of Sensationalism

With so many opposing ideas, movements, policies, parties, and personalities buzzing galvanically for attention, dollars or votes (in a world rightly or wrongly brought to its pandemic-accelerated knees), it’s becoming increasingly difficult to believe anything or anyone.

And this is likely because just about everything and everyone (from defective Fed chairmen to defecting royal princes and politicized prompt readers) has become, well—sensationalized.

Yet perhaps perspectives like mine are no exception. The title of my 2020 best-selling Amazon book on global markets, “Rigged to Fail,” sure sounds sensational, doesn’t it?

Was it just another doom & gloom scare-book with a catchy title for profitable “info-tainment”? Just another sensational voice joining the choir of omni-present crazy?

I’ll admit it’s a fair question.

But what if…

What if… these markets truly are rigged, and what if they (and economies) truly do fail? What if the evidence, rather than just the title, of that multi-chaptered observation is objective rather than, well…sensational?

Cynics (and I’m one of them) could say I’m plugging a book or exploiting a meme.

Fair enough.

But facts are stubborn things, and as Goethe wrote long ago: Some books are meant to show off what an author thinks he knows, while others (thankfully) are simply meant to be useful.

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Suffering a sea-change, by Alasdair Macleod

When interest rates really start to reflect the ongoing monetary inflation, it will blow the prices of most financial assets out of the water. From Alasdair Macleod at goldmoney.com:

here is an established theoretical relationship between bonds and equities which provides a framework for the future performance of financial assets. It would be a mistake to ignore it, ahead of the forthcoming rise in global interest rates.

Price inflation is roaring, and so far, central banks are in denial. But it is increasingly difficult to see how monetary policy planners can extend the suppression of interest rates for much longer. There can only be one outcome: markets, that is to say prices determined by non-state actors, will force central banks to capitulate on interest rates in the summer.

Hardly noticed, China is deliberately putting the brakes on its economy, which will cause an inflationary dollar to collapse, unless the US defends it by putting up interest rates. Deliberate? Almost certainly, as part of its strategy, China is taking the financial war with the US into the foreign exchanges.

Bond yields will rise, with the US Treasury 10-year bond leaving a 2% yield far behind. Equity markets will sense the danger, and it might turn out that the month of May marks a peak in financial asset values — following cryptocurrencies into substantial bear markets.

Introduction

There is an old stock market adage that you should sell in May and go away. It has already proved its worth in the case of cryptocurrencies, with Bitcoin more than halving at one point, and Ethereum losing 57% between 10—19 May. A sea-change in cryptocurrencies’ market sentiment has taken place.

As for equities, it could also turn out that 10 May, which so far has marked the S&P 500 Index’s high point, will mark the beginning of their decline. But it’s too soon to tell. However, we do know that following the unprecedented dilution of the major currencies’ purchasing power since March 2020 commodity prices have increased substantially, global logistics are fouled up and consumer prices are rapidly rising everywhere, a combination of events which is bound to lead to higher interest rates. But as is usually the case in times like these, central bankers and market bulls are wishing this reality away.

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Karl Marx’s Road to Hell is Paved with Fake Money, by MN Gordon

The fraud known as inflation is a dance with the devil. From MN Gordon at economicprism.com:

“The way to Hell is paved with good intentions,” remarked Karl Marx in Das Kapital.

The devious fellow was bemoaning evil capitalists for having the gall to use their own money for the express purpose of making more money.

Marx, a rambling busybody, was habitually wrong.  The road to hell is paved with something much more than good intentions.  Grift, graft, larceny, corruption and fake money are what primarily composes the pavement.  Good intentions are merely dusted in to better the aesthetic.

If you want to understand what’s going on with exploding price inflation then you must understand this…

Right now in the United States we have a scam currency that’s controlled by central planners.  Specifically, we have what Marx envisioned in Plank No. 5 of his Communist Manifesto:

“No. 5.  Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed a ‘national bank’ and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States.

Without the Fed’s policies of mass credit creation the U.S. government could have never run up a national debt over $28 trillion.  Without the Fed’s policies of extreme credit market intervention the U.S. trade deficit for March of $74.4 billion – a new record – would have never been possible.  Without the Fed’s printing press money the U.S. government could have never run annual budget deficits over $3 trillion.

The fact is centralized credit in the hands of a central bank always leads to money supply inflation.  Asset price inflation and consumer price inflation then follow in strange and unpredictable ways.

These price distortions are not defects of capitalism.  They’re symptoms of a scam currency managed by central planners.

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Market Weekly: The Pivot to Gold Has Begun, by Tom Luongo

Buying either gold or cryptocurrencies is a vote of no confidence in governments, their central banks, and their fiat currencies. From Tom Luongo at tomluongo.me:

For the past few weeks I’ve incurred the wrath of what I’m now calling “Gold-Only” bugs for constantly haranguing them about bitcoin and cryptocurrencies. These are the folks which state only gold can beat the central banks.

I’ve made my position very clear, in a world of digital money and accelerating technology there is room for both assets as stores-of-value for different types of investors and taking a ideological position for either is stupid as well as arrogant.

Like all things, there are reasons why putting all of your eggs in one basket in markets as cocked-up and purposefully manipulated as these is simply bad asset management. Risk is, ultimately, not someone else’s problem no matter how much Wall St. tries to convince of this otherwise.

Risk is your problem.

The gold and crypto communities have been at each other’s throats for months now, as bitcoin continued rallying off the Coronapocalypse low from last March while gold peaked in August and has ground out a truly demoralizing eight-month bear market.

The envy coming from Gold-Only bugs has them missing one of the great opportunities for wealth creation in anyone’s lifetime. You don’t have to love bitcoin to make money from it. Just like you can hate Facebook but own its stock and cash it in when it’s too expensive versus another asset, say… I don’t know? Gold?

But that inverse relationship is finally changing. Bitcoin and gold are getting back into phase. And it’s right on schedule.

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“Inflation Is Always A Political Choice”, by Tyler Durden

Governments and their central banks are always and everywhere responsible for inflation. And what drives governments and central banks? Politics. From Tyler Durden at zerohedge.com:

As Jim Reid leaves the Deutsche Bank credit desk for the next few weeks (“I’ll be taking holiday and sending the kids to Easter holiday camp and playing golf every day as courses in the UK open on Monday for the first time in 3 months”), his last Friday “chart of the day” covers an especially sensitive topic: inflation.

As Reid writes, “there is clearly a lot of talk about inflation at the moment and a lot of talk about whether the Fed and ECB (amongst others) will meet their respective targets” However, for Reid personally, and a statement we wholeheartedly agree with, “inflation is largely a political choice in the fiat currency world that we’ve been in since 1971” and he explains why:

When you have full control over how much money you can print and spend, rather than the money supply be fixed to Gold, you can always create inflation if the inclination is there regardless of demographics, digitalisation, globalisation or weak growth.”

Appropriately, today’s CoTD shows average inflation for all the 87 economies that DB has data on going back to 1971 when the US (and with it the vast majority of rest of the world) cut ties to gold. What is remarkable, is that no economy has managed to keep average annual inflation below 2% since, with Switzerland (2.1%), Japan (2.3%), and Germany (2.5%) the closest. Only 28 out of 87 managed to keep inflation below 5% over the full period. The US is at 3.8%.

So, as Reid concludes, “inflation is a choice in a fiat money world. The question is whether politicians will choose it or not, advertently or inadvertently.”

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Crazy days for money, by Alasdair Macleod

You may be buying and selling with gold- and silver-backed money sooner than you think. From Alasdair Macleod at goldmoney.com:

This article anticipates the end of the fiat currency regime and argues why its replacement can only be gold and silver, most likely in the form of fiat money turned into gold substitutes.

It explains why the current fashion for cryptocurrencies, led by bitcoin, are unsuited as future mediums of exchange, and why unsuppressed bitcoin has responded more immediately to the current situation than gold. Furthermore, the US authorities are likely to suppress the bitcoin movement because it is a threat to the dollar and monetary policy.

This article explains why growth in GDP represents growth in the quantity of money and is not representative of activity in the underlying economy. The authorities’ monetary response to the current economic situation is ill-informed, based on a misunderstanding of what GDP represents.

The common belief in the fund management community that rising interest rates are bad for gold exposes a lack of understanding about the consequences of monetary inflation on relative time preferences. Rising interest rates will be with us shortly, and they will burst the bond bubble with negative consequences for all financial assets and the currencies that have inflated them.

In short, we are sitting on a monetary powder-keg, the danger of which is barely understood by policy makers and which could explode at any time.

Introduction

We have entered a period the likes of which we have never seen before. The collapse of the dollar and dollar assets is growing increasingly certain by the day. The money-printing of the dollar designed to inflate assets will end up destroying the dollar. We know this thanks to the John Law precedent three hundred years ago. I last wrote about this two weeks ago, here. In 1720, it was just France and Law’s livre. Admittedly, the British had their South Sea bubble at about the same time, but it was the Mississippi bubble which proved that if you print money to puff up asset prices, you end up destroying the currency when the bubble bursts. The Bank of England didn’t make that mistake, but today led by the Fed that is precisely what most central banks are doing. John Law has become global.

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Money Is A Weapon of Mass Destruction, by Paul Rosenberg

Fiat money may be the most destructive instrumentality on the planet. From Paul Rosenberg at freemansperspective.com:

Money wasn’t always our enemy, of course; I’m old enough that I knew people who were alive before it was weaponized. But modern money – dollars, euros and so on – are so destructive that they’re threatening not just individuals, but Western civilization itself.

If that sounds a bit over the top, please read on. Before we’re done I think I’ll convince you otherwise.

I call fiat currency a weapon of mass destruction because it has caused far more widespread damage than chemical weapons ever have, and has assuredly destroyed more human potential than nuclear weapons. The nuke destroys horrifyingly but rarely; fiat money destroys minute by minute, day by day, over multiple decades and in shocking proportions.

How Money Destroys

How money destroys is not immediately obvious. We grow up learning to count it and spend it, then to make it, but few of us ever learn anything more about it, even in university-level programs.

Fundamentally, fiat currencies destroy because they hijack human will on a massive scale. Here’s how it happens:

  1. Money (currency) is one half of every commercial transaction, and those transactions involve nearly every aspect of every life in the Western world, from birth to death. That’s immense scope.
  2. Fiat currency is created at roughly zero cost, by governments and the friends of governments.
  3. Money is used to buy all the necessities of life. Thus it is deeply and inherently motivating, and to more or less every human on the planet.
  4. Because of the above, anyone creating new currency units can motivate millions of human beings: powerfully, on demand, and at almost no cost.

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The global reset scam, by Alasdair Macleod

It doesn’t matter much if you shift from paper money to digital money if they’re both worthless. From Alasdair Macleod at goldmoney.com:

This article takes a tilt at increasing speculation about statist global resets, and why plans such as those promoted by the World Economic Forum will fail. Central bank digital currencies will simply run out of time.

Instead, the collapse of unbacked fiat currencies will end all supra-national government solutions to their policy failures. Already, there is mounting evidence of money beginning to flee bank accounts into stocks, commodities and even bitcoin. This is an early warning of a rapidly developing monetary collapse.

Moreover, nothing can now stop the collapse of fiat currencies, and with it schemes to control humanity for the convenience and ambitions of government planners. There can only be one statist solution and that is to mobilise gold reserves to back and save their currencies, which in order to succeed will have to be fully convertible into circulating gold coinage. It will also require the role of governments to be reset into a non-welfare, non-interventionist minimalist role, which can only be achieved after a complete collapse of the current fiat-financed system.

Anything less will fail.

The Deep State and The Blob fuel conspiracy theories

Increasingly, people are beginning to realise that their world is undergoing a period of rapid change, with the future of fiat money now uncertain. For most, it is too difficult to even contemplate. But growing uncertainties are driving wild speculation about what those in authority now have in store for the human race in the form of a global reset. It is a time for conspiracy theorists, aided and abetted by our politicians and central bankers who are being increasingly evasive, because events are spiralling out of their control.

Then there is America’s Deep State, or the British equivalent, the more recently christened Blob; an amorphous entity comprised of the permanent bureaucracy with its own agenda. These faceless planners have moved on from merely making ministers’ lives difficult if they deviate from the blob’s predetermined course — immortalised in “Yes Minister” and its sequel series “Yes Prime Minister”.

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The emerging evidence of hyperinflation, by Alasdair Macleod

According to Alasdair Macleod, we are not that way from a hyperinflationary collapse of fiat currencies. From Macleod at goldmoney.com:

Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.

In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today. In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.

Introduction

In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.

The purpose of monetary inflation is always stated by central banks as being to support the economy consistent with maximum employment and a price inflation target of two per cent. The real purpose is to fund government deficits, which are rising partly due to higher future welfare liabilities becoming current and partly due to the political class finding new reasons to spend money. Underlying this profligacy has been unsustainable tax burdens on underperforming economies. And finally, the coup de grace has been administered by the covid-19 shutdowns.

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Sound Money Is Key to Defending Our Liberties, by Thorsten Polleit

If humanity is ever to be free, money must be private, with government having no role in it at all. From Thorsten Polleit at mises.org:

The title of this article epitomizes what the Austrian economist Ludwig von Mises (1881–1973) called the “sound money principle.” As Mises put it:

The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.1

And further:

It is impossible to grasp the meaning of the idea of sound money if one does not realise that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.2

Mises tells us that sound money is an indispensable line of defense of people’s liberties against the encroachment on the part of the state and that sound money is a kind of money that is not dictated by the state but is chosen by the people in the free marketplace. The world we find ourselves in is a rather different place. Our monies—be it the US dollar, the euro, the Chinese renminbi, the yen, or the Swiss franc—represent fiat currencies, monopolized by the state.

Fiat money is economically and socially destructive—with far-reaching and seriously harmful economic and societal consequences, effects that extend beyond what most people would imagine. Fiat money is inflationary; it benefits a few at the expense of many others; it causes boom-and-bust cycles; it leads to overindebtedness; it corrupts society’s morals; and it paves the way toward the almighty, all-powerful state, toward tyranny.

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