Why we’ll be using gold, silver, and convertible currencies and not cryptocurrencies as the official means of exchange after fiat collapses. From Alasdair Macleod at goldmoney.com:
A reminder why they always will be sound money and why bitcoin cannot fill that role
With bitcoin’s price still rising and expected to rise even more, there has been a growing belief in cryptocurrency circles that it will replace unbacked government currencies when they eventually fail.
The assumptions behind this conclusion are naïve, exposing hardly any knowledge in what qualities are needed for sound money. This article agrees that current events are accelerating the path towards fiat destruction, and that historical precedents point to their eventual replacement with a sounder form of money. But what that money will be is decided when governments lose control over their fiat; and the public, its users, through free markets will set the monetary agenda.
Only then will the general public determine the qualities required, and in the past, it has always opted for metallic money. And because government treasury departments and their central banks coincidently possess only gold in their non-fiat reserves, its monetisation is the only option for governments to survive the collapse of their fiat currencies. That is what will eventually happen, with silver perhaps fulfilling a subsidiary monetary role to gold.
While increasing numbers of the fiat investment community understand that the quantities of government money are being expanded without any sign of limitation, they have also concluded that bitcoin, not gold, is the pure investment play because over the next few years bitcoin will approach its final quantity.
It is almost certain that like the majority of gold and silver bulls hodlers expect to sell bitcoin for profit measured in their governments’ currencies, creating for themselves relative wealth in dollars, euros, yen — whatever their governments impose on their citizens as money. But it is an investor’s, or speculator’s approach, which is accompanied by feverish examination of charts, confirmation bias from “experts” and only a half-understood concept of what is driving the price. So sudden and wonderful has been the unbanked wealth creation in leading cryptocurrencies, that investors commonly proclaim that gold and silver are yesterday’s story and that we oldies should move with the times.
Disorder this time looks like it will be the chaos wrought be inflation. From Egon von Greyerz at goldswitzerland.com:
When bubbles burst, we will discover how very few superior men there actually are – as defined by Confucius:
“The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved.” – Confucius
Superior man can exist at many different levels in society, not necessarily linked to money or investments. There will be many people without money who are prepared at an intellectual or psychological level. These people are probably the happiest since sadly many wealthy people worry about their money all the time rather than enjoy it.
In this piece I am talking primarily about preparedness in relation to one’s wealth.
PS Important Postscript at the end of the article.
FOCUS ON WEALTH PRESERVATION
The investors we meet in our business are people who are risk averse and therefore very much focus on wealth preservation. These investors buy physical gold because they are concerned about the excessive risks in markets. They want to protect and insure their wealth against unprecedented financial and currency risk. Like ourselves, these investors consider physical precious metals, stored outside a fragile banking system, as the ultimate form of wealth preservation.
But investment gold represents less than 0.5% of world financial assets. This means that a minuscule percentage of investors insure their wealth in gold. This is clearly surprising bearing in mind that over 5,000 years gold is the only money that has survived.
Egon von Greyerz has twenty-four reasons to buy gold. From von Greyerz at goldswitzerland.com:
nstant gratification is what drives the world and especially investment markets. I often hear complaints that gold is a useless investment since it doesn’t go up fast enough.
We have invested heavily into gold for ourselves and our investors since 2002 when the price was $300. Since then gold is up just under 6X.
Sure it has not been a straight line and there have been major corrections on the way.
STOCKS ARE TODAY A GARGANTUAN RISK
But Bitcoin and Tesla are much more exciting so why should an investor hold gold – an incredibly dull investment for the majority of people.
If I tell investors that it is absolutely critical to hold gold for wealth preservation purposes as the world financial system is the biggest bubble in history, most would ignore or ridicule me.
And if I tell them that the dollar and most currencies are down 97-99% since 1971 against gold and down 85% since 2000, they would yawn. They are only interested in their nominal stock market gains not understanding that they have gained nothing in real terms.
But if I proclaim that gold in 2021 could reach $3,000 some will prick their ears. (More about gold reaching that level, and higher, later in the article.)
Still most people prefer to stay in stocks totally unaware that the majority of stock investors are going to ride the stock market all the way to the bottom. And this time it won’t be a V bottom like March 23, 2020 but an L bottom lasting at least a decade or longer.
Both fundamentally and technically a stock market crash of massive proportions is guaranteed. Whether it starts tomorrow or we first see a final meltup is unimportant. Regardlessly, THE RISK IS GARGANTUAN!
CASSANDRA WAS ALWAYS RIGHT BUT ……
I can hear voices calling me a Cassandra and a doom sayer. For the ones who don’t remember Greek mythology, Cassandra was the daughter of king Priam and was given the gift of prophecy by Apollo. But as Cassandra did not respond to Apollo’s approaches, he gave her a curse that although all her “dark” prophecies were accurate, nobody would believe her.
I am not a Cassandra predicting doom and gloom but just someone who has spent his life analysing and understanding risk.
That’s why for example in 1999 I told my partner in an e-commerce business that we must sell the company at the then ridiculous valuation of 10X sales with no profit. The buyer was a Nasdaq company which went bankrupt a few years later after an acquisition spree paying grossly inflated prices.
If the future of money is gold, the future may be golden. From Alasdair Macleod at goldmoney.com:
This article explains why the successor money to failing fiat is gold, not cryptocurrencies. Cryptos can only act as stores of value so long as fiat exists. I describe how a world transacting with monetary gold and properly constituted gold substitutes works. It explains how and why unbacked bank credit expansion, which in natural Roman law was ruled to be fraudulent 1,800 years ago, can and should be eliminated in a post-fiat world, thereby ending destructive credit cycles.
Gold exchange standards, which are comprised of gold-backed money administered by the state, worked extremely well when properly implemented, and it is the siren songs of inflationism that are at the root of the current crisis. If the transition from worthless fiat back to gold standards is handled properly, an initial recovery to fully functioning economies need not take more than a year or so.
The pressure on future governments to reject inflationism in favour of free markets and sound money should not be underestimated. It is not rocket science. All we need are politicians in whose interests it is to see the light and have the determination to take their electorates with them. It will require them to hand back to individuals the responsibility for their own actions, enabling the requisite cuts in government responsibilities and expenditures to be made.
That child of fiat money, the welfare state and all the government actions to protect it will have to end, with the exception of the absolute basics.
The politicians to facilitate these changes do exist, though their voices are not heard. But the moment fiat collapses, we have good reason to believe they will re-emerge from under the misguided consensus they had been elected to deliver. It will be in their clear interest to do so, and monetary collapse giving birth to civil disruption can be avoided.
While there is a growing consensus that the days of fiat currencies are finally drawing to a close, the debate about their successor is misinformed due to a lack of understanding about the qualities required of money. This growing consensus is still a minority view, triggered by cryptocurrencies and bitcoin in particular, with enthusiasts claiming bitcoin to be the money of tomorrow.
Posted in banking, Business, Capitalism, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Government, Money
Tagged Bitcoins, fractional reserve banking, Gold, Monetary collapse
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.
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.
Posted in banking, Business, Collapse, Currencies, Debt, Economics, Economy, Governments, History, Money
Tagged Fiat currencies, Gold, Silver
If you’re looking at alternatives for present state-backed mediums of exchange, cryptocurrencies are sexier but gold has quite a track record. From Egon von Greyerz at goldswitzerland.com:
2021 is likely to be a year of awakening. This is when the world will start to realise that the $280 trillion global debt has no value and will never be paid back.
But even worse than that, of the $280t a staggering $200t has been created in the last 20 years.
Let’s say that it took 2,000 years to go from zero to $80t in 2000. It doesn’t really matter where we start counting since most of the $80t debt was created after Nixon closed the gold window in 1971.
AS DEBT IMPLODES SO WILL ASSET PRICES
Looking at the other side of the balance sheet, there will be an even bigger shock for investors and property owners as debt implodes. Because asset valuations are a function of the debt. And if debt implodes, which is inevitable, so will asset prices.
This is why prices of stocks, bonds and property will implode by more than 95% in real terms (gold) as I outlined in my article last week.
So it took just under 2000 years for global debt to grow from zero to around $5 trillion in 1971. Thereafter it took 29 years to year 2000 to grow by $75t to $80t. That was the exponential phase.
And now we are in the explosive phase with debt growing by over $200t in 20 years.
Anyone who can’t see what is happening is either blind or hasn’t studied history.
+$5t – 1,971 years – Year 0 to 1971
+$75t – 29 years – Year 1971 to 2000
+$200t – 20 years – Year 2000 – 2020
We saw exponential debt expansion 1971 to 2000. Since then the growth has been explosive.
You can tell something is dramatically wrong just by looking at Alasdair Macleod’s charts. From Macleod at goldmoney.com:
It is not for no reason that cryptos are roaring, and precious metals are playing catch-up. In the last month there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.
Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. It is driven by factors on both sides of bank balance sheets, with evidence that large depositors are reducing their term deposits and increasing their instant access checking accounts. This appears to be behind the increase in M1 money supply fuelled out of a shift from the M2 statistic, which includes savings deposits.
It amounts to a hidden run against bank balance sheets. Meanwhile, increasing supply chain problems against a background of covid lockdowns are leading to the withdrawal of bank credit from non-financial businesses, potentially imploding bank balance sheets as a bank credit contracts.
Foreign support for both the dollar and dollar-denominated fixed interest assets are being withdrawn, which is sure to lead to rising bond yields and dollar interest rates in the New Year, undermining the equity market bubble.
The Fed is now faced with not only financing ballooning federal budget deficits, but underwriting US supply chains in their entirety, which is corroborated by ongoing global logistical problems, tying up an annualised $34 trillion of intra-business payments in America alone. The Fed’s unwavering commitment to Keynesian monetary policies will lead the Fed to attempt to offset these supply chain problems, to rescue banks that fail to survive the inevitable contraction in bank credit, and to defray the bad debts that will arise.
It is a momentous task encompassing the whole US economy, requiring even faster money-printing, and is impossible without destroying the unbacked dollar.
Posted in banking, Business, Collapse, Currencies, Debt, Economy, Governments
Tagged Bank lending, Cryptocurrencies, Currency depreciation, Dollar, Gold, Inflation
As an alternative to state-issued mediums of exchange, cryptocurrencies can be expected to provoke the hostility of governments. From Tom Luongo at tomluongo.me:
The big worry among the bitcoin perma-bears is the threat of government ‘making it illegal.’
The latest bogeyman on this front is none other than U.S. Treasury Secretary Steve Mnuchin. Rumors float that he’s considering outlawing ‘self-custody wallets,’ in effect confiscating the private keys of everyone’s cryptos.
In a Twitter-thread, the chief executive [of Coinbase Brian Armstrong] said that his firm “heard rumors” about the US Treasury Secretary Steven Mnuchin’s plans to introduce fresh rules for “self-custody wallets” by the end of his term.
The open nature of cryptocurrencies allows anyone to create a private wallet by downloading third-party software on their computers/smartphones or through hardware devices that store digital assets. These types of self-custodial solutions come cheaper than traditional financial services — and they ensure privacy.
Those rumors are apparently valid since Mnuchin received a letter from four Congressmen imploring him not to do such a monumentally stupid thing.
If a country is clearly bent on depreciating its own currency, why hold either the currency or assets denominated in that currency. From Alasdair Macleod at goldmoney.com:
In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.
On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that
“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].
Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the frontpage article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding. The most recent suggestion is that China’s Treasury holdings will be put in trust for covid victims — a suggestion if enacted would undermine foreign trust in the dollar and could bring its reserve role to a swift conclusion.[ii] For the moment these are peacetime musings. At a time of financial war, if China put her entire holding on the market Treasury yields would be driven up dramatically, unless someone like the Fed steps in to buy the lot.
If that happened China would then have almost a trillion dollars to sell, driving the dollar down against whatever the Chinese buy. And don’t think for a moment that if China was to dump its holding of US Treasuries other foreign holders would stand idly by. This action would probably end the dollar’s role as the world’s reserve currency with serious consequences for the US and global economies.
There is another possibility: China intends to sell all her US Treasuries anyway and is making American monetary policy her cover for doing so. It is this possibility we will now explore.
Posted in banking, Business, Currencies, Debt, Financial markets, Foreign Policy, Geopolitics, Governments, History, Trade
Tagged China, Federal Reserve, Gold, Inflation, Trade War, US dollar
How do you maintain an empire when the world loses faith in your fiat-debt currency (aka scrip)? From Steve Brown at lewrockwell.com:
Ian Fleming wrote Goldfinger for good reason. The most important market in the world is gold. Not US stocks. Not shares in Amazon. Not bitcoin. Not Facebook. Sovereigns use gold – real gold – as the foundation for their most important deals.
Now consider that 40% of the world’s physical gold trade passes through bin Zayed’s United Arab Emirates. The same United Arab Emirates that blundered Bush into the Dubai Ports World scandal. The same UAE that hosts one of the largest US airbases in the Middle East… and the very same al Nahayan plutocracy that touts Israel as its closest friend and ally, beside the former United States.
But first, consider that the United States began weaponizing the US dollar as a matter of policy long before alleged criminal Treasury Secretary Mnuchin announced it. Weaponization of the dollar is isolating the US in world trade, but as regime star Kushner noted, “you cannot turn a battleship around overnight.”
The ‘battleship’ has been turning for fifty years since the disaster of the Nixon Shock, when the United States ‘temporarily’ abandoned the international gold standard thus heralding the ‘permanent’ era of central bank by-decree currency. Fifty years hence, a new perfect storm of events may prove that the consequence of August 15th, 1971 must now be confronted.