Sometimes, one must simply go back to the basics. And when one is charged with educating as to why one should own Precious Metals, there’s no better time than when financial bubbles foster “confidence” in the dollars, euros, and yen creating them; and simultaneously, hatred of “barbarous relics” like gold and silver. Moreover, in today’s situation, we not only must contend with the Fed-induced mania being created in the stock market, but the “internet-like” surge in virtual currencies like Bitcoin.
Remember, the underlying cause of my abandonment of the dollar 12 years ago was realization that it, like the 599 fiat currencies before it, would inevitably be destroyed by inflation; as the definition of a Ponzi scheme is a financial arrangement that can only survive by growing exponentially larger, while simultaneously, maintaining public confidence. This is why fiat money creation exploded after the gold standard was abandoned in 1971; and consequently, why it will rise hyperbolically before eventually collapsing under its own weight.
Since joining Miles Franklin two years ago, I have focused a great deal of my attention on the “definition of money”; as aside from “inflation,” no concept is more badly misrepresented. The below slide is one I have utilized in numerous presentations, highlighting how there are myriad parameters that must be met to be afforded the moniker of money.
For one, it must be divisible into smaller units, so as to enable “making change; which sadly, is the only such parameter the dollar (and other fiat currencies) typically meet. Yes, the dollar is fungible, per se, in that “all dollars are created equal.” However, given the rapidly changing face of the dollar itself, global uncertainty about what is a “dollar” has become significant. The U.S. $100 bill is the most counterfeited in the world; and thus, many nations’ vendors no longer accept them. Trust me, I learned that the hard way this summer, in China!
Secondly, to constitute money, the item in question must be both limited in supply (i.e., scarce) and verifiable. And in the case of “dollars,” not only is their supply unlimited, but as unverifiable as possible. As to the former, growth in the published money supply speaks for itself, while the really scary part is what goes unpublished. For example, the secret $16 trillion of zero interest rate “loans” the Fed handed out during the 2008-09 financial crisis; of which, it is unclear how much, if any, has ever been repaid. Moreover, the Fed’s off-balance sheet “swap agreements,” which pumped untold trillions into global Central banks between 2009 and 2013. And don’t forget M3; i.e., the broadest U.S. Money Supply measure – which was conveniently discontinued when Ben Bernanke became Fed Chairman in 2006, under the guise of saving $1.5 million of annual administration costs.
Next, money must serve as a medium of exchange. To wit, gold and silver coins are accepted virtually everywhere; i.e., from Central banks to subsistence, bartering cultures. Conversely, dollars are, for the most part, only accepted in the United States. Yes, a handful of third-world nations are happy to accept them in lieu of their far more than local currencies. However, in most cases, dollars must first be exchanged for local currency – at great expense and inconvenience – in order to spend. Even the average Canadian business won’t accept U.S. dollars, despite their trading at nearly parity to the Canadian dollar; and if the Canadians won’t accept U.S. dollars, who will?
And last but not least, to serve as money, a currency must provide a store of value for a material period of time. As you can see, all of the world’s major currencies have lost nearly all their purchasing power against gold over the past century; which in the dollar’s case, is precisely the amount of time the fiat-issuing Fed has been in existence.
In fact, in this fantastic article – which inspired today’s piece – Charles Hughes-Smith speaks of various modern day “offshoots” of the monetary parameters discussed above. In other words, exactly why fiat currency has always failed when attempting to mimic money; and conversely, why physical gold and silver have always succeeded.
In my mind, it is difficult to discern if it is more galling that Bitcoins – created out of thin air by a handful of computer techies – are trading nearly at parity with gold prices; or that dollars, created out of thin air by a handful of bankers, still have any remaining purchasing power. Oh well, this is not the first time repressive, self-serving governments have attempted to stave off reality with obfuscation; in today’s case, using “modern-day” weapons like money printing, market manipulation, and propaganda.
Fortunately, the “window” they have created still remains open; enabling you to trade your dying scrip for the security of REAL MONEY, which currently trades at its cheapest level relative to inflation in generations, if not ever. Remember, the laws of “Economic Mother Nature” are no more repealable than those of her sisters in the other sciences; and thus, whenever someone tells you dollars are Bitcoins are the “new gold,” they are simply whistling on the way to their financial graves.