We will not see hyperinflation

That’s not how it will work here. That’s how it did work in Zimbabwe. I saw a tragic scene on cable TV (not on Oz TV) where a Zimbabwe woman was desperately sifting through sand by a river. The reporter asked her what she was doing. She said she needed a few tiny pieces of gold dust from this river or she and her two babies would starve to death. So in Zimbabwe producers really did want gold dust for bread.

Here, it is likely the currency will still be enforced (at the point of a govt gun) but that the gold price will (eventually) jump. How high, no one knows. When, no one knows.

So you put your “real” savings (cash you don’t need for 12 months) in one ounce pieces of gold. If it goes down (IT WILL!) don’t worry. Don’t look at the day-to-day fluctuations. Just know that in extremis, if the monetary system breaks down, societies have ALWAYS relied on gold when govts collapse. Zimbabwe is just a recent example.

I won’t produce and sell anything at the end of the day if I don’t get paid in gold and silver.

Then, when (not if) the US$ collapses or default occurs, you exchange SOME gold for the toilet paper of the day and continue on your merry way. The money you had in your pocket is worth less, but the gold is worth more. Simple. You keep selling your gold when the price jumps and you think the monetary system is back to stability. Right now, it’s a no-brainer – China is the buyer of last resort for gold so LT there is no risk for gold in US$. The only risk is gold in A$. That is something I can’t predict. However I know the stupidity of the RBA and the banks in Australia and know the models they use to price risk, so I’m fairly confident gold will go up even in A$ given the fairly uniform stupidity of our own financial institutions. They should all get out of residential property and set up branches to service sustainable farmers who will see incomes jump when China starts importing food – but they have no idea.

Investors used to save in gold so they could get money out of the banking system, realising that their deposits were not actually at the bank (they were already lent out under FRB). As I’ve argued before the central banks have proven themselves to be completely gutless and will print if there’s a bank run, so that reason to hold gold no longer really applies. It also means deposits ARE money today.

As long as you put your money in a TBTF institution the central bank can be guaranteed to keep bailing and bailing and bailing until we are drowning in liquidity. Like the US today.

You save LT in gold because when this happens, it is not that you can’t get your paper out of the bank; the paper becomes toilet paper at the end of the day. It is 100% certain. Only the timing is in question.

The whole of monetary history from 1694 on is a simple one: The bankers embezzle. There is a bank run exposing bank illiquidity/insolvency. The bankers friends in govt and at the central bank have to make a fateful decision: Defend the bank (print money/bail out the bank at the expense of savers and the general public) or Let the Bank Die and keep the money supply constant.

On every occasion I have studied (even in the 1930s) the central bank has tried to save their private banker friends first. Every time. I cannot think of an instance when the central bank has said – “No, I’m gong to let 5 big banks fail.” It just never happens. TBTF means “I’ve grown so big that I own you, the central bank, and the govt.”

The whole game is destroyed NOT by banks runs or insolvency BUT either by a currency crisis OR when malinvestments in the real economy become so obvious and the price mechanism is so distorted by the debasement of the means of exchange that there is true economic “anarchy”. In this case there isn’t hyperinflation so much as a freezing of all decision-making and investment because the price mechanism no longer works. This actually happened in Vic in 1991 – I was there. There should have been a “depreciation” of the Victorian currency, but because we had a national currency I got to see a deflationary economic crisis there. It was very close to economic anarchy in Victoria with Pyramid failing and terrible stories of savings lost, lives destroyed.

This will now happen on a global scale when the US has its own Victoria, 1991. It may not necessarily be a collapse of the dollar first. It may be that the US$ is supported – but like Victoria it experiences economic anarchy and massive unemployment. If the currency doesn’t “adjust” (die) then people do.

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