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Why fiat paper money is always trashed in the end
Because govts can. So they will.
Which is why gold and silver are God’s money, real money, honest money, money to have in a crisis like today, money to hold in your own hands secure in the knowledge no embezzling shyster is going to take it away from you or counterfeit it or overprint it.
As Jeff Clark explains here:
Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.
This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.
Yet, what is the guardian of our economy and money telling us now?
“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).
This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.
Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.
Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.
The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.
So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?
For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.
I don’t like the term “man made”. Everything is man made, and valued by man. I prefer this expression: “Don’t kid yourself into thinking an easily debased paper asset will protect your purchasing power.”
Because in the end, it never has. Ever. In the history of paper currencies every single one has eventually ended up worthless. Every. Single. One.
Think about it.
Silver: The Bargain of the Century!
Let me add an addendum to my Trade of the Decade:
Silver, the longtime poor cousin to gold, is $et to $oar!
There are so many industrial applications for silver it’s not funny. They are growing by the day, especially in nano-tech.
The shorting of silver by the bullion banks is insane and unprecedented.
The historical gold:silver ratio over the last 700 odd years appears to be around 30:1. Some say it’s as low as 16:1. It’s currently around 70:1.
Wow.
Admittedly, the Makian Distribution predicts massive volatility in commodity prices with increased leverage/debt, and that’s exactly what we’ve had in the silver market over the last 50 years.
But something tells me silver is due to switch across to the right hand side of the bifurcating normal distribution very, very soon.
I would love to see a short squeeze in the silver market. It would be like watching fireworks on New Year’s Eve.
Charles Goyette proves I am not insane
I’m not as alone as I thought!
As you begin to appreciate the gravity of the situation Charles lays out in a most eerie fashion what the most likely scenario awaits us and builds a strong case for why he believes the dollar will collapse. At this point most readers not familiar with economics or America’s history of debt may begin to panic and pass out from fear, as Charles’ arguments are extremely convincing. From a long term perspective there is very little to argue about, our fiat pyramid of debt has to and will eventually collapse – the only question is of timing. This question is crucial to properly answer as it will spell out the direction of the next several years. While Charles attempts to answer the question with an open mind, his views can be best described as inflationist and he firmly believes that the forces in charge of our destiny will turn to the only tool available to them – currency depreciation. Once again, in the long run this may be true, but for the time being America finds itself in a unique situation where our dollar is still the reserve currency and is still trusted around the world. Certain technical reasons also suggest that the dollar may strengthen in the coming months not so much due to any internal policy, but the systemic failures in other parts of the world. Still, as Charles poignantly argues our status as the reserve currency is on borrowed time and can change with a blink of an eye. For this reason the book’s last section presents advice valuable for every American regardless of what one’s prognostication may be.
Charles is partial to value, a concept easy to grasp when you realize just how worthless the dollar can become. Therefore common sense approaches involving gold, silver and oil are presented. Charles makes a deliberate effort to provide options for any would be investor regardless of experience and if you are under the impression that you must build a ten ton safe and start hoarding gold ingots then you are mistaken, it is easier than you could ever imagine. Several sections are also devoted to address other popular investment strategies like equities and treasuries and why you should think twice before you invest in these increasingly risky asset pools. A rather amusing analogy between America’s credit strength and a shady uncle constantly looking to borrow should be reprinted and distributed all over the Internet.
The Dollar Meltdown is a unique and valuable book, offering the complexities of economics in order to explain where we are and how we got here while presenting investment strategies for those people interested in taking control of their financial feature. If you prefer eating glass over reading economic text or think Wall St. is a prerequisite before making investments, then this book is a must read for you and your family.
Gold wins gold: Best asset to hold this decade
One picture truly can tell a thousand words:
Merry Christmas and Happy New Year
To those readers who have tolerated my rage against the machine, thanks for sticking with me.
As the Buddha stated just before his death, “Everything is Change” – so I am quietly confident things will get better in 2010 (they could hardly get worse).
I leave you with Lew Rockwell’s sage words regarding God’s money and the connection between faith, truth and sound money:
Fiat money with central banking… tempts corrupt politicians and bureaucrats, and it also further corrupts them. It is the great occasion of sin of our public life. The tragedy is that their use of the printing press not only corrupts them; it imposes dreadful and intolerable costs on the rest of society, in the form of price inflation and business cycles.
We’ve seen the corruption grow worse over time. We are living now in the 37th year of fully fiat money with central banking. The politicians of the past were a bit reticent to use all the power they had. They are becoming ever more brazen. The sense of shame seems to be gone forever, their consciousness completely papered over by the ominous power they possess. The pundit class is following them, believing that there are no limits.
In truth, all these bills must be paid. To realize that is to realize the necessity of radical reform. It can be overwhelming to contemplate the glorious results of a full gold standard reform. Inflation would stop eating away our purchasing power. The business cycle would be tamed. International trade would not be disrupted by wild swings in currency values. But of all the benefits, this one is the greatest: it would stop arbitrary rule, dead in its tracks. It would force the government to curb its ways. It would shore up our freedoms.
For this reason, the policy of sound money is very much linked with morality. The Hebrew scriptures, in the nineteenth chapter of the book of Leviticus, warns “you shall have just balances, just weights…” The twenty-fifth chapter of Deuteronomy issues a similar warning: “You shall not have in your bag differing weights, a large and a small.” Proverbs says the same: “A false balance is abomination to the LORD: but a just weight is his delight.” Another passage says: “Diverse weights, and diverse measures, both of them are alike abomination to the LORD.”
All of these relate in some degree to the need for sound money and condemn the act of fraud and monetary debasement. The consequences of monetary sin cannot be contained to the sinners only. They are spread out all over the whole of society, destroying its economic basis and corrupting the morals of society. They foster crazed illusions that we can magically generate wealth through the act of printing money, and the attempt to do so has catastrophic consequences. As Mises wrote: “Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.”
I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy. And I fear that the consequences of this policy will be felt for many decades into the future. There is still time to reverse course. There is nothing inevitable about despotism. We are not being forced down this road. We can embrace freedom. If we understand that freedom is inseparable from sound money, we can embrace that too. Until then, we will continue to place our trust in the political establishment to do what is right. Call me a gold bug if you will, but I trust hard money far more than our rulers. And that, ultimately, is the choice we must make.
Merry Christmas and Happy New Year. Let us pray for sound money to return in our lifetimes.
Jim Willie (a.k.a. The Golden Jackass) nails it
Fantastic blockbuster post, predicting multiple, cascading sovereign debt defaults, a run on US debt and a final run to gold and silver.
I agree with all of this analysis, as can be seen in previous posts on gold, silver, fiscal Armageddon and other entries.
This is the best current synopsis on what’s coming that I’ve seen to date. The question is timing. I cannot say this will happen in 2010. But it will happen.
The only question is when.
$ilver set to $oar
$ilver is gonna blow at some point. It’s impossible to keep the short positions going indefinitely in the face of physical demand and supply shortages.
The question is: When? I don’t know, but Butler thinks it might be soon.
Robert P. Murphy votes hyperinflation
Murphy sees destruction of the currency and a new Amero emerging from the wreckage.
MISH, the Rothschilds, Steve Keen (and I) vote deflation.
Someone’s gonna be wrong.
Fortunately gold and silver are the answer in either case.
Jim Rogers: $ilver a better buy than gold
Did you know the $ sign is actually the old symbol for silver, so intimately associated is silver with money historically.
Silver is an unbelievable bargain. Smaller market than gold, rapidly dwindling supply, huge demand, vast number of industrial applications… and consistently shorted by the bullion banks.
The price for silver is so obviously artificial, so obviously “balloon under water”, how could it not go up long term?
Jim Rogers is just stating the obvious.
Predictions for 2010
As the year comes to an end, let me list my predictions for 2010. Note: Anyone who says their predictions are based on modelling is an idiot or a liar.
As was clear from our experience in 2009, politics, connections, favours, and plain old everyday third world corruption play a major part in any economic outcome today.
The “logical” prediction for 2009 would have been the bankruptcy of AIG, the bankruptcy of a number of major US and UK banking institutions, deflation, a continued stockmarket collapse, a spike in long-term interest rates (caused by a decline in demand for T-bonds due to US govt deficits), a collapse in the value of the US dollar and a spike in gold. Almost none of these happened because of the multiple, trillion dollar interventions of the Fed and the US Treasury. AIG was saved, US and UK banks received hundreds of billions in bailouts, swapping toxic trash at the discount window 100 cents in the dollar, the stockmarket was artificially supported, the long end of the bond market was (allegedly) supported by the Fed, and gold was shorted relentlessly by the primary dealers.
So predictions for 2010 are really political predictions and these cannot be taken very seriously. Nevertheless, it’s fun to speculate, so here goes:
1. A CRE and housing bust in Oz in the second half of the year due to (a) wholesale funding costs jumping for Cth Bank and Westpac in particular and a fight for deposits (b) APRA liquidity requirements kicking in (c) high $A killing exports and local manufacturing, combined with a generally slowing economy due to a fall in Asian growth and a crisis in Japan (d) pullback of the FHBG and other handouts from Rudd Bank (e) pull back on the govt backing of Oz banks, exposing them to “market” rates for wholesale funds especially for LT debt (f) housing prices already being ridiculously too high, as Steve Keen has pointed out many times in the last 3 years. It should be a bloodbath in CRE in 2010.
We’ll see whether the govt and the desperate Oz banks can hold back the receding tide. Unlisted funds with illiquid assets were massacred in 2009 by the govt’s bizarre, indiscriminate bank guarantee (thereby predictably and savagely killing off the supply of liquidity for unlisted CRE trusts). This should mean that the marginal players in the finance industry have simply had their executions stayed, not commuted. Will this now infect the whole CRE market, as supply continues to overwhelm declining demand due to liquidity tightening for the dumb Oz retailers of debt? Bank guarantees should have engendered moral hazard in the marginal lenders. This should have made the problem worse. This problem may be deferred until 2011, but something tells me this Ponzi-scheme can’t be sustained throughout 2010. We’ll see.
2. S&P 500 down for the year, with a “crisis” in early and/or mid 2010 due to (a) the fallout from the bubble being delayed this year – meaning that the bust will be even bigger and flow into 2010 (b) a significant portion of consumers (70% of the US economy) being bankrupted in unsustainable debt (c) debt levels threatening the long-end of the US bond market (d) unemployment continuing towards 15% in official terms and 25% in unofficial terms (e) a possible US dollar/bond crisis, with an unprecedented volume of bonds being needed to be flushed into the market (f) the banks being supported, but the bulk of US industry being left to die. The S&P 500 includes much more than just Goldman Sachs (which will continue to perform well, given they print their own profits).
3. Gold up – for all the reasons in (2) above, plus the fact that the Fed will continue to pour e-dollars out into the market in the trillions, without any effect (see Japan over the last 15 years). So gold will be the only place for the e-dollars to go.
4. Silver to go up more than gold – for all the reasons in (3) above, plus the fact that silver is a tighter market with the massive short positions in silver finally having to be unwound on reality.
5. Oil higher. Inflation’s got to go somewhere. And Peak Oil has arrived.
6. Food and food inputs higher. Possibly significantly higher.
7. Fed Funds Rate probably around where it is now. The big story will be everything BUT interest rates. Interest rates will stay low (to save the banks) but chaos and volatility with be a tempest around stable, low rates. The debt load is massive and people will be killing themselves to extract themselves from this killer debt-load by repeatedly trying – and failing – to spark a new bubble in the stockmarket. Then in desperation they’ll spark a bubble in oil, food, gold and silver. Currency volatility will be unprecedented. There is the real prospect of a US dollar meltdown. If so, gold will soar on its angelic wings.
The overall theme for 2010 will be continued unprecedented volatility. Price swings, especially in the stockmarket, will be violent as liquidity sporadically dries up due to the unsustainable debt loads and banks desperately juggling debtors to stave off insolvency – both in their clients and themselves.
The Makian Distribution predicts increased volatility with increased debt. We have increased debt. So, according to the theory we must have increased volatility.
Prepare for lift-off…
Gold has been money for 6000 years
I thought gold and silver have been money for 4000 years.
It won’t be the last time.
I predict societal collapse from US debt, the destruction of farming, real environmental catastrophes (such as the extinction of bees and the depletion of phosphates from the soil – not fake global warming BS) and mass bankruptcies from excessive leverage within 10 years.
Again, my timing may be a little out. But not by 2000 years.
Do you think more regulation is the answer?
Remove legal tender laws, abolish the criminal central bank, allow banks to fail when they experience bank runs, and things would take care of themselves.
Warning: Tungsten is NOT gold. Zinc is NOT silver.
Inflation, then deflation…
Possibly as early as 2010!
Karma is King 