The institution of money entered the minds of sophisticated traders several millennia ago, when instead of bartering with limited numbers of people within the cumbersome double coincidence of wants, large-scale economies developed from the reach and transparency of commodity money which was scarce, durable, fungible, transportable, divisible, recognizable, and usable in and of itself.
While we may appear to have transcended those primitive times and those so-called barbarous relics, the truth is that we have merely mutilated the concept of money by clandestinely replacing it with its more manipulable and abstract representative, the proverbial coat check without the coat.
This is but the device of a large-scale social experiment run in real time, and we are its unwitting and unconsenting subjects who’ve largely never heard of the Federal Reserve’s dual mandate, much less its missions of “maximum employment” and 2-percent annual inflation.
Yet there is hope after all.
Finally, after decades of this nefarious experiment with faulty fiat currencies and pernicious monetary redistribution, new implements have become widely accessible to those who are privy to the end game of the ongoing political agenda.
With a structure analogous to the original form of banking, Goldmoney combines the trusted properties of precious metals with the technology of the internet, enabling depositors to easily convert their U.S. dollars and other fiat currencies into grams of gold, which they can access through a complementary MasterCard debit card.
Additionally, up-to-the-second updates allow depositors to track the dollar values of their respective holdings, and they can even exchange gold wirelessly across the globe with anyone else on the platform.
What's more, depositors can select from a menu of vaults across the globe, and, above all, their holdings are securely stored by Brink's, which has never lost a single ounce of gold in 160 years of business.
While I normally don’t share time-specific investment advice, I firmly believe that we are on the precipice of both an official correction and a historic economic readjustment.
Widening trade and budget deficits, a collapsing dollar, climbing interest rates, record household and national debt, record margin debt, record levels of stock buybacks, a near-zero savings rate, waning interest in U.S. debt from foreign central banks and principal creditors, and a record DJIA-to-GDP ratio, form just part of the broader picture of an economy teetering on despair.
As it turns out, the social experiment of quantitative easing and zero interest-rate policy (ZIRP) appears to be unraveling, as the overbought stock market has begun to stutter and the U.S. dollar has begun to suffer serious losses.
Over the past year, in fact, the U.S. dollar has declined roughly 10 percent, as measured by the U.S. Dollar Index (DXY), while gold has rallied better than 12 percent over the same period.
As interest rates climb and the price of bonds collapses, so too will the asset bubbles which have been inflated to paper over the previous financial crisis.
As economist Henry Hazlitt wrote in 1946:
"It is true, no doubt, that an artificial reduction in the interest rate encourages increased borrowing. It tends, in fact, to encourage highly speculative ventures that cannot continue except under the artificial conditions that gave them birth."
Among these many asset bubbles, formed as a consequence of this artificial reduction in rates, is the U.S. stock market, which has transformed into a debt-financed illusion of wealth predicated upon a revolving door of easy credit, extended to the United States across shorter-maturity loans by nations both relatively rich and poor, China and Japan chief among them.
Unfortunately, this frothy illusion of wealth will soon transform into a weighty hammer waiting to bludgeon the American economy back to reality.
As both consumption and speculation have historically and empirically proven a function of anticipated future returns, and as rising rates will invariably absorb credit to restrict borrowing and leveraging, spending and investment will subsequently follow as more money chases debt reconciliation, away from speculative activity and asset purchases.
Under conventional circumstances, investors would seek refuge in safe-haven sovereign debt securities.
However, in the case of modern America, the final phase of bubble creation, one from dot-coms to housing and the financial industry, has materialized in that very asset class today: U.S. Treasury bonds.
Once the United States officially enters correction territory, when there is no greater fool sufficiently willing to buy, and instead those buyers turn into sellers, there is nowhere for the controllers at the Federal Reserve to turn.
With savings and interest rates already near zero and a Federal Reserve balance sheet in excess of $4.5 trillion, the United States federal government would be steeped in a situation unlike any other in its history, with its only recourse being: futile attempts to reflate those leaking bubbles, reckless monetization of debts, draconian tax increases, or some combination thereof.
Ironically, the recent stock market rally has been boosted on the premise of a burgeoning economy and the promise of raising rates and the Federal Reserve normalizing its aforementioned balance sheet.
Any combination of these methods will invariably cause precipitous declines in the U.S. dollar and though the immediacy may bear nominal stock market rallies, the real losses incurred in the dollar will easily surmount those gains.
And, of course, once the United States officially reinstates any sort of stimulus package, which would need to dwarf its previous bouts labeled QE, the entire premise of an economy brimming with confidence is swiftly swept to the wayside, ushering in a violent wave of honest bearishness.
As unsophisticated as it may seem, the bearishness will ensue from the realization that, as Hazlitt puts it, "new money and new credit," as with the $80-billion-per-month injection from the Fed during QE, merely "add to the apparent supply of new capital just as the judicious addition of water adds to the apparent supply of real milk."
Whatever the case, this economic readjustment will invariably witness the reversion of the Dow Jones Industrial Average well below its average gold price to settle near equivalency with a single ounce of gold, a mark last struck in 1980 during the final year of the Carter administration, after a decade of massive inflation which witnessed the Nixon shock, a serious energy crisis, and the U.S. dollar lose more than two-thirds of its value.
All the while, the celebrated Keynesian economists who embraced the very policies which caused this mess were left scratching their heads and wondering how slow economic growth could possibly coexist with high rates of inflation.
Ultimately, the value which escaped their calculus was that abstraction of real savings, underconsumption and value-added production, the total of which forms the foundation for the viable designs of the future, yet ironically purely exists as unrealized spending potential by the Keynesian whose models fail to distinguish between its forms.
And this failure of the Keynesian model has dramatically shortened the time horizon for investment, as political ambitions and empowered social enthusiasm for short-term euphoria have swiftly displaced disciplined investment and sustainable models of production, the latter of which requires rigorous work.
Of course, this sobering reality stands opposed to their myopic supposition that economies can merely spend their way to prosperity, that consumption drives economic growth.
In fact, the Keynesians have it perfectly backwards, as it is production and savings, underconsumption by definition, which inherently enables consumption and capital investment for the future, and it is consumption which merely depletes those savings.
In essence then, demand is effectively infinite, yet it is the real demand which is important: this spawns from mutual perceptions of material gain from trading producers, an outcome which is commonly classified as demand but more accurately described as supply-induced satisfaction of wants.
To gear an economy around consumption, or so-called demand, is to reallocate resources to less productive endeavors, to artificially propel the symptom rather than the impetus for real demand, and to emphasize present consumption over future consumption and potential investment.
This is the common tool of those who take little interest in the future, as they are willing to dispense of everything tomorrow so long as it serves their respective tenures today.
This form of market manipulation produces nothing more than mirages in the desert of economic despair.
And now, finally, after decades of wealth pretense, the time of reckoning is upon us.
This will necessitate either a massive contraction or a less admirable and more disingenuous expansion of the money supply, likely by way of the Federal Reserve returning to its role as the lender of last resort, leading invariably to the further debasement of the purchasing power of the U.S. dollar.
Unquestionably, gold and silver remain the most qualified forms of sound money today; the rest is sheer representative money, at best, or plain counterfeit, which is most profoundly true of the fiat world in which we live today.
Here’s a useful way to remember the concept of fiat currency: In 1960, the average price of a gallon of gas was one quarter, or 25 cents. If you have that same quarter today, you can still buy a gallon of gas with it. In essence, gas is actually no more expensive today than it was in 1960; it’s only more expensive if you’re paying in dollars, or cents. Ultimately, that quarter above can still afford that gallon of gas because it is composed of 90-percent silver. So, in terms of gold and silver, the price of gas has remained rather stable; it’s only the dollar price which has climbed so dramatically.
In the end, it's not the numerical dollar amount that you wish to save in your bank account; it's the purchasing power which accompanies it.
And the U.S. dollar, which has lost roughly 98 percent of its value over the past century, has performed terribly in this capacity.
Thus, many readers will ask, what can we do to regain control?
Unfortunately, the debt picture is simply far too bleak, and the structure of the economy far too out of balance, to avoid a deep and thorough recession.
This means a host of painful job losses and sweeping defaults which will drag down pension funds, retirement and savings accounts, and their accompanying expectations, meaning a holistic reconfiguration of the economy and a concomitant reformation of life priorities.
Or it will mean a massive bailout which collectivizes the losses in the form of satisfied nominal expectations which deliver inferior real values in all U.S. dollar holdings.
Based on the major share of perceived wealth being predicated upon pensions, and based on those pensions' increasing dependency on equities, there is little to virtually no chance that the bureaucrats in Washington will remain idle as a correction undermines the wealth effect they've so diplomatically manufactured across administrations.
Now, the debt picture of the United States is far more pronounced than even that which is captured by the headline $20.6 trillion figure.
With unfunded liabilities, that total easily eclipses $100 trillion.
For an economy believed to be nearly three-fourths supported by consumption, and whose total gross domestic product (GDP) leans on a 40-percent weighting toward government spending, an economy of $18.57 trillion is both insufficient to satisfy the weight of that debt and more precisely characterized as gross domestic fantasy.
Now, notwithstanding the severe ramifications of a candid admission, an honest default or restructuring would befit the compassionate politician who wishes to secure the better interest of his constituents.
However, that would also mean poor politics for the incumbent party, as the painful correction would be popularly maligned and thus forever assigned to the administration which presided over it.
For this reason, we can reasonably expect the present administration to attempt to reflate the myriad asset bubbles which originated the nominal rally and associated wealth effect in the first place.
Rest assured, no practiced politician will tell his constituents what they don't want to hear but desperately need to acknowledge.
No successful politician will tell his constituents that their lives will need to change, when he can just as well imbue them with false confidence as he scrambles through his tenure in office, praying that the sky doesn't fall on his watch.
As such, as is the ultimate fate for all fiat currencies, this will mean a devastating downward spiral for the U.S. dollar, which has already begun what appears to be the beginnings of a secular bear move.
On the positive side of things, we'll be around to witness the unraveling of this extraordinary experiment, but that is also the bad news.
The time to take action is now, before the doorway narrows as panicked investors rush out of their ill-guided investments into those trusted stores of value.
As former Federal Reserve Chairman Alan Greenspan cautioned in his conference with the Banking, Housing, and Urban Affairs Committee, "We don't have a system that's working. We have one that basically moves cash around, and we can guarantee cash benefits as far out and in whatever size you like, but we cannot guarantee their purchasing power."
The only time-tested, generationally-proven and globally-coveted stores of value are gold and silver: physical assets bearing industrial, cultural and ornamental value with no counter-party risk. This is what organically enabled them to serve as useful commodities before being spontaneously employed as money, as opposed to their modern fiat counterparts which artificially spawned from flimsy government decree.
Salvatore Rossi, director general of the Central Bank of Italy, even acknowledged these characteristics in a 2013 keynote address at the London Bullion Market Association's annual conference:
"Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution."
These unique, tested characteristics of gold ensure that the world will eventually return to a standard pegged to it.
This means that either a massive monetary contraction will ensue to bring the dollar in line with gold at its present price, or the price of gold will need to climb to achieve the same at the present supply of currency.
In order to achieve the former, the present supply of high-powered money would need to contract by no less than 90 percent, the equivalent of $33 trillion of base money alone.
For the latter scenario, gold would need to ascend to $12,689 per ounce, which would mean a full 961-percent gain from its present dollar price.
These calculations are based on high-powered money, otherwise known as M1 or base money, and they return a rather conservative approximation, with a mere 40-percent reserve requirement, consistent with the former reserve requirement in place in the United States until the Great Depression.
So, if you're searching for a place to reliably store the product of your labor, and if you're looking to get out of Dodge before the dissolution of the illusory wealth of bitcoin, the U.S. dollar and the U.S. stock market, Goldmoney and physical precious metals are your most reliable play.
The key is to join the smart money before the dumb money follows.
While we may appear to have transcended those primitive times and those so-called barbarous relics, the truth is that we have merely mutilated the concept of money by clandestinely replacing it with its more manipulable and abstract representative, the proverbial coat check without the coat.
This is but the device of a large-scale social experiment run in real time, and we are its unwitting and unconsenting subjects who’ve largely never heard of the Federal Reserve’s dual mandate, much less its missions of “maximum employment” and 2-percent annual inflation.
Yet there is hope after all.
Finally, after decades of this nefarious experiment with faulty fiat currencies and pernicious monetary redistribution, new implements have become widely accessible to those who are privy to the end game of the ongoing political agenda.
With a structure analogous to the original form of banking, Goldmoney combines the trusted properties of precious metals with the technology of the internet, enabling depositors to easily convert their U.S. dollars and other fiat currencies into grams of gold, which they can access through a complementary MasterCard debit card.
Additionally, up-to-the-second updates allow depositors to track the dollar values of their respective holdings, and they can even exchange gold wirelessly across the globe with anyone else on the platform.
What's more, depositors can select from a menu of vaults across the globe, and, above all, their holdings are securely stored by Brink's, which has never lost a single ounce of gold in 160 years of business.
While I normally don’t share time-specific investment advice, I firmly believe that we are on the precipice of both an official correction and a historic economic readjustment.
Widening trade and budget deficits, a collapsing dollar, climbing interest rates, record household and national debt, record margin debt, record levels of stock buybacks, a near-zero savings rate, waning interest in U.S. debt from foreign central banks and principal creditors, and a record DJIA-to-GDP ratio, form just part of the broader picture of an economy teetering on despair.
As it turns out, the social experiment of quantitative easing and zero interest-rate policy (ZIRP) appears to be unraveling, as the overbought stock market has begun to stutter and the U.S. dollar has begun to suffer serious losses.
Over the past year, in fact, the U.S. dollar has declined roughly 10 percent, as measured by the U.S. Dollar Index (DXY), while gold has rallied better than 12 percent over the same period.
As interest rates climb and the price of bonds collapses, so too will the asset bubbles which have been inflated to paper over the previous financial crisis.
As economist Henry Hazlitt wrote in 1946:
"It is true, no doubt, that an artificial reduction in the interest rate encourages increased borrowing. It tends, in fact, to encourage highly speculative ventures that cannot continue except under the artificial conditions that gave them birth."
Among these many asset bubbles, formed as a consequence of this artificial reduction in rates, is the U.S. stock market, which has transformed into a debt-financed illusion of wealth predicated upon a revolving door of easy credit, extended to the United States across shorter-maturity loans by nations both relatively rich and poor, China and Japan chief among them.
Unfortunately, this frothy illusion of wealth will soon transform into a weighty hammer waiting to bludgeon the American economy back to reality.
As both consumption and speculation have historically and empirically proven a function of anticipated future returns, and as rising rates will invariably absorb credit to restrict borrowing and leveraging, spending and investment will subsequently follow as more money chases debt reconciliation, away from speculative activity and asset purchases.
Under conventional circumstances, investors would seek refuge in safe-haven sovereign debt securities.
However, in the case of modern America, the final phase of bubble creation, one from dot-coms to housing and the financial industry, has materialized in that very asset class today: U.S. Treasury bonds.
Once the United States officially enters correction territory, when there is no greater fool sufficiently willing to buy, and instead those buyers turn into sellers, there is nowhere for the controllers at the Federal Reserve to turn.
With savings and interest rates already near zero and a Federal Reserve balance sheet in excess of $4.5 trillion, the United States federal government would be steeped in a situation unlike any other in its history, with its only recourse being: futile attempts to reflate those leaking bubbles, reckless monetization of debts, draconian tax increases, or some combination thereof.
Ironically, the recent stock market rally has been boosted on the premise of a burgeoning economy and the promise of raising rates and the Federal Reserve normalizing its aforementioned balance sheet.
Any combination of these methods will invariably cause precipitous declines in the U.S. dollar and though the immediacy may bear nominal stock market rallies, the real losses incurred in the dollar will easily surmount those gains.
And, of course, once the United States officially reinstates any sort of stimulus package, which would need to dwarf its previous bouts labeled QE, the entire premise of an economy brimming with confidence is swiftly swept to the wayside, ushering in a violent wave of honest bearishness.
As unsophisticated as it may seem, the bearishness will ensue from the realization that, as Hazlitt puts it, "new money and new credit," as with the $80-billion-per-month injection from the Fed during QE, merely "add to the apparent supply of new capital just as the judicious addition of water adds to the apparent supply of real milk."
Whatever the case, this economic readjustment will invariably witness the reversion of the Dow Jones Industrial Average well below its average gold price to settle near equivalency with a single ounce of gold, a mark last struck in 1980 during the final year of the Carter administration, after a decade of massive inflation which witnessed the Nixon shock, a serious energy crisis, and the U.S. dollar lose more than two-thirds of its value.
All the while, the celebrated Keynesian economists who embraced the very policies which caused this mess were left scratching their heads and wondering how slow economic growth could possibly coexist with high rates of inflation.
Ultimately, the value which escaped their calculus was that abstraction of real savings, underconsumption and value-added production, the total of which forms the foundation for the viable designs of the future, yet ironically purely exists as unrealized spending potential by the Keynesian whose models fail to distinguish between its forms.
And this failure of the Keynesian model has dramatically shortened the time horizon for investment, as political ambitions and empowered social enthusiasm for short-term euphoria have swiftly displaced disciplined investment and sustainable models of production, the latter of which requires rigorous work.
Of course, this sobering reality stands opposed to their myopic supposition that economies can merely spend their way to prosperity, that consumption drives economic growth.
In fact, the Keynesians have it perfectly backwards, as it is production and savings, underconsumption by definition, which inherently enables consumption and capital investment for the future, and it is consumption which merely depletes those savings.
In essence then, demand is effectively infinite, yet it is the real demand which is important: this spawns from mutual perceptions of material gain from trading producers, an outcome which is commonly classified as demand but more accurately described as supply-induced satisfaction of wants.
To gear an economy around consumption, or so-called demand, is to reallocate resources to less productive endeavors, to artificially propel the symptom rather than the impetus for real demand, and to emphasize present consumption over future consumption and potential investment.
This is the common tool of those who take little interest in the future, as they are willing to dispense of everything tomorrow so long as it serves their respective tenures today.
This form of market manipulation produces nothing more than mirages in the desert of economic despair.
And now, finally, after decades of wealth pretense, the time of reckoning is upon us.
This will necessitate either a massive contraction or a less admirable and more disingenuous expansion of the money supply, likely by way of the Federal Reserve returning to its role as the lender of last resort, leading invariably to the further debasement of the purchasing power of the U.S. dollar.
Unquestionably, gold and silver remain the most qualified forms of sound money today; the rest is sheer representative money, at best, or plain counterfeit, which is most profoundly true of the fiat world in which we live today.
Here’s a useful way to remember the concept of fiat currency: In 1960, the average price of a gallon of gas was one quarter, or 25 cents. If you have that same quarter today, you can still buy a gallon of gas with it. In essence, gas is actually no more expensive today than it was in 1960; it’s only more expensive if you’re paying in dollars, or cents. Ultimately, that quarter above can still afford that gallon of gas because it is composed of 90-percent silver. So, in terms of gold and silver, the price of gas has remained rather stable; it’s only the dollar price which has climbed so dramatically.
In the end, it's not the numerical dollar amount that you wish to save in your bank account; it's the purchasing power which accompanies it.
And the U.S. dollar, which has lost roughly 98 percent of its value over the past century, has performed terribly in this capacity.
Thus, many readers will ask, what can we do to regain control?
Unfortunately, the debt picture is simply far too bleak, and the structure of the economy far too out of balance, to avoid a deep and thorough recession.
This means a host of painful job losses and sweeping defaults which will drag down pension funds, retirement and savings accounts, and their accompanying expectations, meaning a holistic reconfiguration of the economy and a concomitant reformation of life priorities.
Or it will mean a massive bailout which collectivizes the losses in the form of satisfied nominal expectations which deliver inferior real values in all U.S. dollar holdings.
Based on the major share of perceived wealth being predicated upon pensions, and based on those pensions' increasing dependency on equities, there is little to virtually no chance that the bureaucrats in Washington will remain idle as a correction undermines the wealth effect they've so diplomatically manufactured across administrations.
Now, the debt picture of the United States is far more pronounced than even that which is captured by the headline $20.6 trillion figure.
With unfunded liabilities, that total easily eclipses $100 trillion.
For an economy believed to be nearly three-fourths supported by consumption, and whose total gross domestic product (GDP) leans on a 40-percent weighting toward government spending, an economy of $18.57 trillion is both insufficient to satisfy the weight of that debt and more precisely characterized as gross domestic fantasy.
Now, notwithstanding the severe ramifications of a candid admission, an honest default or restructuring would befit the compassionate politician who wishes to secure the better interest of his constituents.
However, that would also mean poor politics for the incumbent party, as the painful correction would be popularly maligned and thus forever assigned to the administration which presided over it.
For this reason, we can reasonably expect the present administration to attempt to reflate the myriad asset bubbles which originated the nominal rally and associated wealth effect in the first place.
Rest assured, no practiced politician will tell his constituents what they don't want to hear but desperately need to acknowledge.
No successful politician will tell his constituents that their lives will need to change, when he can just as well imbue them with false confidence as he scrambles through his tenure in office, praying that the sky doesn't fall on his watch.
As such, as is the ultimate fate for all fiat currencies, this will mean a devastating downward spiral for the U.S. dollar, which has already begun what appears to be the beginnings of a secular bear move.
On the positive side of things, we'll be around to witness the unraveling of this extraordinary experiment, but that is also the bad news.
The time to take action is now, before the doorway narrows as panicked investors rush out of their ill-guided investments into those trusted stores of value.
As former Federal Reserve Chairman Alan Greenspan cautioned in his conference with the Banking, Housing, and Urban Affairs Committee, "We don't have a system that's working. We have one that basically moves cash around, and we can guarantee cash benefits as far out and in whatever size you like, but we cannot guarantee their purchasing power."
The only time-tested, generationally-proven and globally-coveted stores of value are gold and silver: physical assets bearing industrial, cultural and ornamental value with no counter-party risk. This is what organically enabled them to serve as useful commodities before being spontaneously employed as money, as opposed to their modern fiat counterparts which artificially spawned from flimsy government decree.
Salvatore Rossi, director general of the Central Bank of Italy, even acknowledged these characteristics in a 2013 keynote address at the London Bullion Market Association's annual conference:
"Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution."
These unique, tested characteristics of gold ensure that the world will eventually return to a standard pegged to it.
This means that either a massive monetary contraction will ensue to bring the dollar in line with gold at its present price, or the price of gold will need to climb to achieve the same at the present supply of currency.
In order to achieve the former, the present supply of high-powered money would need to contract by no less than 90 percent, the equivalent of $33 trillion of base money alone.
For the latter scenario, gold would need to ascend to $12,689 per ounce, which would mean a full 961-percent gain from its present dollar price.
These calculations are based on high-powered money, otherwise known as M1 or base money, and they return a rather conservative approximation, with a mere 40-percent reserve requirement, consistent with the former reserve requirement in place in the United States until the Great Depression.
So, if you're searching for a place to reliably store the product of your labor, and if you're looking to get out of Dodge before the dissolution of the illusory wealth of bitcoin, the U.S. dollar and the U.S. stock market, Goldmoney and physical precious metals are your most reliable play.
The key is to join the smart money before the dumb money follows.
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