In 1920, John Maynard Keynes, who conjured up the flawed economic theories that became known as Keynesian Economics, said, "The process [inflation] engages all the hidden forces of economic law on the side of destruction, and does so in such a manner that only one man in a million can diagnose it." Despite these warnings--and those of reputable persons such as the Austrian School economists--the masses still do not understand money and the monetary system. Consequently, when a paper money scheme arises, few people realize what is happening in time to avoid the destruction of their savings.

One of the best treatises on fiat money is Andrew Dickson White's Fiat Money Inflation In France, which discusses the inflation that swept France 1790-1795. In the monograph, White quotes a French historian who wrote about the period. "Before the end of the year 1795, the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stories of goods or national lands." In short, the masses got stuck with the worthless paper money.

Yet, others profit during inflationary periods. These are the people who understand money. The historian continued, "Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight or skill or means. On them finally came the great crushing weight of the loss." In short, the Frenchmen who understood the consequences of paper money moved into tangible assets; those who did not know the results of the massive printing of paper money suffered.

Things are no different today. The masses still do not understand money. Most investors are still in stocks, or hold the fruits of their labors in CDs, savings account, or bonds--all paper assets. Unless they wake up, their savings will be destroyed. Unfortunately, there have been no instances in history when the masses have caught onto the evils of inflation and taken steps to protect themselves. The masses will suffer while those who understand money will see their wealth protected. Some will even profit from the inflation.

Again from Fiat Money Inflation In France: "It was simply a feverish activity caused by the intense desire of a large number of the shrewder class to convert their paper money into anything and everything which they could hold and hoard until the collapse which they foresaw should take place. It was simply legal robbery of the more enthusiastic and trusting by the more cold-hearted and keen. [I would not call "cold-hearted" learned people seeking to protect their assets, but that is how the historian wrote it.]

Today, the whole world is floating in a sea of paper money. No legal tender is redeemable in gold or silver. The Federal Reserve (the United States' central bank) is leading the way in the creation of paper money and its electronic equivalent. Japan is following suit with a massive bailout of its banking system. Even China, which now is the Asian Tiger, is in trouble. Some analysts estimate that 40% of the loans carried by China's state banks are bad and will require a government rescue. More paper dollars, paper yen, paper yuan.

Today, the shrewd are moving into gold and silver while the masses continue to put their faith in paper. Wall Street and the media keep the masses "dumbed down." Many people think themselves informed because they watch Wall Street Week, Moneyline, and the Bloomberg channel, and read establishment newspapers and magazines, where they are told to avoid gold. "It's losing its glitter," writes The Wall Street Journal. Gold is overbought echo Wall Street analysts. Such reporting on gold (and silver) keep the masses out of the metals, the only proven safe havens during periods of economic uncertainty.

Yet, the shrewd, although perhaps watching the same programs and reading the same publications, have an understanding of money. They know that gold and silver are the only enduring forms of money, and they are positioning themselves to against the consequences of massive paper money issuances. Investors who bought gold over the last three years--when it was really unfashionable to do--have already benefited from gold's price appreciation. CMI believes the really big moves are still to come and that "taking profits" at these levels could leave those doing so without protection when the metals climb higher. The dire consequences of the world's love affair with paper money are yet to be felt.

Bill Haynes
February 2003

Bill has been a precious metals dealer since 1973.
He can be emailed at bill@certifiedmint.com
His primary website is www.certifiedmint.com