Gold, Currency IOUs And Inflation

September 12, 2018

The financial world runs on “funny money” or debt based currencies. More currency = more debt. How much debt? In a word – “unimaginable.”

But another important word we should consider is “unsustainable.”

WHY?

The world abandoned gold backing and replaced it with debt based currencies. Those dollar bills, yen, euros etc. are DEBTS issued by your central bank. They are as valuable as… someone believes they are. Unlike gold or silver coins, they have no intrinsic value.

The quantity of debt and circulating debt based currencies has increased exponentially (doubles every 10-11 years) for decades. $44 trillion of debt in 2018 will rise to $100 trillion and then $200 trillion. What happens when another $50 trillion in debt is created in the next decade?

Unbacked fiat currency systems function if politicians and the banking cartel don’t abuse the system. Have abuses occurred? Ask yourself the following questions.

  • Do governments mismanage their finances, spend more than their revenues, and encourage deficit spending?
  • Do bankers create currency units via fractional reserve banking to increase their profits and interest revenues?
  • Has congress ignored Generally Accepted Accounting Principles to increase spending, hide deficits and conceal fiscal irresponsibility?
  • Has the U.S. Treasury Department removed gold and silver from circulation and replaced it with Federal Reserve Notes (debts)?
  • Has the Treasury Department refused to audit the gold supposedly stored at the Fort Knox Bullion Depository and other authorized storage facilities?
  • Has the central bank endorsed “inflation” as policy? Inflation of the currency supply leads to consumer price inflation—higher prices—and destroys both the currency and society. Has inflation damaged the people (excluding the top 1%) of Zimbabwe, Argentina, Venezuela and hundreds of other countries that have over-printed paper currencies? Read: “How Inflation Destroys Civilization

The answer to the above questions is “YES!” Politicians and the banking cartel have abused the unbacked fiat currency system, as expected. The consequences are dire and will become worse.

Examine total debt securities as reported by the St. Louis Federal Reserve.

Total debt securities increased exponentially—from $714 billion in 1970 to over $44 trillion in 2018. Debt increases slowed after 1986—to about 6.9% per year for the last 30 years.

The result was higher prices for almost all consumer goods. What about gold prices? Gold sold for $36 in 1970 and for about $1,250 in 2018. It spiked over $850 in 1980, corrected for two decades, rallied after 9-11, surpassed $1,900 in 2011, and corrected again.

Many of the created currency units flooded into the rising stock market. Apple and Amazon stock have been more rewarding than investments in gold and silver for a long time—too long. This will change.

In the long term gold prices rise along with debt. The following graph shows the four period moving average of quarterly gold prices plotted every four years. This smooths the prices and shows the long-term up-trend.

Gold backed currencies encourage stable financial systems and discourage large intrusive governments and banking cartels. Politicians and bankers dislike gold. They prefer “funny money” because it increases their power, influence and wealth.

CONCLUSIONS:

  • Expect more “funny money” and higher prices because the banking cartel increases debt about 6.9% per year. The official U.S. national debt increases almost 9% per year.
  • Expect gold prices to follow debt increases and the inevitable devaluation of fiat currencies.
  • Expect total debt (as shown above) to double every 10 years and expect smoothed average gold prices to double every 10-12 years. However, gold spikes higher, like stock markets sometimes crash. Gold can reach double (or more) its smoothed averages. $5,000 gold seems likely next decade, even without considering massive inflation, financial implosion, loss of dollar reserve currency status or other financial disasters.

These exponential trends will continue unless:

  • Congress ceases deficit spending and balances the budget.
  • Currencies are backed by audited gold bullion in storage.
  • Bankers loosen their control over currency units and debt creation.
  • Central banks are outlawed and liquidated.
  • Other political impossibilities.

Fish will swim, birds will fly, politicians will spend, and bankers will act to benefit bankers. Consequently people must protect their savings and retirement. Gold and silver bullion and coins are sensible choices given their current low prices.

People need protection from ever-increasing debts, politicians spending more than revenues, and bankers creating fiat currencies. Miles Franklin sells protection in the form of silver and gold. 1-800-822-8080.

Gary Christenson

Gary ChristensonGary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.

U.S. ranks third in world gold production with 240 tons per year