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Gold Standard: The Perfect Prescription

November 5, 2013

Boiled down to the simplest terms; all economies must choose one of two “systems” in which to operate. They can choose a credit-based (debt-based) economy, or they can choose a “cash” (pay-as-you-go) economy. This is a simple tautology, and so beyond debate.

This brings us to simple arithmetic. For any society which chooses the credit-based system; this necessarily implies the steady/relentless accumulation of debt. Any (so-called) “credit-based system” where there is no accumulation of debt is, in fact, just a cash-based system.

In turn, the relentless accumulation of debt necessarily implies ever-increasing interest payments, to service all that debt. This brings us to the proposition of simple arithmetic: to make ever larger interest payments and maintain a constant rate of growth is only mathematically possible in an exponential-growth model.

This is where simple arithmetic gives way to insanity. Again as a tautology; an exponential-growth economy is only possible in an infinite system. But we residents of the Planet Earth occupy a finite system – a very finite system.

As we simultaneously confront shortages of oil, drinking water, arable land, and a host of other vital resources; the delusion that our (finite) planet is an infinite system goes from being irrational to insane.

Put another way, pushing the accelerator pedal of an automobile to the floor when there is a brick wall directly ahead is merely “irrational” when that brick wall is 1,000 meters away. But it becomes insane to continue doing so when the brick wall is only 10 meters away. This describes Western economies of today perfectly: pedal-to-the-metal, with a brick wall 10 meters ahead.

Western insolvency has become farcical. Many (most?) Western governments are already at the point where they can only avoid immediate debt-default (i.e. bankruptcy) by fraudulently maintaining interest rates near-zero: assigning near-zero “risk” to the debts of hopelessly insolvent debtors, even after one of those debtors (Greece) has already defaulted. Even that isn’t enough for the U.S. and Europe’s Deadbeat Debtors.

They must also (pretend to) “buy” virtually all of their own debt, with newly-printed paper, conjured out of thin air; backed by nothing – worth nothing – because there are no longer any legitimate buyers for all this bad debt. These economies are now open Ponzi-schemes, and as with all Ponzi-schemes they will soon implode.

The time to discuss what sort of economies we should/must have after Debt Jubilee resets the economies of debt-bloated Western regimes is today. Even after these astronomical bond-debts are erased so that our economies once again become solvent (i.e. sane); we still face the choice of a debt-based or cash-based system.

However, as previously illustrated; this decision amounts to a choice between a rational system (finite growth in a finite system) or an irrational system (attempting infinite growth in a finite system). If we once again choose an irrational system; we already know there is a brick wall looming ahead of us.

But because we are already facing myriad “resource crises” today, we will arrive at that brick wall in much less time than was required in our last lemming-charge. Thus choosing to continue to attempt infinite growth in a finite system is no longer merely irrational, it is simply insane.

This brings us to the gold standard, or as it has often been nicknamed in the past (generally in derogatory terms): the “Golden Handcuffs”. How did (does) the gold standard earn this nickname? It enforces fiscal discipline – i.e. a cash-based system – on economies.

Any economy which attempts to turn itself into a Ponzi-scheme through spiraling debt or excessive money-printing (currency backed by nothing) blows up relatively quickly – before the Ponzi-scheme can get very large. And for this reason a gold standard is “a bad idea”?

We have no shortage of examples in our lives of things which are “good for us”, but which are regularly referred to in unflattering terms because they  ‘leave a bad taste’ in the mouths of some of us. Spinach, or broccoli, or exercise are three example which readily come to mind.

We all know that exercise is good for us. But attempt to persuade those unused to such discipline to embrace this habit, and (by their protestations) it would seem to others that we were attempting to invoke some form of slow-torture.

So it is with the gold standard. The gold standard does nothing more (or less) than forcing governments to operate their economies in a sane, rational, sustainable manner. And because of all these virtues; the gold standard is relentlessly misrepresented by its critics as being “impractical.”

Preventing our economies (and governments) from choosing an economic strategy which is not merely unsustainable but guaranteed to implode is deemed “impractical”. This is an entirely predictable reaction.

After living through generations of unrepentant Debt-Addict governments; this reaction is no different than if we told generations of heroin-addicts that it was (finally) time to wean them off of their ‘junk’. The knee-jerk response of these addicts would be that depriving them of their drug was “impractical” (expletives deleted).

Of course the loudest protestations against a gold standard (and weaning our economies off of debt) don’t come from the debt-junkies, but rather the debt-pushers: the Bankers. It’s the Debt-Pushers who fabricated the myth that we “need” their debt, and repeat that myth on a daily basis.

The empirical evidence overwhelmingly and unequivocally refutes this lie.  In relative terms, until 1970 all Western economies were cash-based economies. In other words, in comparison to their astronomical mountains of debt today; all Western economies had near-zero debts until roughly 1970.

Prior to that time, our economies were strong and healthy, and grew consistently without taking on any (net) debt. The only exceptions to this pay-as-you-go policy were when our governments chose to fight another war.

Since that time, it has been simply a race-to-the-bottom for all these Debt-Addict Economies, punctuated by occasional, sickening surges – when too much debt was force-fed into them by the Debt-Pushers. We know the Debt-Pushers were feeding us too much debt, because these sickening surges always ended in asset-bubbles and implosions, as soon as the Debt-Pushers eased up on the flow of credit.

Today we have unequivocal proof that not only are the Debt-Pushers force-feeding too much credit/debt into our economies, but there is no “sickening surge”. Rather, the Debt-Junkies are now so close to death that they simply get weaker and weaker from all this excessive credit/debt.

The two pictures below illustrate this in conclusive terms. The first chart is the level of credit being force-fed into the U.S. economy by the Debt-Pushers; the second chart is the heart-beat of the U.S. economy.

This is exactly the illustrative profile we see of extreme heroin-addicts, immediately before their death. They reach a stage where they are continually injecting massive doses of heroin (because they “need” that much), until their over-stressed heart simply stops beating. Official cause of death: death by overdose.

What did B.S. Bernanke tell the world after spending six months promising “tapering” of his credit/junk, but then failed to pull the trigger? The U.S. “needed” all his junk, and so he was going to continue his huge, massive doses indefinitely – i.e. until the U.S.’s “heart” stops beating.

This is the mathematically certain ending of all economies which choose an irrational credit-based economy, and (attempted) infinite growth in a finite system: death by overdose; death by suicide. The Debt-Pushers lie, and tell us the exact opposite of the Truth, because (like all “pushers”) they get rich off of our addiction.

A Gold Standard prevents this. Yes, economies which violate this discipline can suffer “crashes”, but they don’t die. Economies which choose to binge on debt under a Gold Standard suffer “hang-overs”, but they never kill themselves via credit/debt overdoses.

It is now simply too late to prevent death-by-overdose for all of the West’s unrepentant/insatiable Debt-Addicts. “Quantitative easing” is the absolute proof of this. The Debt-Pushers are now giving away their drug, because the Junkies are so economically emaciated they can no longer even afford to pay for it. And still the heart-beat of these Junkies plunges toward zero.

The next system must surely be a Gold Standard system, since surely we don’t want to inflict this same, horrific fate on our own descendants. A Gold Standard prevents thus, because these “golden handcuffs” not only attach themselves to the wrists of the Debt-Junkies but also to the wrists of the Debt-Pushers.

Jeff Nielson

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.
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