A Tale of 3 Cities

July 3, 2019

City One: Debtapolis

In this fictional world a financial genius and his offspring executed a brilliant plan over several centuries.

  1. The government authorized his bank to create and print paper money, backed by gold or silver.

  2. The bank accepted gold, silver and other valuables as deposits into its vaults, and loaned paper money to governments, businesses, politicians, and individuals.

  3. Debtors repaid loans in gold bullion.

  4. Bank owners accumulated huge personal wealth, became trusted confidants to government leaders and pillars of the society.

  5. The bank owners “encouraged” politicians to start wars and borrow from the bank to pay for excessive spending.

  6. Debts increased, politicians bought votes, and the bank became important in global affairs.

  7. The bank stored sovereign gold for “safe keeping.” The gold was never audited.

  8. Politicians created more promises, wars, welfare programs and debts. Prices rose rapidly. They reissued currency units as paper certificates with no intrinsic value, backed only by faith and credit.

  9. Prices for food and energy rose to 10 times, often 100 times higher than a few decades before.

  10. The bank collected interest on outstanding debts. Bank owners declared large bonuses for themselves and bought gold, because they knew the true value of the paper units they distributed to the populace.

  11. A few people noticed that the massive creation of currency units caused the price of gold to move higher, which worried the bank. It sold gold from its vaults but called the sales swaps or leases. Sales slowed gold’s price rise.

  12. Currencies were digitalized – easier to create, control and manipulate.

  13. Derivatives added leverage to control prices and increase wealth for the banker class. However, the risk of another market melt-down of paper assets expanded. Important people issued denials and reassurances.

  14. Total currencies and debt became so bloated that the bubble exceeded Charles Ponzi’s wildest delusions. They needed a reset and a diversion!

  15. Politicians studied diversions – an epidemic, a nuclear attack, another ground war, a cyber-attack that crashed financial systems, an EMP, a scandal implicating national politicians, a massive power failure, a 1,000-year drought, food riots, and earthquakes.

  16. The “reset” (crash, Armageddon, the apocalypse, or paying the piper) caused the middle and poorer classes to lose their savings through inflation. Their standard of living declined, and they rioted. Most wealthy insiders owned gold before the reset and survived the temporary chaos.

  17. Government increased controls over transportation, food, energy, employment, currency transfers, and medical care to manage the populace.

  18. Most people lived “unhappily ever after” because they had not protected their assets and savings.

  19. This story is fiction.

City Two: Inflationapolis

  1. People elected the politicians, but they served the needs of the political and financial elite who wanted wealth and power. The people wanted free benefits. Politicians bought votes, increased benefits, and printed paper currency units to pay for their promises. Prices rose. The poor and middle classes suffered from consumer price inflation while the wealthy protected their wealth via gold, land, real estate and hard assets stored abroad.

  2. The people had little power to change a flawed system. More paper currency units were printed, and prices rose 1,000 times higher than previously.

  3. The central bank issued new currency units called New Pesos and recalled old Pesos. The New Pesos were worth 1,000 old Pesos. Inflation remained tame for a year or two. Political leadership changed but policies did not.

  4. Twenty years later the central bank issued new currency units called Forever Pesos and replaced New Pesos at 1,000 for each Forever Peso. Political leadership changed but the central bank, elite individuals and “printing” policies persisted.

  5. The Forever Peso was replaced in 15 years and the inflation cycle continued. The rich got richer, the poor got poorer, and middle-class assets were strip-mined and transferred to the political and financial elite.

  6. The elite owned gold, real estate and hard assets, while the poor and middle classes owned devaluing paper certificates.

City Three: City of Wisdom in a Gold-backed World

  1. Gold and silver coins and bullion are money. Gold backs the currency units. Anyone can exchange digital or paper currency units for physical gold. People trust the currency units and seldom exchange them for gold.

  2. Gold bullion that backs currencies is stored in vaults. Bars are audited every year.

  3. Governments avoid debt except in emergencies. They report honest financial information to the public. If government officials overspend annual revenues, politicians lose retirement benefits.

  4. Without the economic resistance from high taxes, inflation, and a huge government, the economy and residents prosper.

  5. When politicians want war, they explain how they will pay for the war, and they specify benefits from winning the war. The legislature votes on tax increases and the declaration of war. Victory and defeat are measurable and defined. If they lose the war, the politicians who instigated the war are publicly executed by a firing squad while remaining politicians who voted for the war are cast out of office without pensions.

  6. Most politicians and citizens understand the system is flawed but history has shown other choices are worse.

  7. People lived “happily ever after” while using honest money under rational government.

Summary

  • The fictional City of Debtapolis resembles countries in the western hemisphere. Regular people, politicians, and central bankers inhabit the city. Digital currency units buy less every year, and are created in large quantities. The political and financial elite control the government and economy to expand their wealth. Economic statistics, sincere politicians and the media assure the people that “it’s all good.”

  • Most residents of Debtapolis do not own gold to protect their savings and retirement. The elite own gold and hard assets.

  • The City of Inflationapolis has been the model for many countries. Most residents of Inflationapolis do not own gold to protect their savings and retirements. The consequences are ugly and depressing.

  • City of Wisdom does not exist. Gold backs the currency units in that imaginary city. Currency units are redeemable with gold, and the government manages a balanced budget.

  • A global financial and debt bubble reset is inevitable and possibly imminent. The next crash could be severe, unless politicians, Wall Street and the media have been truthful, and everything is good………

Gary Christenson

The Deviant Investor

*********

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.

The purity of gold is measured in carat weight.

Gold Eagle twitter                Like Gold Eagle on Facebook