Money: “they don’t make it like they used to”


Forty years ago this month on the 15th of August 1971 Richard Nixon “cut the gold window”. Before this time the US dollar was anchored to something, that something was Gold. Before this time if a foreign country sold more to the US than they bought from the US that country could send back excess paper dollars in exchange for gold (at that time $35 dollars an ounce!). This was a way to balance the trade, it made sense, it was logical. If a country wanted to keep its wealth it needed to balance consumption with its production.

Like rioting in the streets of London the financial crisis is not something that happened overnight, it was decades ago when the seeds were planted. Now we can say those seeds were not good.

But instead of learning a lesson we get more of the same, not only is money borrowed but it is printed with no promise of trade or effort or labour to back it, essentially it is counterfeit money. There is so much counterfeit money out there “trying to find a home”, but people don’t want to buy homes when they are going down in price, so the money goes to the stock market, but the stock market goes down, so it goes to US treasuries, but US treasuries pay less interest than inflation, so it goes “to the sidelines” (Banks) but if the banks can’t lend it out at a higher interest rate paper money is a liability.

I think this is the last stage, when not even banks want your savings in paper money, you know it’s not an asset but just plain trash. This actually happened just recently in New York where a bank not only did not pay any interest on savings but started charging for holding money (Click here to read the article.) Essentially the bank was receiving more money than it knew what to do with, with people selling stocks and “putting it on the sidelines”, but at the same time no one worth lending to wants to borrow.

So where, where….. can all these trillions of dollars go? How long will it take before dollars start to be taken out of stocks, treasuries and banks to buy real things, not only Gold and Silver but anything that is real and tangible?

We have already seen food and service price inflation but we have seen nothing yet, once the momentum gets going it is unstoppable, as prices go up it does not take people, businesses and governments long to work out their savings on the “sidelines” are becoming worthless, when they start to spend all those trillions out there, that will push prices up, more money will be spent, limitless paper money chasing limited things.

We have not seen anywhere near the full effect of decades of global monetary inflation yet as the money had somewhere to go, i.e. China, Japan, and many fancy monetary instruments.

How long will it be before it makes no difference if the US raises their debt ceiling or not? Rather will countries and businesses want to be paid in US dollars anyway? If the debt ceiling needs to be raised so you can be paid what are you being paid in? (More IOU’s). There will be a day when all those USD’s around the world will want to find a home, that home is ultimately in the US as it will likely be the last place they will be accepted, this will make inflation worse in the US than most places I think.

History may even hint that the US and other counties will not accept their own currencies one day. Near the fall of the Roman Empire, the once full silver denarius coin had been “watered down” to a point where there was almost no silver in the coin, at that time Rome did not want to be paid in its own currency rather they wanted payment in real silver!

Most “western” countries are in the same dilemma, the discrepancy in consumption to production is way out, with a gap that is either politically or practically now not possible to bridge, therefore I am expecting a relatively sudden and dramatic end to debt laden economies rather than a long drawn out one.

There is no will to change rather change will be imposed upon us.


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