Gold and silver will survive as a store of value and wealth. Paper money, the economic status quo, unfunded liabilities, pension plans, exponentially increasing debt, massive budget deficits, “to-big-to-fail” banks, and so much more are at risk of gradual or catastrophic failure.
Gold and Silver
Precious metals have been recognized as wealth and a store of value for over 3,000 years. They may no longer be used as currency but they retain their value. Example: I can’t go to Wal-Mart and buy food with silver coins but, practically speaking, I can sell or trade a gold or silver coin minted by Australia, Canada, or the United States in almost any country in the world at any time. Over the centuries, on average, they have retained their value, whether measured in gallons of gasoline, hours of labor, or food. Can you say the same for dollars, pounds, or any paper money?
The Status Quo
Let’s call the Status Quo the existing state of affairs including the system of politics, government, currencies, banks, military contractors, financial systems and so forth. We all know “something is wrong” with the system, but the system is what it is and we live within it. The system richly rewards the political and financial elite, the upper middle class and a few privileged groups, usually at the expense of the remaining “debt serfs” via higher taxes, massive debts, wars, assets transfers, currency debasement and various controls over the economy.
Throughout history, this process has been repeated many times. From Simon Black regarding Italian history:
“And as one Emperor after another bankrupted the treasury through foreign wars, palatial opulence, and unaffordable social welfare programs, Rome gradually changed for the worse.
Desperate to keep the party going, later Emperors debased the currency to the point of hyperinflation. They imposed wage and price controls under penalty of death. They raised taxes so punitively that people simply quit working altogether.
With each successive emperor, Romans would foolishly believe that the ‘new guy will be different’ and that things would improve. Of course, apart from the occasional sage, Rome’s political leadership became more destructive.”
“This is a familiar story. Empires throughout history have always gone through this life cycle of rise, peak, decline and collapse. Rome. Egypt. The Hapsburg Empire. The Ottoman Empire.
And the salient points are always the same – out of control government spending, a rapidly debased currency, costly foreign military campaigns, burdensome regulations, etc.”
“Meanwhile, the ‘richest’ countries in the world (US, Europe, Japan, etc.) are so deeply in debt that they have to borrow money just to pay interest on the money they’ve already borrowed.”
This isn’t rocket science. Predicting the end of this system is not attention–seeking sensationalism; it’s just common sense.”
It is easy to see that many western governments are following essentially the same path as Rome’s road to self-destruction. Rome’s status quo was increasingly expensive to support and eventually failed. Is the status quo in Europe or the United States likely to experience a different fate?
Consider Charles Hugh Smith’s commentary: That Which is Incapable of Reforming Itself Disappears
“Here is my scale-invariant summary of the Status Quo:
- An economy that is controlled by the government is one in which political power, not the market, controls the distribution of national income. Politics is the arena in which the national income is distributed. The primary contestants are entrenched, vested interests seeking to protect their perquisites and power.
- A government in which political power is for sale to the highest bidder puts the wealthy at an extreme advantage, as they have the means to buy political power to conserve and expand their share of the national income.
- In order to do the bidding of the financial Elite, the political Elite redistributes enough national income to the bottom 50% and retirees to buy their silence/complicity.
- A nation in which political power is for sale is one in which the rule of law is bent to serve those with power.”
Further…
“The political and financial Status Quo is incapable of true reform, because real reform threatens the perquisites and power of entrenched vested interests, what I call fiefdoms.”
And…
“That leaves breakdown as the only possible endpoint.
Though the Status Quo still has enough resources to put off the eventual breakdown and collapse for a while longer, I expect an initial crisis to emerge in 2014-2015 that is resolved by the usual politically expedient half-measures.
The sigh of relief that “everything’s been fixed” may last two to three years to 2017-18, and then the ultimate crisis will gather force until it is beyond half-measures, likely in the 2021-22 timeline.”
Or, as Karl Denninger says:
“There is a mathematically-certain collapse in our funding and economic model in the offing and we are now at the point where the actions we have left available to us can only change the outcome from catastrophic to “big suck,” but cannot avoid the inevitable and ugly adjustment that must be taken.”
When debt grows far more rapidly than GDP, the consequences will eventually be catastrophic. Yes, we have ignored the reality of excessive spending, unpayable debts, unsustainable monetary policies, and Ponzi-finance for several decades, but that does not mean we can delay the consequences forever.
Yes, the consequences of failed policies, expensive wars, massive debts, and bond monetization must eventually be faced and the price will be paid. Yes, the consequences might be delayed a few more years, or perhaps even a decade. But, considering the inevitable consequences from the actions of our financial and political status quo, NOW would be a good time to transfer paper assets into real wealth – gold and silver – and store them outside the banking system.
Remember: The world has been living with unbacked paper currencies since Nixon’s default in August of 1971. Since then we have clear evidence that:
- Governments do not maintain the value of their unbacked paper currencies.
- Purchasing power declines.
- Debts and unfunded liabilities increase much more rapidly than the underlying economy which must support those debts.
- Expensive wars and social programs accelerate the process.
- Political promises to balance the budget, put the fiscal house in order, and live within our means are good theater, but little more.
Yes, now would be a good time to transfer paper assets into real wealth – gold and silver – and store them outside the banking system.
Further Reading:
- Going Dark! Economic Cycles Point Downward
- Gold, Silver, and the Sins of The Past
- Mr. Christenson’s original post of this article, at Deviant Investor