Monthly Archives: August 2011

Unbacked Greenbacks: Time To Pay The Piper

Posted on by

Mid-August 1971, marked a day in economic history that was bound to create problems down the road. August 15th of that year was the date that fiat currencies became uncoupled from the commodity that gave them tangible value. Prior to this date, world currencies had been backed by precious metals. This monetary dependence relied on the fact that $35 would allow the purchase of one ounce of gold from the US Treasury to central banking systems willing to make the exchange.

With Watergate looming in the public psyche and the Vietnam War stimulating Americans to activism on the home-front, it’s no wonder that the value of paper currencies was thrown out the window, like the proverbial baby with the bath water. This phenomenon was just just one more blunder of the Nixon administration, but in retrospect may have been the biggest one of all, at least in terms of future economic repercussions.

Perfection with regard to monetary policy was also not evident in the prior Bretton Woods system which ultimately created the World Bank and attendant International Monetary Fund. The death of Bretton Woods, however, signaled the end of multinational financial decision making, as the world power that held the most cards strong-armed the proceedings.

Although fiat currencies continue unfettered by tangibles, like silver and gold, these precious metals continue to escalate in value as governments wield power over the beleaguered greenback. Unfortunately, all paper currencies are still inextricably linked to the US dollar.

Precious metals are once again taking the global stage, as value stores while worldwide economic crises continue to unfold. It seems that adding precious metals, like silver to wildly fluctuating investment portfolios, could actually stabilize the value of our personal savings, once again.

Reference:
http://www.telegraph.co.uk/finance/comment/edmundconway/8699815/Abandoning-the-gold-standard-was-a-seminal-moment-and-one-were-now-all-paying-for.html

Third Time’s a Charm? History Shows Paper Currency Will Continue Downward Spiral

Posted on by

In 2011, global economies are struggling for a foothold to shore up their faltering paper currencies, while the public speculates about the fate of the money they have been led to believe is valuable. To those who were alive during the Great Depression, war, political unrest and the possibility of valueless money seem all too familiar.

Historically, action taken by government entities under the guise of saving our currency from the world’s unscrupulous investors, has always led to a drop in paper currency values. During these times, investment dollars, both public and private flow from the fiduciary paper instruments of Wall Street to something that always has value; precious metals, like silver and gold.

The initial US debt default occurred in 1933, when the Gold Standard experienced its first major hit. At least the paper issued during that time still maintained a measure of reserve back-up, by precious metals stockpiled for the purpose.

The trouble began in earnest when borrowing to finance unpopular wars escalated during the Johnson presidency, and then continued, as Richard Nixon took the helm. So detested was the prospect of raising taxes to finance overseas war efforts, that the unbridled printing of increasingly worthless bucks seemed to be the best solution to accomplish desired political outcomes.

Nothing has changed in the current world financial crisis, except the even more deteriorated state of the greenback. Alas, as an unsecured debt instrument, the US dollar’s reign could be over before its 50th anniversary, just ten short years from now.

As elevated paper currency supplies continue to allow countries to finance existing debt with even more debt, purchasing precious metals such as silver, may be the only real hedge against continued inflation. If history is any indication, the modern monetary system may soon be considered an antique, just like the untenable economic errors of the all too recent past.

Reference:
http://www.safehaven.com/article/22167/unhappy-birthday-fiat-dollar

Confiscation Of Real Wealth Disguised By Falling US Interest Rates

Posted on by

What does the very low setting of interest rate levels by the Federal Reserve really mean in terms of private investment? To discover the real answer, we must walk in our government’s well-heeled moccasins to understand how our out-of-control debt can be payed down by strategically diminishing the rate that investors are paid for lending their own hard-earned dollars.

As our country attempts to avoid debt default, the savings vehicles of its people are being discouraged by so diminishing the likelihood of acceptable returns, that hapless savers are enduring financial abuse. How convenient it is, that the result is a typically wild stock surge that leaves the powers-that-be even more powerful than before.

The new downgraded status of US government debt and our freshly elevated debt ceiling are all symptoms of “Financial Repression.” As interest rates drop below the effective levels of ever-increasing inflation, our country’s debt is paid by government confiscation of investor net worth. Today, negative numbers are our reward for being good financial stewards, after inflation is factored into our return on most conventional investments.

Repression of investment has already been activated and the yield on our savings is the only reference we need to prove it. The two-year pledge to keep interest rates down in the name of Quantitative Easing will ensure that our money won’t grow, at least until 2013.

Balancing our overblown economy on the backs of those who seek to ensure a positive retirement or higher education for their children, is one of the few strategies remaining to save the US from certain fiscal default. With government debt climbing at an unprecedented rate, in relation to our Gross Domestic Product, precious metals may soon be the only investments capable of retaining or increasing their value.

Reference:
http://www.danielamerman.com/articles/2011/FedRepressA.html

Fiat Currency Versus “Real” Money: The Rise Of Precious Metals

Posted on by

Paper currency increasingly careens towards a value approaching the worth of the paper on which it’s printed. Spurring on the descent of the almighty greenback is it’s increasing supply, as government printing presses continue to roll, in an effort to create enough dollars to prop up faltering global economies. The ultimate result is inflation or a decrease in the exchange of material goods for a larger trade in the amount of dollars.

Paper money is backed by nothing more than debt, while precious metals constitute assets that are tangible and have value unto themselves. This intrinsic value looks more and more like a superior method of wealth storage in the face of dizzying valuation fluctuations of paper money.

The decrease in the purchasing power of the US dollar has exceeded three-quarters of its value, just in the last ten years. Produced according to the will of governments, the more that’s printed, the less it’s worth. History shows that paper currency has never succeeded as a medium of exchange, over time. Its abuse by the same governments that purport to bestow its value is a temptation too great for mankind, in general.

In marked contrast, precious metals like silver and gold have held their value for thousands of years. This is partially due to their limited supply, but precious metals are often perceived to lack utility in modern society. Not easily transportable or easily exchanged, precious metals must be mined and stored.

Silver, although still limited in quantity has greater utility than gold for industrial and technological usage. Still rare in terms of above-ground stores, silver’s value is tied to that of gold. Often called “poor man’s gold,” silver is more easily purchased and more easily liquidated than its more expensive counterpart.

US Debt Downgrade Signals Precious Metals Bull Market

Posted on by

When the premier financial ratings agency, Standard & Poor’s took the lead in downgrading US Treasury debt, it was no real surprise that North America’s largest foreign debt holder reacted in kind. China’s criticism of Washington’s impotence in the face of the downgrade led to a surge in the prices of precious metals and worldwide fluctuations in stock and currency markets.

Although most of the world’s US Treasury investors kept the US at current superior credit ratings levels, the fact that Beijing lowered the US status sent precious metals to new highs. Dagong Global Credit Rating flipped the US outlook from positive to negative as Beijing threatened to put the lid on further lending to the US Treasury, until Washington “cures its addiction to debts and learns to live within its means.”

Although raising the US debt ceiling provided temporary relief from the possibility of debt default, China warns of fiscal revenues and growth of the US economy being overshadowed by devaluation of the dollar. Additionally, Chinese investment entities cite a host of other market forces that could lead to erosion of America’s ability to pay on its overblown debt.

China currently looks to be a better debt manager than the US and they appear to be taking serious steps to create a new axis on which global economies will revolve. Notably, a call by Beijing for a fresh reserve currency to replace the greenback.

Surges in the price of precious metals, such as silver is a measure of economic instability. Recent price gains in precious metals are dissimilar to previous rises, since what is spurring record silver and gold profits is the likely decline of all fiat currencies that are ultimately linked to the dollar.

Reference:

http://www.gold-eagle.com/editorials_08/phillips081211.html