We borrow the following chart from a Money Management article by Russel Chesler titled ‘The Gold Factor‘. The link to the article is here.
The article begins –
‘With the world mired in debt and economic despair, the price of gold precious metal has rallied to nine-year highs and could soon surpass its all-time high as systemic financial risk grows with every dollar spent by governments trying to stimulate economies.‘
Russel Chesler – Head of Investments at VanEck
And here at Goldsmith Money, we are seeing the world the exact same way.
Previously we have discussed Good Money and the Dollar. We concluded that dollars are not good money, because they could be printed at the will of Central Banks and Governments.
The following chart from abovenoted article is an example of this exact behaviour.
In the past 4-5 months the US Federal Reserve (FED) has printed 3 trillion dollars and flushed it into financial markets. This is $3,000,000,000,000.00!
Since 2002 the amount of currency digitally printed onto the FED balance sheet has risen from $1 trillion to $7 trillion. A 700% increase in the circulating currency supply (stemming from the FED), over a mere 18 year time frame.
Worse still – this is just one nation’s Central Bank. Consider that there are many other central banks around the world dong the exact same thing.
Worried? Well you should be!
All this new currency are new claims on the limited land, resources, products and services around the world. Effectively diluting the current claim of every person who has been saving dollars (or any other paper currency), for their own future economic benefit.
So how might one combat currency expansion of this magnitude? Might we suggest saving in assets which can’t be printed.
Gold – as the article suggests.
A business selling products or services with an inelastic demand. Primary production perhaps?
Cryptocurrency?With consideration to specific blockchains, their network security and adoption – perhaps?
Let us know what you think in the comments below.
Mass currency printing in various forms has been attempted the world over for 2-3 millenia – and the outcome has always been a disaster. Perhaps this time it will be different though. Perhaps?
However… we at Goldsmith Money, will not be taking any chances.
Gold chart thanks to Gold Hub and Silicon Cloud Technologies.
‘There is no problem which can’t be fixed by throwing money at it.’
And during these times of viral contagion, this is exactly the course of action that the Governments of the world are taking, to keep their economies alive.
Over the past 4 weeks the Australian Government has announced a range of Covid19 stimulus initiatives worth $214 billion.
In the US, a huge $US2.2 trillion stimulus package has just been passed by US Congress to keep their economy alive.
And the story is the same in most countries around the world.
There is much debate going on as to whether this currency printing is right or wrong. Regardless, the massive quantities of currency flooding into the world economy, is a macroeconomic factor which the Financially Awakenedmust consider when making investment decisions.
Consider the stock markets of the world – they are down circa 30% off February highs. And nobody knows when the bottom will be. All one can do is analyse the information and hand and make strategic decisions accordingly.
Consider present circumstances. There are a number of macroeconomic factors which are stock market negative. These factors could drive stock prices down further. They include:
Falling production levels.
Substantially reduced domestic and international trade.
Rapidly rising unemployment rates.
Uncertainty around Coronavirus containment.
However, a greater impact may be felt from two positive countermeasures now in play:
Currency printing (discussed previously).
Low and negative interest rates – meaning negative real returns for holding cash.
Huge amounts of currency are being injected into the world economy with virtually nowhere for it to go but back into stocks – either through expense support, sales revenue or direct share purchasing. And fortunately for financial markets, currency can be ‘printed to infinity.’
I take the view that these countermeasures could succeed in re-inflating stock markets… along with most other asset prices.
What do you think?
Furthermore, previously in our Good Money posts, we have mentioned how currency printing has the effect of devaluing cash savings.
There are finite resources in the world and currency represents a claim over those resources. Printing currency does not increase the resources, it merely creates new claims over those same resources.
Historically, the result of excessive currency printing has been always been high inflation.
Day 1 in Coronavirus Home Isolation, we are thankful that the governments of the world are printing trillions of dollars to keep us fed and paying our bills.
Day 2 we start to wonder… if the governments of the world can simply print money… why have I been paying taxes for all these years?
The taxes we have paid all our working lives pales into insignificance to the amount of currency printed by governments over the past month.
If you have been reading this blog and other similar blogs, you are part of the Financial Awakening. You understand that there is a finite amount of resources in the world. You also understand that currency is a claim over these resources.
When currency is printed by banks and governments, it is creating new claims on the finite resources. In effect, it is stealing resources from those who had been saving their currency and allocating those resources to others.
Once the panic of coronavirus is over, the reality of what we have done will set in and the inflation will begin.
Pay attention to how different countries attempt to combat this inflation. There will be:
more printing; and,
many combinations of the above.
Of course this has all been tried before and by potentially every failed civilization in human history.
The Financially Awakened (especially those in the US) will be on the lookout for a currency reset. A reset to a gold or silver standard would be a reset back to good money. However, a reset to a new fiat currency, would be simply be starting a debt based system over again.
There has been some talk about a new Digital Dollar. This is not a cryptocurrency. This is simply another fiat currency, which will be electronically printed and issued at the discretion of those in control.
Regardless of many good intentions at this time, we must remember that no country has ever printed itself into prosperity.
To finish I would like to say – citizens paying taxes can be a wonderful thing. Taxes can build great nations. Just as important however is the Golden Rule – Governments should be spending less than they earn. Additionally, well managed countries with plenty of savings, would have no trouble managing pandemics, without the need to print.
So tell me…
What would you do if you were the leader of a country, which was tens of $ trillions in debt?
How will you protect yourself against consumer price inflation?
Following on from the ‘8 characteristics of good money‘ detailed at Good Money let us continue an examination of the ‘Dollar’ with respect to each. In this post we ask the question – Are dollars a good store of value?
One hundred years ago $US20 dollars could buy you a single, one ounce, gold coin. Now that same single, one ounce gold coin, would cost you $US1,600 dollars.
Over the past 100 years gold has managed to retain its value, being its purchasing power. The $20 in currency however has lost 99% of its purchasing power.
Another way to think about it is like this. The $20 in cash and a 1 ounce gold coin could buy you the exact same thing in 1920 – let’s say a simple 5 day holiday at the beach for the family. Roll around 2020, the 1 ounce gold coin still buys you your 5 day holiday to the beach. As for the $20, well this is lucky to even buy the family dinner.
Time has clearly demonstrated that dollars are not a good store of value.
This loss in purchasing power for the dollars is called ‘Inflation’. A very important concept in your Financial Awakening.
We will examine inflation in more detail in an upcoming post. In the meantime however, if you have any examples of the inflation you are experiencing year to year. Please share in the comments below.