After the US decoupled the dollar from gold in 1971, officially converting the US dollar into a pure unbacked fiat currency, the power of Wall Street was unleashed. It’s no coincidence that, in the years that followed, Wall Street eventually became stronger than Main Street. It’s also no coincidence that the rise of Wall Street mirrored the nearly four-decade ascendance of the bond market — which was necessary to keep up with the ever-increasing hunger for credit.
In 2008, the amount of debt on the books had grown so large that the corrupt fiat system was reportedly only hours away from imploding, only to be saved with a massive dose of monetary intervention by the Fed, and several years thereafter of unrestrained currency printing under the guise of something called “quantitative easing,” or QE for short.
It turns out that the Fed was unable to save the system on its own. Eventually, the world’s other major central banks were forced to also start their own QE programs, flooding the world with even more currency. As a result, there is now so much cash sloshing within the debt-based international monetary system that many of the world’s largest corporations are sitting on huge piles of cash because there’s few decent investment options remaining.
Meanwhile, there’s almost no one left to continue the level of debt expansion required to keep the current system going; governments and consumers are both buried in debt. Debt is everywhere because fiat cash is everywhere. The financial crisis was the world’s last real opportunity to correct the financial imbalances that had been building since 1971, but the medicine required to cure the disease was rejected in favor of palliative care designed to extend Wall Street’s power stranglehold a little while longer — despite the moral hazard such a decision posed to Main Street.
Even now, all of the world’s currencies are losing purchasing power at an alarming rate, which is why, at some point, the current debt-based monetary system charade will end, and the “Almighty US Dollar” will finally fall from grace. When it does, a return to some form of gold standard is almost inevitable. The following fast-moving and very entertaining presentation by Grant Williams explains why. Enjoy …
Photo Credit: KWN
Very interesting video, Len. Thanks for sharing. The guy makes a good argument. I’m still on the fence though if we’ll ever return to the gold standard.
Well, Steve … I consider “being on the fence” better than rejecting the possibility out of hand. There is still hope! LOL
Thank you for taking the time to comment.
Len, I enjoy your articles but we will never return to a gold standard. If any of the PM exchanges believed that they would not sell at any price knowing the $ is going to be worthless, also, the government would confiscate all coins and make them illegal. That being said I do own physical PM’s in my safe deposit box and safe at home. I think silver is ridiculously under priced.
First off, thank you for the kind words, Will.
I see no reason why precious metals exchanges wouldn’t sell their gold (plus a premium) if the dollar was devalued. Now … if the dollar completely imploded due to hyperinflation, then I agree: the PM exchanges would not sell their gold for worthless dollars. Instead, they would wait until a new currency was issued; and in that case, I suspect a gold standard (or more likely, a gold exchange standard) would be the only way the new currency would earn the confidence of a snake-bitten public.
As for government confiscation, we live in a different time now. The biggest difference is that, at the time of FDR’s order in 1934, gold coins circulated as currency in the US; that is no longer the case. Another difference is that, today, the amount of gold in private hands is almost inconsequential. As an aside, 2 of every 3 Americans who owned gold at the time of the order ignored it. The government did not go door-to-door either; probably because gold is so easy to hide, making any potential effort to do so unfruitful. (Of course, that is only my opinion — but I’m sticking to it!)
That being said, I would strongly reconsider keeping your gold in a bank safe deposit box; if the banks fail, there is a strong possibility they will seize your gold (under the guise of the new bail-in rules) before you can get to it. You buy gold for protection from counterparty risk — having the bank in possession of your gold reintroduces the counterparty risk the yellow metal is meant to insure against.
Len, thanks for the article.
I’m not commenting on this as doom-and-gloom, but what if our country were to go into a world war with another large country? Whether it’s failed trade talks, or trying to impose rules or sanctions on large countries like China and Russia that are fed up with us.
Right now, China and Russia are stock piling gold and Russia has barely any debt. How could we go into war with countries like that when we’re in record debt and won’t be able to fund the military? What do those countries see in gold that we don’t?
In minor comparison, I remember how bad it was during the 2 year recession we had— and that’s just a recession! I feel that our culture has changed since the last great war in the 1940s so much that our society is not strong enough to handle sacrifice.
I agree with everything you said, Don.
I hear a lot of people say the US dollar is backed by our military might. However, it is the exact opposite! If the US dollar loses its reserve currency status, then American military might will quickly disappear because the US will be unable to fund it. All one has to do is look at the decline of the Roman Empire’s power (it disappeared as its solidus and other gold coinage was debased). A more recent — and apropos — example is the Soviet Union; its once-mighty military quickly atrophied after the nation’s ruble pseudo-currency collapsed.
It’s not my place to answer comments on Len’s articles, so I’ll post on my own, reflecting on Don’s observations:
I’m not a great-grandfather, only a grandfather, but even in my day (Korean war times) the country was still able to handle sacrifice and hardship. It was unified then, not undergoing calculated destruction by anti-patriots seen everywhere in our institutions today.
The implications go far beyond what happens to our money and one would be wise, IMO, to prepare to survive. It will have to be an individual accomplishment STARTING NOW; there will be no institutional help to be found then.
I agree, Dave. If supply chains ever broke due to a catastrophic currency failure, there would certainly be civil unrest. That’s why it is important for our leaders to take their medicine and reset the system now, in a controlled manner — before it resets on its own accord, in chaotic fashion.
We’re all going to have to pay the piper; there is no escaping it. It is simple math.
Here is an example of the kind of person and the “make -do” will to survive that will be multiplied many times over, in a general monetary collapse.
https://www.sacbee.com/news/state/california/fires/article221980400.html
True, there’s no escape and many won’t invent the means to survive.
The Chinese play the long game. Their gov has collected many thousands of tons while admitting to only a fraction of it. They have been the biggest gold producer for many years. They have encouraged their citizens to buy gold, and those folks have done so.
You add all that up, and it HAS to mean they plan to enforce a gold standard at some point.
Remember the Golden Rule: He who has the gold makes the rules !
All very true, Andy. It’s not just China … Russia has also been rapidly increasing its gold reserves for the past five years (and dumped ALL of their US Treasuries). And close to a dozen European countries have repatriated large sums of physical gold from London and New York since 2015. I think the reason is clear: they can see the current debt-based international monetary system is on its last legs and they are getting prepared for the return of a system based on gold.
… and then there are us poor relations living on the wrong side of the tracks who can only afford silver …
Nothing wrong with silver, Dave. I’ve been saying on this blog for years that it is my opinion that people who are thinking about starting to stack precious metals should begin accumulating silver first anyway.
As you know, it is extremely undervalued compared to gold right now. Gold-to-silver ratio is currently 1:85, although silver comes out of the ground at only 10 times the rate for gold.