No matter what happens in the next decade, one thing is certain. Paper money as we know it will dramatically change. Monetary inflation will continue, perhaps diluting the dollar beyond its ability to recover.
I watch closely for news reporting the demise of the bull market in precious metals. Silver and gold have been hit hard this week for a number of very good reasons. The best buying opportunities occur when the pessimists jump off the wagon. It is good news to read stories about the end of this bull market.
Don’t lose patience. The road has been rough, but the journey isn’t over. The bigger question might be: do you own enough silver and gold for what lies ahead…
Socialism always causes inflation. The Soviet Union tried to control price inflation with price controls, which inevitably created horrendous shortages with people standing in line if a rumor spread that a store had something to sell. Even if they didn’t know what it was or didn’t want it, they knew they could barter or sell it for rubles which they could spend to support their families.
Our government will eventually try to control price increases, which will create similar shortages. That day is inevitable; hopefully you are prepared and have put aside additional commodities that you use on a daily basis – especially food and water. Make sure you use any pause in the markets to load up on gold and silver to protect your assets from the coming price inflation.
As long as money remains a means of exchange you can convert it into things that are useful. You still need to work a job that pays you with the current means of exchange, but money is no longer a store of value.
Monetary-inflation resulting in price-inflation is a thief. If you don’t have a wage-escalator clause in your union contract or whose income is fixed, you are being robbed. That $1,000 a month annuity that looked so good 20 years ago now assures only a not-so-genteel poverty.
Even if you have cost-of-living escalator clause in your contracts you are raped by inflation (government is the pervert who did it) simply because the value of your saving is chewed away faster than you can earn interest.
Price-inflation transfers your purchasing power to government as surely as if it had taken the dollars away from you and spent them. A rose by any other name…Inflation gets at savings accounts, bonds, stocks and checkbook balances. Any monetary asset denominated in paper dollars is stolen from you as government continues to create money.
Higher monetary-inflation doesn’t translate immediately to higher price-inflation, but it is inevitable.
The Germans experienced the most dramatic inflation in modern history when they began printing money in 1919. By 1923 it had proliferated to the point where it wasn’t worth anything.
The French tried to create wealth and prosperity by printing money in the 1790s. They too created a spectacular inflation which eventually resulted in the total destruction of the value of their currency.
The Romans created a massive inflation by increasing the number of coins in circulation, or by diluting their value when they added base metals or made them smaller. They eventually issued coins that were just made of base metals. They even tried wooden coins and ordered them to be accepted upon pain of death. Even then, the coins were rejected, and the disintegration of the currency and the accompanying price-inflation demoralized the Roman Empire and contributed to its final collapse.
The mechanism is often different, but the process is the same. Inflation is not rising prices; it is diluted, shrinking money. It is watering the milk. The supply is expanded, and the value of each unit shrinks. And it almost always results from a desire to create wealth out of nothing then trying to “monetize” the debt (print money to cover it).
Economists know that price inflation is an increase in the money supply. The money supply is inflated by creating money on the printing press, through the fractional-reserve banking system, actions of the Federal Reserve, or a combination of all three.
The dollar is supposed to be a means of exchange and a store of value. It is still a means of exchange and will continue to be for some time, but it has long ago ceased to be a store of value.
Once you could buy the best suit of clothes in town with two pairs of pants from the best tailor around for one American gold piece. You can still buy the best suit of clothes with two pairs of pants from the best tailor in town with the value one American gold piece, which also reflects the loss of value of the dollar.
The Obama Administration has pushed us from a stroll to a gallop down the road to socialism. That road is always paved with inflation as the value of the currency erodes and the debt grows exponentially.