Lack of logical foundation: President Richard M. Nixon announced on August 15, 1971, that the U.S. would no longer officially exchange dollars for gold and many are still referring to that decision as one of the biggest mistakes ever.
Nixon, for one, thought gold-price stability was bogus. It has since become clear why he went off the gold standard.
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A good controlling factor over the monetary system would be the price of gold. The implications; conduct monetary and fiscal policy such that the gold markets are content to sit tight, and marvel at the economic results. Do otherwise, and the ordeal of the 1970s will be repeated today.
Rarely in the history of political economy have choices been so stark, so obvious. One wonders whether it is being done on purpose. Which as we know is actually the truth.
The USD has no logical foundation behind it with regards to any sustainable value due to a lack of hard asset collateral. It’s just air! That means all people’s money, in their checking, savings, investment and retirement accounts is simply not real! And since 1971 never has been!
When the new gold backed USN is forced into play, money will obtain real value, and matters are going to change very fast. This dramatic event for change will start happening sooner than anyone realises, while the great illusion of western dominance will end.
Three quarters of a century of military dominance will be gone in the blink of an eye. No more grace periods to extend. No more meetings to renegotiate treaties and implement international bankruptcy rulings.
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It is clear, that the new global financial system has evolved to a higher standard. It will prevent many forms of fraud and allow for unrestricted movement of funds from place to place as needed, instead of delays or freezes or holds due to compliance issues.
Unimpeded movement of funds is important to the wellbeing of society. The timely arrival of funds according to budgetary needs is critical to the survival of businesses.
Today’s end of the line situation is far grimmer than anyone is being told. Only the implementation of RV followed by GESARA will deliver the fiscal remedy for folks who must now live in this new reality. By the way, only Americans enjoyed the continuing endless supply of currency being forced upon them by the holders of all global debt, known as The Chinese Elders.
The Weakness of Paper Money:
Precisely this non-backing of currency is the inherent weakness of “paper money” – governments have the power to declare paper to be “legal tender” – but they do not have the power to give that money value. This is something that no one, especially not politicians will tell you.
All Central Banks should be abolished.
The average citizen doesn’t have a clue how dangerous and corrupt the Central Banking System and their governments really are. Please read here how we the people can help to abolish all Central Banks.
The world over, governments have embarked on an out-of-control experiment with debt money, that they could alternatively have issued as ‘debt-free-money’, without interest. –In today’s world, credit money is printed in absurd quantities out of thin air, and so much of it is borrowed that it can never ever be paid back in full to the creditors.
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It took the USA “216 years to rack up $8.5 trillion in debt… and then just 8 more years to double that amount.” – Governments won’t be able to do a single thing about this crisis, as they themselves have knowingly created it!
When governments tap out their ability to increase their tax revenue and their debts become too mountainous to maintain; they have one last way they can take what they need, and it is the most insidious. They can print the currency they need to pay for whatever they want.
The Most Insidious Form of Theft
The Central Banks’ balance sheet – which represents the total amount of currency in circulation or in central bank’s reserves – has the USD blown up from $1.1 trillion in 2008 to nearly $4 trillion in 2017.
Not many people understand the misconception of these actions or their inevitable failure. The great advantage of paper money is purportedly its flexibility.
They can, in theory, print more of it when they need it to facilitate economic growth or forestall a crisis. But that doesn’t really work. Printing money doesn’t create wealth or stimulate the economy. Instead, it simply makes each unit in circulation less valuable and leads to higher prices, a monetary phenomenon that is called inflation.
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It is an insidious form of stealing. People feel wealthier as the numbers on their pay checks and bank balances rise. As nominal stock prices rise, people feel as though things are going well. But they don’t notice the value of each unit is eroding steadily.
Worse still, it provides incentives for going into debt. People who borrow today will repay those obligations in the future with units that are worth much less.
Inflation has been so prevalent for so long, most people don’t even know it’s not part of a normal economic system. Data on consumer prices from 1596-1971 in Great Britain prove that during gold-standard periods, commodity prices remain stable – even over hundreds of years – during periods of massive economic growth and soaring populations.
The most important test of paper money is whether it facilitates real, per-capita economic growth. And on that score, the evidence is overwhelmingly negative. When money is sound and reliable, it doesn’t lose value over time.
The Name of the Game is the ‘Race to Debase’ Purchasing Power
Today’s monetary system, however, isn’t sound or reliable. Politicians fool around with the money supply constantly. Sometimes, they increase the amount of money by huge amounts in response to demands from powerful groups, especially banks.
As a result, the products you need to live a regular life – like gasoline, milk, housing, and medical care – constantly increase in price. And these prices go up, year after year, even when wages don’t.
Paper money works great for the rich, who can hedge their exposure to the currency and whose access to fixed-rate credit allows huge asset purchases. But it is horrible for the middle class.
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When the US-dollar as the reserve currency was taken off gold, it allowed the central banks to continuously debase their currency, while the wages paid in the same currency no longer kept pace with inflation.
Any reasonable study of paper-money systems versus gold-backed monetary systems demonstrates the superiority of gold straightaway. So, why does almost every modern government choose paper?
The answer is because paper money allows the wealthy and powerful vested interests in the economy to manipulate interest rates, prices, the money supply, and credit to their exclusive advantage.
Today’s monetary system dooms every average worker to poverty and almost guarantees that the rich and powerful will become richer. And it is this massive gap that is ultimately fuelling the problems the world faces today.
The Problem with Paper Assets
Wealth is either physical, by for example owning a big house or a Rembrandt painting, or it is paper wealth.
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All paper assets are a claim against tangible goods and services. No more goods and services can be obtained than the economy can produce. Since the economy of 2008-13 produced only a fraction as much real wealth as the claims against it, those claims will have to be applied to future output.
The IMF has just reported that total global debt is now at a staggering $164 trillion, which amounts to 225% of total global GDP. Every person on this planet could turn over everything they produce for the next two to three years and the world will still be in debt.
The number is so astronomically high that it is impossible to pay off, and so there really is no point in even trying. In fact, governments are not at all concerned with paying off the debt because they know the number has lost it’s meaning in the face of such cartoonish proportions.
Currency is created by private institutions who create as much money as banks and governments desire. This money is created out of thin air, literally by punching a few keys on a computer keyboard and sending tiny currents of electricity to a screen which displays whatever number the private corporation wants.
It is not backed by anything of value, yet these private institutions charge interest to governments and private sector borrowers.
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For every unit created and loaned, the magical money-lenders demand that unit back with interest. Since the lender is demanding more than was created, it is mathematically impossible to ever pay off debt, because the currency units to pay for interest simply don’t exist.
The modern-day debt system maintains a tragic if not dramatic tension in the world, and on a planet with such abundant resources, you have to wonder with a global debt number so high, do people of the planet owe money to each other, or are they really in debt to some type of institution?
It definitely does not make sense for the human race to enslave itself with such an insane system. Theoretically the debt is owed to the central banks that created the units out of nothing. So actually there is no debt owed to anybody!
Corruption of Debt
The only way the government can give away something is by first taking it from someone else. This is critical. The governments are taking what they want, and this is exactly what has created today’s crisis.
Taxes are the most obvious way governments take for redistribution. But governments are now reaching the limits of what they can generate from new or higher taxes. When governments realise they can’t take any more from you through taxes, they use debt instruments to take from your children and grandchildren.
Governments have taken advantage of that option to a historic degree; the U.S. and EU government owe more than $20 trillion each. The number is so large, it’s meaningless. No one can comprehend how much money $20 trillion really is. A better way to think about it is to say; each taxpayer owes roughly $175,000. That’s like a whole additional mortgage for most people.
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This massive amount of national debt cannot be financed at any real rate of interest. If governments have to pay even 6% interest on their debt, it would cost roughly $1.2 trillion a year. And that’s just to pay the interest on the debt. The entire government brings in about $3.3 trillion a year in taxes.
This debt addiction has filtered into four critical areas of the economy. Instead of learning from the mistakes that crippled the economy in 2008 when the mortgage bubble burst, they have created three new bubbles that could soon blow up.
1. The largest threat is the corporate bond market, particularly junk bonds.
When this crash occurs, it will be the largest destruction of wealth in history. There has never been a bigger bubble in bonds.
2. Student debt forms another looming bubble
Over the past 10 years, students, most of whom have virtually no income, have racked up enormous debts. As of 2017, student debt totals more than $1.5 trillion, the second-largest source of household debt after home mortgages.
All the signs show that the debt piled on our youth will become another catastrophic bubble in the western economy.
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3. The subprime auto lending bubble is poised to cripple the automotive-industry
Most people have no idea how pervasive subprime loans have become in auto lending. Over 90% of cars sold are financed by loans of leases.
4. The housing bubble trouble
The housing bubble is going to repeat itself with even more unsold and unfinished houses. Spain in 2008 was stuck throughout the country with over 3,5 million unsold houses. That number is set to grow again as about half of the houses ‘sold’ were bought by speculators that cannot resell. So, expect more new and unfinished properties in this upcoming crash, than ten years ago.
How is this substantiated? It’s simple. Historically, “junk” bonds – aka high-yield bonds issued by less-creditworthy companies – have never yielded less than 5% annually. But they hit that low in mid-2014, and today, they’re not much higher than that.
Likewise, in 2014, the difference between the yields on junk bonds and the yields on investment-grade bonds had almost never been lower. That means credit was more available than almost ever before for small, less-than-investment-grade companies. The last time credit was that widely available – and at such low costs – was in 2007. And that ended badly.
Throughout 2015, the spread between low-quality corporate bonds and high-quality corporate bonds began rising. That indicated a growing fear in the market as people reduced the amount of risk in their portfolios and shifted to higher-quality and higher-rated assets.
During the first half of 2016, the high-yield spread began declining. It’s now close to the post-crisis lows of 2014, indicating complacency in the high-yield debt market. But it won’t last. It never does.
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Most investors don’t know anything about the Central Banks quietly reversing course. They have started draining the system of reserves. In October 2017, they began to “run off” their balance sheet by about $13 billion a month.
That is, as the bonds they hold mature, these assets won’t “roll” into new securities. And so, for the last seven months, their balance sheets have shrunk by $10 billion a month in bond securities and $3 billion a month in mortgage securities.
It took the speculative bubble a long time to reach negative interest rates on junk bonds. It likewise will take a shorter time for this to fundamentally change the financial markets, hurting sentiment and securities prices. But make no mistake, the tide is going out. And the tide is going to get more powerful as it moves on.
The coming collapse in the bond market also will be far worse than it was last time. The Federal Reserve’s twin policies of keeping interest rates near zero and buying tens of billions of dollars in Treasury securities and mortgage-backed debt have driven the huge bull market in bonds and properties.
As the Central Banks buy bonds, they push bond rates down and force the other buyers of bonds to buy riskier debt that historically offers much higher yields.
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The Real Panic in the Corporate Bond Market Could Arrive Soon
Expect the average price of non-investment debt – junk bonds – to fall by 50%. Investment-grade bonds will fall substantially too, by an estimated 25%. This is going to wipe out a huge amount of capital, which is almost 100% guaranteed to happen.
Junk-bond guru Martin Fridson has projected $1.6 trillion of bonds and loans will default. That means three times as many debt issuers will default than in the last recession.
This would have happened already, according to Fridson, but the government has kept interest rates artificially low, making it possible for many at-risk debt-issuers to refinance their debt at a lower interest rate. This delayed an inevitable wave of defaults in the junk-bond industry, but only temporarily. The government can’t keep interest rates low forever. The obvious question is:
Why on Earth did so many people borrow so much money they have no hope of ever repaying?
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You might assume it stems from a lack of personal responsibility or a decline in moral standards in recent years. As, there is always a segment of society that wants something for nothing. But this doesn’t explain how this problem could grow so large.
The real reason is something quite different: the conclusive corruption of governments and banks.
Because it is impossible to pay off the debts that have been accumulated. Society is fast approaching the point where the government cannot even afford to pay the interest on this debt and that leaves it with one last tool to extend its power over we, the people.
We have been left with a heavily indebted economy that’s still being fuelled by consumption. The system rewards debtors and punishes savers. It makes long-term capital investments nearly impossible because of economic volatility and financial risks caused by inflation.
Worst of all, the system requires everyone to become a speculator because there’s no other way to safeguard savings.
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The Need for Paper Money
What the gold standard would really do would be to ensure a level playing field for all economic actors – borrowers, lenders, and even governments.
That’s why bankers – who are always highly leveraged, media barons – who constantly borrow to buy more properties, and governments – which can never balance their budgets, all hate gold. To maintain their power, they all need paper money. The system and those who profit from it would not survive a transition back to the gold standard.
The little-known reality of a paper money system is that it robs the people of purchasing power.
That means the average person works harder and produces more, but cannot buy as much as he has been used to. Meanwhile, asset prices soar.
The wealthy become wealthier as the value of everything they own becomes inflated along with the currency.
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This explains why the wealth gap has grown so much since 2000. And it explains why the wealth gap will continue to grow, so long as governments continue their corrupt policies of quantitative easing, corporate bailouts, overspending, and over-taxation.
Simply working harder – or working smarter – isn’t benefiting employees anymore. On the other hand, People who own assets and businesses have seen their wealth soar over the last 40 years.
This system dooms every average worker to poverty and almost guarantees that the rich and powerful will stay that way. And it is this massive gap that is ultimately fuelling today’s problems.
The Entire System is Collapsing, a New System is Needed