QUESTION: Some claim that gold and silver are skyrocketing in terms of fiat currency prices because of the realization that fiat currencies are failing – mainly due to high inflation and unpayable national, corporate and personal debt. All fiat currencies eventually fail. Only precious metals have retained, on average, a consistent purchasing power over the past 6000 years because time and energy cannot be printed out of thin air like fiat currency. I think Zero Hedge refuses to post your comments any more because they are always anti-fiat. I see your point that the metals are no more a store of value than anything else since they too fluctuate. Is fiat currencies not the issue as all the hype claims?
Jeff
ANSWER: I find that these people who purport that all the evil comes fiat currency as if we returned to gold as money would solve all the problems. They REFUSE to look at history. They seem to think that the debt crisis today is purely because of fiat currencies. For that to be true, then there should be no sovereign defaults previously. That is just not the case. The metals have been rising because of the threat of war and that introduces the risk of what currency survives. Gold decline for 19 years between 1980 and 1999 with the debts rising and the fiat currencies. So that claim does not stand the test of history.
Spain became the richest nation in Europe thanks to wanderings of Columbus. Nonetheless, the amazing Decline and Fall of Spain is perhaps the greatest lesson if someone wishes to write “How NOT to Manage Government For Dummies.” The Spanish became both the richest nation yet the greatest debtor, not that dissimilar from the United States and succeeded in ending up as the poorest and this was all BEFORE fiat currencies or more correctly – paper currencies.
However, Spain became a serial defaulter beginning in 1557 followed by 1570, 1575, 1596, 1607, and 1647 ending in a 3rd world status without hyperinflation. This was when gold and silver were money well before paper currency. So, obviously fiat had nothing to do with that. Their economic model was one of conquest and plunder, rather than developing domestic industry and a viable economy. The lesson to be learned from Spain is precisely what Adam Smith wrote in his 1776 Wealth of Nations:
“Like an improvident spendthrift, whose pressing occasions will not allow him to wait for the regular payment of his revenue, the state is in the constant practice of borrowing of its own factors and agents, and of paying interest for the use of its own money.”
Look, the problem is NOT what is money, the problem is government and the quest to always spend more than they have. This is true long before paper money appeared in the West during the lat 17th century.
I understand that there are those who hate my guts because they want to BELIEVE that gold is the only money and that ending central banks and paper money will some how create Utopia. That would only lead to a Dark Age. Money is merely the medium of change. That is all. It began as barter, I will give you a chicken for those vegetables. The real importance of metal becoming the medium of change was that it suddenly allowed for the accumulation of wealth. You could not store barley, or cattle and chickens or potatoes indefinitely.
The first metal to be used as a medium of exchange was SILVER not gold. Even the Bible has passages about weighing the silver for a transaction. Metal enabled capitalism for suddenly one could accumulate wealth. Once that took place, then excess money enabled investment. Then markets developed. Here is a Babylonian tablet recording a futures contract.
It does not matter what the medium of exchange might be. It is always on the opposite side of assets. This has been the true for 6,000 years. So your statement that gold has been money for 6,000 years is incorrect. Gold only emerged in coinage during the 7th century BC. Silver predated gold by at least 1,000 years and bronze before that.
The problem is by no means fiat currency. That is like blaming the gun for killing someone rather than the person pulling the trigger. Gold and silver hold a unique position in the monetary history. They are the same commodity everywhere. Even crude oil has different grades. Gold is the same ine China and India and it is in New York or London. It has been a movable asset unlike real estate. The risk gold and silver now face is capital controls to shut down the flight of capital. This is why platinum is starting to rise against gold for at least platinum has never been the subject of capital restrictions.
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