The sudden worldwide collapse of Lehman Brothers in August 2008, shook London's financial sector to the core. Billions were wiped off share prices overnight. Tens of thousands of jobs were lost or compromised. The downstream effects were catastrophic and immediate. People right across London felt the effects of economic meltdown at once. Lehman was an investment company lending to high street banks and to a great extent controlling the financial markets worldwide. Not only did Lehman employees lose their jobs but thousands of individuals offering services to said employees lost their livelihoods in a classic 'Domino' effect. A fitness specialist who ran aerobic classes for Lehman employees had his income fall by £200 a week. His car was not paid for and he had a large mortgage. A tailor with many clients at Lehman's lost over a hundred customers overnight. Small suppliers operating on 30 days were never paid! Even those who did not own businesses or did not even work in the "City" were affected by the collapse. Credit became unavailable because high street banks had no money to lend. Mortgages became difficult or impossible to secure; banks were no longer able to take risks. Belt tightening began to happen all over London and the effect of this was felt out in the shires. The fear was that this was the start of a financial down-turn. By judicious use of smoke, mirrors and Chinese sweat factories, GOV.UK managed to hoodwink its citizens totally by using the smoke to hide the mirrors. America had been muddling money for almost a century.
Before 1933, a dollar was 1/20oz of gold. A $20 bill could buy a Golden Eagle which, for all practical purposes, contained 1oz of gold. In 1933, the US called in all the gold, gave the people 20 paper dollars per ounce surrendered and then devalued the dollar to 1/35 oz of gold by presidential decree , removing any right of a US resident to cash in paper for gold on demand. Until 1971, 35 paper dollars could redeem 1oz.of gold with the proviso that 'redemption' was in the gift of 'governments' (think Zimbabwe) and 'financial institutions'. (think Lehmann's!) On 15th August 1971, President Nixon decreed that the $US (dollar) could no longer be redeemed in gold anywhere on earth and since then the entire world has been on a 'fiat' paper money system. Notes can be swapped for other notes or converted to another paper currency and those notes are worth only the paper they are printed on and sometimes not even that. The whole world is on fiat paper, each country relying on its own and other economies to be trusted right around the world.
(The word 'fiat' is Latin for 'trust')
'Trust' is being sorely tested in the 21st century and the waters are largely uncharted. However, what can be honestly stated is that, since 1971, one financial crisis after another has occurred entirely as a result of paper money systems. Your money is worth no more or no less than your trust in the economy that prints it! Any country moving to a 'fiat' paper currency, eventually prints more and more paper until it becomes worthless. Think Zimbabwe 2008 and 2016. Think Greece 2010. Think UK 2025? The UK National Debt passed £4trillion in 2019 ... four million million pounds... 4,000,000,000,000. It was expected to pass £5Trillion before 2021 was out at which time I lost interest no pun intended and stopped counting.
UK media headlines Dec.2015 were reporting on Britain's record national debt, which they said had than passed £1 trillion ... fake news ... The real debt was nearer £4trillion at that time. Factoring in all liabilities, including state and public sector pensions, and rounding the total UK population to about 65,000,000 the UK national debt was about £80,000 for every single person in the UK. The average UK household debt (including mortgages) was £58,540 in June2018, according to The Money Charity. Ordinary people owed nearly £1.6 trillion at the end of June 2018.
During each crisis, the 'solution' is to print more paper. Printed paper bears no relation to the real or imagined wealth of a country or its ability to pay off external debt. This can result in 'hyper-inflation' which can destroy a nation's economy and impoverish its people as was seen in Iceland in 2009. Iceland, being Iceland, came through the crisis and jailed the wankers who [almost] brought that wonderful country to its knees. In 2020 the Fed printed over $3500,000,000,000 of paper dollars. During November and December 2020 the UK printed £500,000,000 "For Christmas"
9/11 is US speak for 11th Sept. 2001.
It went unnoticed in 2001 that SEVEN cuts had ALREADY been made before Al Qaeda or Twin Towers. After 9/11, the Fed increased US 'liquidity' by $200 billion'... Just like that! ... Ordinary' people did not notice the earlier 'adjustments' and later were distracted by the awful events of 9/11 and it's aftermath. You can fool all the people some of the time but in finance all bets are off. You can fool all of them most of the time and most of them all the time. Imagine you are an ordinary citizen, living an ordinary life, in an ordinary town, across the millennium. You eat, sleep, work, play like everyone else. You have some small change under the bed for the rainy day. In June 1999 you counted it out and it was $€£$ 644.60? That number is chosen because if you multiplied it by one hundred billion in June 1999 the figure you got was what the US was realistically worth in dollars at that time. By coincidence it was the cost of a rather nice bed in Arnott's Dublin store. Your old bed had served you many years and was still 'serviceable' so you decided not to replace it ... Yet. Now let us imagine you put that $$€£ 644.60 under the mattress and watched the indices just like those billionaires who own 90% of the world do. Were you smart or stupid to put it under the mattress? Your plan was to add whatever the MSCI suggested would ensure that the stash retained its buying power. This analysis ignores $ € £ $ so as to relate to whatever currency you work in. Let us play the game with our smart/stupid 'under the mattress' saver/investor. After six months of sleeping on it you would have added 12.60 to your initial 644.60 to maintain your spending power into 2000. 17.80 was needed for 2001, and just 8 during 2002. 20 in 2003 and a further 18.50 in 2004.
Relax! I am doing the numbers for you. I have dispensed with the money signs because it does not matter what sign you use the money is still worth only what trust says it is worth. By June 2009 and you would have had 856 under the mattress for that NEW bed which was 644.60 in June 1999. You invested 211.40 over ten years to keep your mattress inflated. Another ten years on, in June 2019, you had added another 260 to stay as 'rich' as you were in 1998. What about the new bed? Should you take the money and go look for a new one?
The company that made the bed went bust years ago because it could not compete with China and all sorts of manufacturing cost increases. You saw all the companies go bust yourself. This is 2024. Look at all the boarded up shops, the boarded up streets and the beds you could get online were as bespoke as IKEA. Cheap and shoddy are not your style. What is going on? The money-printing presses masked the world-wide economic downturn and the stock market decline at the beginning of the millennium. The dark clouds casting gloom across the economic landscape in 2001 were pushed back, by devious and judicious use of smoke and mirrors, until 2008.
What was not known to the public in 2001, nor did anybody care, was that U.S. stocks had suffered collapses comparable to those of 1929. World stock markets reflected this but when did USA or for that matter UK look outside it's borders to see what was going on in the rest of the world? Plummeting US share prices in 2001 were an early sign of a day of reckoning. It would be seven years before the fairy-tale became a nightmare. Amazing financial magic can be achieved with dry ice and LEDs and picking the right day for bad news. In 2020 the western world had already commenced a real recession to correct the economic excesses of the so-called "years of prosperity" when the world's economies were saved by a virus. Well! The moneymen were saved by a virus. They now had a pandemic to hide behind. The WORLD market was about to correct fifty years of fairy-tale wealth based on a dream which was about to become a nightmare for ordinary people in the North Atlantic arena. Money remains worthless but you ain't seen nothing yet: viruses do not give a tuppenny about indices or governments. Inquiries were set up in the Autumn of 2023 to find out how much a virus is worth in the UK and who profited most.
WIP 24th Aug at Orton Peterborough
PAINFUL REALITY UNPACKED
Paper may be 'money'. That does not make it wealth
Paper can be created in truckloads by governments to 'finance' every hare-brained, feel-good programme imaginable. With no constraints on printing, politicians don't have to make difficult decisions between competing schemes. The UK can have 'improved' policing, Crossrail, NHS and a housing boom as well as HS2 and a bridge over the troubled waters between Scotland and the #IslandOfIreland. If only reality were that simple! In any recession, people, whose 'wealth' is redeemable only in IOU bonds and bank 'savings' see the "fruits of their labours" vanish.
Those who own their own house or land or oil-paintings or other tangible assets (including bottles of wine in the cellar) may seem better protected but no-one escapes a crash. If "Goods & Services" are not available because of a devastated economy, everyone will be hit. Hark back to your 650 stash which of course you did NOT top up by 6.9% pa back in 1998. Your government made your 650 drop to 550 in spending power while inflating it to 1100 over twenty years to try to preserve its buying power. Have you any idea how big that nest egg would be now, if you had not spent it?
It would not even exist because you'd have used it to clear your credit card years ago before then maxxing it out to 3000!
Nothing is worth anything unless the government sez it is. That is how "Fiat" works. Trust. Do you trust your government?
Gold was the currency of all enduring civilizations: Egyptian, Macedonian, Persian and Chinese Empires, the Greeks, the Romans, the Byzants. Byzantine coinage was accepted without question from China to Brittany, from the Baltic Sea to Ethiopia. In medieval England, the Exchequer Rolls were kept in bezants. Refer to XVII of the Tunnage Act of 1694 which is still law. Later the British Empire relied on its sovereign, a small gold coin nominally 1/4 oz. Unfortunately, most people neither understand nor care about the history of economics. Worse still, few know what 'money' is. You may search your pocket, handbag, purse, pull out some notes and say "This is money". You may wave your cheque book, your credit card, your smartphone, or even your watch and say your money is stored there . If a shopkeeper or a banker will take the tenner, the cheque or the card and give you food to make dinner it is certainly money . But what hides behind the dinner, the barbecue, the smoke and the mirrors?
WHAT IS MONEY?
Money needs three linked facets to make it viable: It must act as a medium of exchange, a measure of value and a store of wealth If any one feature goes weak, 'money' can become worthless. Gold (and silver) have always exhibited the three basic requirements for being "money". But, any barter-able item will do and history shows that the Romans used salt to pay salaries. Conch shells had their day in the Pacific. Dried Fish was serious money in the North Atlantic. So long as something is food or buys food and the means of cooking it, it ca be called 'money'.
wip Sun 25thAug at Orton Peterborough
Medium of Exchange
As a 'Medium of Exchange' paper functions well. Reliable notes are accepted in most places on earth. Since the collapse of the Soviet Union, dollars are the de-facto currency of most former soviet states including Russia itself. Today, the US$ is the world's pre-eminent currency but it has not always been so. In the 1970s, the mighty dollar was under severe pressure and was falling against other world currencies. When Nixon closed the window in 1971, foreign investors were left holding "IOU nothings." The consequences of Johnson's "Guns and Butter" policies during the Vietnam War next took a toll. The US had printed shit-loads of paper to provide 'liquidity' to pay for the butter AND the guns. In the Europe of the 70s, US tourists could not pay taxis, hotels, or restaurants with dollars because their dollar might drop even further before it could be converted to local paper. In 1981, the Fed raised interest rates, choked price inflation, made a dollar desirable because of fiat that price inflation would be brought under control. Today (2024), price-rises are called 'inflation'. Long ago, inflation was truthfully defined as "increases in the supply of money or credit which resulted in higher prices." Higher prices in their selves were not inflation back in the day; they were the result of easier credit or a deluge of paper. Word definitions change and can be affected by smoke and mirrors. These changes must be taken into consideration. Investors who choose to know what is really happening in the financial world need to recognize the difference between "price inflation" (rising prices) and "monetary inflation" (increases in 'money' supply). Rising prices show that someone somewhere has copped that the monetary authorities are printing too many bits of paper. When Europeans refused American dollars in the 1970s, they knew that inflation (both price and monetary) was a problem.
wip
2. A Measure of Value:
In serving as "a measure of value," money delineates only relative values. People living in £400,000 houses are perceived to be more wealthy than those who live in £200,000 houses. A £60,000 BMW is perceived to be more 'valuable' than a £10,000 Fiat. Here, though, is where paper money fails as a measure of value. What you paid for your house or car tells me nothing until I know when you bought it. A house bought for £80,000 in 1960 is in a whole different league from a £80,000 house bought in 2020s. We are talking mansions and hovels. A good 'shed' can cost £80,000 in 2020 values. Price inflation, brought on by monetary inflation, keeps prices climbing. Houses do not become more valuable: the measuring stick gets shorter. In 2017, sausages did not go up in price by 20%: they went down in weight by 20%. Persil non-bio tabs can be found at 50 per bag and at 66 per bag. But what price are the packs? The way to measure value is to see how much ONE tab costs.
3. A Store of Wealth:
As a store of wealth, paper money performs poorly. In 1970, a 60yo man retiring with £90,000 in the bank expected to be set for life. He could live off the interest; at the 10% rate then pertaining he would have £9000pa to spend at a time when that bought a lot of bread. So long as he spent £9000 pa, his capital sum would never go down. However, interest rates fell inexorably to 1% in 2011 and an unbelievable 0.25% in late 2019. At 1% his interest (and thus his income) was decimated (literally) but prices had gone up ten times over. Think of the 10/- gallon of petrol from 1970. In 2010 a litre cost £1.25. A year later it was £1.40. Late 2016, GOV.UK 'stabilised' it with smoke and mirrors. In 2023 it is £1.39 but I had sold my car to buy a canal boat.
Years ago, probably around 1980, our now 70yo would have started eating into his savings if he had not seen what was happening. By 2010, allowing he had lived to be 100 his money would have been long gone and he would have NOTHING. ... Just for a moment consider how pension funds pay pensions ...
What is a Pound?:
People think a 'pound' is a share in UK Ltd. redeemable in gold or something from the Bank of England. If only! A £20 note promises to 'pay the bearer on demand the sum of' £20. But £20 of what? A Real Pound is a weight of gold and is clearly defined by law. (All currencies work the same way). However, when you present your £20 you will not get gold. You will get coins made of shoddy metals. Dip a magnet into a fistful of change and see all the 'copper' stick to it. If you went into a wine store in 1980 with a bunch of fivers and got a bottles of wine for each fiver, it is not impossible that each bottle might now get you £50 and indeed some might return £500. That wine would have been wealth. But you guzzled it. ... Refer to Wikipedia Sovereign
What is a dollar?
Currently defined as 1/42.22oz gold, it is self evident that $42.22 will not get you an ounce of gold anywhere. In August 2011 you would have needed $2000. So a dollar is really worth almost nothing? How can a dollar supposed to be worth a dollar be really only worth less than half a cent and maybe not even that next year. Well for the same reason that it cost over $105 to buy a barrel of crude on 7th Oct 2011. On the 1st Oct 2011, a litre of diesel could be purchased for 99p. 9 barrels of crude was fair exchange for 1oz of gold in 2010. By Oct 2011, the exchange rate was 15 barrels. In October 2016 the price of motor fuels began an inexorable rise. It was now about £1.30 and going up and down like a yo-yo. As indeed is gold having bottomed at $400 after 9/11, it peaked at $2100 in August 2011, fell to $1100 in December 2015 and peaked again in August 2020 at $1950. It is currently sliding on world markets but watch this space As Gaia's messenger, Covid19, acts a catylist in 2021
"It's far better to know
the value of everything
and the price of nothing
than the price of everything
and the value of nothing!"
WIP
Until 1933, a dollar really was 1/20oz of gold. A $20 dollar bill got you a Golden Eagle. after devaluation, a dollar was worth a dollar. Throughout history, people with large amounts of real assets such as gold, art etc. always had a challenge keeping it safe from pillagers. Throughout the world, safe storage emerged where gold could be held until needed. As with any warehouse, the depositors received warehouse receipts. Gold warehouses evolved into banks. In the early development, the warehouse receipts carried the names of the depositors,
and only the depositors could redeem the gold on presentation of the receipts. As time went by, receipt holders began to sign over the receipts to merchants, who would later redeem the gold backing up the receipts. Over time, instead of redeeming the receipts, merchants would pass the receipts to still someone else, and paper money began being used. Gold was heavy and easily robbed; paper receipts were more convenient and gained popularity where the warehouse operators were trusted.
Throughout history, this scenario has been played out many times all around the world. But, the important thing to remember is that, in all instances, it was the gold that had the value. The receipts were only paper, having no intrinsic value. All over the world, Governments have jealously guarded the right to be an issuer of 'money', whether it be as paper or as 'coin'. This allowed governments to profit from the mintage of coins and cheat people with paper. The esteemed US Double Eagles are an excellent example of how the Fed profited from the mintage of gold coins. When Double Eagles were first minted, a 'dollar' was 1/20 oz of gold; consequently, twenty paper dollars were worth 1oz. in gold. Double Eagles contained 0.9675oz of gold, allowing the government 0.0325oz for out-of-pocket expenses on the mintage. It's called 'seigniorage' and is generally accepted as, well, fair dinkum. As early empires approached their ends and were less able to tax people, their rulers typically debased the coinage. The Romans clipped bits off as coins passed through the treasury. The clippings were then 'coined', thus increasing the 'money' supply. Other empires typically debased their coinage by reducing the gold content. History shows that government control of paper money is where real danger lies. The history of paper money is one of abuse. At first, paper money was introduced as a convenience redeemable in gold or silver. Then governments took it on themselves to print the paper used to redeem the gold. Later, people stopped being diligent about government control of their money. More paper money was issued than there was gold or silver to back it up. When people realise what is happening and the realisation becomes general, they present their paper for 'specie', without realising the coin itself was worthless in the first place. This, by the way, is what is known as a "run on the bank" and nowadays people run to the bank to get wads of paper! To thwart people, governments 'suspend' conversion. Roosevelt suspended domestic redemption in 1933; Nixon suspended foreign redemption in 1971. Now, the whole world is stuck with 'fiat' money, which is "legal tender for all debts, public and private." (See the paper money in your pocket.) It is 'money' by order of "government".
Following the terrorist attacks on Twin Towers and the Pentagon, the Fed "increased liquidity" by $200 billion. All the Fed had to do was buy bonds in the open market. The 'money' to pay for those IOUs was created by punching numbers in a computer. No taxes were increased. No money was borrowed. Virtually no effort was expended. Yet, the money supply grew by $200 billion. That's all there was to it. Of course, as any economist or "sophisticated Fed watcher" will tell you, it was the 'right thing to do'. The Fed had to avert panic. Besides, the government needed $40 billion to fight terrorism. Those dollars now compete with the dollars citizens have in their accounts so the 'new' dollars debase the "old" dollars. Someday, Americans are going to realise that those new dollars the Fed creates to "avert crises" have equal purchasing power with those for which they had to work. Most citizens did not get the 'wealth' in their bank accounts by participating in the stock market boom of the 1990s. They worked for their money. They watched the pennies, drove their cars a few years longer than they would have liked, wore their soles of their shoes a little thinner than they wanted, did not eat out as often as they would have liked, stayed home for vacations. Their frugality enabled them to put aside "a little for a rainy day" and for retirement.
They are about to find out that their savings are tied up in investments redeemable only in paper dollars, which the Federal Reserve can create at will. Each dollar of the $200 billion in "liquidity" that the Fed pumped into the financial system after September 11 has the same purchasing power: the same claim to goods and services, as the individual dollars for which individuals worked and scrimped and saved. Someday, and it may be very soon, people are going to say to their banks, "Give me my pieces of paper. I want to buy something of real value, something the Exchequer cannot duplicate or ban." They will rush to buy real estate, classic cars, firearms, antiques, wine. Some may buy stocks, thinking they offer protection against inflation. Others may buy gold and silver. Once the exodus becomes widespread, the US will suffer a devastating "confidence crisis," and the dollar will plunge on the world currency markets because foreigners will dump dollars as well. In fact, foreigners will probably lead the exit. That will be the day of reckoning for the paper dollar, the Federal Reserve Note, the IOU Nothing. It will also be the worldwide day of reckoning.
That day is unavoidable. The world has been on 'fiat' for over fifty years. All paper currencies have been abused for decades, inflated to levels never dreamed of in 1971. The dangers of paper money and the value of gold were illustrated during the 1998 Asian Crisis. Across Asia, paper currencies sank as people lost faith in them. It was a classic "confidence crisis." In local currencies, gold rocketed in price. In South Korea, the importance of gold rose to the forefront as government agents went door-to-door asking people to donate gold so the government would have "hard currency."
It is attributed to Ludwig Vin Mises that ... "Government is the only agency that can take a useful commodity like paper, slap some ink on it, and make it worthless." ... We are nearly there. It is time to stop thinking of gold and silver as vehicles from which to earn profits recorded in paper, but to view the precious metals as money. It is time to realize that gold and silver are the ultimate forms of money and that paper, albeit useful in many instances, eventually becomes worthless when used for money. You might also start salting away dried fish and collecting shells
Bill Haynes November 5, 2001
"A Day of Reckoning" first appeared in the Oct-Nov 2001 Monetary Digest,
Certified Mint's precious metals newsletter.
Bill Haynes wrote the original article.
WallToAll keeps it revised ... latest edit 2024/08/
Survival at All Costs
Or at No Cost At All
Before 1933, a dollar was 1/20oz of gold. A $20 bill could buy a Golden Eagle which, for all practical purposes, contained 1oz of gold. In 1933, the US called in all the gold, gave the people 20 paper dollars per ounce surrendered and then devalued the dollar to 1/35 oz of gold by presidential decree , removing any right of a US resident to cash in paper for gold on demand. Until 1971, 35 paper dollars could redeem 1oz.of gold with the proviso that 'redemption' was in the gift of 'governments' (think Zimbabwe) and 'financial institutions'. (think Lehmann's!) On 15th August 1971, President Nixon decreed that the $US (dollar) could no longer be redeemed in gold anywhere on earth and since then the entire world has been on a 'fiat' paper money system. Notes can be swapped for other notes or converted to another paper currency and those notes are worth only the paper they are printed on and sometimes not even that. The whole world is on fiat paper, each country relying on its own and other economies to be trusted right around the world.
(The word 'fiat' is Latin for 'trust')
'Trust' is being sorely tested in the 21st century and the waters are largely uncharted. However, what can be honestly stated is that, since 1971, one financial crisis after another has occurred entirely as a result of paper money systems. Your money is worth no more or no less than your trust in the economy that prints it! Any country moving to a 'fiat' paper currency, eventually prints more and more paper until it becomes worthless. Think Zimbabwe 2008 and 2016. Think Greece 2010. Think UK 2025? The UK National Debt passed £4trillion in 2019 ... four million million pounds... 4,000,000,000,000. It was expected to pass £5Trillion before 2021 was out at which time I lost interest no pun intended and stopped counting.
UK media headlines Dec.2015 were reporting on Britain's record national debt, which they said had than passed £1 trillion ... fake news ... The real debt was nearer £4trillion at that time. Factoring in all liabilities, including state and public sector pensions, and rounding the total UK population to about 65,000,000 the UK national debt was about £80,000 for every single person in the UK. The average UK household debt (including mortgages) was £58,540 in June2018, according to The Money Charity. Ordinary people owed nearly £1.6 trillion at the end of June 2018.
During each crisis, the 'solution' is to print more paper. Printed paper bears no relation to the real or imagined wealth of a country or its ability to pay off external debt. This can result in 'hyper-inflation' which can destroy a nation's economy and impoverish its people as was seen in Iceland in 2009. Iceland, being Iceland, came through the crisis and jailed the wankers who [almost] brought that wonderful country to its knees. In 2020 the Fed printed over $3500,000,000,000 of paper dollars. During November and December 2020 the UK printed £500,000,000 "For Christmas"
9/11 is US speak for 11th Sept. 2001.
It went unnoticed in 2001 that SEVEN cuts had ALREADY been made before Al Qaeda or Twin Towers. After 9/11, the Fed increased US 'liquidity' by $200 billion'... Just like that! ... Ordinary' people did not notice the earlier 'adjustments' and later were distracted by the awful events of 9/11 and it's aftermath. You can fool all the people some of the time but in finance all bets are off. You can fool all of them most of the time and most of them all the time. Imagine you are an ordinary citizen, living an ordinary life, in an ordinary town, across the millennium. You eat, sleep, work, play like everyone else. You have some small change under the bed for the rainy day. In June 1999 you counted it out and it was $€£$ 644.60? That number is chosen because if you multiplied it by one hundred billion in June 1999 the figure you got was what the US was realistically worth in dollars at that time. By coincidence it was the cost of a rather nice bed in Arnott's Dublin store. Your old bed had served you many years and was still 'serviceable' so you decided not to replace it ... Yet. Now let us imagine you put that $$€£ 644.60 under the mattress and watched the indices just like those billionaires who own 90% of the world do. Were you smart or stupid to put it under the mattress? Your plan was to add whatever the MSCI suggested would ensure that the stash retained its buying power. This analysis ignores $ € £ $ so as to relate to whatever currency you work in. Let us play the game with our smart/stupid 'under the mattress' saver/investor. After six months of sleeping on it you would have added 12.60 to your initial 644.60 to maintain your spending power into 2000. 17.80 was needed for 2001, and just 8 during 2002. 20 in 2003 and a further 18.50 in 2004.
Relax! I am doing the numbers for you. I have dispensed with the money signs because it does not matter what sign you use the money is still worth only what trust says it is worth. By June 2009 and you would have had 856 under the mattress for that NEW bed which was 644.60 in June 1999. You invested 211.40 over ten years to keep your mattress inflated. Another ten years on, in June 2019, you had added another 260 to stay as 'rich' as you were in 1998. What about the new bed? Should you take the money and go look for a new one?
The company that made the bed went bust years ago because it could not compete with China and all sorts of manufacturing cost increases. You saw all the companies go bust yourself. This is 2024. Look at all the boarded up shops, the boarded up streets and the beds you could get online were as bespoke as IKEA. Cheap and shoddy are not your style. What is going on? The money-printing presses masked the world-wide economic downturn and the stock market decline at the beginning of the millennium. The dark clouds casting gloom across the economic landscape in 2001 were pushed back, by devious and judicious use of smoke and mirrors, until 2008.
What was not known to the public in 2001, nor did anybody care, was that U.S. stocks had suffered collapses comparable to those of 1929. World stock markets reflected this but when did USA or for that matter UK look outside it's borders to see what was going on in the rest of the world? Plummeting US share prices in 2001 were an early sign of a day of reckoning. It would be seven years before the fairy-tale became a nightmare. Amazing financial magic can be achieved with dry ice and LEDs and picking the right day for bad news. In 2020 the western world had already commenced a real recession to correct the economic excesses of the so-called "years of prosperity" when the world's economies were saved by a virus. Well! The moneymen were saved by a virus. They now had a pandemic to hide behind. The WORLD market was about to correct fifty years of fairy-tale wealth based on a dream which was about to become a nightmare for ordinary people in the North Atlantic arena. Money remains worthless but you ain't seen nothing yet: viruses do not give a tuppenny about indices or governments. Inquiries were set up in the Autumn of 2023 to find out how much a virus is worth in the UK and who profited most.
WIP 24th Aug at Orton Peterborough
PAINFUL REALITY UNPACKED
Paper may be 'money'. That does not make it wealth
Paper can be created in truckloads by governments to 'finance' every hare-brained, feel-good programme imaginable. With no constraints on printing, politicians don't have to make difficult decisions between competing schemes. The UK can have 'improved' policing, Crossrail, NHS and a housing boom as well as HS2 and a bridge over the troubled waters between Scotland and the #IslandOfIreland. If only reality were that simple! In any recession, people, whose 'wealth' is redeemable only in IOU bonds and bank 'savings' see the "fruits of their labours" vanish.
Those who own their own house or land or oil-paintings or other tangible assets (including bottles of wine in the cellar) may seem better protected but no-one escapes a crash. If "Goods & Services" are not available because of a devastated economy, everyone will be hit. Hark back to your 650 stash which of course you did NOT top up by 6.9% pa back in 1998. Your government made your 650 drop to 550 in spending power while inflating it to 1100 over twenty years to try to preserve its buying power. Have you any idea how big that nest egg would be now, if you had not spent it?
It would not even exist because you'd have used it to clear your credit card years ago before then maxxing it out to 3000!
Nothing is worth anything unless the government sez it is. That is how "Fiat" works. Trust. Do you trust your government?
Gold was the currency of all enduring civilizations: Egyptian, Macedonian, Persian and Chinese Empires, the Greeks, the Romans, the Byzants. Byzantine coinage was accepted without question from China to Brittany, from the Baltic Sea to Ethiopia. In medieval England, the Exchequer Rolls were kept in bezants. Refer to XVII of the Tunnage Act of 1694 which is still law. Later the British Empire relied on its sovereign, a small gold coin nominally 1/4 oz. Unfortunately, most people neither understand nor care about the history of economics. Worse still, few know what 'money' is. You may search your pocket, handbag, purse, pull out some notes and say "This is money". You may wave your cheque book, your credit card, your smartphone, or even your watch and say your money is stored there . If a shopkeeper or a banker will take the tenner, the cheque or the card and give you food to make dinner it is certainly money . But what hides behind the dinner, the barbecue, the smoke and the mirrors?
WHAT IS MONEY?
Money needs three linked facets to make it viable: It must act as a medium of exchange, a measure of value and a store of wealth If any one feature goes weak, 'money' can become worthless. Gold (and silver) have always exhibited the three basic requirements for being "money". But, any barter-able item will do and history shows that the Romans used salt to pay salaries. Conch shells had their day in the Pacific. Dried Fish was serious money in the North Atlantic. So long as something is food or buys food and the means of cooking it, it ca be called 'money'.
wip Sun 25thAug at Orton Peterborough
Medium of Exchange
As a 'Medium of Exchange' paper functions well. Reliable notes are accepted in most places on earth. Since the collapse of the Soviet Union, dollars are the de-facto currency of most former soviet states including Russia itself. Today, the US$ is the world's pre-eminent currency but it has not always been so. In the 1970s, the mighty dollar was under severe pressure and was falling against other world currencies. When Nixon closed the window in 1971, foreign investors were left holding "IOU nothings." The consequences of Johnson's "Guns and Butter" policies during the Vietnam War next took a toll. The US had printed shit-loads of paper to provide 'liquidity' to pay for the butter AND the guns. In the Europe of the 70s, US tourists could not pay taxis, hotels, or restaurants with dollars because their dollar might drop even further before it could be converted to local paper. In 1981, the Fed raised interest rates, choked price inflation, made a dollar desirable because of fiat that price inflation would be brought under control. Today (2024), price-rises are called 'inflation'. Long ago, inflation was truthfully defined as "increases in the supply of money or credit which resulted in higher prices." Higher prices in their selves were not inflation back in the day; they were the result of easier credit or a deluge of paper. Word definitions change and can be affected by smoke and mirrors. These changes must be taken into consideration. Investors who choose to know what is really happening in the financial world need to recognize the difference between "price inflation" (rising prices) and "monetary inflation" (increases in 'money' supply). Rising prices show that someone somewhere has copped that the monetary authorities are printing too many bits of paper. When Europeans refused American dollars in the 1970s, they knew that inflation (both price and monetary) was a problem.
wip
2. A Measure of Value:
In serving as "a measure of value," money delineates only relative values. People living in £400,000 houses are perceived to be more wealthy than those who live in £200,000 houses. A £60,000 BMW is perceived to be more 'valuable' than a £10,000 Fiat. Here, though, is where paper money fails as a measure of value. What you paid for your house or car tells me nothing until I know when you bought it. A house bought for £80,000 in 1960 is in a whole different league from a £80,000 house bought in 2020s. We are talking mansions and hovels. A good 'shed' can cost £80,000 in 2020 values. Price inflation, brought on by monetary inflation, keeps prices climbing. Houses do not become more valuable: the measuring stick gets shorter. In 2017, sausages did not go up in price by 20%: they went down in weight by 20%. Persil non-bio tabs can be found at 50 per bag and at 66 per bag. But what price are the packs? The way to measure value is to see how much ONE tab costs.
3. A Store of Wealth:
As a store of wealth, paper money performs poorly. In 1970, a 60yo man retiring with £90,000 in the bank expected to be set for life. He could live off the interest; at the 10% rate then pertaining he would have £9000pa to spend at a time when that bought a lot of bread. So long as he spent £9000 pa, his capital sum would never go down. However, interest rates fell inexorably to 1% in 2011 and an unbelievable 0.25% in late 2019. At 1% his interest (and thus his income) was decimated (literally) but prices had gone up ten times over. Think of the 10/- gallon of petrol from 1970. In 2010 a litre cost £1.25. A year later it was £1.40. Late 2016, GOV.UK 'stabilised' it with smoke and mirrors. In 2023 it is £1.39 but I had sold my car to buy a canal boat.
Years ago, probably around 1980, our now 70yo would have started eating into his savings if he had not seen what was happening. By 2010, allowing he had lived to be 100 his money would have been long gone and he would have NOTHING. ... Just for a moment consider how pension funds pay pensions ...
What is a Pound?:
People think a 'pound' is a share in UK Ltd. redeemable in gold or something from the Bank of England. If only! A £20 note promises to 'pay the bearer on demand the sum of' £20. But £20 of what? A Real Pound is a weight of gold and is clearly defined by law. (All currencies work the same way). However, when you present your £20 you will not get gold. You will get coins made of shoddy metals. Dip a magnet into a fistful of change and see all the 'copper' stick to it. If you went into a wine store in 1980 with a bunch of fivers and got a bottles of wine for each fiver, it is not impossible that each bottle might now get you £50 and indeed some might return £500. That wine would have been wealth. But you guzzled it. ... Refer to Wikipedia Sovereign
What is a dollar?
Currently defined as 1/42.22oz gold, it is self evident that $42.22 will not get you an ounce of gold anywhere. In August 2011 you would have needed $2000. So a dollar is really worth almost nothing? How can a dollar supposed to be worth a dollar be really only worth less than half a cent and maybe not even that next year. Well for the same reason that it cost over $105 to buy a barrel of crude on 7th Oct 2011. On the 1st Oct 2011, a litre of diesel could be purchased for 99p. 9 barrels of crude was fair exchange for 1oz of gold in 2010. By Oct 2011, the exchange rate was 15 barrels. In October 2016 the price of motor fuels began an inexorable rise. It was now about £1.30 and going up and down like a yo-yo. As indeed is gold having bottomed at $400 after 9/11, it peaked at $2100 in August 2011, fell to $1100 in December 2015 and peaked again in August 2020 at $1950. It is currently sliding on world markets but watch this space As Gaia's messenger, Covid19, acts a catylist in 2021
"It's far better to know
the value of everything
and the price of nothing
than the price of everything
and the value of nothing!"
WIP
Until 1933, a dollar really was 1/20oz of gold. A $20 dollar bill got you a Golden Eagle. after devaluation, a dollar was worth a dollar. Throughout history, people with large amounts of real assets such as gold, art etc. always had a challenge keeping it safe from pillagers. Throughout the world, safe storage emerged where gold could be held until needed. As with any warehouse, the depositors received warehouse receipts. Gold warehouses evolved into banks. In the early development, the warehouse receipts carried the names of the depositors,
and only the depositors could redeem the gold on presentation of the receipts. As time went by, receipt holders began to sign over the receipts to merchants, who would later redeem the gold backing up the receipts. Over time, instead of redeeming the receipts, merchants would pass the receipts to still someone else, and paper money began being used. Gold was heavy and easily robbed; paper receipts were more convenient and gained popularity where the warehouse operators were trusted.
Throughout history, this scenario has been played out many times all around the world. But, the important thing to remember is that, in all instances, it was the gold that had the value. The receipts were only paper, having no intrinsic value. All over the world, Governments have jealously guarded the right to be an issuer of 'money', whether it be as paper or as 'coin'. This allowed governments to profit from the mintage of coins and cheat people with paper. The esteemed US Double Eagles are an excellent example of how the Fed profited from the mintage of gold coins. When Double Eagles were first minted, a 'dollar' was 1/20 oz of gold; consequently, twenty paper dollars were worth 1oz. in gold. Double Eagles contained 0.9675oz of gold, allowing the government 0.0325oz for out-of-pocket expenses on the mintage. It's called 'seigniorage' and is generally accepted as, well, fair dinkum. As early empires approached their ends and were less able to tax people, their rulers typically debased the coinage. The Romans clipped bits off as coins passed through the treasury. The clippings were then 'coined', thus increasing the 'money' supply. Other empires typically debased their coinage by reducing the gold content. History shows that government control of paper money is where real danger lies. The history of paper money is one of abuse. At first, paper money was introduced as a convenience redeemable in gold or silver. Then governments took it on themselves to print the paper used to redeem the gold. Later, people stopped being diligent about government control of their money. More paper money was issued than there was gold or silver to back it up. When people realise what is happening and the realisation becomes general, they present their paper for 'specie', without realising the coin itself was worthless in the first place. This, by the way, is what is known as a "run on the bank" and nowadays people run to the bank to get wads of paper! To thwart people, governments 'suspend' conversion. Roosevelt suspended domestic redemption in 1933; Nixon suspended foreign redemption in 1971. Now, the whole world is stuck with 'fiat' money, which is "legal tender for all debts, public and private." (See the paper money in your pocket.) It is 'money' by order of "government".
Following the terrorist attacks on Twin Towers and the Pentagon, the Fed "increased liquidity" by $200 billion. All the Fed had to do was buy bonds in the open market. The 'money' to pay for those IOUs was created by punching numbers in a computer. No taxes were increased. No money was borrowed. Virtually no effort was expended. Yet, the money supply grew by $200 billion. That's all there was to it. Of course, as any economist or "sophisticated Fed watcher" will tell you, it was the 'right thing to do'. The Fed had to avert panic. Besides, the government needed $40 billion to fight terrorism. Those dollars now compete with the dollars citizens have in their accounts so the 'new' dollars debase the "old" dollars. Someday, Americans are going to realise that those new dollars the Fed creates to "avert crises" have equal purchasing power with those for which they had to work. Most citizens did not get the 'wealth' in their bank accounts by participating in the stock market boom of the 1990s. They worked for their money. They watched the pennies, drove their cars a few years longer than they would have liked, wore their soles of their shoes a little thinner than they wanted, did not eat out as often as they would have liked, stayed home for vacations. Their frugality enabled them to put aside "a little for a rainy day" and for retirement.
They are about to find out that their savings are tied up in investments redeemable only in paper dollars, which the Federal Reserve can create at will. Each dollar of the $200 billion in "liquidity" that the Fed pumped into the financial system after September 11 has the same purchasing power: the same claim to goods and services, as the individual dollars for which individuals worked and scrimped and saved. Someday, and it may be very soon, people are going to say to their banks, "Give me my pieces of paper. I want to buy something of real value, something the Exchequer cannot duplicate or ban." They will rush to buy real estate, classic cars, firearms, antiques, wine. Some may buy stocks, thinking they offer protection against inflation. Others may buy gold and silver. Once the exodus becomes widespread, the US will suffer a devastating "confidence crisis," and the dollar will plunge on the world currency markets because foreigners will dump dollars as well. In fact, foreigners will probably lead the exit. That will be the day of reckoning for the paper dollar, the Federal Reserve Note, the IOU Nothing. It will also be the worldwide day of reckoning.
That day is unavoidable. The world has been on 'fiat' for over fifty years. All paper currencies have been abused for decades, inflated to levels never dreamed of in 1971. The dangers of paper money and the value of gold were illustrated during the 1998 Asian Crisis. Across Asia, paper currencies sank as people lost faith in them. It was a classic "confidence crisis." In local currencies, gold rocketed in price. In South Korea, the importance of gold rose to the forefront as government agents went door-to-door asking people to donate gold so the government would have "hard currency."
It is attributed to Ludwig Vin Mises that ... "Government is the only agency that can take a useful commodity like paper, slap some ink on it, and make it worthless." ... We are nearly there. It is time to stop thinking of gold and silver as vehicles from which to earn profits recorded in paper, but to view the precious metals as money. It is time to realize that gold and silver are the ultimate forms of money and that paper, albeit useful in many instances, eventually becomes worthless when used for money. You might also start salting away dried fish and collecting shells
Bill Haynes November 5, 2001
"A Day of Reckoning" first appeared in the Oct-Nov 2001 Monetary Digest,
Certified Mint's precious metals newsletter.
Bill Haynes wrote the original article.
WallToAll keeps it revised ... latest edit 2024/08/
Survival at All Costs
Or at No Cost At All
