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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Fiat Paper Currencies are NOT Gold!

Currencies / Fiat Currency Oct 09, 2013 - 01:59 PM GMT

By: DeviantInvestor


Paper currencies seem normal. They seem natural. We are told they are necessary. Paper currencies with no intrinsic value are used everywhere - we pretend they are valuable. If we don't look closely, or remember the world of 60 years ago, they seem like a good idea.

Monopoly money. Euros. Dollars. What is the essential difference? Paper, with no intrinsic value, is accepted only because we have confidence in the issuer of the currency and/or because we have no other choice. Monopoly money can buy hotels on Park Place. Unbacked paper dollars can buy hotels in Manhattan. The hundreds of unbacked paper currencies that have become worthless during the last century can buy NOTHING.

If I am playing Monopoly and I change the rules to allow me, and only me, to add $85,000 to my stack of money, it seems likely I will "win" and own more property. Eventually, no one will want to play with me because I created $85,000 of fraudulent Monopoly money.

If I am a central banker and I create $85,000,000,000 every month to buy bonds, I will own lots of bonds in a few years. People will eventually realize my $85,000,000,000 per month gives me and my friends an unfair advantage and most others will refuse to play with me except when necessary, and they will certainly seek other "games" that are more fair and less slanted toward the player who can create boatloads of currency from nothing.

From Richard Russell: (link)

"For the first time in history, ALL the major central banks are printing money. One of two things will occur. If they continue to print, their respective currencies will lose their purchasing power, and we'll have inflation or even hyper-inflation. If the central banks pull back on their printing, we'll have crashing markets and a world depression."

Should we trust our central bankers? They largely control our financial lives. Inflation, deflation, depression, prosperity, booms, and busts are strongly influenced by banking policies, interest rates, and the availability of currency and credit, all of which are influenced by central banks.

Jim Grant: (link)

"Gold is a legacy monetary asset. It was there before they printed paper.

The price is the reciprocal of the world's faith in central bankers. The world ought to have much less faith in central bankers. As that proper distrust grows, the gold price will appreciate. I think gold is cheap at this price."

The world is overloaded with debt. As Bill Bonner said, "To solve the debt problem they added debt! The genius of this plan was, we admit, not immediately obvious." We think it is progressively more obvious that creating a massive quantity of currency each month - say $85,000,000,000 - is helping few outside the financial community and will eventually cause considerable harm to the economy and the purchasing power of the dollar.

We all know that:

  • There is no free lunch.

  • The piper must be paid.

  • Actions have consequences.

  • The U.S. government has spent more than it collects in taxes for a long time.

  • The U.S. official debt is growing much more rapidly than the underlying economy which must support that debt.

  • The U.S. unfunded liabilities are growing even faster than the official debt.

  • "Printing" dollars, inflating the money supply, extend and pretend, financial repression, and ever-increasing government control will eventually have dire consequences.

What are the "solutions" to our massive and unpayable debt conundrum?

  • Increase taxes and pay off the national debt. This will not happen.

  • The "nuclear" option: Default on much of the debt, force most individuals, businesses, and governments into some form of bankruptcy, and thereby liquidate most of the debt and the related paper assets. Politicians will avoid this option.

  • Create a massive inflation and thereby reduce the debt burden. Descriptive words that come to mind are: ugly, dangerous, social upheaval, food riots, bread lines, suicide, tears, anger, homelessness, denial, repression, martial law, and chaos. This is probably the only choice remaining.

Hugo Salinas Price: (link)

"We have only limited knowledge regarding what massive monetary inflation really means. Those who are going to apply it know only some of the effects, not all of them. ... Thus the hand that will implement massive inflation trembles in doubt. Yet, there is no other recourse.

The world will plunge into the darkness of massive world inflation. There is no other alternative. It must take place, but what will happen then is obscure. We are going into uncharted waters."

"In the coming world-uncertainty and fear, humans will adopt the same measures spontaneously, and a flight into gold and silver will take place."

"The Powers-That-Be" appear to prefer a distracted populace, slowly rising prices, a strong dollar, weak gold prices, and minimal restrictions on their ability to accumulate assets and power. There will be trauma if currencies collapse, gold prices skyrocket, and inflation flies out of control. We can reasonably expect that the governments of the world will "do something" that unfortunately will NOT solve the problems of collapsing currencies and out of control inflation.

Michael Noonan: (link)

"Central banks and governments produce nothing. Governments exist by sucking the financial lifeblood from the same citizens the government is supposed to serve."

"If the prices of gold and silver were allowed to reflect their true worth, it would totally undermine the existence of the "dollar" and topple central bankers and governments. Those banksters in control are not going to go down without a fight, and they will destroy existing western currencies in the process. If the paper "dollar" is how you measure your worth, you have been warned."

When paper assets are overvalued, gold and silver prices are likely to be undervalued. How much are paper assets and unbacked paper currencies truly worth? That is a huge question. Consider:

  • Will "solving" an excessive debt problem by issuing more debt decrease the value of existing paper assets and unbacked paper currencies?

  • Will $1,000 Trillion (more or less) in unregulated paper derivatives decrease the value of paper assets and unbacked paper currencies when the inevitable "accident" occurs?

  • Will creating $85,000,000,000 every month decrease the value of paper assets and the unbacked paper dollar?

  • Will even more aggressive money printing in Japan decrease the value of paper assets and the unbacked paper Yen?

  • Will our current monetary craziness and Quantitative Easing (QE) produce prosperity and a stronger economy or weaker currencies and paper assets of reduced value?

SRSrocco Report: (link)

"The global financial system is floating on a sea of worthless paper assets. Unfortunately, the majority of people still haven't figured out that the end of this fiat monetary system is close at hand."

"The rate at which the dollar is being abandoned by international trade portends the end of the U.S. Dollar as a reserve currency much sooner than later. This is the very reason why the paper prices of gold and silver have been manipulated lower since 2013. The threat of much higher gold and silver prices is an immediate threat to the Dollar."

Will all this economic nonsense - unbacked paper currencies, massive printing (QE) of currencies, gold price manipulation, unregulated derivatives, out-of-control deficit spending, creating more debt to solve an excess debt problem, and so on - work out well for anyone except the financial and political elite?

Jim Grant: (link)

"I think the odds against a painless, peaceful and placid exit from all of this dollar, yen, euro and pound sterling creation, the odds against returning to something like normalcy, are very slight indeed. Therefore one ought to think about assets that will hold their value against money."

So what do we do to prepare - to "prep" for the coming paper currency disaster?

Arabian Money: (link)

"What you want to buy is an insurance policy against this coming catastrophe and preferably one that does not have a third party between you and your money. Gold is the ultimate money in times of chaos."


  • Realize that holding unbacked paper money is like holding an explosive device with a long burning fuse. Eventually that paper money will explode into worthlessness - it may survive for some time - but history shows clearly that paper money eventually declines to its intrinsic value - near zero.

  • Transition out of paper assets and into something real, such as land, buildings, gold, silver, mines, and farms.

  • Prepare for the worst - an inflationary collapse - that may not occur but seems increasingly likely. You will sleep better if you are prepared, unleveraged, and financially protected via safely stored gold and silver with no counter-party risk.

  • Expect the best: responsible monetary policy, less government, less war, honest money, and a healthy economy.

Read: TANSTAAFL, Butter and Silver
Read: The Reality of Gold and the Nightmare of Paper

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2013 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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