In the aftermath of the global economic crisis
of 2008-2009, governments throughout the world have fostered a tenuous recovery
predicated on massive increases in money supplies and debasement of currencies.
Note
however, that monetary debasement is not a recent phenomenon; it is simply the
natural life cycle of money.
There are six well-defined stages in the life
cycle of money. This progression has occurred in every dominant
civilization over the 5000 years of recorded human history:
Stage 1:
A Barter Market Begins.
Societies
organize and begin to function with a basic barter system for trading
goods. Incipient barter is a direct exchange of goods for goods. Goods are
defined as wealth and wealth is produced when humans apply labor and
knowledge to extract natural resources from the earth. As the civilization
progresses, services become of value and are also bartered. A citizen produces and
barters his goods and/or services; their perceived value to the community is equal
to his individual and/or familial wealth.
Stage 2:
Free Market Money Emerges.
After a barter economy is well-established, a
society progresses to the concept of free market money and a currency
system emerges. Having a recognizable, reliable, and uniform unit of
monetary exchange facilitates business, commerce, and trade within and between citizens,
communities, and societies.
For
5000 years the currencies of choice have been gold and sometimes
silver. Many civilizations have selected these precious metals as money
based on trial and error and often independently of each other.
Aristotle
proposed four critical attributes for money nearly 2500 years ago: He wrote
that money must be durable, portable, divisible, and intrinsically valuable. Gold has
been repeatedly determined to be the best store of value because it does
not tarnish or corrode; it is easily stored and convenient to transport great
distances; it can be minted in small and uniform pieces; and it is scarce.
Although not as ideally suited as gold, silver has often served as a primary monetary
instrument for trade and exchange.
Stage 3:
Government Regulates the Market.
Communal
order is required in a functional society and therefore, a government is
formed. Sometime later, government becomes involved
in regulation of the marketplace. Its size and power grow and it begins to
control more and more aspects of business, commerce, and trade.
Laws,
rules, and regulations are instituted to regulate and control trade
through tariffs, taxes, quotas, and penalties. Taxes are imposed as a
means to limit the wealth of ordinary citizens, preserve the power of the
rulers, and support the growing government agenda. The economic system is
increasingly divorced from a free market and forced to operate in a regulatory
regime where government controls the money supply.
Stage 4:
Government Monopolizes the Money.
The
government takes absolute control of the money supply and sets up a currency
system to issue official coinage from a central mint. It controls the
size, design, weight, and purity of the coinage. Later, the government issues
paper promissory notes redeemable in coinage and decrees that these notes are money,
i.e., a fiat currency exchangeable for goods or services. Backed by its own laws,
the government institutes a monopoly of the monetary system and forbids local
governments, banks, and citizens to compete by issuing public or private
currencies.
Stage 5:
Government Debases the Money.
Government
must increase taxes to sustain its continuing growth, and citizens protest the seizure
of their hard-earned wealth thru onerous taxation. In order to fund its growing obligations and
to lessen dissent from higher taxes, the government begins to debase the value
of its money. Historically, governments have shaved off pieces of coins, issued
smaller coins, or made coins with less gold and/or silver content. The next
step occurs when the government removes all precious metals from its coinage.
Eventually, it declares that its promissory notes are no longer redeemable in
precious metals. At this point, there is no basis to the monetary system other
than the government’s promise to pay.
The issuance of currency without backing by precious metals allows the
government to create “money” at will for its own purposes. The government
creates more and more money and, because the currency in circulation increases
while the availability of goods and services remains the same, prices increase.
The
increase in money supply is known as inflation and the consistently rising
prices for goods and services are a by-product of that inflation. Inflation robs citizens of wealth and
savings by decreasing the purchasing power of their money.
Stage 6:
No Confidence and Collapse of the Money.
Inflation,
indebtedness, and government deficits increase and citizens realize that the
fiat currency representing their lifelong labors, savings, and wealth is continually
losing value. Poor money management by government results in a stagnant economy,
rising prices, shortages of food and goods, and increasing public and personal
debt.
The
ongoing devaluation of fiat currency leads to a lack of confidence by the
citizens with resulting runs on banks and collapse of the banking system. Civil
and political unrest accelerates. Ultimately, the government defaults on its
promises to pay and economic and societal chaos ensues.
Thus,
the life cycle of money is complete.
Re-Emergence
of Free Market Money.
Citizens desire a return to a monetary system
that is stable, secure, and non-inflationary. They realize that gold is a
safe haven for preservation of wealth and is the only insurance policy against
oppressive government and constant currency debasement. Demand for gold
and silver rise.
If collapse of the previous civilization was
complete, new societies eventually emerge with barter economies followed by evolution
to free market money.
Those citizens with financial acumen have
accumulated precious metals as a key component of their overall assets and
survive the economic collapse with significant wealth. They become the
financial leaders of a new free market money system based on gold, the citizens
as a whole prosper and flourish, and widespread wealth grows again.
Conclusions:
It
literally pays to understand the
history of money in societies, city-states, countries, and empires. By
recognizing the six stages in the life cycle of money and the position of
present-day governments within this cycle, citizens can make better informed monetary
decisions. They can partition their assets to maximize wealth and mitigate the
effects of currency debasement and the chaos of economic collapse.
Governments
have universally debased their currencies without the backing of gold for 45
years. Central banks in both the world’s developed and undeveloped
countries have repeatedly failed or have been bailed out by their governments
by the issuance of more and more fiat currency.
The net results are increasingly high
leverage, negative interest rates, extraordinary indebtedness, currency
devaluations, serial defaults, and economic collapse of countries throughout
the world. Monetary crises, food and supply shortages, rioting and rebellion,
civil wars, and overthrow of oppressive regimes have become commonplace.
We have now entered stage 6 of The Life Cycle
of Money with widespread lack of confidence in an entire basket of increasingly
worthless fiat currencies. The $64,000 question is when will the inevitable global
economic collapse occur?
I will flatly tell you that no macroeconomist,
maven, medium, self-appointed prophet, pundit, talking head, or wizard can or
will predict the exact timing.
That said, savvy citizens currently have the
opportunity to acquire physical gold at a +30%
discount to its historic high. We can still protect our wealth from the unholy
shenanigans of corrupt and unstable governments led by politicians and rulers
whose only concern is to preserve their power over the ordinary masses.
For these reasons, I urge you to make physical
gold an integral part of your wealth. And I strongly suggest you do this sooner
than later.
Folks, please recall The Golden Rule: He who
owns the gold, makes the rules.
Ciao for now,
Mickey Fulp
Mercenary Geologist
Acknowledgment: My special thanks for these ideas go to Kirsty Hogg, manager of promotions
and social media for MercenaryGeologist.com. Kirsty wrote a similar piece for goldwars.blogspot.com in 2011.
The Mercenary
Geologist Michael S. “Mickey” Fulp
is a Certified Professional Geologist with a
B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology
from the University of New Mexico. Mickey has 35 years experience as an
exploration geologist and analyst searching for economic deposits of base and
precious metals, industrial minerals, uranium, coal, oil and gas, and water in
North and South America, Europe, and Asia.
Mickey worked for junior explorers, major
mining companies, private companies, and investors as a consulting economic
geologist for over 20 years, specializing in geological mapping, property
evaluation, and business development. In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient, and is bilingual in English and Spanish. From 2003 to
2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British
Columbia.
Mickey is well-known and highly respected throughout
the mining and exploration community due to his ongoing work as an analyst, writer,
and speaker.
Contact: Contact@MercenaryGeologist.com
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