Saturday, September 14, 2013

The Current State of the Global Economy

In my book, Guide to Investing in Gold and Silver, and in Hidden Secrets of Money, I show how societies have swung back and forth from quality money to quantity currency. Originally, quantity currency took the form of debased coinage (gold or silver money that has been diluted by adding cheap and abundant base metals such as copper). Then it took the deceptive form of national currencies that were initially backed by money, IE: claim checks on gold and/or silver. Once these were established, governments then could change the laws, basically making fraud legal, so they could print claim checks on gold that didn't exist. The next step was to sever the connection between money and currencies entirely.

Back when we used real money, gold would automatically balance all economies. When one country experienced an economic boom, they would import cheap goods from countries with depressed economies and lower wage rates. The outflows of gold from the boom country would cause a deflation, cooling the economy, while the countries experiencing gold inflows would boom, causing their labor rates to increase, which in turn would cause the prices of their goods to rise. This meant that trade imbalances would always automatically rebalance. Government spending was also constrained. If a government wanted to spend more than its income (deficit spending) it had to borrow gold from the private sector. If the government borrowed too much it would cause interest rates to rise, which in turn would slow the economy, which in turn would cause tax revenues to fall, which meant less income for the government, which in turn would cause the government to cut spending.

But the debt based global monetary system has allowed deficit spending, trade imbalances, and bubbles to persist and balloon to levels unprecedented in all of history. We are in completely uncharted territory. The credit/debt bubble and the derivatives bubble threaten to take down the world economy. The only comparison you could make is to take every great bubble in history times one million and have it burst everywhere on the planet simultaneously… It threatens to be a global financial nuclear holocaust the only financial survivors of which will be the owners of gold and silver.

- Source, Mike Maloney via Top Ten Reasons I Buy Gold and Silver: