Thursday, April 21, 2011

Now What's All This Fuzz About Gold and Silver?


Honey, I am just going to the shop to get some milk, OK?

Now what's all this fuzz about gold and silver?

I always wondered why the money I earned when I was young with washing cars could buy you a lot of things but not even a lollypop today. In those days I saved big money, well...to me that was.. by knocking on doors in the neighbourhood and I considered myself wealthy. Those were the days.....

Now why is it that this feeling of wealth disappears over time and where did it go to? 

Welcome to the world of money where nothing is straight forward. 

You believe you are wealthy with your $50,000 in your bank account?  Tell you what: the money is yours but not the value of your money. The value of your money is dictated by our financial and political powers. And am I right that every year you have the feeling that you are getting a little bit poorer? Not much, but enough to raise an eyebrow but not enough to make you really, really angry?

The scheme is to print every year more money than is necessary to keep up with the growth of the economy.  That is called inflation and is exactly the reason your feeling of wealth disappears year after year.

You see, more of something decreases the price. The price of a collectable Ferrari could well be US$ US$ 200,000; but if there would be 50 similar Ferrari’s for sale the price would be less, perhaps 25%, makes sense, no?. The same logic applies to money. More money in circulation; the less it is worth.

But what is the motivation of our political leaders to debase our money? I mean, a strong currency should be in their interest also? The answer is that their only objective is that they want to get re-elected and the only way to do this is to keep their voters happy...by spending more...a small price to pay for a comfortable job. 

Note also the financial people with excess saliva in the background as more expenditure means more loans, means more bonuses.

Before 1971 politicians were not allowed to spend more than the economic growth as this expenditure was linked to a gold standard.  Expenditure was fixed, to the fury of the politicians. Nixon at that time needed the money to expand the war in Vietnam, but was not allowed to because of the gold standard. So he changed the rules, abolished the gold standard and off they went to....spend....spend...spend....as if there was no tomorrow.

 
 Intrinsically, politicians cannot be trusted with money

Of course all this money created a feeling of wealth and invincibility. Fighting 3 wars, 50 x up and down to space, health care for everybody, and a defence budget to protect all this, a lack of money will not stop the politician. But nothing is for free and the cost was, and is, the debasement of the US$.

 Currency debasement is a worldwide disease


That is why the world must return to a sort of a gold or silver standard. Intrinsically, politicians all over the world cannot be trusted with money. He/she needs to be kept in check and only the voter can make sure of this.

Any other solution politicians come up with to rein in spending will be a dud. We must take away the financial powers we gave them and go back to creating wealth with real money.