third party – the custodian of the currency. Say you build a business and sell it for $1 million. You know that you can exchange that money for a million dollars’ worth of goods and services. The money represents a million dollars’ worth of resources. It came from something with tangible value that was added to the economy. But if that million dollars was lent into existence by the bank or printed into existence by the central bank, rather than honestly earned and saved, there would be no corresponding addition to the world’s supply of goods and services. This is just another way to
Trillions of dollars’ worth of new hotels, houses, companies, malls, factories, dinners, drugs – and just about everything else – have been financed with this empty credit. Sooner or later, this debt must be reckoned with – either in deflation... or in inflation. But someone pays. With deflation, the creditor pays when his credit goes bad. With inflation, everyone pays as prices rise. So far, since 1971, the typical American’s trust in the dollar has been rewarded with a huge loss – about 95% of the dollar’s 1971 value has disappeared. As you would expect. This new money is no longer trustless. Every transaction involves a
today is about the same as it was – to the extent these things can be measured accurately – 500 years ago. And I don’t have to worry about a third party because there’s no third party, or counterparty, in the deal. Gold is a “trustless” money. We don’t have to trust the guy we got it from. And it wasn’t issued or created by some government agency, so we don’t have to trust the feds to maintain its value. system was changed in two moves – first when Lyndon Johnson asked Congress in 1968 to repeal the requirement for a gold reserve to back U.S. currency and second when Richard Nixon ended dollar convertibility to gold in 1971 – the U.S. government reintroduced a more primitive form of money. It also introduced a queer wrinkle. (See chart to the right) With this new money, the U.S. economy – and, by extension, much of the world economy – has been shaped by credit above and beyond available savings. A NEW WRINKLE When the U.S. money
30 | June 2017
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