Below are…my answers to various questions about gold, inflation, and the Federal Reserve…
Gold is real money; nothing else is.
- Gold meets the test of real money definitively and historically.
- Gold is
- 1) a medium of exchange;
- 2) a measure of value; and
- 3) a store of value. Of those three things, store of value is the most critical.
- Gold is original money. Gold was money before the U.S. dollar. The U.S. dollar and all paper currencies are substitutes for real money, i.e., gold.
- Gold’s value is in its use as money. Gold’s use as money is singular in nature; in other words, gold is not anything other than real money. (see Gold’s Singular Role)
Inflation is the debasement of money by…central banks, who create inflation by continually expanding the supply of money and credit…
- Expansion of the supply of money and credit cheapens the value of all the money in circulation, leading to a loss of purchasing power. The loss of purchasing shows up in the form of higher prices for all goods and services.
- The higher prices for goods and services are NOT inflation. They are an effect, or the result, of inflation that has already been created by government and the banks.
- The effects of inflation are cumulative, volatile, and unpredictable.
The Federal Reserve is a banker’s bank. The Fed’s purpose is to facilitate a system whereby banks can create and lend money in perpetuity (to governments, corporations, and individuals) and collect interest…
- The Federal Reserve created the conditions which led to the 1929 stock market crash, not the crash itself.
- The Federal Reserve caused the Great Depression of the 1930s by pursuing a tight money policy, i.e., raising interest rates, in 1928 and 1929.
Where We Are Now
- After more than a century of Federal Reserve inflation (intentional expansion of the supply of money and credit), the U.S. dollar has lost ninety-nine percent of its purchasing power.
- The ninety-nine percent loss in U.S. dollar purchasing power (the effects of inflation) is reflected in the gold price which has risen one hundred-fold from $20.67 oz to more than $2000 oz.
The policies and actions of the Fed are geared to keeping a fragile financial and economic system intact for as long as possible. They will do, or not do, whatever is necessary to accomplish that, however, they are merely reacting to the effects of their own irresponsible actions over the past century…and can not avoid the inevitable consequences (financial and economic collapse) of their actions.
What to Expect
Even if the Fed were to change course at this point, it won’t make much difference. Investors would belly up to the bar for another round of cheap credit, but what comes after will be worse.
- The U.S. dollar would likely come under renewed pressure; then they would have to consider a more restrictive approach to credit expansion – again.
- Of course, that is why they are currently pursuing an aggressive approach to raising interest rates now – to protect the dollar.
The beat goes on. Expect more volatility, credit defaults, stock price declines, etc.
Don’t expect much from gold….Only a further, huge and lasting drop in the U.S. dollar will bring about higher gold prices – after the fact, not before.