If you save, government will wage economic war on you

February 17th, 2009

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In this economic climate of uncertainty, governments all over the world have to be seen to be doing something. The problem is, by doing ‘something,’ they are actually making the problem worse (see Are government interventions the first steps towards corruption & inefficiencies? and Supplying never-ending drugs till stagflation). In particular, they fear debt deflation because it is the more immediate threat. It is this fear that led Helicopter Ben (i.e. Ben Bernanke) to subscribe to the Zimbabwean school of economic thought (see Bernankeism and hyper-inflation) in the Keynesian belief that forcing people to spend and consume is the way to go. If printing money are the answers to the Global Financial Crisis (GFC), then Zimbabwe will be the richest and most prosperous nation in the world. Indeed, judging by the number of billionaires, in that country, it must be so! When you see Zimbabwe’s central banker praising the central banks of US and UK (see Zimbabwe?s central banker in praise of Fed), you know something is very wrong with the monetary policy of the Federal Reserve.

As we said before in “Government?s contradictory messages,”

Without the liquidation of mal-investments and restoration of the structural imbalances that is brought about by deflation, applying bigger and bigger stimulus packages will only function in similar ways to drugs- more and more for less and less effect. The reason why Keynesian reflationary pump-priming worked during the Great Depression was that it was applied after the cleansing effects of the deflation had done its work. But today, in reaction to the financial crisis, governments all over the world are doing so before the purge of fire. As a result, the much-needed economic correction that the economy had to have will not happen.

Thus, whether you are currently in debt or not, if you intend to save money, the government will be very keen to discourage you from doing so by undermining and debasing the currency in which your savings are based on. As we said in “When real interest rates is below zero, why save money in bank?

Β … if we disregard the doctored statistics of the official figures, real interest rates are negative!

That is why governments all over the world are sending so many mixed messages to the effect that an average person do not know whether he/she is meant to spend or to save (see Government?s contradictory messages). A very simple way to resolve this paradox (sarcastically) is to think of it this way: save while everyone else is committing financial suicide by spending willy nilly.

What if you are a saver who simply does not wish to spend, invest, borrow or speculate? If you believe that the government will fight this war against debt deflation by marching our credit-based economy towards a Zimbabwean-style economy (see Recipe for hyperinflation), you will be forced to make very difficult choices. For such a saver, the best case scenario for your savings will be severe price deflation in an environment of zero-interest rates in a properly functioning banking system (while still employed/business earning positive cash-flow). But if you are pessimistic about this best-case scenario happening, then you will be forced to ‘speculate.’

As the government and RBA try to erode your savings by taxing them and pushing down interest rates to below price inflation (even perhaps to zero), what can you do? Good question.

Let’s take a look at the US. Currently, short-term US Treasury bonds are yielding almost nothing. At one point, their yield even became negative! In that case, what will be the difference between a nothing-yielding government bond and gold? As we said before in “Is gold an investment?“, gold is

a boring, inert metal that does not have much pragmatic use and does not pay dividends, income or interests, it is completely unfit for ?investment.?

That probably explains why we are seeing, at least for now, US Treasury bonds and gold moving upwards together. Traditionally, they move in opposite directions. Today, this inverse relationship seems to have decoupled.

Therefore, the risk/reward profile has come to the point that savers who have spare cash may want to consider transforming part of their savings from cash to gold.

P.S. Use the government’s free stimulus cash to buy gold. πŸ˜‰

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  • but gold is so expensive – particularly since the AUD has crashed lately compared to the USD. Gold appears to be in it’s own boom driven by speculation and fear. How can we be sure we aren’t simply buying at the top of the market while gold speculators take profits?

  • but gold is so expensive – particularly since the AUD has crashed lately compared to the USD. Gold appears to be in it’s own boom driven by speculation and fear. How can we be sure we aren’t simply buying at the top of the market while gold speculators take profits?

  • Hi Steven!

    When you said that,

    Gold appears to be in it’s own boom driven by speculation and fear

    You are in effect treating paper money as an immovable yardstick to measure the value of gold. As we said before in How is inflation sabotaging our ability to measure the value of things?,


    If you want to measure the length of a box, you may use the ruler to do it. The reason why a ruler can do such a job is because its length is reasonably consistent for the foreseeable future. Now, imagine that ruler is as elastic as a rubber band. Do you think it is still a useful tool to measure the length of the box? An elastic ruler is useless because you can always make up the measurement of the box to whatever you please just by stretching the ruler such that the edge of the box is aligned to any intended measurement markings in the ruler.

    Now, let come back to measuring the value of oil. Since oil is priced in US dollars and if the supply of US dollars can be expanded and contracted at will by the Federal Reserve [via inflation of paper money or deflation of credit], how useful do you think it is as a calibration for measuring the value of oil?The answer will depend on how responsible the Federal Reserve is in maintaining the quality of the US dollar.

    As we explained in What should be your fundamental reason for accumulating gold?,


    We accumulate gold not just simply because we believe its ?price? is going up (though we think it is most likely to be so as a side effect?in case you are confused by what we mean, read on). This is because if we do so, the implication is that we are calibrating the value of gold in terms of units of fiat paper money

    The idea of gold is that since it is an boring inert metal that does nothing and its supply cannot be inflated/deflated violently, it is a better yardstick for measurement. Take a look at this documentary news video: Rural Zimbabweans are desperately panning for gold powder to ward off starvation. The Zimbabwean currency is so debased that it is completely useless as money. Instead, Zimbabwean are panning for gold to use it to buy a loaf of bread!

    Sure, the nominal price of gold in AUD can go up and down violently (as it did in the 2nd half of 2008). But that’s not the reason why you keep gold (the physical form)- you buy it to hedge against loss of confidence in paper money.

  • Hi Steven!

    When you said that,

    Gold appears to be in it’s own boom driven by speculation and fear

    You are in effect treating paper money as an immovable yardstick to measure the value of gold. As we said before in How is inflation sabotaging our ability to measure the value of things?,


    If you want to measure the length of a box, you may use the ruler to do it. The reason why a ruler can do such a job is because its length is reasonably consistent for the foreseeable future. Now, imagine that ruler is as elastic as a rubber band. Do you think it is still a useful tool to measure the length of the box? An elastic ruler is useless because you can always make up the measurement of the box to whatever you please just by stretching the ruler such that the edge of the box is aligned to any intended measurement markings in the ruler.

    Now, let come back to measuring the value of oil. Since oil is priced in US dollars and if the supply of US dollars can be expanded and contracted at will by the Federal Reserve [via inflation of paper money or deflation of credit], how useful do you think it is as a calibration for measuring the value of oil?The answer will depend on how responsible the Federal Reserve is in maintaining the quality of the US dollar.

    As we explained in What should be your fundamental reason for accumulating gold?,


    We accumulate gold not just simply because we believe its ?price? is going up (though we think it is most likely to be so as a side effect?in case you are confused by what we mean, read on). This is because if we do so, the implication is that we are calibrating the value of gold in terms of units of fiat paper money

    The idea of gold is that since it is an boring inert metal that does nothing and its supply cannot be inflated/deflated violently, it is a better yardstick for measurement. Take a look at this documentary news video: Rural Zimbabweans are desperately panning for gold powder to ward off starvation. The Zimbabwean currency is so debased that it is completely useless as money. Instead, Zimbabwean are panning for gold to use it to buy a loaf of bread!

    Sure, the nominal price of gold in AUD can go up and down violently (as it did in the 2nd half of 2008). But that’s not the reason why you keep gold (the physical form)- you buy it to hedge against loss of confidence in paper money.

  • Simon Wong

    Steve,
    Nothing goes up in a straight line. Buy gold when there is a correction (even buying a minor correction is better than price chasing). Sell a bit if it goes up in magnitude. That way if it is a top, then you are cashing out some of your risk.
    Simon

  • Simon Wong

    Steve,
    Nothing goes up in a straight line. Buy gold when there is a correction (even buying a minor correction is better than price chasing). Sell a bit if it goes up in magnitude. That way if it is a top, then you are cashing out some of your risk.
    Simon

  • Pete

    I think everyone misses the point about gold…Ed keeps saying it – Gold is a hedge against inflation. This is similar to taking out an insurance policy against a loss in value of cash/assets.

    Whether the price of gold goes up or down is only relevant to the person who wishes to trade large amounts of it for what it is measured against…cash. If you are bearish on the prospects of fiat currency, then you might consider that the gold price is a reflection of the weakness of fiat currency (or confidence if you prefer, as that is essentially all it is backed by), not a reflection of gains in wealth.

    However if you are a trader (especially a short-term trader) then you may look to take advantage of gold price volatility, market trends and investor psychology.

    πŸ™‚

    Incidentally, is anyone else sick of hearing officials raving on about how our banks (and economy) are in such good shape? The RBA was on about it again yesterday. I would say that considering our Real Estate collapse is only just beginning, there is a certain ‘duh’ factor I am associating with these people now. Do they know nothing and are happy to let everyone hear it, or do they know more than they let on and just say what they think people want to hear? Perhaps we will never know.

  • Pete

    I think everyone misses the point about gold…Ed keeps saying it – Gold is a hedge against inflation. This is similar to taking out an insurance policy against a loss in value of cash/assets.

    Whether the price of gold goes up or down is only relevant to the person who wishes to trade large amounts of it for what it is measured against…cash. If you are bearish on the prospects of fiat currency, then you might consider that the gold price is a reflection of the weakness of fiat currency (or confidence if you prefer, as that is essentially all it is backed by), not a reflection of gains in wealth.

    However if you are a trader (especially a short-term trader) then you may look to take advantage of gold price volatility, market trends and investor psychology.

    πŸ™‚

    Incidentally, is anyone else sick of hearing officials raving on about how our banks (and economy) are in such good shape? The RBA was on about it again yesterday. I would say that considering our Real Estate collapse is only just beginning, there is a certain ‘duh’ factor I am associating with these people now. Do they know nothing and are happy to let everyone hear it, or do they know more than they let on and just say what they think people want to hear? Perhaps we will never know.

  • Niko

    Probably the second one Pete, Siegfried would have made a great Central Banker, “I know nothing!”.

  • Niko

    Probably the second one Pete, Siegfried would have made a great Central Banker, “I know nothing!”.

  • I understand the point about gold being a hedge against inflation (just as are houses or even tins of baked beans but those will come down in price too). Do not think that I am about to speculate on gold. I would like to buy gold as a hedge. However, I feel it’s already in the stratosphere. If the bubble pops I will be able to buy much more gold. Therefore I don’t feel I am treating paper money as an immovable yardstick. In any case, gold doesn’t always move in line with inflation. There must be other factors such as fear (mostly currency collapse hedge I guess), industrial uses, jewelry (goods times in India or otherwise). See Mish’s article on gold

    I guess the fear could keep piling on and then the worst could happen – a global currency meltdown. Then those who have bought gold (or houses or tins of beans) might be happy.

    However, I hear this gold-bug craziness and my bull detector goes off :). After all it sounds much like “it’s always the best time to get into property”!!

  • I understand the point about gold being a hedge against inflation (just as are houses or even tins of baked beans but those will come down in price too). Do not think that I am about to speculate on gold. I would like to buy gold as a hedge. However, I feel it’s already in the stratosphere. If the bubble pops I will be able to buy much more gold. Therefore I don’t feel I am treating paper money as an immovable yardstick. In any case, gold doesn’t always move in line with inflation. There must be other factors such as fear (mostly currency collapse hedge I guess), industrial uses, jewelry (goods times in India or otherwise). See Mish’s article on gold

    I guess the fear could keep piling on and then the worst could happen – a global currency meltdown. Then those who have bought gold (or houses or tins of beans) might be happy.

    However, I hear this gold-bug craziness and my bull detector goes off :). After all it sounds much like “it’s always the best time to get into property”!!

  • Pete

    Hi Steven,

    Well, you are right to be cynical…but consider who is making the suggestions – Contrarians have been for a few years now, not the mass media.

    When the mainstream mass media start advising to buy gold, is when you should probably consider to opt out.

    And yes, that advice is based purely from a trader’s perspective. Obviously you would have to opt out of gold into something else…who knows what exactly.
    Imagine if you lived in Zimbabwe before Gideon Gono had the printing presses going full-steam. The notion of buying gold probably would not have even been covered by their mass media. I bet it is now. But does that mean that just because everyone wants gold in Zimbabwe, that you should sell yours for something else? Well, it would probably seem unwise unless you had some other way of preserving that wealth.

    Zimbabwe is such a good current example of how things go terribly wrong with fiat currency and government intervention. We just need to remember that gold is not just a hedge against inflation, but a hedge against a loss in confidence in currency that is backed by…Government. When a Gov. starts crazy economic schemes, it is likely that confidence in that currency as a dependable trade medium will drop – whilst gold will hold its value.

  • Pete

    Hi Steven,

    Well, you are right to be cynical…but consider who is making the suggestions – Contrarians have been for a few years now, not the mass media.

    When the mainstream mass media start advising to buy gold, is when you should probably consider to opt out.

    And yes, that advice is based purely from a trader’s perspective. Obviously you would have to opt out of gold into something else…who knows what exactly.
    Imagine if you lived in Zimbabwe before Gideon Gono had the printing presses going full-steam. The notion of buying gold probably would not have even been covered by their mass media. I bet it is now. But does that mean that just because everyone wants gold in Zimbabwe, that you should sell yours for something else? Well, it would probably seem unwise unless you had some other way of preserving that wealth.

    Zimbabwe is such a good current example of how things go terribly wrong with fiat currency and government intervention. We just need to remember that gold is not just a hedge against inflation, but a hedge against a loss in confidence in currency that is backed by…Government. When a Gov. starts crazy economic schemes, it is likely that confidence in that currency as a dependable trade medium will drop – whilst gold will hold its value.

  • Pete

    Also if you think gold is expensive, you perhaps need to consider what it is expensive when measured against.

    What will your $AUD’s buy in 2 years time? Will gold at current levels seem cheap in 2 years?

    People thought gold was overpriced at $800AUD…now it is near double that.

    It is a strange topic talking about confidence and prices and so-on. A certain amount of idealism takes hold when talking about wealth preservation and relative prices and confidence – especially when they are tricky to measure (except in hindsight).

  • Pete

    Also if you think gold is expensive, you perhaps need to consider what it is expensive when measured against.

    What will your $AUD’s buy in 2 years time? Will gold at current levels seem cheap in 2 years?

    People thought gold was overpriced at $800AUD…now it is near double that.

    It is a strange topic talking about confidence and prices and so-on. A certain amount of idealism takes hold when talking about wealth preservation and relative prices and confidence – especially when they are tricky to measure (except in hindsight).

  • Hi everyone!

    Just a note here.

    Gold is not a hedge against price inflation. For example, in the 1990s, gold prices actually fell despite price inflation. During that time, holders of gold lost value in both nominal and real terms.

    Other times, other financial instruments fought price inflation better. For example, in the 1980s, with Paul Volcker raising interest rates to the 20%+, bonds was actually higher than price inflation rate. Also, historically, stocks of good businesses did much better than price inflation.

    But gold is a hedge against loss of confidence/trust in fiat money, financial (paper) assets, financial system, etc. Hyperinflation is one of the symptoms of such a loss of trust. Thus, the original point of that article is this: when we see governments resorting to debasing the currency in an attempt to force people to spend, our trust in the integrity of paper money/credit gets eroded.

    Of course, in terms of trading/market timing, it may not be the best time to buy gold at this very second. But we believe having a plan to accumulate gold for the much longer term is a good idea. You may not want to buy this very second, but at least you should have a plan. Note: This is NOT financial advice. This is just our idea/suggestion.

  • Hi everyone!

    Just a note here.

    Gold is not a hedge against price inflation. For example, in the 1990s, gold prices actually fell despite price inflation. During that time, holders of gold lost value in both nominal and real terms.

    Other times, other financial instruments fought price inflation better. For example, in the 1980s, with Paul Volcker raising interest rates to the 20%+, bonds was actually higher than price inflation rate. Also, historically, stocks of good businesses did much better than price inflation.

    But gold is a hedge against loss of confidence/trust in fiat money, financial (paper) assets, financial system, etc. Hyperinflation is one of the symptoms of such a loss of trust. Thus, the original point of that article is this: when we see governments resorting to debasing the currency in an attempt to force people to spend, our trust in the integrity of paper money/credit gets eroded.

    Of course, in terms of trading/market timing, it may not be the best time to buy gold at this very second. But we believe having a plan to accumulate gold for the much longer term is a good idea. You may not want to buy this very second, but at least you should have a plan. Note: This is NOT financial advice. This is just our idea/suggestion.

  • Pete

    Gold is not a hedge against price inflation.

    Noted, thanks Ed πŸ™‚

    Perhaps I am getting this around the wrong way. Is gold a hedge against monetary base inflation? Isn’t price inflation (typically?) caused by inflation of the monetary base of a fiat currency?

    My understanding is that price inflation and monetary base inflation are linked, but do not necessarily appear to be in the short term. What i mean is that price inflation takes quite a while to take hold after monetary base inflation (particularly if we are having credit deflation at the same time!).

    Was this the case in the 1990’s? I don’t know personally.

    I would love to know what caused the gold bubble in the 80’s and what made it pop. I wonder how that correlates to the size of the monetary base for that same period (ie, is there any correlation? Is it delayed?).

    I don’t expect everyone to do research for me, but if you already know the answers, please post them πŸ™‚

  • Pete

    Gold is not a hedge against price inflation.

    Noted, thanks Ed πŸ™‚

    Perhaps I am getting this around the wrong way. Is gold a hedge against monetary base inflation? Isn’t price inflation (typically?) caused by inflation of the monetary base of a fiat currency?

    My understanding is that price inflation and monetary base inflation are linked, but do not necessarily appear to be in the short term. What i mean is that price inflation takes quite a while to take hold after monetary base inflation (particularly if we are having credit deflation at the same time!).

    Was this the case in the 1990’s? I don’t know personally.

    I would love to know what caused the gold bubble in the 80’s and what made it pop. I wonder how that correlates to the size of the monetary base for that same period (ie, is there any correlation? Is it delayed?).

    I don’t expect everyone to do research for me, but if you already know the answers, please post them πŸ™‚

  • Pete

    Perhaps I shouldn’t use the word ‘hedge’

  • Pete

    Perhaps I shouldn’t use the word ‘hedge’

  • Hi Pete!

    Is gold a hedge against monetary base inflation? Isn’t price inflation (typically?) caused by inflation of the monetary base of a fiat currency?

    You see, monetary inflation has always been with us since the 1930s. Therefore, price inflation is always part of the psyche of everyone since for a long time. Everyone of us expect price levels to be higher in future and this expectation is priced in, from superannuation calculations, retirement planning, financial modelling, etc. Therefore, as price inflation is relatively predictable, mild and expected, no one fears loss of confidence in paper money.

    It is no surprise that central banks like the RBA follows a policy of price inflation targeting. What this means is that their monetary policy will be such that price inflation is targetted within a band of say, 2-3%. As long as everyone’s expectation of price inflation is not severely disturbed, all is fine.

    Therefore, in such a mild and status quo environment, gold is not necessarily a good hedge because people are confident of paper money enough to invest in other asset classes.

    But makes gold shines when price inflation threatens to run out of control or for whatever reasons, there is a strong reason to distrust financial assets/financial system. That happened in the 1970s (the oil shock of 1973 and Iranian revolution of 1979). That’s when confidence in paper money is eroded and alternatives are looked at. Fortunately, Paul Vockler came to the helm of the Fed and crushed price inflation by punishing the economy with very high interest rates. Eventually, the tough medicine works and confidence in paper money returned.

  • Hi Pete!

    Is gold a hedge against monetary base inflation? Isn’t price inflation (typically?) caused by inflation of the monetary base of a fiat currency?

    You see, monetary inflation has always been with us since the 1930s. Therefore, price inflation is always part of the psyche of everyone since for a long time. Everyone of us expect price levels to be higher in future and this expectation is priced in, from superannuation calculations, retirement planning, financial modelling, etc. Therefore, as price inflation is relatively predictable, mild and expected, no one fears loss of confidence in paper money.

    It is no surprise that central banks like the RBA follows a policy of price inflation targeting. What this means is that their monetary policy will be such that price inflation is targetted within a band of say, 2-3%. As long as everyone’s expectation of price inflation is not severely disturbed, all is fine.

    Therefore, in such a mild and status quo environment, gold is not necessarily a good hedge because people are confident of paper money enough to invest in other asset classes.

    But makes gold shines when price inflation threatens to run out of control or for whatever reasons, there is a strong reason to distrust financial assets/financial system. That happened in the 1970s (the oil shock of 1973 and Iranian revolution of 1979). That’s when confidence in paper money is eroded and alternatives are looked at. Fortunately, Paul Vockler came to the helm of the Fed and crushed price inflation by punishing the economy with very high interest rates. Eventually, the tough medicine works and confidence in paper money returned.

  • Pete

    Thanks Ed. I don’t really think we are in opposition at all here.

    What confused(?) me is probably the causal link (or lack of) between monetary base inflation, price inflation and confidence.

    The link so far as I can see is that monetary inflation leads to prices inflation.

    There appears to then be a correlation (inverse?) between the price inflation rate and confidence in fiat money, such that confidence is high when price inflation is low, and vice versa.

    It seems to me that I could perhaps draw a rather dodgy line between monetary base inflation and confidence by suggesting that:
    An increase in the monetary base greatly exceeding the targeted inflation band will cause a lack of confidence in that fiat currency.

    I suspect I am probably falsely inferring causality where it does not exist. Can confidence in fiat currency drop in other ways? Such as using trade embargo’s to destroy a currencies tradable value? Crazy Gov. regulations such as “thou shalt not save more than $1000 per person”?

    ‘Confidence’ is a tricky subject.

  • Pete

    Thanks Ed. I don’t really think we are in opposition at all here.

    What confused(?) me is probably the causal link (or lack of) between monetary base inflation, price inflation and confidence.

    The link so far as I can see is that monetary inflation leads to prices inflation.

    There appears to then be a correlation (inverse?) between the price inflation rate and confidence in fiat money, such that confidence is high when price inflation is low, and vice versa.

    It seems to me that I could perhaps draw a rather dodgy line between monetary base inflation and confidence by suggesting that:
    An increase in the monetary base greatly exceeding the targeted inflation band will cause a lack of confidence in that fiat currency.

    I suspect I am probably falsely inferring causality where it does not exist. Can confidence in fiat currency drop in other ways? Such as using trade embargo’s to destroy a currencies tradable value? Crazy Gov. regulations such as “thou shalt not save more than $1000 per person”?

    ‘Confidence’ is a tricky subject.

  • Hi Pete!

    There appears to then be a correlation (inverse?) between the price inflation rate and confidence in fiat money, such that confidence is high when price inflation is low, and vice versa.

    To be more mathematically precise, there is a correlation between the rate of change of price inflation and confidence in fiat money. In calculus terminology, there is a correlation between the 2nd derivative of Price-Time function and confidence.

    It seems to me that I could perhaps draw a rather dodgy line between monetary base inflation and confidence by suggesting that

    There is another dynamic involved- take a read Demand for money, inflation/deflation & its implication. This explains why some argue that we are still in deflation despite the Fed printing lots of money today. The recent explosion in monetary base are hoarded and used to repay debts. As a result, price levels hardly rise. We recommend Steve Keen’s article, Steve Keen?s DebtWatch No 31 February 2009: ?The Roving Cavaliers of Credit?. It’s a long one to read- we recommend that you print it and read it over a cup of coffee.

    Can confidence in fiat currency drop in other ways? Such as using trade embargo’s to destroy a currencies tradable value? Crazy Gov. regulations such as “thou shalt not save more than $1000 per person”?

    Yes, that’s right. But the primary beneficiary of any loss of confidence may not necessarily be gold. Instead, foreign currencies in the black market may be prized as an alternative to the local currency as money, for example.

    But for today, with the world reserve currency (US$) following the Zimbabwe-school of economic thought in a global synchronised recession, every country is following the same route towards monetary debasement, there are no ‘foreign’ currencies to hide.

  • Hi Pete!

    There appears to then be a correlation (inverse?) between the price inflation rate and confidence in fiat money, such that confidence is high when price inflation is low, and vice versa.

    To be more mathematically precise, there is a correlation between the rate of change of price inflation and confidence in fiat money. In calculus terminology, there is a correlation between the 2nd derivative of Price-Time function and confidence.

    It seems to me that I could perhaps draw a rather dodgy line between monetary base inflation and confidence by suggesting that

    There is another dynamic involved- take a read Demand for money, inflation/deflation & its implication. This explains why some argue that we are still in deflation despite the Fed printing lots of money today. The recent explosion in monetary base are hoarded and used to repay debts. As a result, price levels hardly rise. We recommend Steve Keen’s article, Steve Keen?s DebtWatch No 31 February 2009: ?The Roving Cavaliers of Credit?. It’s a long one to read- we recommend that you print it and read it over a cup of coffee.

    Can confidence in fiat currency drop in other ways? Such as using trade embargo’s to destroy a currencies tradable value? Crazy Gov. regulations such as “thou shalt not save more than $1000 per person”?

    Yes, that’s right. But the primary beneficiary of any loss of confidence may not necessarily be gold. Instead, foreign currencies in the black market may be prized as an alternative to the local currency as money, for example.

    But for today, with the world reserve currency (US$) following the Zimbabwe-school of economic thought in a global synchronised recession, every country is following the same route towards monetary debasement, there are no ‘foreign’ currencies to hide.

  • Pete

    Thanks for your response Ed, good points.

    I like your last point about too – in the past there have been some strong currencies while other countries were having recessions/depressions. Not this time…

  • Pete

    Thanks for your response Ed, good points.

    I like your last point about too – in the past there have been some strong currencies while other countries were having recessions/depressions. Not this time…

  • Sujie

    If gold is protection against lost of confidence in fiat currency, shouldn’t we buy guns as a form of protection as well? I don’t think Zimbabwe is a good example to use as the collapse in currency is mainly brought about by corrupt government and general instability in the country due to war and not because of monetary expansion. Thats not to say that printing 100 billion dollar bills is a good thing but I’m just saying cause and effect are two different things. Anyways thats just my 2 cents, I’m ready to be proven wrong. Great blog by the way!

  • Sujie

    If gold is protection against lost of confidence in fiat currency, shouldn’t we buy guns as a form of protection as well? I don’t think Zimbabwe is a good example to use as the collapse in currency is mainly brought about by corrupt government and general instability in the country due to war and not because of monetary expansion. Thats not to say that printing 100 billion dollar bills is a good thing but I’m just saying cause and effect are two different things. Anyways thats just my 2 cents, I’m ready to be proven wrong. Great blog by the way!

  • Hi Sujie!

    If gold is protection against lost of confidence in fiat currency, shouldn?t we buy guns as a form of protection as well?

    That depends on how pessimistic you are with regards to how much society will de-generate. At times, we wonder whether we should get some guns (plus canned food, jerry cans, survival kit) as well.

    I don?t think Zimbabwe is a good example to use as the collapse in currency is mainly brought about by corrupt government and general instability in the country due to war and not because of monetary expansion.

    Well. take a read at Zimbabwe?s central banker in praise of Fed. The governor of the Zimbabwean central bank was basically praising the central banks of US and UK for doing what they (Zimbabwe) did many years ago. Also, take a read at Are government interventions the first steps towards corruption & inefficiencies?.

  • Hi Sujie!

    If gold is protection against lost of confidence in fiat currency, shouldn?t we buy guns as a form of protection as well?

    That depends on how pessimistic you are with regards to how much society will de-generate. At times, we wonder whether we should get some guns (plus canned food, jerry cans, survival kit) as well.

    I don?t think Zimbabwe is a good example to use as the collapse in currency is mainly brought about by corrupt government and general instability in the country due to war and not because of monetary expansion.

    Well. take a read at Zimbabwe?s central banker in praise of Fed. The governor of the Zimbabwean central bank was basically praising the central banks of US and UK for doing what they (Zimbabwe) did many years ago. Also, take a read at Are government interventions the first steps towards corruption & inefficiencies?.

  • Pete says:

    When the mainstream mass media start advising to buy gold, is when you should probably consider to opt out.

    and interestingly, the Courier Mail are advising to buy gold last Sunday πŸ™‚

  • Pete says:

    When the mainstream mass media start advising to buy gold, is when you should probably consider to opt out.

    and interestingly, the Courier Mail are advising to buy gold last Sunday πŸ™‚

  • Hi Steven!

    and interestingly, the Courier Mail are advising to buy gold last Sunday

    Oh dear! Hope the mass media will stop mentioning gold. Who leak out this tip to the media?

  • Hi Steven!

    and interestingly, the Courier Mail are advising to buy gold last Sunday

    Oh dear! Hope the mass media will stop mentioning gold. Who leak out this tip to the media?

  • Pete

    Wow interesting link Steven!

    I think a lot of people don’t realise the difference between a mild recession and what is actually happening right now though. Well, thanks in general to all the crap in the media and what our leaders (if you would call them that) are saying.

    Maybe I’ll wait for Alan Kohler to say buy, then I’ll sell πŸ˜‰

  • Pete

    Wow interesting link Steven!

    I think a lot of people don’t realise the difference between a mild recession and what is actually happening right now though. Well, thanks in general to all the crap in the media and what our leaders (if you would call them that) are saying.

    Maybe I’ll wait for Alan Kohler to say buy, then I’ll sell πŸ˜‰