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The fiat money system’s golden anniversary
“If you look out the window, you’ll see printing presses everywhere. You know what happened to all the other countries in history that have gotten themselves deep into debt… it hasn’t been pretty.” – Jim Rogers, recent Peak Prosperity Interview
The Everyman edition of Edward Gibbon’s History of the Decline and Fall of the Roman Empire comprises some six volumes and nearly 4000 pages. Rome was not built in a day and, as Gibbon’s work reveals, it was not lost in a day. What we are challenged to recognize with respect to U.S. monetary policy today is not an event, but a process. The decline of the dollar since the United States went off the gold standard in 1971 has not come in a handful of sudden, cataclysmic events like formal devaluations, but gradually and consistently, over a period of five decades. That process is likely to continue.
Gold has had long periods where it gained in value during those five decades, periods when it lost value, and periods when the price was stagnant. The over-riding trend, though, has been to the upside. In fact, the long-term linkage between the rising U.S. national debt and a rising gold price is one of the most enduring features of the contemporary fiat money economy president Richard Nixon launched in 1971, as shown in the chart in the first section. A system he launched by the way with the famous statement: “We are all Keynesians now.”
In 2021, we will come to a dubious milestone – the fiat money system’s golden anniversary. Pandemic aside, the continuing inability of the U.S. federal government to come to grips with its fiscal problems during those fifty years largely explains the enduring, some would say stubborn, presence of gold in millions of investment portfolios around the world – including now those of central banks, financial institutions and hedge, pension and sovereign wealth funds. Until such time as fiscal rectitude takes hold in the halls of Congress – an unlikely proposition any time soon – present gold owners are likely to hold tight and new owners are likely to continue joining their ranks. In the end, contemporary gold owners, by and large, do not own gold to become wealthy, but to protect the wealth they already have.
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Image courtesy of Wikimedia Commons. The decline in the Roman Antoninianus’ pure silver content from 240-280 AD paralleled the beginning stages of the empire’s decline. The coin was introduced in 215 AD with a 50% silver content and was gradually debased in steps to a copper coin plated with silver by 270 AD.
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