|
The New Year should see some major changes in how gold
and silver are regarded in the West, if it becomes obvious that confidence in
government-issued money as a medium of exchange might be misplaced. This
concern is for the moment essentially limited to economists of the Austrian
School.
Whether they are right or wrong only time will tell;
but it is worth considering their basic argument, which goes something like
this. The role of money in a transaction is to act as the objective element,
which is the way people automatically think: hence an item or an asset costs
so-many-dollars; if the price changes, it is normally assumed it is the value
of the item or asset that has altered, not the purchasing power of the money.
The moment ordinary people become alive instead to the possibility that
prices are rising because the value of money is falling, the currency is
doomed.
This awakening to currency debasement is a gradual
process, and so far the only people who really appreciate the danger faced by
fiat currencies are that small group who follow Austrian economics. But in
2013 more and more people are likely to suspect it. The underlying reason is
central banks are issuing money at an alarming rate. They are doing this for
a purpose: governments cannot raise enough money without central banks
printing it, and if the rate of issuance became restricted, interest rates
will rise and general debt liquidation will ensue.
If we assume that no government or central bank has the
strength to face these realities head on, then monetary inflation must
continue to accelerate. This is why Austrian economists are worried, as the
chart of their favourite measure of money supply,
the Austrian "True Money Supply" (TMS), shows.
It is noticeable how TMS has accelerated since mid-2008
- well above the exponential trend since 1959. So dollar-money has gone hyperbolic,
and the dollar is not alone in this trend. The question is how long can this
continue before the man in the street realises that
price rises are due to the flood of available money relative to the quantity
of goods?
The hyperbolic acceleration of TMS suggests we do not
have long, and that monetary debasement will begin to affect prices in the
high street sooner rather than later: the reasons it has not done so yet is
that price inflation is under-recorded and consumers are financially
strapped. But it should become increasingly obvious to more and more people
in 2013 that money is being debased, unless of course there is a return to
sound money.
But sound money and government economics are like oil
and water. It will be people, you and me, who will seek sound money when we
ditch government money as not being fit for purpose. We will turn paper money
into essential goods; and increasing numbers of us can be expected to move
our cash reserves and liquid capital into precious metals in the growing knowledge
that it is the only way to preserve our purchasing power.
|
