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A Monday Morning Musing from
Mickey the Mercenary Geologist
In the aftermath of the global economic crisis of 2008-2009, governments throughout
the world have fostered a tenuous recovery predicated on massive increases in
money supplies and debasement of currencies.
Note however, that monetary debasement is not a recent phenomenon; it is
simply the natural life cycle of money.
There are six well-defined stages in the life cycle of money. This
progression has occurred in every dominant civilization over the 5000
years of recorded human history:
Stage
1: A Barter Market Begins.
Societies organize and begin to function with a basic barter system for
trading goods. Incipient barter is a direct exchange of goods for goods.
Goods are defined as wealth and wealth is produced when humans apply
labor and knowledge to extract natural resources from the earth. As the
civilization progresses, services become of value and are also bartered. A citizen
produces and barters his goods and/or services; their perceived value to the
community is equal to his individual and/or familial wealth.
Stage 2: Free Market Money Emerges.
After a barter economy is well-established, a society progresses to
the concept of free market money and a currency system emerges. Having a
recognizable, reliable, and uniform unit of monetary exchange facilitates
business, commerce, and trade within and between citizens, communities, and
societies.
For 5000 years the currencies of choice have been gold and sometimes
silver. Many civilizations have selected these precious metals as money
based on trial and error and often independently of each other.
Aristotle proposed four critical attributes for money nearly 2500 years
ago: He wrote that money must be durable, portable, divisible, and
intrinsically valuable.Gold has been repeatedly determined to be
the best store of value because it does not tarnish or corrode; it is easily
stored and convenient to transport great distances; it can be minted in small
and uniform pieces; and it is scarce. Although not as ideally suited as gold,
silver has often served as a primary monetary instrument for trade and
exchange.
Stage 3: Government Regulates the Market.
Communal order is required in a functional society and therefore, a
government is formed. Sometime later, government becomes involved in
regulation of the marketplace. Its size and power grow and it begins to
control more and more aspects of business, commerce, and trade.
Laws, rules, and regulations are instituted to regulate and control
trade through tariffs, taxes, quotas, and penalties. Taxes are imposed
as a means to limit the wealth of ordinary citizens, preserve the power of
the rulers, and support the growing government agenda. The economic system is
increasingly divorced from a free market and forced to operate in a
regulatory regime where government controls the money supply.
Stage 4: Government Monopolizes the Money.
The government takes absolute control of the money supply and sets up a
currency system to issue official coinage from a central mint. It
controls the size, design, weight, and purity of the coinage. Later, the
government issues paper promissory notes redeemable in coinage and decrees
that these notes are money, i.e., a fiat currency exchangeable for goods or
services. Backed by its own laws, the government institutes a monopoly of the
monetary system and forbids local governments, banks, and citizens to compete
by issuing public or private currencies.
Stage 5: Government Debases the Money.
Government must increase taxes to sustain its continuing growth, and
citizens protest the seizure of their hard-earned wealth thru onerous
taxation.In order to fund its growing obligations and to lessen dissent from
higher taxes, the government begins to debase the value of its money.
Historically, governments have shaved off pieces of coins, issued smaller
coins, or made coins with less gold and/or silver content. The next step
occurs when the government removes all precious metals from its coinage.
Eventually, it declares that its promissory notes are no longer redeemable in
precious metals. At this point, there is no basis to the monetary system
other than the government's promise to pay.
The issuance of currency without backing by precious metals allows the
government to create "money" at will for its own purposes. The
government creates more and more money and, because the currency in
circulation increases while the availability of goods and services remains
the same, prices increase.
The increase in money supply is known as inflation and the consistently
rising prices for goods and services are a by-product of that inflation.
Inflation robs citizens of wealth and savings by decreasing the purchasing
power of their money.
Stage 6: No Confidence and Collapse of the Money.
Inflation, indebtedness, and government deficits increase and citizens
realize that the fiat currency representing their lifelong labors, savings,
and wealth is continually losing value. Poor money management by government
results in a stagnant economy, rising prices, shortages of food and goods,
and increasing public and personal debt.
The ongoing devaluation of fiat currency leads to a lack of confidence by
the citizens with resulting runs on banks and collapse of the banking system.
Civil and political unrest accelerates. Ultimately, the government defaults
on its promises to pay and economic and societal chaos ensues.
Thus, the life cycle of money is complete.
Re-Emergence of Free Market Money.
Citizens desire a return to a monetary system that is stable, secure, and
non-inflationary. They realize that gold is a safe haven for
preservation of wealth and is the only insurance policy against oppressive
government and constant currency debasement. Demand for gold and silver
rise.
If collapse of the previous civilization was complete, new societies
eventually emerge with barter economies followed by evolution to free market
money.
Those citizens with financial acumen have accumulated precious metals as a
key component of their overall assets and survive the economic collapse with
significant wealth. They become the financial leaders of a new free market
money system based on gold, the citizens as a whole prosper and flourish, and
widespread wealth grows again.
Conclusions:
It literally pays to understand the
history of money in societies, city-states, countries, and empires. By
recognizing the six stages in the life cycle of money and the position of
present-day governments within this cycle, citizens can make better informed
monetary decisions. They can partition their assets to maximize wealth and
mitigate the effects of currency debasement and the chaos of economic
collapse.
Governments have universally debased their currencies without the backing
of gold for 45 years. Central banks in both the world's developed and
undeveloped countries have repeatedly failed or have been bailed out by their
governments by the issuance of more and more fiat currency.
The net results are increasingly high leverage, negative interest rates,
extraordinary indebtedness, currency devaluations, serial defaults, and
economic collapse of countries throughout the world. Monetary crises, food
and supply shortages, rioting and rebellion, civil wars, and overthrow of
oppressive regimes have become commonplace.
We have now entered stage 6 of The Life Cycle of Money with widespread
lack of confidence in an entire basket of increasingly worthless fiat
currencies. The $64,000 question is when will the inevitable global economic
collapse occur?
I will flatly tell you that no macroeconomist, maven, medium,
self-appointed prophet, pundit, talking head, or wizard can or will predict
the exact timing.
That said, savvy citizens currently have the opportunity to acquire
physical gold at a +30% discount to its historic high. We can still
protect our wealth from the unholy shenanigans of corrupt and unstable
governments led by politicians and rulers whose only concern is to preserve
their power over the ordinary masses.
For these reasons, I urge you to make physical gold an integral part of
your wealth. And I strongly suggest you do this sooner than later.
Folks, please recall The Golden Rule: He who owns the gold, makes the
rules.
Ciao for now,
Mickey Fulp
Mercenary Geologist
Acknowledgment: My
special thanks for these ideas go to Kirsty Hogg, manager of promotions and
social media for MercenaryGeologist.com. Kirsty wrote a similar piece
for goldwars.blogspot.com in
2011.
The Mercenary Geologist Michael S.
"Mickey" Fulp is a Certified
Professional Geologist with a B.Sc. Earth
Sciences with honor from the University of Tulsa, and M.Sc. Geology from the
University of New Mexico. Mickey has 35 years experience as an exploration
geologist and analyst searching for economic deposits of base and precious
metals, industrial minerals, uranium, coal, oil and gas, and water in North
and South America, Europe, and Asia.
Mickey worked for junior explorers, major mining
companies, private companies, and investors as a consulting economic
geologist for over 20 years, specializing in geological mapping, property
evaluation, and business development.In addition to Mickey's professional
credentials and experience, he is high-altitude proficient, and is bilingual
in English and Spanish. From 2003 to 2006, he made four outcrop ore
discoveries in Peru, Nevada, Chile, and British Columbia.
Mickey is well-known and highly respected throughout
the mining and exploration community due to his ongoing work as an analyst,
writer, and speaker.
Contact: Contact@MercenaryGeologist.com
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