Where does money come from? Is its value constant or does it change? Are there risks associated with money? These are all important questions, because today’s monetary system combined with fractional reserve banking has a lot of risks. It is vulnerable to bank runs, inflation, and economic bubbles, to name just a few. Yet, those risks remain invisible to the majority of people. Global Gold Switzerland, a bullion company operating exclusively in the physical precious metals market, created a report and a short educational video. They explain how our current monetary system works, where it fails and how you can protect yourself against it. The video is based on the report “Real vs false money.”
In this article we extract twelve insights from the extended report. Readers are recommended to read the extended report (request the report “Real vs false money” here).
- Governments have a track record of diluting the value of their currency. History is full of examples where governments started mixing worthless metals into gold coins as soon as they ran into financial trouble.
- The first documented case of fraud by a banker dates back to the year 393 BC. A banker called Passio used bribes and falsified documents to misappropriate the gold which was entrusted to his bank. It became a widely used practice of goldsmiths and other depositories to lend out the gold which was handed to them for safekeeping; earning interest on lending out gold in the form of receipts; which wasn’t legally theirs.
- The ancient Greeks were the first to use gold coins: The Drachma. Different civilizations in history, like the Greeks, Romans and the history of city states in Italy, have proven that the blossoming of these Civilizations took place when they adopted Gold or Silver based currencies.
- The economic and social collapse of the Roman Empire was caused by the inflationary policies of the state; which reduced the purchasing power of the currency. On the other hand, price caps were set for basic goods. This led to the demise of many businesses and brought trade in the Empire to a halt. This development brought banking to an abrupt end. It took nearly 800 years until the banking system was rediscovered during the Middle Ages in the Italian cities.
- The gold coin “Solidus” was the world currency for over 800 years. It was used from China to Britain during the Byzantine Empire. At the end of the empire the currency was issued only in silver and minor copper coins with no gold issue.
- Banks and governments have been acting as an “alliance” till this day because the fractional system benefits both. Why? Because governments give the banks the right to “print money”. In exchange, they expect the banks to buy their bonds (which is nothing more than debt) so they can continue to spend money which they simply don’t have.
- If the gold standard had not been abandoned, World War I would not have lasted longer than a few months. Without the Gold Standard, however, the war went on for more than four years, ruined leading economies and claimed millions of lives.
- Before becoming the chairman of the Fed, Alan Greenspan wrote: “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the Gold standard”.
- Since 1971 the world is on a paper based reserve currency. There is no gold backed currency anywhere on the planet. This has never happened in the last 3,000 years.
- Gold was “demonetized” on August 15th 1971. US President Nixon said he would “temporarily” close the gold window. He also said that US citizens would be better off, as the dollar would hold its value. Since then, the value of the dollar has lost some 90% of its value since then.
- History has shown that governments are too often undisciplined. When they go too far the market loses trust in their currency, which results in hyperinflation. In the 20th century alone, we have seen 50 hyperinflations across the world.
- Debt levels are not sustainable anymore. The situation is essentially dramatic. But there is one concerning fact: Somebody has to pay for it.