Inflation, Gold And The Dollar

Rampant inflationary monetary policy will fuel global demand for gold.

Dec 5, 2020 · 4 min read

This year the United States Federal Reserve has implemented unprecedented quantitative easing policies that will have dire consequences for the value of the US dollar. The ramifications of these actions will be global and have a direct impact on the value of gold and other precious metals. Without an understanding of inflation and its impact on the world’s economy, we are denied the knowledge to avoid the repercussions of these policies. We have discussed this topic in a previous article but it is an important subject that deserves to be understood within the context of evolving circumstances.

Let us not forget the wise words of the 20th president of the United States James Garfield:

Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.

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Inflation is a process that is often discussed but rarely explained. When it is taught in schools and universities, inflation is expressed as a constant because if the truth were told students would be furiously demanding systemic changes to the global financial system. The mechanisms and impacts of inflation are purposely left opaque and shrouded in economic jargon.

To understand inflation we must first understand that our currencies are fiat, meaning they are not backed by real assets to give them value. Today, US dollars are created when the Federal Reserve adds new dollars to their balance sheet. In 1933 Franklin D Roosevelt removed the US dollar from a gold standard and with Executive Order 6102 made it illegal for Americans to own physical gold. The moment all the physical gold had been purchased from the public, the price of gold was immediately raised by 69%. We pointed out in a previous article that a few privileged Americans were exempt from this order and given permits to personally own physical gold. It would be fascinating to know who they were.

The fiat nature of the US dollar means it can seemingly be created at will because its creation is not predicated upon having physical assets to back it. This year the Federal Reserve announced it intends to follow a policy of “unlimited” quantitative easing by purchasing securities from member banks with funds they create out of “thin air”. Consequently, the Federal Reserve balance sheet has swollen by over $4 trillion in 2020 and they continue to add over $120 billion per month onto their books. The graph below shows the Federal Reserve’s balance sheet and the striking impacts of their quantitative easing policies since the economic crisis in 2008.

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The end result of these monetary policies is inflation. In its purest form, inflation occurs when the money supply in an economy is increased. If the fiat money supply within an economy is doubled it devalues all the existing money in that economy by half. If people understood this system, there would be outrage at the devaluation of their savings by the policies of a few wealthy bankers. Inflation is a hidden tax upon those who keep their savings in fiat currency.

Parents are encouraged to open savings accounts for their children to “teach” them the value of saving. Although it is beyond the scope of this article, such marketing tactics benefit private bankers through the process of fractional reserve banking. Because the US dollar is utilized as the world’s reserve currency, dollar inflation has a global impact. It is estimated that the US dollar has lost 96% of its purchasing power since the creation of the Federal Reserve in 1913. After new fiat money is created by the Federal Reserve, it is processed by the banking system and flows directly into banker-controlled corporations. In this way, bankers are able to realize the value of new fiat currency before its inflationary impacts are felt by the rest of the economy.

When we see the price of gold rising, we must remember that gold is valued in US dollars. In reality, the value of physical gold is not rising, it is the value of the dollar that is dropping. Gold maintains its value because it embodies the two core principles of any successful form of currency. It is both limited in supply and universally accepted as a medium of exchange.

In times of inflation or even hyperinflation, gold and other precious metals represent a safe haven to store savings outside the falling value of fiat currencies. The impacts of the Federal Reserve’s current “infinite” quantitative easing policies can only result in inflationary pressure that will decimate what is left of the dollar’s purchasing power. To maintain our savings for the future we must invest in digital assets or precious metals. MetalStream’s MSGLD security token which is backed by and redeemable for gold straddles the two, providing the value of gold with the liquidity of a digital asset.

MetalStream is the issuer of the innovative gold-backed MSGLD token. Please visit our website for more information, and contact for enquiries related to the purchase of tokens.

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