Robin Hood Comes to Washington- Part II: A View Going Forward
This piece is part of a series. Click HERE to read Part I.
Bitcoin vs Gold
The US dollar (USD) stopped having any percentage of gold backing when President Nixon took it off the gold standard in 1971. That announcement also made every other country’s currency fiat by default.
After recent events, is it finally time to get out of USD? The historical life expectancy of a fiat currency is 27 years, and History has shown that the overprinting or devaluation of money is the ultimate end to all fiat currencies. In these cases, failure is the rule not the exception…
The early Greek and the Roman Empires fell for the same reasons. Each began with an amazing empire built around standardized Gold and Silver coins, which encouraged an explosion in world trade. But after funding a series of never-ending war campaigns, excessive social projects, along with growing nepotism and corruption within the governments, these empires needed more money, so they began substituting their Gold-backed currency for cheaper metals.
Once it starts, it’s just a matter of time.
Trump’s April 2020 announcement added $2.2T to the US money supply, and more is being planned. Take a look at this graph to see just how fast inflation has already been growing into the USD since 2009:
The Fed’s position on QE for the last several years, is that they must continue inflating the valuation bubble despite the inherent and understood risks of doing so. However, with no alternatives, the Fed is trapped in its own process. The longer the Fed continues using QE as their only trick, the more impossible it becomes for the Fed to extricate itself from causing the crash they want to avoid. To make matters worse, reversing this trend would only create the bank defaults QE avoided. A gradual reversing of QE was to begin in early 2019, but the Fed quickly saw their folly and stopped.
Today, USD is still the king fiat, but only because it is the least leaky among a fleet of sinking ships.
Even worse than the eroding value of USD, there doesn’t seem to be any safe place to keep it. After the 2008/09 financial meltdown, President Obama signed the Dodd-Frank Act. What that bill did was to reclassify all deposits at your bank as liabilities owed by the bank. Simply said, if your bank files for bankruptcy, you have just surrendered legal title and it all becomes an asset of the bank.
If you’re like most Americans, maybe you believe the first $250k in your bank account is safe and insured! Well, the FDIC does not publish a specific timeframe for resolving bank failures when it comes to personal deposits. And there are many circumstances with any potential bank failure that could cause your accounts to take years to actually pay out. And potentially, somewhat less than a dollar on the dollar. Adding to that, FDIC is incredibly underinsured. Depositor insurance works the same way fractional lending works at your bank. The insurance on your money and the loans that banks make against your deposits have less than 10% coverage.
Maybe you’re thinking other income reserves you own are safe? Perhaps a Trust Fund, or Pension Fund?
On top of the above Trust issues, US Public Pension Funds are even more underfunded, by about $2T, (J. Mauldin). Adding even more pain to the understanding of how much devaluation the USD has suffered, America’s unfunded debt (Social Security, Medicare, etc.) is now over $100T.
History proves taxes have been one of the soundest ways to reduce debt. To be able to do this, Government income must outpace spending. Historically, wars are a Government’s biggest debt events. Following the US Civil War, WWI, and WWII, the US debt rose significantly, but in the 10–20 years that followed each of these wars, much of that debt was reduced, both by taxes and GDP growth. But today, the debt has become so large, if we were to take all the billionaires’ wealth in the US as taxes and reduce their net worth to zero, it would only reduce the National Debt by a factor of one eighth. Before 1980, interest owed on US debt was 40% of GDP. During the 90’s it rose to 65%.
Today it is 110% of GDP and RISING.
Bitcoin and Gold are two of the few remaining asset classes available for storing personal wealth. BTC has many merits over Gold. It’s certainly more divisible, portable, and transferable. Gold is heavy and difficult to hide. And relying on third-party storage companies to keep precious metal safe, all that supposed safety goes out the window if there is a bankruptcy event, or accounting fiasco. But Gold does have a very long and proven history. Even with that said, less than 1/10th of 1% of Americans own precious metals.
Although it is too soon to know with certainty which of these two asset classes will perform better, considering the very real problems inherent in using large amounts of Gold, BTC is the obvious winner. Sooner than later, the world will see that the Emperor (USD) is wearing no clothes. Now is the time to add BTC and Gold to one’s wealth reserve. They are the last and best safe havens.
Are you thinking I left real estate out as a safe haven? Part III is coming...
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