Why you should protect your savings
A guest writer for Validators, giving a historical view on our monetary system.
It is now almost 11 years since the Lehman bankruptcy, which plunged the world into the greatest economic crisis since the Great Depression of 1929. The consequences are still noticeable. Much has been done since 2008 to combat this crisis. The central banks of the leading economies are flooding the markets with incomprehensible amounts of money, Quantitative Easing is the magic word. But what new alternatives do we have today to protect your savings? A look in the second last crisis would be interesting, the Great Depression of 1929.
Time between 1918 and 1945
Already in the first 6 months of the First World War, the leading European nations France, Germany and England were over indebted by the war, which forced them to abolish the gold standard. Their currencies were no longer covered by gold, so they could print as much money as they wanted to finance the war, which lasted another 4 years and killed nearly 20 million people. After the end of the First World War in 1918, the world longed for peace. The victorious powers blamed Germany for the First World War and punished the country with immense reparations. These were recorded in the Treaty of Versailles, which also became known as the Dictate of Versailles. It must be mentioned here that Germany had also demanded reparation payments from France in the German-French War of 1871 — France demanded now the same.
In 1923 Germany experienced an unprecedented hyperinflation. A loaf of bread was sold for 4 trillion Reichsmark at the height of the crisis. The victorious powers, on the other hand, profited from the low interest rates of the American Federal Reserve Bank in the early 1920s. These led to the golden twenties known today, which triggered an economic boom.
The end came with the crash on Wall Street in 1929, today known as “Black Friday”. The central banks responded with a restrictive monetary policy. Interest rates were raised and the money supply reduced, further sparking the crisis. The crisis spread to Europe, which hit Germany in particular, which was still suffering from the consequences of the Treaty of Versailles and hyperinflation. More than one third of people of working age in Germany became unemployed over a period of 2–3 years. Extreme forces of left and right parties saw their chance in this still very young democracy and promised hope and solutions of the problems to the people plagued by suffering. In 1933 Adolf Hitler and his Nazi party came to power and turned Germany into a dictatorship which plunged the world into a world war again in 1939. Only in 1945 did the war end, which cost the lives of more than 70 million people.
It is still very controversial among experts what ultimately triggered the crisis. There were several key moments, all of which contributed to it. Starting with the abolition of the gold standard. Just imagine in the First World War the nations had to declare bankruptcy after 6 months and the war stopped. How many lives would have been saved at that time? We remember 20 million people died in 4 years of war. Followed by how the victorious powers dealt with Germany after the First World War, the restrictive monetary policy after Black Friday, stop trading with other nations and many more. It is undisputed, that the consequences of the crisis triggered the Second World War and the crisis did not end until 1945 with millions of victims.
Wealth challenges faced by the people
At that time, people had no alternative to escape the crisis. Those who grew up in the lower or middle class could not suddenly travel to another country and work there. Travelling was not as widespread as it is today. Cheap airlines, co-working spaces and digital nomads were still far from being a household name. Furthermore, they were heavily dependent on the state currency and ran the risk of losing all their savings if governments were unable to resolve the crisis. There was no way to protect one’s savings and invest in more stable assets. As a result, most people lost all their savings to strong devaluation, as for instance during the hyperinflation in Germany. The financial markets were mostly only accessible to the wealthier upper class.
Even the investment in physical gold was made a punishable offence in the USA in 1933 with the Executive Order 6102. It was forbidden to own gold. Everyone was forced to sell gold to the state at a fixed exchange rate of USD 20.67. Those who did not sell were severely punished with up to 10 years imprisonment. All measures to avoid an escape from the state currency. The gold price was subsequently raised to USD 35 per troy ounce by the Gold Reserve Act of 1934. Very lucrative for the state. Some could argue that the Government actually stole from the people.
What can we do today?
Today we have more alternatives to overcome such extreme situations like seizing by the Government, hyperinflation or political chaos in a country. We can not only work more flexibly, but we can also protect our savings from huge mistakes made by the governments. The major Fiat currencies such as the US-Dollar, Euro, Pound sterling and Japanese Yen are in their worst systemic crisis since their introduction. The mass printing of “cheap” money will not remain without consequences. We do not yet know whether the central banks will be able to stabilize their Fiat currencies to such an extent that the crisis can be proclaimed to be over. Furthermore, things like the current trade war between the two major powers USA and China accelerates and hurts markets too. The fact is, that unlike the people of 1929, we are fortunate not to have to rely on this experiment. We have the opportunity to buy Bitcoins, which is out of state control and cannot be controlled or manipulated by anyone not even the state. It is practically impossible to carry out seizing by the government and to force everyone to sell her Bitcoins as it took place with Gold in 1933 in the USA. A big advantage of Bitcoins is that they are not physical but digital. They can be stored with 24 words and can be accessed anywhere in the world via the Internet. Imagine people in the 30s had Bitcoins. They could have escaped the USA with nothing and accessed the Bitcoins in another country with their 24 words in their heads. The Germans could have survived the hyperinflation. The Germans could have survived the hyperinflation in the 20s and not losing everything. With Bitcoins you are not relying on the decisions from a president, chancellor or any small powerful group. Bitcoin is still an early experiment and could fail but it is now working for more than 10 years. It is recommended to keep a very small part as “insurance” in Bitcoins. Let’s hope, that the world will not face a tragedy again like the people in the 30s. History never repeats, it rhymes. However, this time people will be prepared and no victims of the failures and forces of the governments.
Validators Newsletter is written by daniel.gal. Opinions expressed are my own and do not necessarily reflect the opinions of Validators. All content is for informational purposes only and not intended as investment advice.
