It’s a crisp fall morning as you awaken to the smell of pancakes on the grill wafting through the house. You flip on the radio to hear the morning news as you roll out of bed. It’s then you hear that it’s been a busy morning over on the east coast; the U.S. stock market has plummeted by 1,250 points and that trading was suspended. As you sip your coffee, you ponder that announcement; you rationalize its meaning based upon your own sphere of experience, which is a huge mistake. You continue preparing to leave the house for your job.
At work, others are talking; “did you hear… the stock market took a huge hit today”? As a result of the ‘normalcy bias’, your knee-jerk response, given that you own some stocks is that; “oh it will come back up, it always does”.
Speculation runs rampant in society as market-makers and brokers try to give assurances to the media, and through them, to the public, that the drop in the stock market is just a normal market correction after a long-running bull-market; further advising people to remain calm and that the market always comes back up. In fact, some brokers even venture the advice that the steep correction presents a great ‘buying opportunity’ and that people should invest their dollars into the market. Of course this is exactly the rhetoric that the elite insiders who are busily selling want spoken; when average people buy into a falling market, it softens the losses for the informed insiders who are selling.
It’s not until the following day that some sharp investigative reporter discovers from an insider privy to communications at the U.S. Treasury, what the actual reason for the huge drop in the market was…
These select few ‘insiders’ were discretely informed that the U.S. Government was planning on devaluing the U.S. Dollar in order to counter the trade imbalances created by China’s steep currency devaluation… essentially a currency war was underway, and at time when the U.S. dollar was no longer looked upon at the world’s benchmark currency as a result of the immense financial debt that was hanging over the United States. So these elite insiders who controlled huge equity positions in the stock market started selling, and selling fast so as to avoid taking a larger loss in the valuations of the equities they were holding once the truth hit the streets of America; the U.S. Dollar was falling apart and a monetary collapse was eminent!
The foregoing hypothetical scenario is not new. A prudent historian knows that currency devaluations in tiny amounts are a normal practice in world banking, and are used to fine-tune small trade imbalances. But what does this all mean in basic terms… terms that people can understand without the need for an advanced college degree in economics?
WHAT IS CURRENCY?
At its simplest core, currency is nothing more than a construct that provides expedient and convenient trade between people. And paper currency (notes) are nothing more than a promise of worth by the issuer. But what happens when the issuer is literally bankrupt? The current total combined debts of the United States of America amount to a sum that currently exceeds all of the world’s circulating currencies combined (all of the money in the world)! And when you owe more than all of your combined assets, you are deemed insolvent; aka ‘bankrupt’.
Currency itself has no intrinsic value, other than some coinage which may contain some metals with utility, such as copper, nickel, zinc and in a few cases, silver or gold. Paper money doesn’t even make a good substitute for toilet paper.
In order to really grasp the concepts of currency and trade, one needs to go back to the very roots commerce, and basic trade between individuals.
Let’s consider commerce in a small European village around the time of 50 B.C.:
In a small village, everyone has a needed vocation and thereby provides needed services and products to others in the community. Such a community may contain a blacksmith, a tailor, a farmer, and a forester among others. So when the farmer needs a new plow forged, he would barter some vegetables, eggs and chickens to the blacksmith for a new plow. The blacksmith may in turn trade a few of the eggs and some of the vegetables for a new leather apron. The blacksmith might also trade some chickens to a traveling vendor who is selling mineral iron, which the blacksmith needs in his trade. And when the blacksmith needs some timber to build a new house, he trades a new axe to the forester from some lumber. And so, it goes… people trade their services and products to others for what they are lacking.
Obviously, the foregoing form of commerce is clumsy; carrying around chickens and iron isn’t exactly easy, especially over long distances. So various forms of monetary tokens were conceived. Some larger towns in ancient times were stable and were able to mint and issue basic coinage, which had a universally agreed value among the people of the realm. But when traders from one realm arrived at another realm with alien currency, barter was made somewhat difficult and an exchange rate had to be agreed upon by the traders, sometimes this was difficult. Like other commodities (eggs, milk, meat, chickens, timber, etc.) precious metals, such as gold and silver were more widely recognized as having a more common and universal exchange rate based upon weight. So some realms evolved to minting their local currencies in these metals using somewhat standardized weights and measures. And by having some universal agreed-upon standard values for various weights of gold and silver coins, a coin could be used as barter for a chicken or a plow, and carrying a coin purse was much easier than a wagon full of chickens or eggs, etc.
And so it went for centuries; countries around the world were minting coinage using precious and semi-precious metals in various incremental weights, which had generally accepted standardized values. In some geographical areas around the world, precious gemstones like rubies, emeralds and diamonds were also used for monetary exchange, since they were also easily and conveniently carried by anyone in a small purse. Gemstones were generally recognized as having value based upon size and beauty, albeit though, this was somewhat subjective, which made valuation less standardized than with gold and silver coinage.
Of course as time went on, the inventive process along with power and greed combined to create modern currencies. Aside from the fact that a purse full of heavy gold and silver coins was beginning to be unfashionable, governments and the powerful men behind them realized there was a way to instantly create wealth using an illusion.
The way the ‘illusion’ works is that instead of using all of the gold and silver in the realm to mint the coins of the realm, which kept the wealth of the realm in the hands of the people, gold and silver would be instead held in trust by the governing person or body, and a paper-note was instead issued as the currency of the land.
Each paper note was supposedly represented by the amount of gold or silver as specified on the face of each paper note, and this gold and silver was held in trust at the treasury of the realm.
At first, people didn’t like the idea of holding paper; even if the amount of gold or silver that it represented was being held in trust by the treasury of the realm, and if needed, the paper note could be converted to the appropriate amount of gold or silver on demand.
Because of the public’s uneasiness with this new form of currency, governments continued to also mint and circulate a certain percentage of issued currency using precious metals. But the ‘illusion’ was nonetheless complete; nobody, except a few powerful men knew exactly how much gold and silver was actually being held in the treasury, and this provided a huge opportunity for corrupt rulers and governments. Basically, instead of having each and every paper note being backed by the amount of gold or silver as indicated on the face of the note, more paper notes were printed than there was gold and silver to back those paper notes. By printing more notes than are backed, that currency could in those days, be bartered for the paper currency of neighboring realms, and the currency obtained from the another realm could then be redeemed for the representative amount of gold and silver on the notes. This ploy was used to plunder the treasuries of competing realms, and were arguably the first monetary wars. The other opportunity that this paradigm provided to rulers is that they could themselves squander and steal some of the gold and silver for themselves, leaving a considerable percentage of the paper notes without any backing in the treasury. And when paper currency or promissory notes have inadequate or no backing, and the public discovers such a scenario, economic calamity quickly follows.
Today America finds itself without the assets to back even a tiny fraction of the amount of currency it has in circulation; it’s not even close. Nobody knows exactly how much gold is remaining in the Treasury’s depositories, but it is generally accepted among experts that the amount of gold held by America represents only a miniscule fraction of the face value of the paper currency currently in circulation today…
Saying the U.S. is in deep-debt is completely sugar coating the situation! If America’s current debt was levied upon each and every American citizen alive today, we would each owe $150,000.00 !
So what’s a corrupted government to do? Given what has transpired under the auspices of our elected officials (speaking generally), using the term ‘corrupt’ may be too kind?
If we face facts; these days, the stock market has been nationalized and is largely supported from making a massive correction (say 7,000 – 9,000 points?) through the infusion of dollars indirectly by the U.S. Treasury. Without this ongoing infusion, my guess is that the markets should legitimately be well below the levels seen in 2007.
Instead, an elite group of people are being made wealthier as a result of the knowledge and timing of government support to the markets, while the average Joe is essentially left guessing while being fed the hype by market promoters, who are highly incentivized to get people to buy into their mess.
The greed that drove the pre-2007 real-estate derivative market, and resultant bubble essentially robbed average Americans of trillions of dollars. And one way to reduce a government’s currency dilution is to take money out of circulation. The government has, through certain unscrupulous people, devised methods well-beyond simple taxation for separating Americans from the currency that the government can no longer back-up due to the insolvency of the Government. Through a host of initiatives over the past decade, the Government has slowly sucked equity out of the private sector in a failed effort to alleviate the government’s uncontrolled spending and debt.
Another method that has been employed for draining equity from Americans is the over-regulation of every aspect of American lives; regulations by the thousands, which carry both criminal and civil penalties. And when Americans are faced with ridiculous criminal penalties for laws and regulations that many lawyers are even unaware of, the heavy blow of a large civil penalty seems like a deal… but is it really just another ploy to take money from Americans?
The key to surviving any trap is knowing where it is and how it works…
In this series, we will arrive at some very practical, pragmatic solutions that will put average readers on solid ground during an economic collapse. And you might be surprised to learn why gold and silver will be useless to average Americans.
The next installments of this series are:
China and the effect of its currency devaluation on America; and America’s potential response:
The Weimar Republic – Lessons From A Once Successful, Yet Failed Republic:
Surviving A Monetary Implosion – Practical Solutions For Average Americans:
Cheers! Capt. Bill
Capt. William E. Simpson II – USMM Ret.
Semper Veritas / Semper Paratus
Member: Authors Guild