Here’s a challenge for readers: Stop reading right now and write down at least five threats to the US. Rank them in order of most serious at the top. Ask family members or friends to help you. Then come back and read the rest of the article.
- Did you write them down? No cheating! I’ll bet that most people wrote down some of the following:
- China’s growing military power.
- Terrorist attacks emanating from “sanctuary countries” like Afghanistan.
- Global warming/climate change causing rising ocean levels and massive flooding.
- Societal unrest of the right or the left political spectrum.
Am I right? Well, although all of the above may or may not be real threats, the most serious threat–i.e., the threat that is almost certain to happen and cause real, lasting damage–is excessive money printing by the Fed that causes a collapse of the dollar.
Money as an Indirect Medium of Exchange
Here’s the short course in monetary theory. Money is a medium of exchange. Its other functions–store of value and unit of account–are dependent upon its acceptance as a medium of exchange. A medium of exchange is something that people are willing to accept temporarily in order to exchange it later for something else. Therefore, we can add the adjective “indirect” to “medium of exchange”. For example, I have apples and want a pair of shoes. I don’t have to find a cobbler who just happens to want a lot of apples. I can sell my apples to a wholesaler or to a whole lot of retailers in exchange for money, which I then present to the cobbler, who surrenders the shoes. Now the cobbler, in turn, can shop for something other than apples.
No One Invented Money
But who invented money? Surprisingly, no one did. Through trial and error market participants used many things for money before settling on the most widely accepted commodity. From time immemorial that commodity has been gold and sometimes silver. But today, money is completely unhinged from any precious metal. It is produced in whatever quantities central bankers desire. Not surprisingly, central bankers believe that they are doing their job–adding enough liquidity to smooth the gears of progress. If only it were so!
Whereas gold and silver are part and parcel of the economy; thusly, representing a sound relationship (price) between itself and all goods, today’s money is completely fiat. It can be produced in whatever quantities are desired, and–OH, MY–how the Fed does accommodate that endless desire. This means that the relationship between the dollar and all other goods is constantly changing. The dollar in your pocket or bank account deteriorates in its purchasing power for every dollar the Fed produces out of thin air, and the Fed has been producing dollars in unprecedented quantities. (For example, in January 2020 the monetary base was $3.4 trillion. Today it is over $6.0 trillion. That’s a 43% increase in just twenty months. The components of the monetary base are cash and bank reserves held at the Fed that can be exchanged for cash.)
The Fed is not the first, nor I fear the last, entity to try its hand at alchemy; i.e., create something out of nothing. No previous attempts have succeeded. In fact, all have failed in spectacular fashion, even recently in Zimbabwe and Venezuela. But money printing out of thin air has been around a long time. Hyperinflation destroyed mighty Rome under Diocletian and the highly industrialized Weimar Republic of Germany shortly after World War One.
The US Is in Hyperinflation
Most of the public believes that hyperinflation is a complete collapse of money’s purchasing power. But Alasdair Macleod of Goldmoney.com points out that the complete collapse of money is the result of hyperinflation. Macleod defines hyperinflation as the condition that exists when the only way for government to meet its budgetary promises is through printing ever increasing amounts of money, which reduces the purchasing power of money already in existence. The Biden administration projects that the 2022 year deficit will be $1.84 trillion. But the Congressional Budget Office projects that the deficit will be $3.4 trillion! Regardless of who is right and with promises of spending even more on welfare programs, clearly the US has no plans to reduce its budget deficit and end hyperinflation. When this fact becomes apparent to all holders of dollars, probably our foreign trading partners first, it will start an irreversible scramble to shed dollars for real goods. Regrettably there is nothing that can stop this from happening, because there is no political will and no public support to reduce government spending.
The only safe haven is in gold, and possibly silver, not EFT’s (electronically traded funds) but the real stuff…specie. Gold always survives as the one medium of exchange that cannot be manufactured out of thin air. It has survived all attempts to make it either illegal or irrelevant. ‘Nuf said.