Cryptocurrency: The Sound Money Solution

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Be it Gold or Crypto or ...
Sound Money always wins in the end...


Gold Is The Solution For Financial Crises...

https://schiffgold.com/guest-commentaries/gold-is-the-solution-for-financial-crises-not-the-cause/
https://mises.org/power-market/gold-solution-financial-crises-not-their-cause
further links in original

Most people have a sense of history that goes back about two weeks.
This is especially true in the world of investing and finance. As a
result, people have a hard time seeing the big picture. For instance,
a lot of people think the current inflation crisis was only due to the
Fed failing to respond fast enough. As Peter Schiff pointed out, this
inflation was in fact decades in the making.

And as James Anthony pointed out, the current inflation problem along
with all of the big economic crises that occurred in the 20th and 21st
centuries have one commonality — progressive government coupled with
monetary policies run by the Federal Reserve.

These government-created crises include the Great Depression, Great
Inflation I, the 2008 financial crisis and the unfolding Great
Inflation II. Anthony concludes that they were all “caused and
perpetuated by hyperactive Progressive government. In the past crises,
holding gold would have conserved savings and provided added returns.”

The following was originally published by the Mises Wire. The opinions
expressed are the author’s and don’t necessarily reflect those of
Peter Schiff or SchiffGold.

The Great Depression came about when the Progressives’ newly-spawned
Fed, having first greatly increased the quantity of money throughout
World War I, again increased the quantity of money throughout the
1920s, by 62 percent (for details on figures, see table below). There
was considerable innovation-driven growth already, but this new money
created out of thin air created an unsustainable boom.

Progressive regulation of utilities, which at the time were high-tech
and high-growth, sparked a stock market crash. Projects failed,
businesses failed, and banks failed, ruining borrowers. Both parties‘
politicians then blocked product prices and wages from being decreased
in sync, which had been done throughout the remarkably-similar
1839-1843 crisis deflation and had allowed workers to keep working and
investors to keep earning returns. Investors saw that the Progressive,
newly-hyperactive government could eliminate their returns or
confiscate their returns, so investors rationally held back on new
projects. Tragically for individuals, the Progressive government
controlled the price of gold and started treating it as illegal for
unlicensed individuals to hold gold.

Great Inflation I came about when the Fed increased the quantity of
money in the 1960s and 1970s by 176 percent. Starting in the 1970s,
both parties’ politicians significantly blocked corresponding
increases in prices and wages. Investors again saw that the
Progressive government could eliminate their returns, so investors
rationally flocked to savings-conserving assets, including gold from
1975 on, once conservatives in government again started honoring it as
legal for unlicensed individuals to hold gold. Sadly, Progressives in
government meanwhile started treating the inflation-driven increases
in the dollar prices of gold not as holdings of constitutional money
or as conserved savings but instead as taxable capital gains.

The Financial Crisis occurred when the Fed increased the quantity of
money from 1995 to 2007 by 128 percent. The Progressive government
also leaned on its financial cronies to lend mortgages to crony voters
who were at serious risk of default and then bailed out almost all of
its financial cronies. The initial increase in consumer prices was
echoed and outpaced by the increase in the price of gold.

Great Inflation II has been started by unprecedented increases in the
quantity of money by 303 percent, of which the portion that has come
only recently, in the time of covid, has been 120 percent. Stock
prices first were inflated and now have begun to decrease. Consumer
prices have started to increase. (Consumer prices change quickly for
quickly-processed products but as a whole don’t become stable for 8 to
16 years or more; so if the average is 12 years and the fastest
changes come in the middle, then after the money-quantity changes, the
most substantial consumer price changes would turn up in 6 years.) The
price of gold has so far only decreased.
These crises’ superficial differences mask these crises’ deeper commonality.

Each crisis is caused by a boom during which the quantity of
government money is greatly increased, followed by a bust during which
governments further disrupt workers, customers, and investors from
healing themselves. Throughout the boom and bust, governments treat
taxpayers and money-holders as a common resource—like land owned in
common by everyone, which gets overgrazed and depleted. Various groups
in government each grab as many resources as they can until the
taxpayers and money-holders are depleted in resources and need
significant time to rebuild. Although the Fed enables these depletions
and has a fiduciary duty to not be the enabler, the root cause is
always the politicians’ choices to borrow on the backs of taxpayers
and to spend and regulate to favor business cronies and activist
cronies.

The table below summarizes these crises’ booms in the quantity of
money, the resulting busts in the prices of consumer products and
stocks, and the resulting changes in the price of gold.

Chart Notes

1 The money quantity TMS2, often referred to as TMS, for the USA.

2 Murray Rothbard’s calculation.

3 Author’s calculation by Griggs and Murphy method.

4 Consumer-price index for urban consumers in the USA, as listed on
InflationData.com.

5 Widely-used index of 500 leading large-cap USA equities, covering
approximately 80 percent of available market capitalization, as listed
on macrotrends.net.

6 Gold bullion price in USA dollars, as listed on macrotrends.net,
deselecting “inflation-adjusted.”

7 Holding of gold by unlicensed individuals was treated as illegal
from 5/33 through 12/74.
LESSONS

The boom money-quantity increases of the Great Depression, Great
Inflation I, and the Financial Crisis were fractions of the boom
money-quantity increase in Great Inflation II so far: only 0.20x,
0.58x, and 0.42x as much.

The consumer-price decreases of the Great Depression would be drowned
out by today’s modern monetary-theory Fed. The consumer-price
increases of the Great Inflation I and the Financial Crisis were
sizable fractions of the money-price increases: 1.11x and 0.23x. The
consumer-price increase of Great Inflation II so far has been a much
smaller fraction of the money-price increase: only 0.08x.

The gold-price increases of the Great Depression, Great Inflation I,
and the Financial Crisis were multiples of the money-quantity
increases: 1.1x. 4.8x, and 1.2x. The gold-price increase of the Great
Inflation II so far has been a negative fraction of the money-quantity
increase: -0.1x. All in all, gold’s downside potential is small and
gold’s upside potential is very large.

Stocks are ownership of the world’s productive assets, which makes
them the source of the values of all other assets. Over sufficiently
long time periods, even periods that include crises, stocks are
unmatched as investments. Gold is a store of existing value. Over
sufficiently-short time periods of crisis, gold protects existing
value from being rapidly destroyed by government assaults on
productive actions. Gold is for crises.

>From now until the Fed makes a lasting slowdown of its enabling of
government spending, or puts an end to its enabling, gold looks like
an obvious buy, and worth holding as Great Inflation II unfolds.