Gold Investing: Protecting Your Wealth Against Inflation and Monetary Debasement

Allow me to take you on a little adventure. The place: Germany. The year: 1914. On the eve of World War I, Germany formed the triple alliance with the Austro-Hungarian Empire and the Ottoman Empires in preparation for the advance of their borders against the Triple Entente. The fighting that ensued has been well documented by historians, and is covered in history classes across the country every year. But what of the horrific monetary inflation that began simultaneously in Germany and continued through 1923? Is this portion of history irrelevant? Does not it have a greater impact and relevance to the stability of our daily lives than the delayed involvement of the United States in 1917 and the victory for the Allies in 1918? Perhaps. Perhaps not. Here is the story you haven’t heard.

When war broke out on July 31, 1914, the Reichsbank (German Central Bank) suspended redeemability of its notes in gold. After that, there was no legal limit as to how many notes it could print. Using this printed currency to fund its armament, Germany had, at the end of the war, increased the amount of its money in circulation four-fold. Confidence in the value of the currency began to slowly erode. By 1923 the wildest inflation in history was raging. Often prices doubled in a few hours. A wild stampede developed to buy goods and get rid of money. Individuals would burn notes for heat, as the inflation gripping the country made currency virtually worthless. By late 1923 it took 200 billion marks to buy a loaf of bread.

Does any of this sound a little familiar, or ominous? The United States is currently spending approximately 9 billion dollars per month to fund the war in Iraq. It has an operating debt of over 8 trillion dollars! That amounts to approximately $25,000 per person. Does anyone know where the money is coming from to pay for this war, and to service this debt? It’s not from trade. The U.S. is currently running the largest trade deficit in its history. It’s not from tax revenue. The U.S is currently running its largest budget deficit since the cold war. So where is it coming from? You guessed it. Thin air. The U.S. is essentially printing money to fund our excessive consumerism and imperialistic adventures around the world.

The United States currency system is one of fiat currency. Essentially fiat currency is money that has no backing, be it by gold, silver or any other precious metal. While we do hold gold in our national reserves, it is in no way tied to the money supply. There is essentially no restriction on the amount of money the government can print to serve its needs. Guess who loses: you, your neighbor, the poor, the rich, and anyone and everyone who relies on the dollar as a means for savings, exchange, and income. It’s a pretty simple concept of supply and demand. If the supply of dollars worldwide eventually exceeds the demand, confidence in the currency will begin to slowly erode. Foreign countries like Japan and China holding dollars in massive amounts in their reserves will begin to flee those reserves for tangible assets. The supply of the dollars in the market will accelerate beyond demand, rapidly debasing the dollar’s value, creating an inflationary crisis. With no one to come and step in to curb the decline of the dollar, large amounts of individual wealth will be quickly destroyed, and it won’t be the first time. The erosive hand of inflation has for all intensive purposes, destroyed every fiat currency in history. Take Argentina, once the 9th richest country in the world, now on par with Belarus. The culprit: massive, uncontrollable inflation.

So where is the resolve? Each and every one of you can probably acknowledge this as an escalating problem. There is literally but one solution. A small portfolio diversification and investment into gold can insulate your wealth against any kind of currency disruption. Gold has, for 3000 years, represented a standard of wealth. In 1914, before the onset of World War I, a 20 Mark gold coin represented the same amount of money as a 20 Mark note printed by the German government. By the end of the nightmare inflation described above, a single 20 Mark gold coin represented over 3 trillion worth of the old paper notes.

Many of you are probably thinking this couldn’t possibly happen in this country, in this day and age. Since Richard Nixon closed the gold window in 1973, its been happening, slowly but surely. My friend Sam, just today, complained heartily for paying $12 for a salad. A salad! Inflation is an irreversible, escalating problem. I invite your further study at our website linked below. I will continue posting additional educational pieces on gold investment, monetary debasement and the escalating fiscal problems in this country in the months to come.

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