Doomed to Repeat History Again?

This is the twenty-second and final post in a series entitled Currency, Money and the Economy.

In the past month, you may have heard about the devastation brought about in the South Pacific by a tsunami. A tsunami is usually created by energy released by a deep undersea earthquake. This energy races unseen out in deeper waters (boats in deep water will not notice anything). However, when reaching the coast, the water recedes out and comes crashing back in, wiping out everything in its path. Unless you know an earthquake has occurred, you have no idea that a tsunami is coming until you see the tide going out. By then it is too late.

Well, the central banks of the world have created an earthquake of enormous energy with their lack of restraint in printing currency and bonds. That energy is currently traveling unseen beneath a blitz of media, Wall Street, and US government reports regarding manipulated statistics and economic recovery. We currently sit on the beach, happily counting our currency that the government has so plentifully provided us. However, by reading this series of posts, you now know that the earthquake has occurred.

History has shown that every time a nation or empire has attempted to maintain control by manipulating its currency, it is eventually undone by its own doing. There have been no exceptions to this rule. The United States has followed the historical playbook for ruining its currency to the letter. And unless the leaders we elect reverse their ways, which they show no signs of doing, the United States stands on the brink of etching its name on the list of civilizations that have followed the final step in the historical playbook. The only difference is that because the US dollar is used as the world’s reserve currency, they threaten to bring down every other country’s economy as well.

Who stands to lose the most? Well, not to be insensitive, but the poor are already poor, so they will not experience a significant difference. The rich know all of these facts and have already taken steps to diversify their wealth (see nineteenth post). Therefore, while their wealth will take a significant hit, they will still survive comfortably.

That leaves the middle class. The financial “experts” tell us to save for our retirements by investing in paper assets and holding them indefinitely. However, when currency is being printed non-stop, paper assets have no choice but to drop in value. When that deflationary or inflationary disaster strikes, it will be the middle class that will be wiped out because all they own is paper. As they say, “Our currency will not be worth the paper it is printed on.”

Yet for all the suffering that could come, there is opportunity. Throughout history, gold and silver have waited quietly in the wings and have watched society after society dilute their currency into oblivion. And when the people lose all faith in the currency they hold, gold and silver will welcome them back into their arms by revaluing themselves. And so the cycle will begin again…

So what will you do? Will you look out at the calm water and say, “I don’t see anything” and resume counting your currency on the beach? Or will you take precaution, gather up some essentials and head for the hills “where there be gold.” Remember, if you hang around long enough to see the tide go out, it will be too late. As Neo clearly stated in the Matrix Reloaded, “The problem is choice.”

We should continue to believe that we have control over our financial futures. However, we should also understand that we are just a speck in a dangerous universe being run by central banks playing games with the currency we take for granted.

Hopefully this series has changed the context in which you view the economy and investing. Whatever you decide to do with the information I have provided is up to you. Think about it the next time you open your wallet to pull out a dollar bill.