Sunday, December 21, 2008

Our greatest inflationary moment

Was in the 1933-1934 time frame. At the time, our currency was on a gold standard. In 1933, 20.67 U.S. Dollars was equal to one ounce of gold by government decree. The dollar was "as good as gold." In late 1933, Franklin D. Roosevelt (our president at the time) declared gold possession and gold payments by its citizens were illegal. He ordered Americans to turn in their gold to the government.

A few months later, in early 1934, the greatest one day currency debasement (i.e. inflation) event our country has experienced in the last century occurred. On this day, FDR changed the dollar-to-gold peg to $35/ounce. This intentionally debased the paper U.S. Dollar by roughly 70% in one day. Nine years later, in 1943, the stock market was at the same level as when the decree was passed. The forced grand experiment in currency debasement failed to do anything but enrich the government (because they stole people's gold then declared it to be worth more than when they stole it) and increase its power. It also made every American who saved paper money poorer.

Neat trick, huh?

Today, with no major economy of the world having a monetary system pegged to anything real/tangible, the race to prove which currency is the most worthless is ongoing. Every central bank is slashing interest rates and rapidly taking on more debt to prove they are the most financially unsound organization. This attempt to destroy paper currency value is somehow supposed to help average citizens by "stimulating" the economy. This reckless game of chicken between bankers affects everyone who tries to save money and plan for the future. It also exposes our paper monetary system for what it is: a fraud.

This system of fiat currency encourages and creates market manipulation and rampant corruption through interest rate adjustments and monetary printing. Anything is possible when the means to pay for it can be created out of thin air, or so we are told. This system pays for bread and circuses for the masses by both confiscating people's savings through currency destruction and by forcing heavy debt burdens onto future generations. Of course, those asking for bread and circuses share the blame with those who provide them.

Gold gives you a way to maintain the value of some of your savings in an environment where interest rates on short term cash holdings are zero and the value of the underlying cash is under attack. Avoid stocks, all but federal bonds and real estate. Federal bonds have had a wonderful bull run and have been a great investment (the stampede to safety should not be underestimated). However, these instruments no longer provide the potential for significant returns and their lack of significant interest payments makes these instruments similar to stuffing cash under the mattress when the risk of loss is factored into the investment equation.

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