The Fed’s Fatal Flaw: A Predictable End
So last week a very savvy investor asked me my view (h/t Simon Popple) on – When and what will break the chains on gold by those seemingly omnipotent forces that so assuredly keep its price in check? In essence, the belief is (and I expect for most honest and impartial analysts this is true) that because there is potentially significant downside risk to a global monetary system built upon a currency to which gold represents the proverbial kryptonite (we’ll discuss why), there are checks in place within the system, to ensure that kryptonite doesn’t become too potent. The architects of the existing system would have been foolish not to implement checks on gold.
And due to traditional physical gold transactions being cumbersome in a world of click, point and trade, checks on gold come surprisingly simple (paper market). However, there now exists a broadening network of architects (think China’s Silk Road Fund, gold ATM’s in Dubai and electronic exchanges like Allocated Bullion Exchange) creating a modernized electronic infrastructure where physical gold transacts as efficiently as all other financial markets but while maintaining the inherent intrinsic and enduring value. Modern logistics for a monetary system with 5000 years of staying power will make it incredibly difficult to rebuild checks on gold subsequent to the death of the Fed.
Below I will provide the Hypothesis, Groundwork, Empirical Evidence and Conclusion that will speak to the title of this essay. With that, grab a coffee and enjoy!
Hypothesis
The monetary system enacted in 1913 (and all fiat monetary systems), issuing currency backed by interest bearing indenture, was fatally flawed due to a requirement for its very survival to create an ever-increasing stock of money, without also providing the means for perfect investment, resulting in a system where debt ultimately consumes all profits and labour over time.
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