“Specie (gold and silver coin) is the most perfect medium because it will preserve its own level, because having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.” – Thomas Jefferson
Since no current President or Prime Minister nor any Central Bank Chairman understands what money is or the relevance of gold, we turn above back to history and Thomas Jefferson, America’s third president for a proper definition.
Jefferson also understood that “Paper is Poverty, It is only the Ghost of Money, and not Money itself.”
As the world economy goes towards an inflationary depression exacerbated not only by epic debts and deficits but now also by war, the significance of gold takes on a whole different dimension.
So let’s dissect Jefferson’s statement:
“(GOLD) Will preserve its own level”
Gold is Constant Purchasing Power. As such, gold doesn’t go up in real terms. An ounce of gold today buys a good suit for a man just like it did in Roman times.
The graph below shows gold as constant purchasing power at the 100 line whilst all the currencies are crashing to the bottom.
All currencies are continuing to lose value against real money although it never takes place in a straight line. With higher interest rates & inflation, higher deficits & debts, poverty, cost of wars and increasing pressures in the financial system, the currency debasement will now accelerate.
Gold is not an investment. Gold is eternal money. As such gold maintains its REAL value whereas paper money loses all its value over time. For 5000 years gold has outlived all other forms of money including paper money.
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NEW YORK – The new reality with which many advanced economies and emerging markets must reckon is higher inflation and slowing economic growth. And a big reason for the current bout of stagflation is a series of negative aggregate supply shocks that have curtailed production and increased costs.
This should come as no surprise. The COVID-19 pandemic forced many sectors to lock down, disrupted global supply chains, and produced an apparently persistent reduction in labor supply, especially in the United States. Then came Russia’s invasion of Ukraine, which has driven up the price of energy, industrial metals, food, and fertilizers. And now, China has ordered draconian COVID-19 lockdowns in major economic hubs such as Shanghai, causing additional supply-chain disruptions and transport bottlenecks.
But even without these important short-term factors, the medium-term outlook would be darkening. There are many reasons to worry that today’s stagflationary conditions will continue to characterize the global economy, producing higher inflation, lower growth, and possibly recessions in many economies.
For starters, since the global financial crisis, there has been a retreat from globalization and a return to various forms of protectionism. This reflects geopolitical factors and domestic political motivations in countries where large cohorts of the population feel “left behind.” Rising geopolitical tensions and the supply-chain trauma left by the pandemic are likely to lead to more reshoring of manufacturing from China and emerging markets to advanced economies – or at least near-shoring (or “friend-shoring”) to clusters of politically allied countries. Either way, production will be misallocated to higher-cost regions and countries.
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