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Sunday, July 29, 2012

You May Feel a Little Discomfort

If you're getting to the point where the whole Money Thing is depressing you, I suppose you could argue that all corrective surgery is depressing - if you were to focus upon the discomfiture, the inconvenience and the fear of the unknown. If you took a step back and reframed the experience as a time of learning, a curative procedure and period of recuperation, it becomes a totally different story.

If our complacently "stable" Western consensus, our "way of life", is totally based on unending bank credit and unbounded expansion of fiat currency, then we are all blind fools and the sooner this money system is replaced by something less susceptible to abuse (to the creation of illusory "false value"), the better. All fiat money systems in history have failed; the longer such a collapse is postponed, the bigger it will be. In 1949, Ludwig von Mises put it like this:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

The #1 question is: in what form should your wealth be kept to survive such a transition without losing its value? All other questions are increasingly trivial, as the imminent transition is getting so close now, that the feeling that "something is wrong" is starting to dawn in the minds of many ordinary people. This is supported by stories in the press and on the BBC which are based on the premise that our money system isn't working, it has been abused by its custodians, and our investments aren't safe.

The alternative to our current system - that of privately-owned Central Bank monopolies, issuing interest-bearing debt money from thin air in the form of fiat currency and bank credit - is taking shape between major players like China, Russia, Germany, Japan and Iran. It is a decentralised system of value exchange via bilateral swap arrangements (not denominated in $US dollars), which will operate using a small number of formally defined "barter" levels, from the Sovereign right down to the Personal level. There will be an element of gold support.

What will this do to the value of gold, do you think?

Watch this space.

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