“Money” of any kind obviously represents the fruit of our labors, because we trade our labors to get it. Of course, most of us really could not care less what form the money comes in, as long as we can spend it. However, when it comes to savings—or storing the “fruit” of our labors for future consumption—its form surely does matter.
The Modern Two
There are only two choices of currency today. In fact, the same question faces us about money as it often does regarding the packaging of our groceries: Paper or plastic?
“Paper” money is the printed kind. We could even include today’s common coins within this category, as they are used to make change for the other. This is “physical” currency (though it is not real money). We can hold these currencies in our hands.
At one time, these currencies represented specific claims on real money—gold and silver. The government-issued coins that people used in daily commerce were even made from these precious metals. Nevertheless, neither of these two facts are presently true.
There is another interesting form for modern currencies. The most common way our governments create “money” today is digitally. Nearly 98% of most Western national currencies are merely computer-based. They can be “created” infinitely by central banks with a few keystrokes. We “spend” such digital currencies using our computers, charge cards, and debit cards. So I call this the “plastic” form of a currency.
So whether we are talking “paper or plastic” we find that there is no real substance to any of today’s currencies. In short: Modern “money” is actually virtual, and not real.
The Historical Two
On the other hand, there are the historical monies: Gold and silver (and copper alloys for small change). More than 5,000 years of human history has proven these tangible forms of money to be true stores of value over time—and the reason is quite simple.
Unlike modern paper and plastic types of money, gold and silver bullion are themselves the fruits of someone else’s work. These metals have intrinsic value because they are scarce and very labor intensive to produce. In other words, they are real. They have substance. People have to work hard in order to find, refine, and then fabricate them into usable forms (e.g. coins, bars, jewelry, etc.). Thus, they are true money because they are also marketable commodities in and of themselves.
That is why bullion has been trusted to reliably store value (i.e. the fruits of labor) for thousands of years. In fact, at various times and in various places, people have dug up treasure caches that were hundreds and even thousands of years old. They have found to their delight that the gold and silver that they unearthed can actually buy MORE goods and services than when their original owners buried them.
In truth: No other earthly “money” can hold its value like these precious metals.
Inflation: An Unusual Phenomenon
Throughout all known monetary history, the bullion-based monetary systems were typically very stable. This created a situation where general “price inflation” was almost unheard of. The only exceptions were during times of natural disaster and war, or when governments reduced the size and/or purity of its precious metal coins.
Moreover, while labor rates typically remained stable over time, prices for goods typically declined due to technological developments and improvements in business practices. For example, according to historical data from the U.S. Census Bureau, from about the year 1810 A.D. (when the U.S. dollar was backed by silver) to 1910 (when it was backed by gold) the U.S. price index fell by about 40%. In other words, what cost $1 in 1810 would have typically sold for about 60 cents in 1910.
Again, this savings was due mainly to the combination of the soundness of the monetary system, and the constant improvements of manufacturing and production efficiency, and other advancements in business. It is not that the value of gold and silver rose, but rather that the prices of other things in relation to gold and silver fell. The improved efficiency that new technologies and production methods brought to the productive segments of the economy (manufacturing, farming, etc.) provided most of this price “discount.”
Gold and silver simply held their value. Consequently, those that stored their labors in gold and silver found that they could eventually buy more products as, over time, the general prices dropped. Their cost of living fell over time, and thus, their standard of living increased.
However, the next century was a different story entirely as the United States “money” greatly devalued from 1910 to 2010. Because of this, general price inflation became so widespread that people today actually think that it is “normal.”
Turn that around, however. Could a 100-year phenomenon truly be “normal” when considered within the context of over 5,000-years of history? No. The “abnormal” conditions are those that we live in today.
In other words: We are supposed to be enjoying the same stable monetary systems—and corresponding cost of living decreases with standard of living increases—that our forefathers enjoyed for several millennia before us.
Leaky Stores of Value
So how bad has the U.S. dollar declined? The numbers will tell the grim story. However, before I show them, let me encourage you to be of good cheer. I will give you some time-tested suggestions afterwards.
From 1910 to 1971, the U.S. dollar was still technically on a gold standard. Initially, that meant that it was supposed to be “backed” by gold, and that people could redeem paper dollars for gold at will. Then in 1933, President Roosevelt changed that with an unconstitutional Executive Order #6102 that forbade U.S. citizens from even OWNING gold, much less being free to convert paper dollars at will.
With the people deprived of their constitutional monetary rights, the U.S. federal government was then free to be irresponsible with its fiscal policy. The central bankers were also delighted to discover that they could now play games with the money supply, printing more “paper dollars” then they had gold with which to back it. International governments and banks could still redeem dollars for physical bullion from 1933 to 1971, though the U.S. citizens could not. (This unconstitutional condition was partly reversed in 1974, however, and U.S. citizens can now once again own and hold constitutional money.)
So what was the result of all this? During the 1910 to 1971 time frame, the U.S. dollar lost about 80% of its purchasing power value. Things that cost about $1 in 1910 increased in price until they cost $5 by 1971. Of course, wages did not rise as quickly as the dollar’s purchasing power declined, and this resulted in an effective cost of living decrease because prices were rising faster than real wages.
Then came Nixon’s 1971 unconstitutional decision to stop redeeming U.S. dollars for gold within international trade. With the removal of the last remnants of its true money foundation, the U.S. dollar plummeted another 81% in its purchasing power by the late 2000s.
You read that right: It fell by another 81%.
Then when the first phase of the economic meltdown began in 2008, the Fed created over $3.3 trillion in “digital money” to pump into the financial system and to prop up failing companies. This has devalued the currency even more.
All of this adds up to the U.S. currency suffering a total net loss of about 99% in its value from 1910 to 2010. That means that food, commodities, and other goods, that typically cost $1 back in 1910 have inflated enormously in price—until they cost about $100 by the end of 2010.
Please keep in mind that real wages have not increased by about 100 times since 1910. That is why a family back then could have only one working adult in the home (generally the husband), several kids (the average number of children per family was several times that of today’s families), and yet, still afford a car and house with very little debt. Today, both parents typically work (sometimes more than one job) and rack up enormous debt in an effort to support an average standard of living that is less than their ancestors. Technology has made up some of the difference (e.g., laundry machines, dishwashers, computers, cell phones, power tools, etc.). Nevertheless, the income to debt ratios, and hours worked in order to maintain that standard of living, tell the tale.
Let me also note that “value” itself never disappears. It only transfers to others. So what you have just read above is a brief summary of how bankers and governments plunder the wealth of its citizens covertly.
So the fact is this: “Price inflation” is a sign that somebody has crawled into your piggy-bank and is robbing you blind (but over time, so that you do not tend to notice it as much).
Covering the Crime
Of course, government Consumer Price Inflation (CPI) statistics were reconfigured several times during the 1980s and into the 2000s. Politicians needed to hide this extreme purchasing power erosion from the public. Today, the CPI data no longer includes food, energy, and other key commodities—though these are now rapidly rising in price. So “true price inflation” today is much higher than that which is revealed by even the most broad government official statistics. Using a more honest 1980 methodology, Shadowstats.com placed price inflation at about 8% per year toward the close of 2010. The government said it was about 2%.
Please keep in mind also that the loss in the value of the U.S. dollar affects the TRUE values of everything measured by that same currency. The effect that true inflation has upon the stock markets, real estate prices, and other “investments,” is immense. Though relative “prices” might rise, when measured by a falling dollar, true values can actually be declining while people are unaware.
For example, most people think that the U.S. housing bubble “popped” in 2008. However, when measured by real money (gold) the true values of houses actually began to decline back in 2001 and have plummeted 75% from their high.
The same fact is similar with regard to the stock markets. Most people mark the “peak” of the DOW in October of 2007 when looking at dollar-based pricing charts. When measured by gold, however, it actually peaked in 1999 and is now down 82% from that pinnacle.
In essence: Even your investment “returns” and home “values” are not what you think they are, when they are priced by a depreciating currency.
No doubt, we have become accustomed to the convenience and simplicity of virtual currencies. With a quick swipe of our card, we can purchase the items we need or want. However, such convenience comes with a terrible price, as we have just seen.
Today, central bankers around the world can create money with a few keystrokes upon their computers. Of course, when they do, most of those within that country’s financial sector are enriched while the value of its currency decreases. When the true value of any currency declines, the true net worth and standard of living of the majority of that country’s citizens declines right along with it.
So all of history—and even the events reported within today’s headlines—prove that “storing” the fruits of your labors in paper or digital currency is financial suicide, and not true savings. So now for the positive side of all this information…
The historical monies are still here, and they are already considered money again within the global financial system. Central banks are now net buyers of gold, and many savvy countries (such as China, Brazil, and others) are quickly spending their U.S. dollars to convert them to real assets. Why? King Solomon expressed it this way, “The prudent see danger and take refuge, but the simple keep going and pay the penalty” (Proverbs 27:12, NIV). The central bankers know that their Ponzi schemes are about to collapse, and they are getting ready for the inevitable. The governments of many countries recognize this fact too, and they are preparing by running toward tangible assets (though they often do this quietly).
So we need to do the same.
Consider putting aside some of your paycheck and investment earnings into true storehouses of value—gold and silver bullion. That will transfer at least some of your labors into a tangible form that has a 5,000-year record of reliable wealth preservation. Those of you who already have a “store” of labors, such as retirement and savings accounts, should research methods whereby you can transfer those depreciating assets into real physical gold and silver that is safely stored by reputable private vaulting firms (i.e. not within a bank, as they tend to “fractional reserve” their client holdings). I also recommend that you consult a tax accountant in your jurisdiction to make sure that you do this with minimal tax liability (e.g. properly executed retirement account “rollovers” are often tax-free within the United States).
Taking such a path should preserve your personal net worth and protect your family.
There is also an added benefit to such a strategy. When the financial systems fully collapse into hyperinflation soon—and this traps the unsuspecting public in its descending vortex—there will be relatively few people holding true money. This means that everything tends to become a “buyers market” for those who have physical gold and silver.
For example, during the peak of hyperinflation in Weimar Germany in late 1923, it is said that an entire city block of commercial buildings could be purchased with a single ounce of gold. Compare that with the currency price of a loaf of bread at that time: 200 billion (with a “b”) paper German marks—literally a wheelbarrow full. So can you imagine how many people you could also feed with that single ounce of gold?
Please think about that. Tough times are surely coming, so decisions need to be made soon. Be proactive. Study, research, and then pray extensively about how to financially reposition yourself and your family. Be ready to buy, when the rest of the world is selling in desperation. Most of all, please be sure to set aside enough bullion to be able to help others too. There will be many people who will need your benevolence and mercy.
In closing, please consider once again my opening statement: When it comes to savings—or storing the “fruit” of our labors for future consumption—the form of “money” that you choose surely does matter. I trust that statement makes perfect sense now.
Note: The above article was derived and adapted from chapter 11: Storing Value for the Future of Rich Vermillion’s online book, Organic Economics™. The original chapter contains more teaching, additional charts, and other data.
For more information about Rev. Rich Vermillion, please view the brief bio at the bottom of TheWisdomOfGold.com’s Website Introduction page, or visit his public LinkedIn profile page at: http://www.linkedin.com/in/richvermillion
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