12 step programs speak frequently for the need of a "Higher Power" in one's life to overcome addictions and the problems they cause. For many of us, God is that Higher Power. As a higher power - there are many things I look to God for. He sets many of the rules I try to live my life by. He helps define right and wrong and generally puts constraints around acceptable behavior.
Along the same lines the country I live in is a kind of higher power. To keep order, it defines rules that I do me best to live by. It defines what is right and wrong behavior and many look to it for assistance when the problems are the kind only they could help with...protecting our nation for example. Unlike God though, the country is run by people who intrinsically can become self serving and lead us into things that are not in the best interest of the country as a whole. Again, unlike God, this higher power needs to be watched and constant pressure applied to constrain any innately selfish tendencies the individual tasked with governing may be prone to do. In a free country - we do this by voting. Although there is strong argument that money drives elections today - supposedly, if we find candidates that act selfishly - we vote them out of office.
But what about today's economics? Is there a correlation here - is there a 'higher power' of economics? No, there is not....and that my dear friend, is a problem.
There used to be a 'higher power' of economics - it was gold. For the entire history of the planet up to the last century - gold was money. Financial systems were built on the 'precious' part of this precious metal; it's scarcity helped make it a governor on wild un-funded spending. If you did not have the gold, you needed to get it to spend so you needed to find people, other countries, etc.. with gold who was willing to exchange some of it for something you had that they needed.
In the last Great Depression - this got in the way. Prior to this time, in order for the government to spend it needed storehouses of gold. When the US dollar came into existence it was a precious metal. Later it became the paper dollar we now recognize but it was always a promissory note guaranteeing one the ability to take the note and exchange it for gold. So the dollar's value was backed by gold. As a holder of a US dollar, until the early part of this century, you could walk into any bank and demand an exchange for gold. This constituted the 'gold standard' we are hearing so much about again today. Early in the century, the US Congress started to mess with this a little by changing how many dollars an ounce of gold would fetch. For a very long time, that number stood just over $20...$20.67 for an ounce of gold.
So when the Great depression hit, the newly elected President Roosevelt had pre determined that the best way out of the depression was to infuse the economy with money to create jobs and generate some cash flow. There was no way to do this without accumulating more gold so he instituted an executive order to confiscate almost all gold from it's own citizens and then shortly later, raised the amount of dollars they could print for the gold they now owned from over $20 to $34. Shortly later, they severed the ties even more between gold and the US dollar until in 1971 when President Nixon removed all remaining ties to gold and created the first totally fiat currency in the US. In effect, the US dollar - what used to be a promise to buy a certain amount of gold - now only had value a piece of paper backed by the US government. Backed really only in the faith that the US government could deliver dollars for good and services...the dollar was backed by more dollars. The US dollar had no 'higher power'.
The constraints, guidelines, pressure, boundaries and all the other things we have discussed a 'Higher Power' helps manage disappeared. Now whenever the government (a collection of potentially selfish people), decided, they could just agree and print more money. (Congress agrees to raise debt ceilings for unfunded programs). And the race to absurdity was on.
Most Western style economies are the economic equivalent of Sodom and Gomorrah. Wild, unconstrained, selfish activity with little concern to the overall welfare of the group. It's a free for all. They continue to vote for printing more money and giving voters services they cannot afford...passing the unfunded debt on to the next group...until it gets so big that the world starts to think that maybe they will never see their payments and stop dealing with the government for fear of default. This is what we are seeing today.
We need constraint. Maybe we all need to be praying to our higher power that this comes together in some reasonable way. From what I can see, the only way this is going to end is for a large crash and burn...then a slow re-build. This will cause great pain and many problems for people who are not used to dealing with them.
It is my opinion that for some time, maybe a very long time, economics will look for stable value to use as a form of money. It is also my opinion that it would be gold and silver. If I am wrong - you own some gold and silver which has always had some value...unlike many stocks that can go to zero. If I am right, you will be in the driver's seat if you learn what you need to know about the precious metals market and follow an educated plan. I can help you do that. I don't sell gold. Be wary of advice from people currently selling gold.
About this Author
Steve Peters brings over 26 years of business, financial markets, gold trading and gold broker experience to help new or unsure gold buyers avoid the mistakes so many make. Go here to read more: Safe Gold Education
More detail on current economic conditions can be found here as well: Economic Analysis
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