Today’s article will bring to you some facts, truths, insights and views which I think are without any exaggeration of priceless value, honest and incredibly important.
Just by thinking of and waiting for crisis, poverty, misery, war, hyperinflation, explosions of violence, state monitoring, exploitation, etc., none of us can live well. In such a way life here and now is no joy! And it is anyway only a series of moments, seconds, and sometimes beautiful, sometimes less beautiful incidents, limited to 60, 70 or 80 years. Those who don’t feel anything positive in a life full of problems, crisis, apocalypse and system collapse don’t know how to appreciate the gift of life. Those who can only think in a negative way should not become a source of information or decision for you. How do you want to make good and right decisions in your life and for your future if you lose your optimism or believe you don’t have any future at all?
For example I don’t want to have to tell my children later that I didn’t have enough time for them or didn’t have the courage for another sibling because I was busy reading too many negative articles, news and horror scenarios and even believed in them. With the right preparation you can balance almost all of the problems very well. Therefore, neither hide yourself in the masses who feel only at first glance well protected with their supposedly good sources of information, loans, real estate, banking and insurance systems and supplies, neither does it make much sense to completely crawl into a dark hole – while the sun is still shining!
There is no rainbow without rain.
The coming years will clean up much mischief and many developments of recent years that were only “sick” anyway. It is no coincidence that we have got by far the largest number of advertisers on our site.
The insiders and traders in the gold business know exactly
- who explains facts accurately, thoroughly and in an entertaining way
- who has good contacts,
- who can distinguish the important from the unimportant,
- who hits the right note
- who is reliable
- who lives a real life and is in contact with what’s going on
- who is honest and fair,
- who names all arguments fully and doesn’t avoid important issues just because he gets paid for it or because he is a coward,
- who presents his point of view accordingly in meetings, talks or events
- with who you can have a telephone chat or meet for a beer
If you want to understand the current situation correctly, then draw the right conclusions and inform others about the topic of gold and silver, then 3 basic characteristics must be applied:
- understand the facts and distinguish important from unimportant
- understand complex interrelationships and explain complicated matters in a simple way
- have the courage to honestly address these facts
We have increasingly been asked by our readers to explain the most important fundamentals, facts and interrelationships and their consequences to investors in a way easily understandable to everyone in a single article and combined with concrete recommendations for action as to what is currently to be done in terms of economy and financial crisis. The result is the following article, and I ask you with all my heart and most emphatically to pass on the information contained in it with all of your options available. No matter whether you pass it on directly, recommend it or link it in forums, comment features, blogs, guest books or whatever.
It is hardly possible to explain the most important questions and current developments in a simpler way. To achieve exactly this we have started this site a year ago, with a success that we had not even dreamt of. This following article will give you more food for thought and arguments when you try to protect others from the current dangers and developments. I would call this text – without any arrogance – the “mother of all articles and information” which one simply MUST KNOW in connection with the current crisis and future developments.
It also explains much about the past.
Without knowledge and consideration of the following information and facts you cannot achieve any sensible, reasonable and successful investment or retirement provisions. This is because the scope and influence of the described forces are so powerful that if you don’t consider them you cannot compensate them even with state subsidies or tax incentives which may be available in some cases. The topics that are being discussed in the media such as “SCISSORS POOR-RICH”, indebtedness, impoverishment, inflation, financial crisis, housing crisis, economy, money, social envy, failed states, redistributive policy, shift to the left” etc.:
- you can ONLY understand these topics correctly if you know about two things:
1. OUR MONEY, and the nature of our money and
2. The COMPOUND INTEREST EFFECT (interest on interest effect)
This sounds paradoxical and a little complicated. It certainly looks funny to you at first glance because it is never talked about in connection with the above issues – right? But this is usually because the people who talk about these issues cannot or do not want to sell the inevitable results to the population.
Those who don’t address these two points in talk shows, analyses or reports largely miss the point and cannot find a solution. This is also the reason why most of the talk shows, lectures, analysis, investing events and articles rarely come to a real result or a workable solution.
1. The first fundamental problem that we face is our uncovered fiat paper money.
Below a small summary: In the past, since more than 4000 years ago, gold and silver were THE MONEY. In Ancient Rome, in the Middle Ages and from 1820 to 1913 money was fully backed by gold, in the U.S. as well as in England. To be mentioned here are also the German 20 and 10 Mark coins of gold! The weight of the coin was crucial to the value. Later, instead of paying directly with the coins of gold or silver, receipts were issued. These receipts represented the right of exchange against a certain quantity of gold or silver. These receipts became quite popular very quickly, which was also because of their lower weight and easy transportability. The receipts themselves were not a problem yet as long as the person who issued the receipts stored the underlying precious metal and, if someone wanted to have the gold or silver behind it, could deliver accordingly. Receipt back, gold delivered, receipt destroyed. Thus the receipts in circulation were consistent with the amount of gold in the storage vault. Over time these paper receipts replaced the real precious metals. (I can tell which way the wind is blowing!)
Out of these “receipts” the banknotes developed.
These too were still partly covered by gold, at least until 1971. But in 1971 the then U.S. President Nixon cancelled the obligation of the United States to redeem currency (dollars) in exchange for gold. This was called he “closed the gold window”. This approach had a certain reason. They were forced to incur more and more debts and print more and more money to get the economy going, to meet expenses one could not afford and keep the system running. (…plus finance the Vietnam war, translator’s note) It was absolutely impossible to cover all the newly printed money by gold, so they printed it without being covered! That is no problem as long as the people can be made to believe that this receipt itself – the paper money – has a value and is suitably backed up and secured.
So in the past with each payment transaction a claim to a certain quantity of gold was passed on.
Once there is no more gold behind the money then what is passed on is only paper, and the confidence that the new owner of the banknote will find someone again to sell him goods or services in return for the paper.
In Ancient Rome it was just the same. They had to finance their wars and large armies, be a world power, erect magnificent buildings, host games and distribute bread (bread and circuses), indulge in other bodily pleasures (what else to do, there were no sports cars yet neither cell phones, Internet or …). This was possible only with new and freshly printed money that was printed so rapidly that not enough gold was there to cover it. So they started with alloys. The gold content melted gradually to 70%, 50%, 30%, 10%, 5% until in the end there were only worthless copper coins. Once people had understood this development the money was worthless! In the Middle Ages there were the “Tipper and See-Saw”, who filed off more and more from the gold of a coin until nothing was left, or they were very creative in weighing the coins. Bottom line, the money was worthless again! And today again hundreds and thousands of billions of euros, dollars, pounds and yen are printed in order to resolve the current financial and housing crisis – that is, to put money (value) into the market that one doesn’t really have. Anyone who puts new money into circulation, that is paper only without any value behind it – undermines the value of money. The goods thus remain the same, just you need to spend more and more money to buy the same thing. – Doesn’t that make you feel queasy?
The history of money: Subsequently a few brief pictures of the “History of Money” in a rough schedule, with the major breaks and stages.
When companies go bankrupt, property prices fall, stock markets crash, the gold price falls, unemployment rises, goods and services are purchased no longer or lose in value – and the current crisis with its associated slowdown in growth means exactly that – then real values get lost. From where the government should take real money and sustainable values in such a short time to balance these losses in such large amounts, even more so when considering the present state of government finances? These losses in real estate, bonds, shares etc. were responsible for such tremendous losses / write-off requirements with the banks – and thus the things in which your savings and retirement provisions are invested – that now they must try with all their power to breathe fresh value into these investments, that means a high price measured in dollars, euro or yen.
Thus real losses are compensated for by paper money losing its value increasingly.
This would be about the same as if you borrow a bottle full of wine, but you drink the wine. Then, unless you have something valuable or equivalent to offer as a substitute for the wine drunk already, you can only return the full bottle if you fill the container with water. Your lender then indeed gets back a full wine bottle but the value is no longer the same. So now the wine bottle travels – with water inside – as a gift or a medium of exchange from birthday to birthday, or from store to customer, etc. …..- either because someone doesn’t know himself there is water inside or else because he hopes that the one who gets the bottle from him will not discover the fraud and pass it on as well. The last one in the line is then the fool, namely the one who opens the bottle and then is left with it – except he starts the game anew: put back water into the bottle and pass it on again.
This is exactly what’s going on with paper money.
We all know that paper money in itself has only a paper value and does not represent a value in itself, but we accept it in the confidence that we will find yet another fool who will not discover the fraud, or for self interest doesn’t want to uncover the fraud and passes on the money. How long can something keep its value when it is easy to print it in any desired number at just a few cent for a 500 euro bill? What do you think will be the outcome? Just have a look at the current graphics under “Things to know” or enter some corresponding terms into a search engine. In the U.S. the amount of money in circulation, i.e. the money supply, is currently growing by
44% per year. The economy, i.e. the demand for money, is shrinking by about 2% in real. So the growth of money supply is the 22-fold – even with opposite algebraic signs – of the growth in demand, because growth in goods means nothing else than an increase in money demand. A plus in goods with prices staying stable can only be achieved if the additional money is there. We have stable prices if the supply and demand for money grow or decrease equally. If more money is released than is needed to implement the goods this will sooner or later force the value of money to its knees – this is called inflation. And a money supply growth in excess of 40% with decreasing quantities of goods is quite sick. If the volume of goods grew and the money supply did not, there would be a tougher competition of the goods for the money – that would make money more valuable.
That would be deflation.
But given the current data it is utter nonsense to expect deflation. I hope I was able to explain this in an understandable way to everyone. Only in the very short term deflationary shocks can happen if the money supply contracts vigorously in a very short time. We had that in autumn 2008, but such a thing takes only a few weeks and will never be a permanent condition. Back to inflation: The goods remain the same but you have to spend more money for them! So that, and only that, makes the price / value of money drop, that’s the inflation that all of us are going to experience very soon once again. In Europe we have currently about 7% growth in money supply and around 4% decline in the economy – that is an “inflation” of 11%, which doesn’t become visible immediately as long as no one discovers the fraud. Always remember the wine bottle. But this inflationary pressure accumulates and will be reflected in huge increases in oil, gold, etc. The last major discharge of accumulated inflation happened between 2007 and June 2008 when real estate, shares and most of all agricultural commodities skyrocketed. Yet that was only a prelude to price – explosions of a totally different calibre.
However when the first of those who open the bottle see through the trick, the worthless wine – just like the money becoming worthless – will change hands even more rapidly. This will also increase the velocity of circulation which will push inflation further, since everyone wants to pass on the hot potato as quickly as possible to the next stupid, and wants to save himself into tangible assets. Thus the next wave of panic flight into gold and silver – that is the best material assets and the original money – is inevitably at the door already because the trick with the money is becoming known and thus begins to stink. And the water in the wine bottle does not keep fresh as long a good wine would, so the end is foreseeable. As to the growth rates of money supply the already steep curves of the exponential function have been left upwards. Thus we cannot really proceed on the time axis. Therefore the big bang is bound to happen in a few years already. What do you think will happen to the money value? It will, if things continue this way – and currently nothing else is visible – fall back towards zero or fuel value.
2. What are the effects of compound interest on our social system and our economy?
The compound interest is, according to Einstein, “the strongest force in the universe!” You are mistaken if you think that it is the sex drive, even if that is your own experience! It too leads to an exponential increase of an amount! The higher the interest rate, the faster the resulting graph changes into the vertical. And it is precisely this vertical ascent that the money supply has reached by now. In all the graphics on “debt”, “asset allocation”, “money supply growth” or “derivatives market volume” – you will always have a similar picture. You’ll surprisingly often come across the shape of a compound interest graph that is an exponential function. Do you notice something?
Public debt in the Federal Republic of Germany:
In this graph you can see very well how the national debt has developed since 1960. It is striking to see the almost exponential acceleration since 1971 when the U.S. closed the “gold window” – i.e. the “redemption obligation” of money (US Dollars) into gold was lifted. Is also alarming that even the boom years of the late nineties, including the huge state revenues through the sale of UMTS licenses, privatization, etc., could stop the exponentially growing debt only for a short time. The road to “national bankruptcy” seems inevitable sooner or later!
Our monetary system with compound interest has been going on for several decades. Without interest no one would lend out his money. It is a kind of balancing of risk for a potential loss – in case the person who has been loaned the money can not pay it back. Therefore the interest rate is the higher the worse the debtor or the debtor’s credit rating is. Also the duration usually influences the interest rate, because the longer I go without something the more I want to get back later.
If you haven’t had a really nice schnitzel for a long time you will look forward to a large portion after this time of “drought” just the more. If you haven’t had sex for a longer period of time your desire or need will probably grow stronger. So you can see: whether wine, schnitzel or sex, when we talk about money and interest there are many parallels to ordinary life.
Man-made things automatically tend to behave in human ways. Interest rates were generally very low in recent decades. This was partly due to the overly exaggerated risk aversion of most investors in developed countries who blindly pumped more and more money into the bond market through savings bonds, money market accounts, savings accounts, savers, life insurance, time deposits, government bonds, corporate bonds etc., so there was no real competition for the money with other investments e.g. stocks and shares. We have described this in detail in other articles.
This competition for the money would have resulted in a higher interest rate because you would have had to attract it with better conditions. But in this way cheap money was constantly given to businesses and especially governments which they accepted gratefully and dealt with it accordingly.
If we are honest we have to say that the risk aversion and ignorance of the investors were one reason for the exploding national debt. If you constantly present an alcoholic (states and governments) with ever growing bottles of liquor you need not be surprised if he empties them and then cries out for the next one – until he perishes.
The long time functioning of this game is not a proof that it will work forever, but every sip takes the drunkard, here the state, closer to the final collapse. The talk among people and the crowds that “things turned out well each time again and this time it is not that bad either” is therefore utter nonsense. It’s like saying that an 80-year-old will never die, because he didn’t die in the last 80 years despite having the flu, various illnesses and accidents. The older a man gets, the higher the risk of his death – with the money system, it is the same! People have no idea to whom they lend their money when buying the above investments and retirement plans. They complain that the government pours the money down the drain and how one can be so stupid as to lend money to them. Moreover the state has never repaid its debts. The repayment of old debt plus interest always takes place through new debt. So they find a new fool for the manipulated wine bottle each time. That is why the state must support many of these systems (insurance, pension schemes, etc.) – because they are crap and without putting a candy on top people will not eat the bait. The result was that this transition to the current vertical ascent has taken a long time – but now it is here!
The artificially low interest rates have not prevented the inevitable end and will not do so but only delay it. Through the fact that the assets must rise as a result of interest the debt on the other hand has to rise equally.
There can be only one euro of wealth if someone else has one euro in debt.
Please pass on the information contained in our articles with all of your options available. No matter whether you pass it on directly, recommend it or link it in forums, comment features, blogs, guest books or whatever.
Best regards,
Gerhard Kastner and Frieder Morneweg
das-bewegt-die-welt.de | webStimme.com
