Not All Hard Assets Are Created Equal

Written by Jeff Nielson, Sprott Money News

A familiar refrain in many previous commentaries is that fiat currencies – especially Western fiat currencies – are fundamentally worthless. These currencies are backed by nothing, the definition of a fiat currency.

 

Typically, these currencies have been borrowed into existence. This makes such notes de facto IOU’s of our governments. However, Western governments are bankrupt. Their currency IOU’s are just as void of value as their bonds. Compounding this fundamental worthlessness, these Western currencies (especially the U.S. dollar) have been conjured into existence in unprecedented quantities in recent years.

 

Denominated in these worthless currencies, the “price” of any hard asset is effectively infinite. Why have the exchange rates of these various forms of worthless paper not already priced in this worthlessness?

 

There is a general answer and a specific to this question. The general answer goes as follows. The plunge of a currency to worthlessness is almost always “a confidence event”. What does this mean?

 

It means that such fiat currencies almost always become worthless from a fundamental perspective well before the official exchange rate descends to zero. The reason for this is quite simple.

 

A currency that has been in use for a significant period of time acquires the faith of the population that uses it. Few members of any population have the economic savvy to understand when a currency has become worthless from a monetary standpoint. Thus there is a honeymoon period.

 

A currency continues to have a relatively normal exchange rate even after it is fundamentally worthless because it still enjoys the confidence of that population. At some point (generally when the currency becomes even more extremely diluted), the population realizes that their currency has been debauched.

 

The paper loses the confidence of that population, and the descent in the exchange rate to near-zero quickly follows. We are currently in this “honeymoon period” with Western fiat currencies. They are fundamentally worthless, but very few people are aware of this.

 

There is also a second, specific reason why these various forms of worthless paper have not already begun their final death-spiral. The banking crime syndicate, better known as the One Bank, uses this paper to fund its criminal operations.

 

It has a very, very strong motive to delay this final death spiral. It has two powerful tools that it uses to extend this delay: propaganda and currency manipulation.

 

The propaganda is as constant as it is absurd. The central bankers (and their media lackeys) pretend there is no connection between the increase in supply of these currencies and the decrease in their value – the basic fundamentals of supply and demand.

 

In the fantasy world of Western central banks, the concept of dilution essentially does not exist. The laughable propaganda goes as follows.

 

With their reckless money-printing, these central bank charlatans are “trying” to create inflation (i.e. reduce the value of these currencies) but supposedly failing to do so. It’s the equivalent of a magical lemonade stand, where no matter how much water is added to the lemonade it cannot be diluted – it remains as strong as ever.

 

The other tool that the banking crime syndicate uses to delay the end of, in particular, the U.S. dollar is currency manipulation. The Big Bank tentacles of the One Bank have been criminally convicted of manipulating all of the world’s currencies.

 

With a potent propaganda machine, near-omnipotence in manipulating markets, and no meaningful law enforcement, the One Bank has added extra years to the life of its fraudulent fiat currencies. But their days are numbered.

 

What then?

 

All hard assets would have an effective “price” of infinity denominated in the various forms of this worthless paper. In that scenario, readers have asked: why should they be giving preference (now) to holding gold and silver?

 

It is because all of these hard assets are not equal. They are not equal in absolute value. Perhaps more importantly, as the bankers have manipulated most of our markets, prices have become severely skewed. The relative value of various hard assets has become even more unequal.

 

In terms of absolute value, gold and silver are “precious” metals. Silver, in fact, is even more aesthetically brilliant than gold. This means that when the fiat paper goes to zero, these are assets which (historically) are always valued highly.

 

However, the real reason why people should gravitate towards these assets is relative value. Many readers know that in monetary terms, gold and silver are “canaries in the coal mine”. They are supposed to alert us to precisely the sort of currency debauchment that has swept the Western world.

 

As a further means of delaying the end of this fraudulent paper, the One Bank has made the price suppression of precious metals one of its overriding obsessions. The price of gold has been held to a small fraction of its real value in order to make the bankers’ fiat paper appear to have retained its worth.

 

The price of silver has been suppressed even more ruthlessly. In real dollars, it was driven to a 600-year low, and has effectively remained at that level. Compare the relative value of these hard assets with real estate.

 

 

Year after year of near-zero interest rates has fueled real estate bubbles of unprecedented proportions across major urban centers. In relative terms, real estate has never been more expensive. Real estate is the worst place to attempt to shelter our wealth as we flee the bankers’ paper currencies.

 

Various other classes of hard assets fall somewhere in between these two extremes. Almost all commodities are at relatively depressed levels. Soaring commodity prices are a secondary warning of imminent hyperinflation, so the bankers have suppressed most commodity markets.

 

This may confuse the issue in the minds of some. If all commodities are suppressed, then any commodity becomes a suitable haven for our wealth as we flee fiat currencies. Not so.

 

There is the simple, practical issue. Few commodities can be held directly by the average investor. It’s not practical to attempt to hold bushels of wheat, barrels of oil, or warehouses full of lumber. “Holding” commodities in the form of paper ETF’s means venturing into the bankers’ corrupted markets – and accepting counterparty risk.

 

As a practical matter, it is easier to hold gold and silver than virtually any other class of hard asset. This leads to the reason why it is so easy to hold these metals.

 

Gold and silver are money. In terms of wealth preservation, they are stores of value which is why they are universally regarded as premier safe havens. Because gold and silver are money, this makes them the most liquid hard assets.

 

It is this property of ultimate liquidity that makes gold and silver such coveted safe havens. Implied when one seeks shelter from any crisis is that at some point the crisis ends. At that point the asset-holder is looking to exchange their hard assets for other goods (and services). As a
basic fundamental of commerce, the greater the liquidity of any asset, the more fully-valued it is when liquidated, i.e. the smaller the discount faced by the seller/trader.

 

Our fiat currencies are worthless. Even most readers who may not be ready to accept this ultimate verdict must be troubled by the dubious monetary fundamentals of these various forms of paper.

 

They are going to zero. They always go to zero. In the one thousand years since humanity first began practicing this form of monetary fraud, all fiat currencies plunge to worthlessness – and generally quickly. Our own fiat currencies are overdue for their final Death Spiral.

 

In fleeing fiat, not all hard assets are created equal. Gold and silver offer three superior qualities:

 

1. Relative value today. Gold and silver are more undervalued at present, meaning we get the best exchange rate in return for our fiat paper.


2. Superior liquidity tomorrow. Whether selling or spending our gold and silver, these hard assets will be discounted less than virtually any other asset class.


3. Convenience. Even at the absurd price of $1,200/oz (USD), most of us could carry all or almost all of our life-savings, converted to gold.

 

Gold or silver? Silver is the better buy in relative value. As the more valuable metal, gold is much more portable and thus much more convenient.

 

With its lower exchange rate, silver is the better metal in which to conduct routine commerce. With its higher exchange rate, gold provides greater security in a crisis. In short, hold both, each for their own reason.

 

The need to rid ourselves of paper fiat currencies should be obvious. Our primary refuge from those fiat currencies should be equally obvious.

 

 

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Written by Jeff Nielson, Sprott Money News