Cards on the table: A Western fiat money collapse, along the lines of Zimbabwe, Venezuela, or Weimar hyperinflation, despite unsustainable deficit spending and un-payable government debt, is not something I think we are likely to see.
Many more knowledgeable souls than myself deem it inevitable, but more probable in my view is just the continued debasement of currency and the erosion of its value, so that, with the incremental effects of compounding, a generation from now fiat will have lost another 90% or more of its purchasing power.
Heck, the pound has already lost a third of its value just this decade. Since the beginning of the century, it has fallen by over 90%.
I guess that constitutes collapse. It all hangs on how you define collapse, I suppose, and over what timeframe.
Yet, there's one scenario I can envision that could lead to a more rapid collapse, and it's one we might even be careering towards: war.
If tensions between East and West escalate into full-blown conflict, you can be sure the East will attack Western currencies, just as the US weaponized banking and the dollar following Russia's invasion of Ukraine.
China has lots of gold, as we know, much more than it says it does. Russia has plenty. Shanghai Cooperation Nations are all accumulating. US gold has not been audited for decades, casting doubts over whether it even exists. As for British gold, I wonder what happened to that! In short, Western fiat money is extremely vulnerable should the East decide to attack it. (For the time being at least, I don’t expect it to: China has some $3.25 trillion in reserves, and another $800 billion in US Treasuries. Why collapse their value?)
But whether Biden or Trump wins in the US elections this autumn, neither is going to balance the books. Nor will Labour here in the UK. So you know that both the pound and the dollar are going to see their value steadily eroded for the next five years. Deficit spending will continue and debts will increase.
Indeed, outside of a full-on deflationary tightening or collapse - I mean Paul Volcker in 1980 scale tightening - it is impossible for fiat money to see its purchasing power grow. Supply is going to increase, and purchasing power will decline. This is built-in, inherent, and inevitable. Hence why I advocate owning alternative, non-government money - gold and bitcoin.
Today, I want to explore a scenario in which Western currencies come under attack and are forced to back their currencies with gold. I understand Russia briefly did this in March 2022. In other words, what happens to the gold price if gold gets remonetized?
Similarly, we’ll explore potential bitcoin prices in the event of hyperbitcoinisation (where bitcoin becomes the dominant global money).
The Remonetisation of Gold
Listen to this episode with a 7-day free trial
Subscribe to The Flying Frisby to listen to this post and get 7 days of free access to the full post archives.
