Given that so much public activity today is geared toward tearing down the pillars of Western Civilization and that sound money and free market capitalism are two of those pillars, it’s no surprise that economic stress continues in America and throughout the world. The disuse of sound money and the endless inflation of fiat money has fundamentally changed the behavior of citizens and investors.
Money once went into the pockets of those who worked for it, was deposited in the bank at interest, was loaned out to productive enterprises, produced valuable things or more money, and continued its circuit by providing operating funds and either monetary or asset-based increase at every stop.
Now it is loaned into existence in quantities far in excess of optimally productive levels, is paid to both productive and non-productive people alike, and is predominantly spent on consumer goods perceived to give a greater return than fiat currency. Inflation makes things more valuable than money due to their respective “half lives”—the rate at which they lose value (even if that value is only in the form of enjoyment or affection).
In hyperinflationary episodes such as the one in the Weimar Republic of Germany in the early 1920s, people would get money and spend it as quickly as possible. The currency was devaluing so quickly that people could often buy far more at the start of the day than at its end using the same amount of currency. What cost, say, 1,000,000,000 papiermarks in the morning might cost 1,100,000,000 for the identical product by late afternoon.
In the same way, new money in even a lesser inflationary environment also loses value over time. Those who get it first get the most value—bankers, big corporations, and others who are high on the food chain. Consumers get it last, and feel the pinch compared to those who enjoy more dollars of greater worth every time the currency supply is increased.
Truly, the deck is stacked against the middle and lower classes—and even the lower 90% of the upper class, though most of them don’t know it yet. The wise people in these classes have been using a key formula to stay in the game and stay alive over the long run. They’ve used a large part of their holdings to purchase things that aren’t eaten up by inflation.
They’ve invested in things like stocks, bonds, mutual funds, and real estate with part of their portfolio. They’ve kept part of their assets liquid to be accessible on rainy days and take advantage of opportunities—via cash, bank accounts, CDs, Treasury bills, and the like. And they’ve insured their portfolios with things such as gold, silver, platinum, and palladium that never lose their value.
No one knows what tomorrow will bring, especially in volatile times like these. Don’t put all your eggs in one basket—especially a basket that has an intrinsic value of zero such as the US dollar. Be ready for whatever transpires with a wisely allocated portfolio no matter its size.
Key Takeaways:
- If you want to invest, know thyself
- The world is still swimming in money
- Gold takes a well-deserved breather
The McAlvany Weekly Commentary: David and Kevin discuss a number of important topics this week. They begin with bias, how it affects each of us, the importance of knowing oneself and one’s biases, and how our biases affect our investments and investing strategy. Given that everyone has biases, and that every person’s biases differ from everyone else’s—including those of exceptional investors—this is very helpful instruction. The hosts also discuss banking, debt, credit default swaps, consumer sentiment and buying behavior, and the very considerable assets of Apple. A highly informative program on both current events and investing insights for those who—like most of us—are not professional investors.
Credit Bubble Bulletin: Doug also covers a range of important topics this week, generally centered around monetary conditions that are too loose worldwide. Markets in the US expect a deal on raising the debt limit and a pause in the Fed’s tightening process. Meanwhile monetary conditions around the world are likewise far too loose—both because of current policy and as a result of money created during the pandemic that is still sloshing around years later. Doug also discusses the quieting of the bank run for the moment, together with news of extremely high compensation packages for the bank CEOs of failed banks.
Hard Asset Insights: End-of-week obligations kept Morgan from writing a full-scale HAI, so this week’s missive consists of market updates and a note of appreciation to clients. More extensive news and analysis will return next week.
Golden Rule Radio: Tory returns to the studio as he and Miles examine a very volatile week in the precious metals markets. Miles takes a look at the gold chart and offers some insight on what its recent action means. And he gives some insight as well on why key levels carry so much weight. Why do asset prices hang up, reverse, or take off when they hit key price levels? The same analysis applies to silver, which the hosts then examine. They then expand their analysis to the big picture—the factors that underlie the markets. Do they support the chart analysis? The hosts then take a look at the dollar and also recent attention in the House of Representatives regarding monetary and economic topics.
