Is a currency crisis underway?

 END OF CONFIDENCE IN FIAT CURRENCIES 

NO WILLINGNESS TO RESTORE TRUST

Are we now witnessing the end of Fiat currencies, paper money without backing and created by governments without restraint? Indications are that the world is on the verge of a collapse of confidence in paper currency and the ability or willingness of  governments to make hard decisions on debt, deficits and financial responsibility.

While this is primarily the problem of the western world, it is a problem in every country, as no country has any backing of its currency. Paper currency was at one time a receipt for a unit of silver or gold and exchangeable. That reality began to be diluted in the 1930's and ended for good in 1971. It has been accompanied by deficit spending, inflation and now has exploded to levels that may usher in a period of hyper inflation and a total debasement of the currency.

Today the price of Gold is $4139. an ounce. silver has broken its all time high and is priced at $51.70 an ounce, numbers that indicate a growing doubt about the viability of the present fiat currency system. While these price increases have been huge and intense, it has actually created a freeze up in the market as the dealers and refineries are deluged with sellers and are unable to soundly price in risk and the future. There could be a temporary sell-off and price decline but many are reluctant to sell solid value for depreciating paper currency. It is an indication that many fear that their holdings of paper currency will evaporate in value and any price for solid assets may be better than nothing.

This takes us back to 1980, only 9 years after the end of metal backed currency, when inflation hit 14.6% which prompted the federal reserve to raise rates to near 20%. I remember receiving over 14% on CD's. Gold skyrocketed to $850 and ounce and silver near $50. The high interest rates led to severe recession until 1983 when a recovery began and gold remained under $500 for the decade. In reality that has been the last actual recession. The debt crisis of 2008 was minimized by more debt and helicopter money, same during the Covid era. No one has been willing to suffer the pain of recession and the liquidation of bad debt. 

Today we see the U.S. government shut down because they are not spending enough, even with a near $2 trillion deficit, same applies to the finances in Japan and Europe all are at the limits of their debt expansion but still talking about more spending. Many are unwilling to believe that these governments are nearing a crisis and others fear that their solutions will evaporate their wealth and assets. The U.S. is now expected to lower domestic interest rates, a fact contributing to this crisis.

The reality is the western democratic socialist economies are in severe trouble and there is no way out without tremendous long term pain. The problems indicated in 2008 have been addressed with more deficits and more inflation.

While many want to blame other countries reluctance to take these currencies as payment or hold their debt, it because of their hope of preserving their own economies rather than going down with this ship. 

We are hearing of solutions of Central Bank digital currencies and the elimination of cash. This would lead to restrictions on what is allowed to be bought and sold especially alternatives to this digital currency. Solutions that will in effect rob workers and savers of their assets to preserve a mismanaged and irresponsible currency system. It would most likely result in worldwide poverty for most.

The real solution is sound money representing a store of value for ones labor and savings. Sometimes the simplest solution is the best solution.