“History doesn’t repeat itself, but it often rhymes,” is a popular quote attributed to Mark Twain, and it’s an important idea to think about the current state of the world amid rising geopolitical tensions and worsening economic conditions.
About 100 years ago, circumstances were setting the stage for the Great Depression and World War II, and if we’re not careful, there’s a chance that the global economy could sink into a deep recession while we debate whether we’re in danger of World War III.
With major conflicts now raging, including Ukraine vs. Russia, Israel vs. Palestine, Israel and the US vs. Iran, and China threatening Taiwan, among others, we cannot say that World War III is underway World war.
Naturally, the circumstances the world finds itself in are unsettling for investors, who are desperate to preserve their wealth despite the increasing risks they face, leading many to wonder whether gold and, to a lesser extent, Bitcoin (BTC) can provide protection.
- The Western monetary system is based on endless deficit spending.
- Bankruptcy comes regardless of the level of debt.
- Default in these Ponzi schemes unfolds when they can’t find a buyer for the new debt that allows them to pay off the old.
- Governments now need to create WWΙΙΙ like WWII where all of Europe defaulted, Britain went into moratorium but defaulted on US loans.
- This is the real reason behind the interest of governments exploring the creation of central bank digital currencies (CBDC).
- This is the real issue behind the push for CBDCs to eliminate physical money and then everything is traceable.
- Because they will go bankrupt in the West and this is universal, the only safe place for capital in the long run was physical assets.
- Some have called it the bubble of everything, because they do not understand that it is a transfer from public to private assets.
- These were precious metals, real estate and stocks with tangible assets.
- Precious metals in the form of coins will likely become the currency of the shadow economy.
- Even if you look at German hyperinflation, the replacement currency in 1925 was backed by real estate.
- Tangible assets survive the collapse of currencies.
The effect a major global conflict would have on financial markets
- Governments are prepared for this and will take full advantage of it to “solve” their growing list of economic problems.
- Governments will seek to impose capital controls to prevent capital flight.
- This will probably dominate Europe.
The actions of governments during the war
- Abraham Lincoln shut down the gold market before it reached $200 an ounce in 1864 and claimed that people were making money off the blood of others.
- During World War I, all of Europe closed the stock markets, fearing that people would sell and take their money to America.
- The US stock market fell 10% on the expectation that it too would close, which it did the week of July 27th and did not reopen until December 7th.
- This was again about capital controls, fearing that Europeans would sell US stocks and take the money home, which did not happen.
The lesson to be learned historically from wars is that governments will impose capital controls, and this may be the case when they attempt to reverse the nullification of paper dollars and force everyone into a CBDC. If this happens, physical gold and silver will be the only form of money that will survive under these conditions.
The rule of gold
- As for going back to a gold standard, the main problem with that is that people are so used to valuing things in fixed terms that they don’t know any other way to approach determining the true value of things.
- A gold standard always fails when it is set at a certain value.
- Bretton Woods collapsed because you fixed gold at $35 an ounce but did not limit the amount of dollars created.
- The only gold standard that has survived is when its value fluctuated freely.
The example of Byzantium
- The Byzantine Empire was purely based on gold that fluctuated in value, and it collapsed due to wars and spending that was unlimited.
- As Margaret Thatcher once said, socialism works until other people’s money runs out.
- The same can be said for relentless government spending to maintain power.
- Wars have been the driving force behind all currency crises.
- The value of a currency is always based on trust.
- When the Roman emperor Valerian I was captured in battle in 260 AD. by the Persians, despite the fact that the coins were made of precious metals, the coins still took precedence over the precious metal because, like the dollar today, Rome was a consumer economy that everyone wanted to sell something to.
- India regularly produced imitations of Roman gold coins showing that the gold was larger when minted by Rome.
The Roman Emperor Diocletian tried to restore the silver that had disappeared from circulation after the capture of Valerian I 26 years later in AD 286. He increased the weight of the gold coins from a canon of about 70–72 to the Roman lira to a from 60 to the Roman lira. Silver coinage was reintroduced at 96 percent to the Roman lira. And he introduced the so-called follis—a copper coin of about 10gr. Just as Diocletian overhauled the monetary system and imposed wage and price controls to deal with inflation, we will see the same unfold. We will likely see the US and Europe split into separate governments. What happened in the Great Depression
- Most people don’t know that during the Great Depression, more than 200 cities issued their own money, and collectors refer to them as Depression Scripts.
- Coins will also be fiat to some degree, because even when they were gold, they had a premium based on their economic status.
- Wrong to blame the currencies and not the governments.
- This will be the end of democracies, which tend to be the most corrupt in history.
- There was a great debt crisis in Rome and so when Caesar crossed the Rubicon he didn’t have to fight for Rome, the senate fled and the people cheered.
- This will happen again by 2032 as it becomes more widely understood that governments are corrupt and in trouble worldwide.
The dollar is too big to fail
- Global tensions always have an impact, the key is to watch to see if tensions worsen, then investors should be concerned.
- A major global conflict would likely disrupt supply chains and cause immediate and severe financial market shocks.
- As for a possible exit from the US dollar in favor of gold or Bitcoin, unless there is concern about the stability of the US dollar or serious inflation, investors are not going to immediately flock to gold, but more likely than Bitcoin – the which is still extremely unstable.
- Countries that will adopt altcoins probably already have a fiat currency that is unstable, so their adjustment may not trigger further adjustment.
- Probably fiat currencies in general are here to stay.
- A switch to another currency would be unprecedented.
- As long as the US government supports the dollar, it will remain the dominant currency.
- The world is very interconnected and dependent on the US dollar today.
