“…it is no different than an invisible hand reaching into your bank account. You cannot see this hand, nor does the number of dollars in your account go down – the theft occurs in the reduction in the value of those dollars. An invisible tax you pay every day.”
Written by guest author: Michael Chagala
The views and opinions expressed by guest authors do not necessarily reflect the official policy or position of Precious Metals Direct. Any content provided by our guest authors are of their opinion and not intended to be financial advice.
Although we like to think of ourselves as living in a ‘free market’ system, it is far from reality. Anyone running a business or paying taxes quickly learns they are boxed-in by such a complex level of regulation that it requires a professional to help them navigate through. Written on some government website, in plain English (if you are an attorney) is how much you owe at every step. These policies and regulations are tangible and unmistakable – you write a check, send it in the mail to some government agency and your bank account gets smaller. There is no mistaking having just been subject to a policy.
But you are also subject to policies that you cannot see – policies intentionally kept hidden from public view. Although you do not know they exist, you are subject to them no different than they money you pay the IRS each year. These policies require no action to be taken on your end yet have a profound effect on your finances.
Money is complex. A person can spend their life studying economics and not understand the entire system. The rest of us really don’t understand monetary policy at all – and why should we? None of us have experienced the type of financial turmoil, such as the great depression, that makes a person question the system. You trust that the dollar in your pocket can buy you the same thing today as it will tomorrow. Most of us are aware to some degree that the value of the dollar fluctuates, but not to any degree it can be felt. But there is little doubt the stable system you have become accustomed to will come to an end in your lifetime – history says so.
Monetary policy is the framework of which your money operates. It determines how much the dollar in your pocket is worth and who will have the most of it. There is nothing ‘free-market’ about it – when the old monetary policy is no longer beneficial to the people who run the world’s governments and banks, they create a new one.
Changes to Monetary Policy
Monetary change happens every 30-40 years. These government leaders and banks get together in a room behind closed doors and hash out how money is going to work moving forward. Although each country somewhat sets their own individual policy, they make agreements on how money will be exchanged between them. For the common man, there is no immediate change, or even awareness, when they are moved to a new policy – these meetings happen mostly in secret and the policies rolled out slowly as to not cause alarm or elicit unwelcomed opposition.
Classical Gold Standard
Prior to WWI, the dollar was basically pegged to gold, a system most Americans mistakenly think is still true. It was against the rules for the US government to print bills that it didn’t have an equivalent amount of gold backing it up. This was a great period of innocence – this system, of lack of a system, did an excellent job of preventing powerful people from manipulating the value of the dollar for their own benefit. And banks could only loan out money they actually had, a restriction no longer in place today.
The Gold Exchange Standard
After WWI, the US government found it inconvenient to use the classical gold standard as it essentially prevented them from printing money. And eventually the temptation to print money for things like paying off war debt became too great and the government finally gave in – the Gold Exchange Standard being the first step towards completely untethering the dollar from anything of tangible value. From this point forward, citizens could no longer exchange dollars for gold at the bank. At the time this likely felt like an insignificant consequence to being on a new monetary policy – but it marked the beginning of the dollar’s gradual loss of value, a fall that continues today.
The Bretton Woods System
Named for an area in New Hampshire where the meeting took place, the Bretton Woods system pegged the world’s major currencies to the dollar, and the dollar was pegged to gold. Much of the world’s gold was shipped to the United States for safe keeping, with the agreement that the countries who were part of the Bretton Woods system could buy it back with dollars if they chose. This put a lot of power, and trust in the United States to play by the rules. Well, it didn’t. Not only did the United States immediately begin printing money, but refused to hand over gold when governments tried to buy it back. This bring us to the last, and current system.
In 1971, President Nixon put the final nail in the gold standard coffin by announcing the United States would officially stop allowing the Bretton Woods countries, and anyone else for that matter, to exchange dollars for gold held in its reserves. From this point forward, the United States was, and is today, to print money at will in any quantity it desires.
What Difference Does Any of this Make to You?
A lot, but like a fog in a boiling pot, it happens too gradually to be noticed. The problem with printing money, which the United States government does on a massive scale, is it is theft. Printing money causes inflation which devalues the dollar in your pocket. Every time the United States prints a dollar to pay a debt, cover an unfunded liability, or wherever else the trillions of printed dollars go – it is no different than an invisible hand reaching into your bank account. You cannot see this hand, nor does the number of dollars in your account go down – the theft occurs in the reduction in the value of those dollars. An invisible tax you pay every day.
Gold is the Answer
While the value of the dollar has dropped dramatically in the last 100 years, gold has remained steady. In 1900 a dollar would buy a tricycle for your toddler; today that same dollar won’t get you a soda at a vending machine. This devaluation of the dollar is not some natural and inevitable byproduct of time passing, it has been manipulated this way.
But gold is the one asset, which above all else, has held its value for not only the last 100 years, but throughout humanity. Gold (and other American precious metals) has an inherent value to humans, almost as if built into our DNA – and it is scarce and cannot be created out of thin air. These two unique properties make it inflation and manipulation proof. In 1900, an ounce of gold would get you a fine, custom-tailored, suit. An ounce of gold today would get you the same. Gold is one true store of value that is outside the reach of the invisible tax called inflation, and has held its value through bad times and good. And unlike other financial vehicles that are only available to the rich and elite, you can right now, with a few clicks of a mouse, transfer a portion of your money completely out of our monetary system and into physical gold, the safest form of money humankind has ever known.