The case for gold, silver, and real assets: Protecting Yourself From A Fiat Implosion.

What really is
our current currency system at the moment and how is fiat currency valued?

Considering all the financial & economic nonsense going on of late, I can’t help but be constantly
reminded of my Grand-Dad, on my mother’s side. After interning in Carnegie’s steel mill operation
in Gothenberg, Sweden he often referred to himself as a blacksmith. Although he knew about metal
pipe fitting (and manufacture) he probably did more welding than anything else (not banging out
horse shoes as the term blacksmith might imply). But he never graduated Magma Cum Laude from
a university with an economics or finance degree. However, he was no dumbbell when it came to
managing money & investing. And he always said “hope for the best, but always, always plan for
the worse – this way you won’t get caught with your pants down”. Which sort of reminds me of
Warren Buffets famous quote about the tide going out at the beach and seeing which swimmers
don’t have a bathing suit on. And so, to tie all this into our discussion, I would simply ask what are
the geniuses that run our various governments, central banks & financial systems really up to? And
what can be done so you are not caught “naked at the beach”?

First off we need to understand we are currently living under a debt based fiat currency system.
Which is to explain what we use as “money” in most of the world is not real money at all, but rather
little scraps of paper (it actually more a cloth than paper) with fancy engravings of famous national
heroes and landmarks on it. But it’s not much more than that. It’s not backed by or convertible into
a precious metal such as gold or silver (which was used as money in the past and was always
considered real “money” because it met all the criteria of what money is, a store of labor & value
over time). But you might say, So What? They pay me with that so-called “fiat currency” and I can
pay all my bills with it (plus buy goods & services as well). What’s the point of “bad mouthing”
my money if it’s accepted and has been for seemingly forever? The answer to that question is
history, as history is now closing in on us.

Your own national fiat currency of course is accepted inside your nation’s borders (as opposed to
say trying to pay for a slurpee in Akron, Ohio with Indian Rupees, which work just fine in Mumbai
but not in Akron) but not always elsewhere and certainly floating around in exchange value with
other fiat currencies. But what then gives such “fiat money” it’s implied value? Well, aside from
the national GDP or “Gross Domestic Product” of a country, which in theory is used to calculate the
worth of the national economic activity and thus the currency as well, the other “value” factor is the
faith & credit of the issuing nation and or central bank as well. In other words, people accept it
because they “believe” it is worth something and it is used as a medium of exchange by “fiat”
which is another way of saying “by decree” or because the government told you to use it (and that’s
it’s worth something). But what if one day other nations didn’t want to accept your nation’s “fiat
currency” any more as payment for goods or services? What if some day your own fellow citizens
decided it was “not worth the paper (or cloth) it was printed on?

Getting back to the worth or “value” of fiat currency, how many of you have experienced inflation
in your lifetime? How many of you have noticed that your money has devalued over time? Why
does it cost more today in 2018, than it did say back in 1985 to buy a box of cereal, a car, a washing
machine or anything else you can think of? Why should US$1 dollar not be worth the same in
purchasing power today as it did 30 years ago if we are told the economy keeps growing every year,
that the GDP keeps going up, and in theory the “money” should be worth more and not less because
of it? The answer is that money or “currency” is also a commodity, subject to the very same supply
& demand issues that any other commodity is subject to. Too much of it in relation to demand and
the price or “value” goes down, too little and the price or value goes up. Interest rates are actually
the “price” of money, but just like a bond (getting into why fiat currency is actually debt in a
moment) the face value or capital worth can go up and down in terms of worth in the financial
market place as well. So, thinking along these lines (and not interest rates) what happens when any
government or central bank “over creates” too much currency above and beyond the amount the
economy is supposedly growing? What if even though the economy has grown say 3% in the last
12 months, they expand or create new money equivalent to say 10% instead? What do you think
that does to the face value of the currency?

In terms of what Americans use inside their own country, meaning what we commonly refer to as
the “US Dollar”, how many of you payed attention to what it says on top of the dollar note? It says
right on top “US Federal Reserve NOTE”. What is a note? It is a debt instrument. The US Dollar
then is really a non interest bearing note or debt instrument that is traded by you every time you
exchange it for goods, services or whatever you “pay” for with it. And what do we know about debt
instruments in general? Regardless of what the stated interest rate is on the “note” (and remember
the US dollar is a non interest bearing note) certainly we know that bonds and other debt
instruments can also go up & down in value. What happened in Greece in relation to Greek
Government Bonds when they got into financial trouble? The bonds went down in value because
many investors doubted their worth, they doubted the Greek Government would pay them off in full
in terms of “face value” considering the financial trouble they were in.

Flash forward to today and the value of the US Dollar. We know that there is about US$21 Trillion
worth of national sovereign debt (US Government Bills, Notes & Bonds). It has also been
estimated that there is a shortfall of US$100 Trillion in terms of social welfare promises like social
security and Medicare (that estimate varies depending upon which source you choose to read, but
regardless, even “positive” estimates are in excess of a US$50 Trillion shortfall). In other words,
somehow someway the US Federal Government would need to come up with this amount to pay out
in the future all of the financial social welfare promises made. Where will that come from? And in
the short term, what about the annual national government deficit?

What is a deficit? It is a case whereby the government spends more money each year than they
collect in taxes and or whatever other revenues they have. In other words, if they spend more than
their income they have to borrow the rest (just like you & me). Where do they borrow it from?
From the central bank, which needs to create even more new currency in exchange for the new debt
the government treasury is going to create to make up for this difference or shortfall. So, let’s say
the government announced they will run a deficit or shortfall of US$1.5 Trillion and let us also
assume the economy has or will grow by US$1 Trillion. The central banks will create US$1.5
Trillion of “new” currency to cover the deficit (borrowing) at a time when the economy only grew
by US$1 Trillion. In other words, they are going to debase or devalue the currency by “over
creating” US$500 Billion of new currency above & beyond the GDP growth. This will also cause
inflation and this is why Deficits DO Matter.

If you want to know what severe or hyper inflation is like for the average citizen, here is a link to an
article regarding what’s going on in Venezuela whereby 1 kilo of cheese now costs more than one
month’s worth of wages. https://www.theorganicprepper.com/what-hyperinflation-really-looks-
like/

So, what is the solution? How can you protect yourself from any government seemingly working
against you personally in terms of the value of the national currency, your savings and your ability
to not necessarily accumulate wealth going forward (although that would be nice) but just to at least
“break even” over time? The answer is to keep some of your personal assets in something that at
least holds it’s value, that can combat the eroding affects of inflation (debasement, devaluation). In
other words, just as the title of this article implies, you need to get physical. You need to have your
“wealth” in something that is tangible and real. And you need to hold it outside of the “system” as
best you can.

Many people have already commented time and time again that gold (and silver) is the only real
money and has been used as currency because it is one of the few things that actually acts as a store
of value. Now, with that said, you are going to say that both gold and silver go up and down in
“value” or price and indeed that is true. After all, gold went up to about US$800 per ounce in the
late 70’s, came back down to about US$300 an ounce roughly a decade or so after that and now
stands at about US$1,300. However, there are two things you need to be aware of regarding all this.
First of all such a price is in relation to the fiat currency and using this argument alone as a
benchmark is short sided because being able to value gold in fiat should not be your goal. In other
words, in any situation whereby severe hyper inflation occurs, being able to exchange your gold for
a fiat currency that might actually & literally decline in value from morning to afternoon on the
very same day not very practical. Rather, your concern and interest should be to hold or have such
gold and silver as a stand alone payment mechanism that holds it’s value in exchange for whatever
goods you are purchasing day in and day out over time. Even though certain ratios can and do go
out of norms from time to time, one barrel of oil for example historically has always been worth a
certain amount of silver ounces. This is not to say you want to purchase a barrel of crude oil with
your one ounce silver coins but rather to know that throughout history certain commodities and
goods have usually had a fixed relationship to gold and silver. As yet another example, one ounce
of gold has been able to purchase a very good men’s suit of clothes over the last few hundred years
as well.

If you cannot purchase gold or silver (silver certainly much more affordable at about US$20 per
ounce at the date of this article and probably even more undervalued than gold at the moment) then
another option would be real estate. Of course the trick with real estate is not to buy it when over
valued or in a “bubble” phase, which it has been within the last few years (and intentionally so as
the US Federal Reserve especially had desired a re-inflation of the real estate sector to benefit the
banks). Some of our clients have accumulated rental properties to give them income while others
have been buying farmland, and often enough such kinds of properties outside or away from North
America & Europe (annual & exponential government real estate taxes one major concern with
holding real estate in these areas). Which is to explain we have had some clients that have bought
one & two bedroom apartments in The Philippines, Ecuador, The Dominican Republic and
reasonably priced farm land in the last mentioned country as well. While the US real estate market
imploded back in 2008 (and had been re-inflated by US central bank policies), that was not the case
in the Dominican Republic and some clients actually doubled their investment via properties they
had purchased ten years ago or so. The other benefit to farm land is of course that is has a utility
value should you decide to lease it out or use it yourself to engage in some kind of farming activity.
Truth be told there probably is a long laundry list of other “physical” items you can hold or own to
have something that is barter-able or trade-able that one would expect to hold “value” better than a
debasing fiat currency. Not to go too far off in the “Prepping” arena, examples might be non
perishable items like soap, canned food items, car parts, car tires and anything else that someone
might need. The problem with these kinds of items is the storage headache not to mention possibly
finding someone that wants what you have in the first place. Gold and silver coins of course have
always solved such a problem as an an inclusive medium of exchange no matter what the good
being purchased is involved. But whatever you decide to do, if you want to survive a fiat currency
implosion, your are going to have to get physical and real (as in holding real assets, not paper).

About The Author: This article was written by John Schroder of Ascot Advisory Services.
John's firm has been helping clients in the Dominican Republic for the last 18 years to date with
residency application services, naturalized citizenship filing, banking assistance, incorporation
services and legal services pertaining to real estate (title transfers, legal representation at closing,
sales contract review). In addition he writes articles like this one and produces a newsletter for his
clients & subscribers. You can contact him by telephone at 809-756-1917 or click the about the
author link above to reach a contact page to send an email directly.

If you liked this article and other articles by this author, please show your support by visiting
https://www.patreon.com/John_Schroder For less than the cost of a cup of double latte mocha
something or other coffee, you can help support independent journalism and the straight talking
alternative media. If you prefer to make a one time contribution of US$10 or more (instead of
monthly support via Patreon), you can also use paypal by visiting:
https://www.paypal.me/JohnSchroderAscotAdv