Gold vs Digital Assets or The 5 stage life cycle of a fiat currency

Very interesting piece from a book called “$10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven” written by a widely recognized international bullion expert Nick Barisheff 10 years ago. 

He shows how countries that broke peg with the gold standard and introduced fiat currencies go through a five-stage cycle and how GOLD is the best hedge in his opinion. 

DESPITE BEING WRITTEN 10 YEARS AGO HIS ARGUMENT IS STILL VALID!

ALTHOUGH NOW WE HAVE DIGITAL ALTERNATIVES TO GOLD!

Five stage cycle of fiat currencies include:

Stage 1 is fuelled by optimism and euphoria as politicians promise growth stimulus with the least amount of pain and discipline. In the beginning, there will be a promise of fiscal responsibility to print only what the country needs and live within the budget means. However, such a period is usually short-lived as politicians and central bankers will soon give in to temptation to print more money so as to stimulate growth.

In Stage 2, restrictions would be slowly removed from the currency-creation process. The idea of paying off debt is no longer important as compared to growth. As a result, growth becomes the single most important driver of the fiat system. As currencies gradually lose value, due to declining purchasing power, people have to work longer hours to maintain their standard of living.

Stage 3 is the gambling stage where excessive liquidity makes its way into the stock market and real estate market. Growth will start to slow down and therefore, more money needs to be created to stimulate growth. This means that interest rates must be maintained at artificially low levels. With interest rates kept low at the same time there's significant money printing, people will have to take risks on the stock market or real estate market just to keep up with inflation. In stage 3, people also start to borrow more because of the wealth effect with the bubbles causing them to feel like they have more money than they do in terms of purchasing power. 

Stage 4 is the penultimate stage of the fiat cycle. Sluggish growth in western countries forces financial institutes to try to make money through other means than financing and brokerage fees. At this stage, corruption prevails, fundamentals are ignored and wealth is concentrated in the hands of a few. At this point, individuals must look out for themselves by not trusting the government or financial advisors. Those who failed to do so would suffer potential loss of wealth in the latter part of Stage 4 and Stage 5.

Stage 5 occurs when there is hyperinflation, which is the worst economic phase of the fiat cycle. In stage 5, the currency becomes worthless. At this stage precious metals are often reoccurring in the monetary system to be used as currency or be used to back up the currency. Keep in mind that hyperinflation has occurred at least 56 times during the last two centuries.

At each cycle, only the “movers and shakers” can influence lawmakers to implement laws that benefit the rich and elites, especially those with the highest concentration of wealth. The middle and low income groups lose out the most and tend to feel that “the rich get richer”. This is due to the rapid erosion of purchasing power caused by inflation. During each stage of inflation, gold appears to rise in value as currencies continue to lose value. This is because as paper money loses value, the only alternative will be real money, represented by precious metals such as gold and silver. The increased demand means that they will appreciate in value not only against fiat currency, but also against other tangible assets.

There is a strong possibility that the global monetary system may collapse in the near future due to a crisis of confidence in the paper money system. Individuals must realize that the current debt-based model for the monetary system is not sustainable and there will come a breaking point when the government debts become uncontrollable. When that happens, you want to keep your assets in the only real money - Gold and Silver!

This book was published in 2013 and proposed gold as the ideal hedge against the upcoming economic crisis. 

Today we live at Stage 4, observing growing inflation and hearing talks about currencies getting backed by natural resources (eg. Russian rubles).

Fortunately, unlike in 2013, we have a choice of various investment instruments in digital assets within the blockchain space and may not be required to buy precious metals to preserve our capital and own income.

WOULD YOU CHOOSE GOLD OR DIGITAL ASSETS TODAY?