5 Takeaways From ‘Anatomy Of A Fiat Currency Collapse’
An article by Alasdair Macleod that dissects the “Anatomy Of A Fiat Currency Collapse” asserts that infinite money-printing is likely to destroy currencies across the world much quicker than previously thought.
Macleod is a finance and economics expert with five decades of experience as a stockbroker, banker, and economist, beginning his career as a stockbroker in 1970 on the London Stock Exchange.
He educates and informs people about monetary policy in layman’s terms as head of research at Goldmoney — a metal industry research website that provides analysis on market trends for investors.
In the opinion piece, Macleod uses the U.S. dollar’s depreciation of 98 percent since the end of the gold standard as an example of how this fiat destruction could happen.
The U.S. Fed, which has over the years engaged in one form of money-printing or the other, and other central banks across the world are currently toying with the idea of printing even more money to shore up their economies by underwriting private sector, state spending, and other financial assets.
This, Macleod says, “repeats the mistakes of John Law in France 300 years ago almost to the letter, but this time on a global scale.”
The article has been discussed by economists as a foresight of what is likely to happen during the ongoing coronavirus pandemic.
Here are five takeaways from the piece.
The savings rate will differentiate how fast different currencies depreciate
“In a worldwide fiat currency collapse, different savings characteristics between nations can be expected to lead to variations in the speed and timing of the decline of purchasing power between different currencies,” writes Macleod.
Government inflation figures are untrustworthy
Every month, governments across the world release their inflation figures, which are basically broad-based indices of how fast or slow consumer prices are changing in their economies. The consumer price index (CPI) is prone to manipulation by state agencies to achieved their desired end and in most cases, they do not.
“It explains why a CPI can rise at an average annual rate of just under 2 percent seemingly in perpetuity, while a more targeted index that focuses on everyday items, such as the Chapwood Index comprised of 500 constant items, has returned an approximate 10 percent annual rate of price inflation for a number of years,” Macleod writes.
State bonds are inflationary
Debt instruments such as bonds offered by the government with a guarantee that they will be settled at a future date and at a specific price are mostly inflationary in nature. This basically allows the state to access cheap money and encourage people to spend their income on consumer goods rather than savings. “They are setting themselves up to lose everything they possess,” according to Macleod.
Nobody really understands how their fiat currency has declined
While people know that the fiat currency they hold loses value over time, few really grasp the extent to which it affects their purchasing power.
“Ignorance of monetary matters becomes an expensive condition. When trying to understand money, credit and how they flow, the vast majority of people find themselves in an Alice in Wonderland confusion where nothing makes sense,” he adds.
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Central banks are riding on coronavirus
Central banks across the world have taken advantage of the pandemonium created by the coronavirus pandemic to manipulate the inflationary situation and announce an unlimited monetary expansion to pay off the aftermath of the disaster. Basically, there is virtual nationalization of economies going on that will be paid off by debasing their currencies.