Once again, the subjects of Crypto, Fiat Currency, Debt, and Precious Metals (PMs) has arisen.
I have no doubt that we are entering a “golden period” for PMs. My argument is not against the potential power and duration of the secular bull market we may be entering in PMs. It is more on what follows afterwards.
This discussion is my opinion only, and I will offer the rationale and basis on why I believe this upcoming bull will likely be the “last Hooray” – especially pertaining to the holding of actual physical PMs by retail investors. And to a lesser degree the gold producers, which will ultimately become “farming centers” for the Central Banks (if we’re lucky).
Let’s start a recent Kitco discussion between David Lin and Rick Rule, between the 11:00 to 15:50 minute marks:
The interesting part of the above discussion is the apparent glee that Rick Rule initially reveals for the introduction of the electronic currencies. As he puts it,
“I am a consumer of currencies, and so to the extent that there are more people competing to serve me better, I think it’s wonderful…….”
But, then as the discussion goes deeper, and into the nuances of the digital monetary medium of exchange that represents “worthless promises” vs. “a store of value”. And the importance that the digital currency is actually linked to a store of value. Both men in the discussion actually touch upon the threat to this very link – which if taken to a deeper level quickly undermines Rick Rule’s initial optimism on the whole digital currency movement.
Both these guys broke the golden rule of
TxMetrix Economix: To wait more than 499 seconds before taking a position on anything. I will now take those precious 8.3 minutes (maybe a bit longer) to explain it all in a little more detail.
Stores of Value, Money, Currency, Debts, and Stability - A Store of Value
We continuously hear from our financial historians and sages that Gold and PMs are the ultimate store of value. And throughout all of human history, this has been true.
“A store of value is an asset that maintains its value without depreciating. Gold and other metals are good stores of value as their shelf lives are essentially perpetual, whereas a perishable item (milk, for example) is a poor store of value because of its propensity to decay.”
The closer a currency is linked to a store of value (as opposed to a government promise), the more it represents real money, true value, and financial stability. History has proven this out. But unfortunately, history does not always speak for the future.
Bitcoin is trying to represent an electronic Store of Value. Similar to PMs, it is attempting to become another form of e-Gold. There are many differing views on this, but let's leave the discussion for another day.
Bitcoin is not representative of a reasonable substitute for fiat currency. It simply does not have the scale or circulation required.
- Money
Money vs Currency are often used interchangeably and it is very difficult to draw a thin line of difference between the two. Money has certain features like it should be divisible, durable, portable which currency does not have. Currency is simply a form of paper which numbers of it.
- Money can be a store of value and it is intangible in nature
- Money refers to the actual value of goods or services that are traded for
- Money has intrinsic value
- Value of any goods or services can be derived in the form of money and it can be quoted in a certain currency
- Money can perform various functions and it has its own importance in any economy
Real Money is a direct link or the actual physical unit of the Store of Value.
- Currency
Currency is simply a form of paper which numbers of it. It is soon to go digital on a massive scale as we increasingly are witnessing. Currency, however, can perform the above functions as money but it cannot perform the one important function that money does that is currency cannot act as a store of value.
- Currency cannot be a store of value although it is always tangible in nature
- Currency is just a medium that we keep in our pockets to increase our purchasing power and to make day to day payments in our lives
- Currency does not have intrinsic value
- Value of any goods or services cannot be derived with the help of a certain currency as it is just a medium of exchange and not a measure of value
- Currency is any form of money that is circulated in public
Some Crypto coins are attempting to become e-currency. These are likely doomed as government authorized e-fiat currency systems are implemented. They offer no addiitonal value, and will likely be rejected.
- Debts and Promises
Debt is an amount of money borrowed by one party from another. ... A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
Sovereign debt is a central government's debt. It is debt issued by the national government in a foreign currency in order to finance the issuing country's growth and development. The stability of the issuing government can be provided by the country's sovereign credit ratings which help investors weigh risks when assessing sovereign debt investments.
Sovereign debt is all government debt, public debt, and national debt (bonds, treasuries, deratives, etc.). All promises to lenders. Since these days it is unlikely most of these debts will ever be paid back to lenders, they are actually Broken Promises.
- Social and Financial Stability
The Stability of the financial system is directly correlated to the social stability of a nation. We are now integrated within a global financial system, so we global social stability is also implicated. Broken Promises are NOT a stabilizing factor. They are harbingers of instability and social disintegration.
I urge readers to spend a few minutes listening to how this all ties itself together. It’s much more effective than using words. I promise, it will be one of the best half hour “audio” on the subject.
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Now, we can move forward to the really interesting subject: Will History repeat as many of us expect? What will the Great Reset look like, and where will gold and PMs settle out as “stores of value”. Are Gold Bugs flying into a Bug Zapper?
The Great Reset: Every idiot (except maybe at the Village level), bankster, and sovereign leader knows it’s coming. The one-eyed members of these groups have already understood that we’re very close to The Reset. Maybe even well within this decade. It has happened with every fiat currency cycle in history, and governments have never been able to stop the asymptotic debasement of their currency at the end of the debt cycle they promoted.
Even though they may have understood it, governments have always tried to save their financial systems, their power, and the stability of their society nevertheless. But they have never figured out a means of maintaining the linking of their currencies to the store of value, and ended up defaulting on their promises. They have never had the tools or the means to prevent this vicious debt cycle and resulting social instability and mayhem.
However … maybe this time they have.
What our governments and their banks may be attempting is something that has always eluded them throughout history: To successfully delink the fiat currency system from real money and the recognized stores of value (such as gold)
AND at the same time maintaining full social control and financial stability.
If we examine the 5 categories above and the audio clip, the objective would be to successfully sever the connection between real money and fiat currency, while sealing off any option to use real money in any day-to-day life transaction. Money and “stores of value” would become essentially worthless to the citizenry because they cannot be used, or locked out of the working currency system.
The Kitco interview at the beginning of this post is not quite accurate. What is going on with our Western governments is NOT a flirtation with e-fiat, or a catch-up race with China’s e-fiat implementation. In fact, it is the commencement of the Reset and it has been in work for a few years. And it won’t be like any other in human history in my opinion.
Japan is the Poster Child for the West Always look at Japan as the leading edge of The Reset for the West. It is one of the most advanced nations (if not the most advanced), and the furthest along the road to financial systemic collapse. Japan has the oldest population demographic and highest debt to GDP ratio on our planet (at over 250%). It is in the more dire position with regards to the impending crisis, and would naturally be at the forefront of “the solution”.
One well known characteristic of Japan; It is a cash society. A culture that actually prefers physical cash in lieu of cashless and credit. If the government central and commercial banks can crack the Japanese public, governments will be able to crack any society.
Last week on October 9, the Bank of Japan (BoJ) published their whitepaper - in English - to their Approach to Central Bank Digital Currency (CBDC).
The BoJ has been vigorously conducting research and experiments on Central Bank Digital Currency (CBDC) for several years. For example, it has conducted experiments exploring Distributed Ledger Technology (DLT), which could be used for wholesale CBDC, in a joint project with the European Central Bank since 2016.
No Kitco, ... this is not new! It has been in work for over 4 years. Foot Note 5 at the bottom of the last page of the Whitepaper says it all with regards to the Central Bank Digital Currency scheme:
"A group of central banks consisting of the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank, and the Federal Reserve System, together with the Bank for International Settlements, released a report titled "Central Bank Digital Currencies: Foundational Principles and Core Features" in October 2020.
The BoJ is now in the process of implementing their central bank digital currency (CBDC) going forward. While the Bank of Japan claims that it currently has “
no plan to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner. With this in mind, the Bank decided that it would publish its approach to "general purpose" CBDC -- that is, CBDC intended for a wide range of end users, including individuals and firms.” The above statement is basically the acknowledgement that an e-fiat system is coming … and fast. Here are some of the key implementation activities:
To keep up with the pace, the Bank will carry out experiments in a phased and planned manner, as indicated below. The Bank will first test the technical feasibility of the core functions and features required for CBDC through a Proof of Concept (PoC).
PoC Phase 1: The Bank will develop a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument -- namely, issuance, distribution, and redemption. In this phase, it will explore basic functions and roles required for CBDC while also considering technical feasibility and challenges regarding, for example, the management entity of the ledger that records the total amount of issuance and transaction history, as well as ways to record.
PoC Phase 2: The Bank will implement additional functions of CBDC in the test environment developed in Phase 1 and test their feasibility. In this phase, the Bank will conduct technical experiments on specific functions required for CBDC while taking account of the core features required for CBDC and the points to consider in issuing CBDC.
Pilot program Phase 3: Based on the PoC, if the Bank judges it necessary to step things up further, it will also consider a pilot program that somewhat reflects the actual design and functions of CBDC and involves Payment Service Providers (PSPs) and end users.
Among these phases, the Bank aims to start
PoC Phase 1 in early fiscal year 2021. In preparation, the Bank plans to specify basic requirements of the test environment, among others, as early as possible and then call for partners to join and collaborate in the experiments.
This is where Japan is today. It will not be much longer before it is all cashless.
https://www.youtube.com/watch?v=fwko6bwJOko&ab_channel=EconomicsinJapan
The e-currency system will soon be all encompassing and there will be no more physical. The public will have succumbed.
The Growing Nemesis: And not to be outdone, China has responded to the whole e-currency implementation by accelerating it. Once again, this month test-bed Shenzhen being the primary target.
https://cdn.cnn.com/cnnnext/dam/assets/181119100102-shenzhen-china-exlarge-169.jpg 
China is taking its digital currency tests to a new level by giving away more than 10 million yuan ($1.5 million) in a new lottery (via CNBC). The state-run People’s Bank of China gave 50,000 randomly selected citizens a “red packet” worth 200 yuan ($30), to spend at several thousand designated retailers in Shenzhen’s Luohu district. The idea is to not only test the technology involved, but boost consumer spending in the wake of the COVID-19 pandemic. The winners will be required to download a digital Renminbi App in order to receive the digital money, according to state news site China Daily. After that, they’ll reportedly be able to buy goods from local pharmacies, supermarkets and even Walmart. China started ramping up trials with the digital yuan last April, when it ran a pilot program that reportedly included US companies like McDonald’s and Subway. Unlike decentralized cryptocurrencies like bitcoin, however, China’s digital currency would be controlled by the country’s central bank. The experiment is part of China’s push towards a cashless society, with the idea that digital currencies can be more easily controlled and monitored than hard cash or bitcoin-like crypto-currencies. Digital payments that pass-through companies like WeChat and AliPay are already very popular in the country. When I say Digital, it's DIGITAL in capital letters. It is not just restricted to Phone Apps. It includes bio-signature systems as well that enter unique personal information into the digital medium.
https://www.youtube.com/watch?v=9HHW0mj2EDc&ab_channel=Goldthread
The Possible Gold Bug Zapper And here we see it.
Asia nations are adopting e-currency fiat systems on the national scale.
There is NO HISTORIC PRECEDENT for this technological currency solution.
The last “Hoorah” for Gold could be the final gasp of its perceived use as a Store of Value. Coinciding with the collapse of our legacy financial systems and cycles, that most gold bugs base on historic events. But the Great Reset that is in rapidly manifesting itself may represent something completely uncharted.
Gold embodies the assumption that it is a store of value that can ALWAYS be redeemed for any fiat currency at any time. And that Gold is real money. Is this assumption valid? I don’t know. Central Banks throughout our world are scambling for gold. But is it ultimately for them only, and to construct a new currency system that requires faith initially, unitl it becomes fully implemented ... and omnipotent?
One thing seems certain; driving a wedge between currency and real money has never been easier if a government chooses to do so. Even easier (in my opinion) when that money is Crypto like BitCoin that also exists in a digital medium. And once this wedge is successfully implemented, the “Store of Value” becomes locked into a vault that has no utility or access from the outside.
I would suggest that PM investors and history buffs such as Rick Rule take note. It may be fine to embrace what’s coming as a great opportunity, but I would not automatically assume that “
as a consumer of currencies, there are more people competing to serve me better…” I would also consider on who is serving who.
The Digital Future May Have No History. Investors need to understand the past. But they need to understand the future even more.
Mark Twain is credited with stating: “History Doesn't Repeat Itself, but It Often Rhymes” The key word is “Often”. It does not mean “Always”.
As I have mentioned previously, there are other ways to play all these Dystopic realities that are fast approaching. These systems will always have to compete with human ingenuity and combat mischief. The Cyber realm is not without threats.
Invest in Cyber Security as well. Stores of Value can also become the "investment grade" protectors of Dystopia itself.
Tx