Guide To Investing in Gold & Silver. Michael Maloney
been waged. It is an unseen battle, unknown by most of the people it affects. Yet, all feel the effects of this battle in their daily lives. Whether it be at the supermarket when you notice that a gallon of milk is a dollar more than it was last time, or when you get your heating bill and it has unexpectedly jumped by $50, you are feeling the effects of this hidden battle.
This battle is between currency and money, and it is truly a battle of the ages.
Most often this battle takes place between gold and silver, and currencies that supposedly represent the value of gold and silver. Inevitably people always think that currency will win. They have the same blind faith every time, but in the end, gold and silver always revalue themselves and they always win.
To understand how gold and silver periodically revalue, you first need to know the differences between money and currency.
Throughout the ages many things have been currency. Livestock, grains, spices, shells, beads, and paper have all been forms of currency, but only two things have been money. You guessed it: gold and silver.
Currency
A lot of people think currency is money. For instance, when someone gives you some cash, you presumably think of it as money. It is not. Cash is simply a currency, a medium of exchange that you can use to purchase something that has value, what we would call an asset.
Currency is derived from the word current. A current must keep moving or else it will die (think electricity). A currency does not store value in and of itself. Rather, it is a medium whereby you can transfer value from one asset to another.
Money
Money, unlike currency, has value within itself. Money is always a currency, in that it can be used to purchase other items that have value, but as we’ve just learned, currency is not always money because it doesn’t have value in and of itself. If you are having a hard time grasping this, just think about a hundred-dollar bill. Do you think that paper is worth $100?
The answer is, of course, no. That paper simply represents value that is stored somewhere else—or at least it used to be before our money became currency. Later we will study the history of our currency and the gold standard, but for now all you need to know is that the U.S. dollar is backed by nothing other than hot air, or what is commonly referred to as “the good faith and credit of the United States.” In short, our government has the ability to, and has been, creating money at will without anything to back it up. You might call this counterfeiting; the government calls it fiscal policy. The whole thing is what we refer to as fiat currency.
Fiat Currency
A fiat is an arbitrary decree, order, or pronouncement given by a person, group, or body with the absolute authority to enforce it. A currency that derives its value from declaratory fiat or an authoritative order of the government is by definition a fiat currency. All currencies in use today are fiat currencies.
For the rest of this book I will use these proper definitions. At first it will sound strange to you, but it will only serve to highlight, and bring greater understanding of, the differences between currency and money. Hopefully, by the end of the book you will see that it is the general public’s lack of understanding concerning this difference between currency and money that has created what I believe will be the greatest wealth accumulation opportunity in history What you will learn about currency and money in this book is knowledge that probably 99 percent of the population has no clue about or desire to learn. So congratulations, you will be way ahead of the game.
Inflation
When I talk about inflation or deflation I’m talking about the expansion or contraction of the currency supply. The symptom of monetary inflation or deflation is rising or falling prices, which I will sometimes refer to as price inflation or price deflation. Regardless, one thing is for sure. With inflation everything gets more valuable except currency.
Adventures in Currency Creation
Fiat currencies don’t usually start out that way, and those rare cases when they have were very short-lived. Societies usually start with high value commodity money such as gold and silver. Gradually, the government hoodwinks the population into accepting fiat currency by issuing paper demand notes that are redeemable in precious metals. These demand notes (currency) are really just “certificates of deposit,” “receipts,” or “claim checks” on the real money that is in the vault. I would venture to say that many Americans think this is how the U.S. dollar works today.
Once a government has introduced a paper currency, they then expand the currency supply through deficit spending, printing even more of the currency to cover that spending, and through credit creation based on fractional reserve banking (something we’ll cover later on). Then, usually due to war or some other national emergency, like foreign governments or the local population trying to redeem their demand notes (bank runs), the government will suspend redemption rights because they don’t have enough gold and silver to cover all of the paper they have printed, and poof! You have a fiat currency.
Here’s the dirty little secret: Fiat currency is designed to lose value. Its very purpose is to confiscate your wealth and transfer it to the government. Each time the government prints a new dollar and spends it, the government gets the full purchasing power of that dollar. But where did that purchasing power come from? It was secretly stolen from the dollars you hold. As each new dollar enters circulation it devalues all the other dollars in existence because there are now more dollars chasing the same amount of goods and services. This causes prices to rise. It is the insidious stealth tax known as inflation, robbing you of your wealth like a thief in the night.
Throughout the centuries, gold and silver have battled it out with fiat currency, and the precious metals have always won. Gold and silver revalue themselves automatically through the free market system, balancing themselves against the fiat currency in the process. This is a pattern that has been repeating and repeating since the first great currency crash in Athens in 407 B.C. Whenever an investor detects the beginning of one of these battles, the opportunities (according to history) to accumulate great wealth in a very short period of time are enormous.
It always seems to start the same way. Energy builds as the currency supply is expanded, and then, through natural human instincts, the coming crash is felt by the masses, and suddenly, in an explosive move and in a relatively short amount of time, gold and silver will revalue themselves to account for the currency that has been created in the meantime, and then some. If you see the writing on the wall and then take action before the masses do, your purchasing power will grow exponentially as gold and silver grow in value relative to an inflated currency. If you don’t, you’re in for a wipeout.
These heavyweight bouts between fiat currency and gold and silver can end one of two ways:
1. A technical decision, where the fiat currency becomes an asset backed by gold or silver again.
Or:
2. A knockout blow that is the death of the fiat currency.
Either way, gold and silver are always declared the victors. They are always the reigning heavyweight champions of the world. But you don’t have to take my word for it. Let’s see what history has to say.
It’s All Greek to Me
Winston Churchill once said, “The farther backward you can look, the farther forward you are likely to see.” So in the spirit of Churchill, we are going to look back . . . way back to the time of the Greeks.
Gold and silver have been the predominant currency for 4,500 years, but they became money in Lydia, in about 680 B.C. when they were minted into coins of equal weight in order to make trade easier and smoother. But it was when coinage first made its appearance in Athens that it truly flourished. Athens was the world’s first democracy. They had the world’s first free-market system and working tax system. This made possible those amazing architectural public works like the Parthenon.
Indeed for many years the Athens star shone brightly. If you’ve studied your history, then you know they are considered one of the great