In Missouri, Rep Doug Richey filed HB1867 on Dec. 11. Rep. Bill Hardwick filed HB1955 on Dec. 15. The bills are companions to SB735 filed in the Senate by Sen. William Eigel earlier this month.

In Oklahoma, Sen. Shane Jett filed SB1507 and Sen. Nathan Dahm is running SB1508.

The enactment of any of these bills would eliminate state capital gains taxes on the sale and exchange of gold and silver bullion.

Both of these states are already among the 42 that do not levy sales taxes on gold and silver bullion.

Exempting the sale of gold and silver bullion from taxes lowers the investment cost of precious metals. It also takes a step toward treating gold and silver as money instead of commodities. Taxes on precious metal bullion erect barriers to using gold and silver as money by raising transaction costs.

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35-cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what a sales tax on gold and silver bullion does. By eliminating this tax on the exchange of gold and silver, Missouri and Oklahoma would treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support of an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.

The impact of enacting this legislation will go beyond mere tax policy. During an event after his Senate committee testimony, Paul pointed out that it’s really about the size and scope of government.

“If you’re for less government, you want sound money. The people who want big government, they don’t want sound money. They want to deceive you and commit fraud. They want to print the money. They want a monopoly. They want to get you conditioned, as our schools have conditioned us, to the point where deficits don’t matter.”

GOLD AND SILVER AS LEGAL TENDER

Under provisions in the Missouri bill, gold and silver in physical or electronic form would be accepted as legal tender and would be receivable in payment of all debts contracted for in the state of Missouri. The state would be required to accept gold and silver for the payment of public debts. Private debts could be settled in gold and silver at the parties’ discretion.

Practically speaking, this would allow Missourians to use gold or silver coins as money rather than just as mere investment vehicles. In effect, it would put gold and silver on the same footing as Federal Reserve notes.

Oklahoma took a similar step in 2014. Utah and Arkansas also consider gold and silver legal tender.

The proposed Missouri law also includes provisions authorizing the state to invest in gold or silver “greater than or equal to one percent of all state funds” and to expressly bar any state agency, department, or political subdivision from seizing gold or silver bullion.

BACKGROUND

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Currently, all debts and taxes in the US are either paid with Federal Reserve Notes (dollars) which were authorized as legal tender by Congress, or with coins issued by the US Treasury — very few of which have gold or silver in them.

The Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the US government wouldn’t be able to maintain all of its unconstitutional wars and programs. The Federal Reserve is the engine that drives the most powerful government in the history of the world.

Tax repeals knock down one of the tax barriers that hinder the use of gold and silver as money, and could also begin the process of abolishing the Federal Reserve’s fiat money system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.

In a paper presented at the Mises Institute, Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people.

These bills make up part of a broader movement at the state level to support sound money.

Specie legal tender, as defined in the bills, encompasses “specie coin issued by the Federal Government at any time” and any other specie designated by the Chief Financial Officer (CFO) as legal tender, in accordance with the monetary authority not prohibited in Section 10, Article I of the United States Constitution. Under the proposed law, specie legal tender could be acknowledged for settling private debts, taxes, and fees imposed by the state or local government.

One key provision in the legislation grants the CFO the authority to designate additional specie as legal tender. This move could liberate Florida from potential constraints tied to the use of only U.S.-minted gold and silver coins, providing flexibility and autonomy to the state’s monetary landscape.

The bills also pave the way for online and electronic transactions involving gold and silver. Electronic currency is defined as “a representation of actual gold and silver, specie, and bullion held in a depository account, which may be transferred by electronic instruction.” In practical terms, this allows Floridians to use gold or silver in both physical and electronic forms as money, putting these precious metals on par with Federal Reserve notes.

If enacted into law, Florida would join a select group of states recognizing gold and silver as legal tender. Utah led the way in 2011, where the legal tender law facilitated the development of a gold and silver market. The Utah Specie Legal Tender Act also spawned the creation of Goldbacks, a local, voluntary medium of exchange, representing dollar-denominated notes made from physical gold. This forward-thinking legislation reflects a broader trend among states seeking to diversify their monetary options and promote a more robust and decentralized financial ecosystem.

The US government’s budget is the biggest in the history of the world and is growing at an uncontrollable rate. Below is a chart of the budget for the most recent fiscal year, which had a deficit of nearly $1.7 trillion.

Before we get into the specific items in the budget, what is your take on the Big Picture for the US budget?

Doug Casey: The biggest expenditure for the US government are so-called entitlements. It’s strange how the word “entitlements” has been legitimized. Are people really entitled to the government paying for their health, retirement, and welfare? In a moral society, the answer is: No. Entitlements destroy personal responsibility, legitimize theft, destroy wealth, and create antagonisms.

The fact is that once people have an “entitlement,” they come to rely on it, and you can’t easily take it away. The Chinese call that breaking somebody’s rice bowl. In the case of the American welfare state, it’s more a question of breaking a whipped dog’s doggy bowl. It’s a shame because many have come to rely on their mother, the State, not entirely through their own fault. The US has become pervasively corrupt.

The World Economic Forum (WEF)—a pox upon them—isn’t entirely incorrect when it arrogantly calls most people “useless mouths.” An increasing number produce absolutely nothing but only consume at the expense of others. Courtesy of the State.

There’s little doubt in my mind that the government’s expenses are going way up as people demand more. While receipts go down as the Greater Depression deepens. Which it will, as the economy is burdened by evermore taxes, regulations, and currency debasement. That’s on top of the gigantic debt the government and country are buried under.

The government reminds me of a poker player on tilt, betting more and more crazily in hope of magic or luck to bail him out. It always ends badly.

We’ve watched this progression accelerate since at least the 1960’s—a slow motion train wreck. But the inevitable has finally turned into the imminent.

International Man: What are your thoughts on Social Security, Health, and Medicare?

With an aging population, it seems politically impossible to make any meaningful cuts here. On the contrary, spending in these areas is likely to explode.

Doug Casey: They should be abolished. I’ve said this many times before, but it bears repeating as often as possible because everybody forgets the most basic of the basics. Namely, the government, as an instrument of force, should be limited to protecting people from physical force. And nothing else.

That implies a police system to defend people from force within, a military to defend against foreign aggressors, and a court system to allow people to adjudicate disputes without resorting to force. I’d further argue that those three things are so important to the conduct of a civil society that they shouldn’t be left to the kind of people who inevitably gravitate towards government. But that’s a different subject.

Looking at these three things you mentioned in particular, they’re complete disasters. They’re fiscally unsound, will bankrupt the US government, and, therefore, bankrupt the country itself, especially with an aging population.

Social Security seemed like a good idea at the time so that poor people wouldn’t be left totally without an income in old age. But the fact is that Social Security is a classic Ponzi scheme. Its taxes have gone from a trivial percentage to 12.4%.

It’s so high that people are on the bottom end of society, who it’s meant to help, are precluded from saving on their own. Social Security is both a practical and moral disaster.

As for Medicare, how is it your problem if another has failed to take care of his body? Your body is your primary possession. Should it also be your problem if somebody fails to take care of his car? Should the State fix all your property?

Should the government have anything to do with health? No. It’s strictly a matter of personal responsibility. Of course, if the State believes it owns you, like a milk cow, the cattle can expect food to show up, as will medicine if they get sick.

Government entitlement schemes encourage everyone to try to live at the expense of his neighbors. They’re intrinsically dehumanizing, corrupting, and degrading. They’re a bad deal all around.

International Man: With the most precarious geopolitical situation since World War 2, “National Defense” seems unlikely to be cut.

Instead, so-called defense spending is all but certain to increase.

What is your take?

Doug Casey: The United States’ “defense” spending exceeds that of the next 10 nations combined, including Russia and China. Most of that spending goes into the maw of five major defense companies. A decade or two ago, there used to be 30 or 40 defense companies. But they’ve now consolidated, the better to deal with Big Government.

They increasingly make only expensive high-tech weapons, which may prove totally useless in today’s environment. For instance, the US is currently suffering an invasion of feet people across the southern border—millions and millions of young males, of alien race, language, religion, and culture, in the last two years alone. We may yet wind up with a civil war in the US, on top of several insane foreign wars.

These high-tech weapons, in the process of bankrupting the US and enriching the defense establishment, will prove largely useless. Meanwhile, military personnel are being gutted. It’s no secret that the services can’t recruit enough people to keep their numbers where they want them. That’s in good measure because ESG and DEI have been insinuated throughout the military like slow-acting poisons. The military is no longer a meritocracy. Now, it’s critical to be the right color and gender. George Patton would quit in disgust.

On top of all that, defense spending is a provocation to other countries. It’s like waving around a giant golden hammer. They’re correctly afraid that everything has started to look like a nail to the US.

International Man: The net interest expense on the national debt was $659 billion in FY 2023, which is sure to rise.

The US government needs to roll over a significant portion of its existing debt issued when interest rates were 0% in an environment of much higher and rising rates.

What are your thoughts on this item?

Doug Casey: Interest on the debt is the next big thing, in addition to entitlements and out-of-control “defense” spending.

They used to say, “Don’t worry about the national debt; we owe it to ourselves,” which was always ridiculous because some specific people always owed it to other specific people.

But the US can no longer generate adequate capital to fund the government’s debt. And I hasten to point out that the government is not “We the People.” The government is a separate entity, with its own interests, as distinct as General Motors.

In the recent past, the national debt has been financed not by Americans, but by foreigners. At this point, however, foreigners no longer want to own the debt of a bankrupt entity whose currency is nothing but a floating abstraction. The government can only finance its debt by selling it to its central bank, the Fed, which creates new dollars to buy the debt.

As the dollar inevitably loses value, interest rates will rise. That’s regardless of what the Fed does or doesn’t want. The market will demand higher interest rates to finance the debt. You don’t want to own bonds.

International Man: US government expenses seem to have nowhere to go but up.

Is there any chance the US government can reform and return to a sustainable basis?

If not, what are the implications?

Doug Casey: The US government is bankrupt. It’s not just the official $34 trillion. The real number is several times higher, considering contingent liabilities. It’s probably more like $100 trillion. This debt will never be repaid. The US government is like Wiley Coyote after he runs off a cliff.

In addition, the average American is deeply in debt—student loans, mortgage debt, credit card debt, auto debt, and much more. The country is in big trouble. Frankly, there’s no practical way out at this point except to officially declare bankruptcy.

I realize serious change is impossible since the situation is so out of control. But here are six things to imagine—for a start:

1. Allow the collapse of all bankrupt entities. No bailouts, subsidies, or guarantees for banks, insurers, corporations, or anything. 

There will be plenty in the coming years. Bailout money is always wasted. Most of the real wealth now owned by the bankrupt entities will still exist.

It will simply change ownership. But that’s not nearly enough. At this point, it would be a half-measure, a 3-foot rope over a 12-foot gap. If you allow the collapse of unprofitable enterprises without changing the conditions that created the problem, recovery is going to be even harder. So…

2. Deregulate. Contrary to what almost everyone thinks, the main purpose of regulation is not to protect consumers but to entrench the current order. Regulation prevents new institutions from arising quickly and cheaply.

Does the Department of Agriculture really need 100,000 employees to regulate fewer than two million farms in the US? Abolish it.

Has the Department of Energy, created in 1977 to somehow solve a temporary crisis, done anything of value with its 110,000 employees and contractors and $32 billion annual budget? Abolish it.

How about the terminally corrupt Bureau of Indian Affairs, which has outlived whatever usefulness it might have had by 100 years. Abolish it.

The FTC, SEC, FCC, FAA, DOT, HHS, HUD, Labor, Commerce, and many more, serve little or no useful public purpose. Eliminate them, and the entire economy would blossom – except for the parasitical lobbying and legal trades. There are hundreds of agencies like these. Most aren’t just useless. They’re actively destructive.

3. Abolish the Fed. This is the actual engine of inflation. Money is just a medium of exchange and a store of value; you don’t need a central bank to have money. In fact, central banks are always destructive. They benefit only the cronies who get their money first.

What would we use as money? It doesn’t matter as long as it’s a commodity that can’t be created out of thin air. Gold is the obvious choice. Bitcoin may turn out to be excellent.

The whole idea of a central bank is a swindle. Massive bailouts and optional wars can’t be done without it.

4. Cut taxes by 50%… to start. The economy would boom. The money won’t be needed with all the agencies gone. Certainly not if the next two points are followed.

5. Default on the national debt. I realize this is a shocker unless you recall that the debt will never be paid anyway. Why should the next several generations have to pay for the stupidity of their parents?

A default sounds dishonorable—and it is in civil society. But government is different. It hasn’t been “We the People” for a long time; it’s now a self-dealing behemoth run by cronies. It’s like a building with a rotten foundation—better to bring it down with a controlled demolition than wait for it fall unpredictably.

Governments default all the time, though most defaults are subtle, through inflation. In an outright default, however, the only people who get hurt are those who lent money to an institution that can only repay them by stealing money from others. They should be punished.

6. Disentangle and disengage. The entanglements the US needs to escape prominently include the UN and NATO. Spending could easily be cut 50%. The US combat troops now in over 100 foreign countries can come home. They’re not “defending” anything but local collaborators while picking up bad habits and antagonizing the locals. Spending on the military and its sport wars significantly adds to the economy’s problems.

Editor’s Note: The economic trajectory is troubling. Unfortunately, there’s little any individual can practically do to change the course of these trends in motion.

The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation.

That’s precisely why bestselling author Doug Casey and his colleagues just released an urgent new PDF report that explains what could come next and what you can do about it. Click here to download it now.

With G7 national finances spiraling out of control, debt traps are being sprung on all of them, with the sole exception of Germany.

Malinvestments of the last fifty years are being exposed by the rise in interest rates, increases which are driven by a combination of declining faith in the value of major currencies and contracting bank credit. The rise in interest rates is becoming unstoppable.

Do not be surprised to see a US Government deficit exceeding $3 trillion this fiscal year, half of which will be interest payments. And in the run-up to a presidential election, there’s every sign of deficit spending increasing even further.

We now face America and her allies being dragged into another expensive conflict in the Middle East, likely to drive oil and natural gas prices higher; far higher if Iran becomes a target. With the Muslim world united against Western imperialism more than ever before, do not discount the closure of Hormuz, and even Suez, with unimaginable consequences for energy prices.

The era of interest rate suppression is over. G7 central banks are all deeply in negative equity, in other words technically bankrupt, a situation which can only be addressed by issuing yet more unproductive credit. These are the institutions tasked with ensuring the integrity of the entire system of bank credit.

This is not a good background for a dollar-based global credit system that is staring into the black hole of its own extinction.

The end for the dollar is nigh

There are a number of events coming together that suggest we are about to undergo a major upheaval in world economic, financial, and monetary affairs. It’s like one of those bush fires, which you fight in front of you, only to find that suddenly the flames are behind you as well, then on your right and your left. It becomes so hot that things are spontaneously combusting all around you and there is no escape. This is the condition currently faced by central bankers.

Just when interest rates have risen to a peak, they seem to be rising again. Surely, investors argue, the firefighting central banks must lower rates to save debtors, to save the banks, and to save themselves. But they do not control interest rates. They are being set by debt traps and over-leveraged banks trying to control lending risk. Accelerating demand for credit to pay higher interest rates is meeting a growing reluctance to lend. And to top it all, an alliance of Russia, the Saudis, and Iran are deploying control of the global oil supply, with the intention of forcing prices higher. Energy is the lifeblood of any economy. The last thing the West needs is another war in the Middle East. And now we look like having that as well.

The history of the dollar as the world’s reserve currency has been one of struggling from crisis to crisis on a worsening trend. Recent history saw the credit bubble of the nineties ending with the dot-com madness and its collapse, followed by what was commonly termed the Great Financial Crisis of 2008—2009. Given our current predicament, that description seems like mere hyperbole, because we now face an even greater crisis. Is it possible to kick the tin can down the road once again?

It seems unlikely, even allowing for the past experience of successful statist rescues from financial crises: somehow, the authorities have always been able to calm a crisis. But this time, the Global South, the nations standing to one side of all this but finding their currencies badly damaged by unfavorable comparisons with a failing dollar, a dollar forced into higher interest rates in a world that knows of nowhere else to go — this non-financial world is on the edge of abandoning American hegemony for a new model emerging from Asia.

The transition from the global status quo is bound to be a difficult affair. That the US Government is ensnared in a debt trap and is being forced to borrow exponentially increasing amounts just to pay the interest on its mountainous debt is not the fault of other nations. But many of them in turn are being forced to pay even higher interest rates, irrespective of their budgetary positions, and irrespective of their balance of trade. Yet their currencies continue to weaken even against a declining dollar.

The lesson for all of them is to not listen to the mathematical economists spouting Keynesian and monetary theories. The Russians with a trade surplus and a debt-to-GDP ratio of under 20% even when it is at war compare extremely well statistically with the US Government. If it wasn’t Russia, we would rate its financial condition highly. But the rouble still collapses, forcing Russia’s central bank to raise its short-term interest rate to 15%. The reason is simply that no one trusts roubles, but they still believe in the dollar as a safe haven.

However, there is every sign that the 52-year era of the purely fiat dollar is ending. Some foreign governments appear to be liquidating their US Treasury holdings to protect their own currencies. Japan, which is fighting to keep its yen from further collapse, has been selling recently, as has China (though for her there may be political reasons as well). The knock-on effects of the dollar’s debt trap are vividly apparent in weakness for the yen, yuan, rupee, and euro whose charts against the dollar are shown below. The effect of the dollar’s strength on lesser currencies is even worse.

Everyone assumes that the Fed must and will end this madness, not least because of the consequences for overindebted American businesses, the banks, and the Treasury itself. But what if the Fed is powerless, what if the situation is escalating beyond its control, and what if by reducing its funds rate the dollar would simply weaken pushing up consumer prices? And what if the Treasury finds funding the Government’s massive borrowing difficult even at higher interest rates?

Suddenly, that appears to be increasingly likely. The global south, which is the new name for those either in the Asian hegemons’ camp or considering joining it will need to find an alternative to being compared unfavourably in the foreign exchange markets with a failing dollar. The pressure for a whole new monetary system for the emerging nations is increasing.

In the past, currency boards linking a failing currency firmly to the dollar have been an effective solution. The problem for all currencies not formally tied to the dollar is that they will always be secondary forms of fiat. There is only one answer, and that is to abandon the dollar and return to tried and trusted gold standards.

Gold is real legal money internationally, whose value is constant over time. The world is learning the hard way that it is unattached credit which is unstable. And as the US sinks deeper into its debt trap a fiat currency credit crisis is just beginning.

In this article, we look at the major moving parts that are leading to the end of the entire fiat currency system. It is not just the dollar in crisis. By following the same monetary and economic policies, the Eurozone, Japan, and the UK are in similar difficulties, not to mention a host of other advanced nations.

The US Government’s debt trap

Last May, the Congressional Budget Office forecast a budget deficit of $1.5 trillion for fiscal 2023, which ended last September, including net interest payments on government debt of $663bn. The St Louis Fed’s chart below shows that the interest element was wildly underestimated. The outturn was actually $981bn, 48% higher than the CBO expected.

In its debt interest forecast, the CBO estimated the net interest rate to be 2.7%. At the time the forecast was published, the 3-month T-bill rate was over 5%, but the yield curve was deeply negative, with the 10-year US Treasury note yielding 3.7%. In the current fiscal year, the CBO estimated the interest cost to average 2.9%. But with the current year’s deficit likely to be considerably higher, and $7.6 trillion of maturing US Treasury debt required to be refinanced at current and potentially higher rates, official estimates of interest costs are far too low. In fact, the CBO didn’t expect interest costs to exceed 3% until fiscal 2030.

More realistic estimates will emphasize the debt trap danger. The deficit outturn was officially stated as $1.69 trillion, to which a further $300bn must be added back because when President Biden’s proposal to pay off student loans was rejected by the Supreme Court, the money “saved” was simply added back as a reduction in expenditure. A truer figure for the 2023 deficit was $2 trillion.

Nevertheless, at $981bn debt interest was approaching half the total deficit. The deficit for the current fiscal year commences with interest on $33.5 trillion of which $26.3 trillion is in public hands, and the average interest rate is not going to be the CBO’s estimate of 2.9%. Already, we see the cost of funding the $7.6 trillion of debt being refunded this year plus the $1 trillion of existing interest costs having risen to over 5%, adding an extra $200bn on interest costs alone.

To this must be added additional interest costs for the underlying budget deficit this year. There is no knowing how high this will be. But allowance for the consequences of higher interest rates must be made, which are essentially recessionary. Much has been made of recent figures showing US GDP growing persistently, with the third quarter outturn up 4.9%, leading to the Fed’s tight monetary policy being justified. But there are fundamental errors in this way of thinking which radically affects the budget outcome.

If we look at raw GDP figures, we see that in the 2023 fiscal year, GDP increased by just under $1.9 trillion. Including the student loan accounting trick, this is remarkably close to the $2 trillion budget deficit. While we cannot equate the two numbers absolutely, particularly when nearly half the deficit is interest expense, we should not ignore the fact that some of this interest enters the real economy, there are additional deficits from state governments, and that the rest of the deficit contributes almost entirely to GDP.

Therefore, instead of nominal GDP increasing 7.5%, private sector GDP probably increased hardly at all. But the rate of CPI inflation for the fiscal year was recorded at 3.6%, or according to Shadowstats.com based on the original 1980-based calculation method about 12% — take your pick. We can therefore say that despite the bullish growth headlines and allowing for CPI inflation, the US is already in recession.

This is the background to the US Government’s revenue income and expenditure prospects for fiscal 2024, confirmed by business surveys and anecdotal evidence. Already, we can see that estimates of tax revenue will fall short because profits decline in a recession and unemployment rises (with respect to unemployment, government statistics are notoriously unreliable and can be safely disregarded). While tax revenue declines, mandated welfare and other costs increase. Taking the last fiscal year’s ex-interest deficit of about $1.1 trillion as our base, the current year’s deficit will be significantly more due to the recessionary consequences of higher interest rates. And President Biden is trying to get a revised version of student loan relief past the courts, emblematic of yet more increases in government spending. After all, the current fiscal year is the last in the Presidential election cycle when traditionally electors are bribed with extra government spending.

Let’s pencil in a reduction of revenue by $500bn and an increase in outgoings of a similar amount to increase the deficit ex-interest by about $1 trillion to $2 trillion.

The interest bill is already growing exponentially. We can see that the funding requirement for new debt will be $2 trillion in excess spending, plus at least another $1.3 trillion of interest (allowing for the $7.6 trillion of debt to be refinanced), totaling over $3.3 trillion in total. Clearly, it won’t take much more of a credit squeeze and the increasing likelihood of a buyers’ strike to push the interest bill to over $1.5 trillion.

Higher interest rates are accelerating the debt trap

I have recently written about why in a world of fiat currencies interest rates do not represent “the cost of credit” except perhaps to borrowers. It is more about what a depositor thinks the purchasing power of the currency will be at the end of a loan period, plus something for counterparty risk, and plus another something for the temporary loss of the use of the depositor’s funds, the last of which is known as time preference. Unless the Fed understands this (and there’s not much evidence that this is so) then interest rate policy is fatally misguided.

There are two categories of lenders to consider — domestic who are generally captive, and foreign who are not. The reasons foreigners hold dollars and dollar assets are to do with trade settlement requirements, including the purchase of commodities which are nearly always priced and valued in dollars, and investment. On both these grounds, their requirements are changing, probably for the worse. Higher interest rates are hitting global production, leading to less demand for trade dollars, and at some stage higher interest rates will lead to portfolio losses and widespread portfolio liquidation of dollar assets by foreign investors.

Foreign interests in dollars are split as shown in the following table.

Other than the short-term debt of $7.293 trillion, the rest of these financial assets are highly interest rate sensitive, equities acutely so which is the largest investment category. The next chart shows the valuation gap that has already opened up between rising bond yields and equities represented by the S&P 500 Index (arrowed).

The chart shows the tight negative correlation between the yield on the long bond (right-hand scale) and the S&P 500 Index (left-hand scale) by inverting the yield. Since the Lehman crisis, the falling bond yield has led the S&P higher, to an extreme divergence in July 2020. Since then, the divergence has reversed spectacularly, indicating that the S&P is now wildly overvalued relative to bond yields and a sharp fall in equities is almost certain. On this basis, a target for the S&P (currently 4,120) of between 500 and 1000 can be justified if this valuation gap is to close and if the long bond yield remains at current levels or higher.

If, as seems very likely, US bond yields rise from here, US equities are due for a significant crash. In that event, with financial asset values falling there can be little doubt that foreign investors will be reducing their exposure dramatically. Some of this reduction is likely to lead to higher short-term balances in banks and T-bills. But it is hard to envisage foreign liquidation of US assets not leading to dollar selling. Some of this liquidity is bound to return to its currencies of origin because, from an accounting point of view, that is always the risk-free option. But some of it is bound to go into physical gold because that is the risk-free international money.

Why interest rates will rise from here and the consequences

The valuation gap between bonds and equities is not unique to the US, being in common with other financial jurisdictions as well. That it exists indicates investors are discounting lower interest rates in time. But what if this is wrong, and interest rates are headed higher still?

In the introduction, I mentioned the alliance between Russia, Saudi Arabia, and Iran, who with the Gulf Cooperation Council dominate global oil and gas supplies. These nations have an interest in ensuring that oil’s value, priced in declining dollars, is maintained in real terms. Furthermore, Russia sees energy prices as an economic weapon useful for putting pressure on European NATO members with a view to splitting them off from American control. And now we face a new flashpoint between Israel and Hamas, which is likely to spread to a conflict involving America and Iran, which could lead to the closure of the Straits of Hormuz, and possibly Suez as well.

For now, markets appear to be complacent in the face of these factors. But as the situation evolves this is unlikely to last, and oil and gas prices could rise significantly as these risks grow.

European energy stocks are insufficient to see Europe through the winter, and the US’s strategic reserves are depleted. There is no better time for this OPEC+ cartel to force prices higher, and by recently cutting the supply of 1.3 million barrels of oil per day that is precisely what the Saudis and Russia are doing. Heating oil and diesel prices are likely to rise strongly as well, if only because Russia has stopped exporting these distillates. The relevance of diesel is that over 95% of all European distribution logistics are delivered by diesel power, increasing the production and delivery costs of all consumer goods.

Consumer prices are what the central banks watch when setting interest rates. And due to energy factors, the outlook is for rising consumer and wholesale prices to accelerate again. Additionally, commercial banks’ balance sheets are highly leveraged, and they have been caught with bond investment values declining while funding costs have risen above their yields. They find that commercial property loans and lending to businesses are threatened by higher interest rates and recessionary conditions. In the current interest rate environment, there are very few buyers for these assets if banks are forced into liquidating collateral against loans.  Consequently, they are reducing bank lending and de-risking their balance sheets where they can.

This is why irrespective of central bank policy, the shortage of credit is driving borrowing rates higher, and the cost of novating maturing debt is rising, if the credit is actually available — which increasingly is rarely the case. It is an old-fashioned credit crunch, not really seen since the 1970s. And it has only just started.

These conditions are very different from the long decline in interest rates from the 1980s, and the subsequent period when they sat at or below the zero bound. The world of fiat currencies has become destabilized, not by the detachment from gold and the market’s adjustment to it as was the case in the 1970s, but by extreme interest rate suppression, inflationary excesses, unproductive debt creation, and massive government debt overhangs. Debt-to-GDP ratios of the G7 group of countries in 2022 averaged 128%. This list was headed by Japan at 260.1%, followed by Italy at 144%, the US at 121.3%, France at 111.8%, Canada at 107.4%, the UK at 101.9%, and Germany at 61.8%. The conditions of currency instability of the 1970s with their higher interest rates have returned, giving rise to an overriding question: how are these budget deficits going to continue to be financed?

US deficits were financed since the early 1980s against a long-term trend of declining bond yields, so every participant in bond auctions began to know that in time bond values would always improve, even if the short-term outlook was uncertain. That is no longer the case.

While it would be a mistake to ignore the skills with which the authorities and the primary dealers manage debt auctions, with a trend of rising rates there will be times when auctions are bound to fail. In the 1970s, this happened several times in the UK, primarily because the UK Treasury effectively managed the debt management office through its control of the Bank of England and Treasury officials didn’t understand markets. Nevertheless, we saw gilt issues with coupons of 15% and over. Imagine what similar funding rates would do to government finances today, with the G7 debt ratio averaging 128% last year.

Relatively quickly, some governments are bound to run into severe funding difficulties, which can only be resolved by overtly inflationary means.

The entire G7 banking system is broken

A further problem arising from the excesses of the past is that the entire banking system from central banks downwards is in dire straits. Central banks that implemented QE did so in conjunction with interest rate suppression. The subsequent rise in interest rates has led to substantial mark-to-market losses, wiping out their equity many times over when realistically accounted for. Central banks claim that this is not relevant because they intend to hold their investments to maturity. However, in any rescue of commercial banks, their technical bankruptcy could become an impediment, undermining faith in their currencies.

As the reserve currency for the entire global fiat currency system, the dollar and all bank credit based upon it is likely to be the epicenter of a global banking crisis. If other currencies weaken or fail, there could be a temporary capital flight towards the dollar before a wider financial contagion takes over. But if the dollar fails first, all the rest fail as well.

The condition of the US banking system is therefore fundamental to the global economy. But there are now signs that not only is US bank credit no longer growing but it is contracting sharply.

The chart above is the sum of all commercial bank deposits plus reverse repurchase agreements at the Fed. While the latter are technically not in public circulation, they have been an alternative form of deposits for large money market funds that otherwise would be reflected in bank deposits. Recently, having soared from nothing to a high of $2,334.3 billion last September, reverse repos subsequently declined by $1,250 billion. Subtracting this change from bank deposits shows the truer contraction of bank credit to be $1,918 billion, which is a 9.4% decline from the high point earlier this year.

This contraction of credit in the banking system is likely due to reverse repo funds switching into Treasury bills, short-term government debt deemed to be the safest form of investment. It is wholly consistent with bank and shadow bank credit being de-risked.

The situation facing the other major fiat currencies differs mainly in the details. It is a sad fact that Basel III regulations have addressed balance sheet liquidity problems but failed to contain excessive expansion of bank credit relative to shareholders’ capital. Consequently, regulators in the Eurozone and Japan have tolerated asset-to-equity ratios of over twenty times for their global systemically important banks, when in the past ratios of twelve to fifteen times were deemed to be dangerously high. The contraction of bank credit is therefore likely to be more catastrophic in these jurisdictions than in the US, where ratios for major commercial banks are commonly less than twelve times.

Estimating balance sheet ratios does not tell the whole story. There are off-balance sheet factors as well, principally liabilities in regulated and over-the-counter derivative markets, which for the G-SIBs are larger than their entire balance sheets combined. According to the Bank for International Settlements, open interest in regulated futures totaled $37 trillion in June 2023, and in December last year, the notional value of OTC derivatives stood at an additional $630 trillion, giving us a total of $667 trillion. Banks, insurance companies, and pension funds are the counterparties in these transactions, and the failure of a significant counterparty acting in these markets could threaten the entire Western financial system.

The big picture is of an asset bubble which has come to an end. And by any standards, this one was the largest in recorded history.

Geopolitics and gold’s renaissance

The fiat currency problem is likely to be made more immediate by a new factor of nearly four billion people rapidly industrializing under the leadership of China and Russia. The evidence strongly suggests that these two hegemons see monetary matters similarly to the author of this article and that they are now ready to protect themselves from an impending collapse of their western enemies’ currencies.

China and Russia have accumulated significant quantities of gold, and by gold mine output is the world’s largest by far. The prospect of the Asian hegemons returning to gold standards is bound to draw attention by contrast to the weaknesses and fallacies behind fiat currencies.

For those of us under the yoke of fiat credit detached from any corporeal values, there is only one escape from a banking system that is now imploding. And that is to possess legal money as much as possible, which by both longstanding law and human habit is gold in bar and coin form. Physical silver is the money for smaller purchases. That is why Goldmoney was founded over twenty years ago, with the objective of providing a safe haven from a monetary system that was eventually bound to collapse. That moment now appears to have arrived.

The likelihood of a dollar collapse is being enhanced by the string of failed US foreign policies. Iraq, Syria, and Afghanistan are on the list, with other ventures, such as the collapse of Libya creating refugee havoc for Europe. It appears that Ukraine is a lost cause as well. And now, the Western alliance is swinging behind Israel in her attempt to root out Hamas from Gaza.

Any objective analysis indicates that US involvement is very likely to bring Hezbollah into the conflict, which involves Syria and Iran. There are US assets in Syria, which would then become a target for Iran, and Iran can easily block the Straits of Hormuz, choking off 20% of the world oil supply, and 18% of LNG. In that event, energy prices would obviously spike far higher, sharply pushing up G7 interest rates. Rational analysis suggests that this possibility would ensure that America and her NATO partners should back off and attempt a diplomatic solution.

The evidence is to the contrary, with America and Britain sending aircraft carriers into the Eastern Mediterranean, and Russian Mig fighters patrolling the Black Sea in striking distance of the Western alliance’s carriers.

What has changed is Muslim unity, fused together even more by Israel’s collateral damage against Palestinian citizens. Both Sunni and Shia Muslims, representing two billion people are now united against the Western alliance and its culture. The US’s policy of divide and rule is no longer appropriate.

US foreign policy is in tatters. If it presses ahead to reassert its dominance over the Middle East by getting involved militarily, the US will lack the support of former regional partners, and inevitably the threat to oil supplies will divide her NATO partners. If she decides not to get involved, that will confirm to the Middle East and the Global South that her days as the global hegemon are over.

Either way the prospects for King Dollar are not good. In a war scenario, there may be a temporary flight to the dollar before the implications for interest rates and financial asset values are better understood. If the US backs off, there may be a temporary relief rally in financial assets, but the message for the dollar is it is over-owned, and with the decline of US power, it should be sold on the foreign exchanges for gold.

There is little doubt that Putin and his advisers are aware of this problem. Plan A was to introduce a new gold-backed BRICS currency which might be expected to weaken the dollar and euro relative to the rouble. Plan B was more drastic: to back the rouble itself with gold. This is the financial equivalent of dropping a hydrogen bomb on the dollar and the global fiat currency system upon which it is based.

As well as demonstrating why there is no option for Russia but to back her currency with gold, this article shows why it is perfectly possible for Russia to do so during wartime and explains how it can be done. It is, as a matter of fact, very easy for Russia to reintroduce a gold standard for the rouble, but the consequences for the global fiat currency system are nothing short of lethal.

Introduction

For the last decade I have argued that there is a strong financial element in the wars between the Asian hegemons and America. President Trump’s trade policy towards China and his banning of Chinese technology, notably of Huawei, the world leader in G5 mobile technology was not just to suppress competition to America’s technology leadership but also to discourage global capital flows into China, which otherwise might have gone to America. And Ukraine gave President Biden the excuse to cut Russia out of global currency markets.

All had gone quiet, superficially at least, until Russia declared its special operation against Ukraine, setting in motion a sequence of events which rebounded badly on the West. Initially, the rouble soared in value when Putin responded to western energy sanctions by setting his own payment terms. But since then, the rouble has declined and it has become clear that as a fiat currency the rouble will continue to weaken against the dollar. The weakening rouble is the principal chink in Putin’s armour.

In response to sanctions, Putin appointed one of his advisers, Sergei Glazyev, to design a trade settlement currency, initially for the Eurasian Economic Union. It is believed that the scope was widened into a planned BRICS gold denominated currency, confirmed by the Russians ahead of the BRICS summit last month. But for China and India that was a step too far too quickly. China’s yuan is a component in the IMF’s SDR, a hard-won privilege which might have been threatened if it backed gold as a trade settlement medium. India has a history of anti-gold Keynesian monetary policies and is keen to develop trade links with the US and its allies, as demonstrated by its hosting of the G20 meeting last weekend and its prospective free trade agreement with the UK. China may have also been concerned that the consequences might be destabilising for the global currency system.

The hesitancy of the two most populous nations on earth over the gold issue is now creating significant problems for them, as the chart below of their respective currencies shows.

I have inverted the y-axis on both charts to make the point that the current rally in the dollar’s trade weighted index may not mean very much for the euro, which is its largest component, but it is undermining the major Asian currencies badly. When, rather than if the rupee breaks below its current support level, a move to test the INR100 level looks all but certain. And despite zero consumer price inflation in China, the yuan has already broken support and looks like falling even further. No wonder China’s citizens are pushing gold prices up to significant premiums: it is their escape from a falling currency. The Indians have yet to get used to higher gold prices in rupees, but that is likely to be only a matter of time.

A particular currency target is Russia’s rouble, illustrated in our next chart.

In an attempt to stop the slide, Russia’s central bank raised its interest rate by 3.5% to 12% in August, which initially rallied the rouble, but it is now sinking back towards its recent low against the dollar. But while Putin and his economic advisor Maxim Oreshkin appear to have a reasonable grasp of monetary affairs, the same cannot be said of the leadership of Russia’s central bank. At the time of the interest rate hike, Oreshkin wrote that “a recent acceleration of inflation and the sinking currency were the result of loose monetary policy, and that the central bank “has all the necessary tools to normalise the situation”.[i]

The issue is that the central bank has followed expansive fiat monetary policies by allowing M0 money supply to expand by 26% in the year to August. Directly addressing this expansion of central bank credit would have done more to stabilise the rouble than crippling interest rate increases. While much of the destabilisation of the rouble can be attributed to the continuing expense of the war, there can be little doubt that it is also partly due to the dollar’s recent strength. As is the case between the dollar and most other fiat currencies, there is a relative trust factor working against the rouble. Irrespective of interest rate differentials, it is the fact that fiat currency values are tied to nothing more than the faith in them. And Russia now faces the problem that in a fiat currency regime run in western capital markets it can never match the faith and credit in the US dollar. In current currency conditions, the dollar can always undermine the rouble because the US controls the fiat currency agenda.

The weakness of the rouble is perhaps the only real pressure point that America and NATO can apply. The war in Ukraine is turning out to be yet another NATO debacle, which only appears not to be the failure it is due to the western alliance’s control of its media-reporting. In a world driven by propaganda, we cannot know the truth. But any military commander who thinks, as did Napoleon and Hitler, that a land-borne army can defeat the Russians in Eastern Europe is deluding himself. While grinding down the Ukrainian army, the Russians are digging in for the long haul, expecting growing dissent in the NATO membership to undermine its unity. It is a plan which appears to be working.

The energy war could backfire badly against the rouble

Dissent in NATO can be expected to increase this winter, as energy shortages begin to bite. The most recent salvo in the energy war is timed ahead of the northern hemisphere winter. Russia and Saudi Arabia have jointly been squeezing oil supplies, pushing crude prices above the G7’s price caps. One area where energy supplies will hurt the Europeans more immediately is heating oil, which is also regarded as the proxy for diesel prices having increased in dollars by nearly 50% in the last quarter alone.

The importance of diesel is that logistics in Europe (and America) are almost entirely dependent upon it. On top of earlier OPEC+ cuts of 2 million barrels per day, the more recent 1.3 million barrels per day cuts in oil output by Russia and Saudi Arabia are bringing pressure to bear on the supply of distillates (of which diesel is one) and Russia also plans to cut its diesel exports by a quarter, partly due to refinery maintenance (allegedly) and partly to divert supplies to its domestic economy. While the EU’s gas reserves are relatively full at 90% of capacity, it is not nearly enough to see the EU through the winter. From December onwards, there will be a scramble for more supplies. And the end of the agreement on Black Sea grain exports will put further pressure on food prices as well.

Therefore, the western alliance will face further inflationary pressures, likely to give higher interest rates and bond yields a new impetus. Already, there is a credit crisis developing in key western economies, with banks trying to reduce their risk exposure to financial and non-financial markets in the face of a recession. And as the credit crunch intensifies, the likelihood of a new round of bank failures increases.

The problem for Russia is that in pursuing energy policies with the intention of undermining the dollar and euro, the consequences for the rouble are likely to be far worse. The next chart, of oil priced in gold and roubles, illustrates the point.

The first point to note is that in 1998, the rouble was redenominated at a ratio of 1000:1. Back-dated by this factor, in June 1992 there were US$7.25 to the new rouble, and a barrel of oil was valued at 2.03 gold-grammes. Today there are nearly 100 roubles to the dollar, and a barrel of oil is over RUB 7,500. As a fiat currency, the rouble has behaved like a third-world currency relative to the dollar, let alone gold. And the domestic price of oil in Russia has soared along with the rouble’s collapse. Furthermore, the exceptional volatility in the rouble price of oil is extremely disruptive for the domestic economy, with heating becoming unaffordable for Russia’s citizens in desperately cold winters.

To quantify this distress, between September last and end-July, priced in roubles the oil price increased from RUB4,707 per barrel to RUB7,500:  that is an increase of 59%. In dollars, the price rose from $78.72 to 81.72, up less than 4%. Clearly, the energy battle cannot be won by Putin, because if they shiver in Germany they will freeze in Russia.

The chart above puts Putin’s energy war in its proper context. Withholding energy from western markets will undoubtedly destabilise their currencies. But the blowback on the rouble will be even worse. But Russia’s analysts, including Maxim Oreshkin and Sergei Glazyev (who has already recommended a gold standard for the rouble) must surely know this. And the chart also tells us that priced in gold oil is considerably more stable. In June 1992 a barrel of oil was 2.03 grammes, today it is 1.41 grammes, a fall of 30%. Bearing in mind that gold is real money, and currencies are highly unstable credit, Russia is getting 30% less for her oil today than she did in 1992.

Again, in common with the Saudis, the Russians are aware that American monetary policy has had the consequence of undermining the true value of their oil, something they have been powerless to correct without binding the price of oil to gold. There can be little doubt that Russia’s motivation to take control of energy values was behind its proposal for a new BRICS gold backed currency and that it was part of a two-step plan.

The first step was to send a signal to markets that the era of the fiat dollar was over, justifying the second step which was for Russia and China, followed by other nations in the BRICS camp to evolve their own currencies onto gold standards as a protective response to a declining dollar. But China was not going to take the offensive against the dollar, and the Keynesian Indians were not convinced.

Russia will take the BRICS presidency next year, so we can assume that the new BRICS currency has not gone away. Meanwhile, if Russia is to use the oil weapon against the West, then it must put the rouble onto a gold standard again as a matter of urgency (it was on a gold standard until Khrushchev devalued the rouble in 1961). If Russia prevaricates on this issue, then Putin’s legacy to be a latter-day Peter the Great will be destroyed by his own currency.

The practicalities of a Russian gold standard

In the middle of a war, usually a government suspends its gold standard. This would suggest that Russia can only consider a gold standard after its special operation in Ukraine is over. But the modern equivalent of a gold standard, the currency board, has been successfully established in modern times in nations with far worse budget deficits than Russia. Russia was in the fortunate position of a budget deficit of only 2.3% of GDP last year, despite military spending. This year, military spending has soared, and at a guess the deficit will be about 5% of GDP this year, but government debt to GDP will still be about 20%.

Anything other than ball-park numbers for the Russian economy are difficult to come by, and the volatility of the rouble is a further analytical hazard. But some of these numbers are not substantially different from where Britain was economically in 1816, when a return to the gold standard was planned — the exception being her estimated debt to GDP number, which at nearly 200% was ten times that of Russia today. Therefore, there is no reason why Russia cannot put the rouble onto a gold standard immediately.

In doing so, the objective is simple: to ensure that the purchasing power of circulating credit retains its value in terms of goods and services with as little fluctuation as possible. It would allow savers to accumulate credit balances in their bank accounts, and for businessmen to calculate the profitability of their investments with greater certainty. With income tax currently at a flat 13% rate and corporation tax at 20%, in these conditions economic progress will advance surprisingly rapidly. And there is every reason to expect Russia would quickly become an economic counterweight to the sheer power of China, rather than living off the depletion of her natural resources. It is necessary not just for Russia to distance herself from the fate of the western fiat currency system, but also for President Putin’s legacy.

The method of ensuring monetary stability is equally simple: to bind credit denominated in roubles to gold, which both in law and naturally is the money of the people. It is the highest form of credit, there being no counterparty risk. It’s purchasing power in the general sense has held steady through millennia. Importantly, it removes the currency from political control and dollar influences. It allows for the creation and destruction of credit determined solely by the needs of the Russian people, both as businessmen and consumers.

In constructing a new gold standard for Russia, we can learn from the lessons of the past, particularly the establishment of Britain’s gold sovereign coin fixed at 113 grains (7.99 grammes) to a one pound Bank of England banknote, freely exchangeable at the holder’s option. There were mistakes made in the implementation of Britain’s gold standard in the nearly one hundred years of its existence, but in the light of experience we should know how to avoid them today.

The principal errors incorporated in the 1844 Bank Charter Act were to not realise that redemptions of bank notes for sovereign coin were inconsequential. The occasional runs on the Bank of England’s gold reserves always originated in cheques drawn on the Bank for bullion. Amazingly, this source of encashment was not foreseen by the framers of the Act, leading to crises in 1847, 1857, and 1866. The Act was suspended on these three occasions, the crises were averted, and the Act subsequently reinstated every time.

The observant reader will have noted that these runs on the Bank’s bullion reserves fit in with an approximate ten-year cycle of bank credit expansion and crisis, a cycle still evident to this day. The 1847 suspension came about after the Bank had made immense advances to commercial banks to rescue them from insolvency. But the Bank’s advances were insufficient to stop the crisis. With Parliament staring into an economic abyss, it authorised the bank to issue notes at discretion, and the panic immediately subsided.

Ten years later in November 1857, the Bank’s monetary assets were comprised of gold and silver, which together with its own notes bought in had declined to only £387,144 compared with liabilities to commercial banks of £5,458,000. It was on the point of having to cease trading within the terms of the act. Consequently, the government authorised the Bank to expand its liabilities at its discretion, but at a discount rate of not less than 10%. The following day, the panic passed.

In 1866, the prominent discount house, Overend Gurney failed. Again, the government authorised the suspension of the Act, allowing the Bank of England to expand its liabilities to deal with the crisis, but again at a punitive discount rate of not less than 10%. As before, the run on the Bank of England’s gold reserves ceased.

In all three cases, the suspension of the 1844 Act saved the nation from untold economic damage. In this respect, the Act was a failure. Insisting on the restrictions of the Act come hell or high water and simply letting banks and businesses fail is never an option. Therefore, a successful gold standard must allow for the management and containment of banking crises, the inevitable consequence of periodic over-expansions of credit. There has to be the flexibility to support otherwise solvent commercial banks in times of crisis. In all three cases above, it was the function of the banking department to avert the crisis by extending additional credit. It should not have been the function of the issue department to get involved, and if the separation between the two had been different in its detail, the Act need not necessarily have had to be suspended.

I should mention a further error in the framing of the 1844 Act. At that time, it had been assumed that a drain on the nation’s bullion would only occur if the balance of trade with other nations was unfavourable, because settlements would be conducted in gold. While this was obviously true, there was a far greater influence on bullion flows: differences in discount rates (or interest rates in modern terminology) between centres with currencies on gold standards.

If the interest rate in Centre A exceeds that in Centre B by more than the cost of transporting bullion between them, then bullion will flow from Centre B to Centre A. This is why the setting of interest rates must be solely to regulate bullion flows. To explain further why this is the case, it should be understood that the future value of gold includes the interest accumulated with it, being payable in gold. Therefore, if the sum of principal plus interest is less in one place than another, gold will naturally gravitate from the former towards the latter.

Armed with this knowledge, Russia can easily establish the rouble on a gold standard and maintain it. In light of the foregoing, the following are the basic principles required to achieve this goal.

1. The objective is to ensure that rouble banknotes and balances held in the Issue Department (see below) are freely encashable into gold coin and bullion.
2. The issue and redemption activities of rouble banknotes must be transferred from the Central Bank of Russia to a new entity charged solely with managing the note issue, which we will refer to as the Issue Department. The central bank’s gold reserves must also be transferred to the Issue Department. Furthermore, the Issue Department must have the sole power to set interest rates with the mandate of maintaining sufficient bullion balances at all times. By these means, interest rates will no longer be a matter for monetary policy, being handed down to the markets.
3. The Banking Department will continue with its other functions on behalf of the Russian state, except for the setting of interest rates. It will act as it sees fit in the management of commercial bank failures, extending credit or withdrawing it when necessary to maintain stability in the overall credit system.
4. The separation between the Banking and Issue Departments must be defined and confirmed in law. As separate entities, each shall have its own balance sheets, so that the credit activities of one are separate from the other.
5. Along with the power to set interest rates, the Issue Department will be empowered to maintain reserve balances (the counterpart of bullion submitted to it) paying interest at a small discount to the official rate. Assets on the Issue Department’s balance sheet balancing these reserves will be held as interest paying deposits at the Banking Department, allowing the Issue Department to generate sufficient profit between its liabilities and assets to cover its costs and the costs of minting coin.
6. Any restrictions and taxes on gold coin and bullion must be removed by law. All foreign currency restrictions and controls must be removed as well to permit the free flow of bullion.

Currently, Russia’s official gold reserves are declared to be 2,301 tonnes. It is thought that between two state funds, the Gokhran (State Fund for Precious Metals) and Russia’s National Wealth Fund, Russia has a further 7,000—9,000 tonnes. Their holdings need not be folded into the Issue Department (though it may be advantageous to the funds to do so), but public declaration of their quantity would be helpful to establish the gold standard’s initial credibility.

The rouble must be defined by weight in gold grammes and be fully exchangeable in gold coin. New coin must be minted accordingly, perhaps with a face value of 50,000 roubles and exchangeable in those units (currently the equivalent of about $500, and similar to the value of a British sovereign). The time taken to design and mint the new coin will delay its introduction, but there is no reason why a bullion exchange facility cannot start immediately.

This is how it will work.

The bullion exchange facility operates not through the Banking Department, but through the Issue Department. In order for a commercial bank to have a credit balance with the Issue Department, bullion must be deposited in the first place. And it is here that the lessons learned from the 1844 Bank Charter Act comes into play.

Banks eligible to open an account at the Issue Department can buy gold in domestic and foreign markets, where the lease rate for 12 months is currently less than 2%. We can take that as an indicated rate of interest that global markets pay to borrow gold. Therefore, in one year a holder of 100 ounces of gold has 102 ounces equivalent (assuming the interest accumulates in line with the gold price and is paid in gold — which is not the case). Meanwhile, the Bank of Russia’s key rate is 12%. The uplift in return for a buyer of gold in international markets depositing gold with the Issue Department is 10% accumulating in gold.

It now becomes obvious that Russian and other banks accessing the Issue Department will provide the gold deposits to ensure that the Issue Department will rapidly accumulate all the bullion it needs to operate a secure gold standard. And it is equally clear that with the ability to regulate the interest rate, the issue Department can manage its gold reserves.

In its initial stages, credibility is obviously key. This can be rapidly achieved by the Russian banks supporting the plan, which they are bound to. Any bank on Russia’s SPFS payments messaging system can open an account with the Issue Department. This should be extended to any licenced bank in the Shanghai Cooperation Organisation and BRICS with secure messaging system access to the Issue Department. As well as acting as principals, these banks can operate on behalf of their customers. Russian oligarchs and draft-dodgers who have sold their roubles would almost certainly rush to buy them back, and even deposit gold with the Issue Department through the agency of their banks.

On current interest rate spreads, bullion inflows should be substantial: arbitrage with western bullion markets will ensure it. Given current sanctions against Russia, London and other markets under the control of the western alliance will not be directly available to sanctioned banks, a factor which is likely to provide a significant boost to gold trade in Asian and Middle Eastern markets. Sanctions will not stop gold shipments. Nonetheless, Russia’s success is bound to lead to imitators, almost certainly the Saudis, and if not immediately the Chinese are bound to follow.

A rouble priced in gold will also make energy payments in declining fiat currencies even less desirable to Russia, which will have to be sold — for what? The divide between the fiat world and gold standard currencies is going to become a very wide gulf indeed. A new impetus for the delayed BRICS trade settlement currency is bound to ensue, particularly with Russia taking the BRICS chair in January. India’s hope that payment terms for oil will be set by nations on fiat currency standards should be dismissed.

For the other BRICS currencies, a currency board relationship with a gold backed currency becomes a live option. The more natural alternative to the rouble (which Russia may not desire anyway) is to tie in with China’s renminbi — if or when it adopts a gold standard. China may not be far behind Russia in implementing its own gold standard anyway, because the consequences for the dollar and euro could be sufficiently undermining for China to seek to protect her own currency.

The impact on the dollar of the move to gold standards

Chalk and cheese, oil and water, diamonds and dust: whatever metaphor you care to choose, it must be clear that a mixture of gold standards and fiat currencies will not last long. Priced in fiat currencies, gold’s value might be expected to rise significantly, as central banks in what is now termed The Global South (the Asian hegemons and those aligned with them) move towards replacing fiat currencies in their reserves with gold.

According to Ambrose Evens-Pritchard (Wednesday’s Daily Telegraph), “The Global South holds three-quarters of the world’s $12 trillion of foreign exchange reserves (59 per cent held in dollars)”. And in addition to a $2-plus budget deficit, in the next year the US Government has to refinance about 30% of its existing debt.

Therefore, the impact of a move to gold on funding the western alliance’s deficits will be substantial, because not only will The Global South stop buying their bonds, but they will seek to liquidate their existing holdings. In the absence of severe spending cuts and increased taxes, increasing monetisation of government debt will become inevitable. Kiss goodbye to lower inflation, lower interest rates, and lower bond yields: embrace crashing bond prices and collapsing asset values. What over-leveraged bank can survive the squeeze on their balance sheets? Which of the western alliance’s central banks, already deeply into negative equity will be able to monetise their government’s debt with further QE against a background of soaring bond yields?

Inflation of energy prices, already low measured in gold grammes, is bound to increase measured in collapsing fiat. Truly, if Russia does introduce a gold standard for the rouble, it will be the financial and economic equivalent of a nuclear attack on the entire fiat currency system. There can be little doubt that these consequences for the global financial system are what have made Russia hesitate so far. China is sure to have arrived at a similar conclusion, one reason why she was too cautious to support Russia’s proposal for a gold backed trade settlement medium. But Russia is reaching a point where she has no other way to stabilise her currency.

Russia and NATO (by which we really mean America) have got themselves into positions from which they cannot back down. Unless Russia stabilises her currency, her likely victory in Ukraine will be pyrrhic. Putin’s policy of driving up energy prices will have worse consequences for the Russian people this winter than for Europeans and Americans, because of a collapsing rouble. And a collapsing rouble will also drive up food prices, a combination which will almost certainly destroy Putin’s government.

Whichever way you look at it, it is the currency factor which matters above all else and the Russians have no option but to stabilise the rouble by defining it in gold grammes and making it immediately exchangeable on the lines described in this article.

It will be a tragic end to the dollar-based fiat currency regime.

How do you protect your paper wealth from this outcome? Some swear by bitcoin and others by gold.

This article looks at what is likely to emerge as a replacement currency system, and concludes that from practical and legal aspects, bitcoin and the entire cryptocurrency industry will fail with fiat, while mankind will return to gold, as it has always done in the past when state control over currency fails

Introduction

It is gradually dawning on market participants that the era of fiat currencies is drawing to a close. Monetarists, who first warned us of the inflationary consequences of the expansion of money and credit were also the first to warn us that the slowdown in monetary expansion would lead to recession, and since then we have seen broad money statistics flatline, with bank lending beginning to contract. This is interpreted by macroeconomists as the end of inflation, and the return to lower interest rates to stave off recession.

Unfortunately, this black-and-white interpretation of either inflation or recession but never both has been challenged by bond yields around the world which are rising to new highs. And the charts tell us that they are likely to go considerably higher. Consequently, conviction that inflation of producer and consumer prices will prove to be a temporary phenomenon is infected with doubt.

For those of us steeped in free market economics and with experience of the monetary and economic scene in the 1970s, the possibility of both inflation and recession occurring at the same time is less of a surprise. They called it stagflation, though the Keynesians never managed to reconcile the existence of the two conditions being present at the same time. The error, surely, is in Keynes’s denial of Say’s law, which postulates that we produce to consume. The Keynesian error was to ignore the plain fact that rising unemployment is the consequence of falling production first, so there can never be a general glut of goods in a slump which is the basis of Keynesian assumptions.

Consequently, we should concede that a return to stagflation, or worse, is eminently possible. And that rising bond yields from here are also possible, indeed even likely as the charts so clearly indicate. In the coming weeks and months as bond yields continue to rise dragging interest rates up behind them, the debate as to how to hedge this unexpected condition is bound to intensify. In one corner, we have gold, and in the other cryptocurrencies, headed by bitcoin. Both have their vocal enthusiasts.

But enthusiasm is not a sensible basis for an investment or trading strategy. It misleads investors and those seeking to protect their wealth from the debasement of currencies, which is what continuing and rising inflation of prices represents.

Sentiment driven investment tends to overlook important facts. In this article, I compare the relevant facts from very basic legal and monetary standpoints, first for cryptocurrencies represented by bitcoin and then for gold.

Bitcoin as practical money

Bitcoin and crypto currency fans argue that they are the future money. Bitcoin in particular is seen as incorruptible, secured, and self-audited on a blockchain. It is strictly limited to its hard cap of 21 million coins. It is this limitation which has led to estimates of its future value in fiat currency, depending on how much more fiat currency debasement a forecaster expects. And it can be convincingly argued that the fiat currency debasement rate is likely to accelerate further as stagflation returns, leading to ever greater government deficits and escalating increases in government debt. This might be expected to lead to a resurgence in interest in bitcoin, taking it to new highs.

Enthusiasts argue that bitcoin will increasingly replace fiat as the general public begins to realise that fiat currencies are losing purchasing power, which is why the general level of prices is rising. But we must make a distinction between using a currency, crypto or otherwise for day-to-day transactions and as a store of value. In the former case, the possession of currency resulting from the sale of something is temporary, so its changing value in terms of goods over time is of little interest to the seller of goods who receives it in payment. But it does matter to the saver with a longer time horizon.

Saving, or more correctly hoarding in the case of bitcoin, is the issue which we must address. To a saver an increasing purchasing power for currency units in which his savings are denominated is desirable. Therefore, it is likely that savers will hoard their bitcoin instead of letting them circulate because the hard stop on their quantity would be expected to continually increase its value. So powerful is this deflationary tendency likely to be that other than for bare essentials, all commerce, currently depending on credit, would grind to a halt. Taken to its logical conclusion, the world would simply regress to a feudal state with mass poverty.

The solution can only be for holders of bitcoin to lend their bitcoin to borrowers so that commercial activities could take place. This is credit and is the basis of all banking and all economic progress. The need for credit will not go away with the end of fiat currencies, nor will its counterpart, debt. Indeed, the possession of debt obligations is wealth and makes up the majority of it. I shall go into this topic later in this article. But for now, let us consider the difference between bitcoin and bitcoin credit.

In order to produce anything, capital is required. It is a simple fact that production precedes consumption. It can take years for factories to be built, and people with the relevant skills trained and employed. Most if not all of this funding requires credit. It entails a business plan to take all cost factors including the cost of funding into account in order to estimate a project’s viability.

When assembling a business plan, not only does an entrepreneur have to estimate all the input costs and the product’s final sales value, but he has to estimate the cost of repaying borrowed capital. But presumably, a hard stop of 21 million bitcoins will lead to higher bitcoin costs of future capital repayments. Uncertainty as to what bitcoin’s future value would be will likely scupper most projects, even before the difficulty of predicting future demand for goods priced in rising and volatile bitcoin. Bitcoin’s limitations would almost certainly lead to an intensely deflationary outlook, because it is simply not suited as a basis for valuing credit.

In this respect, bitcoin is fundamentally different from gold, the extraction of which in the long term has grown roughly in step with the world’s population. Furthermore, there are substantial reserves of above ground gold in the form of jewellery, which can be reallocated to monetary functions if markets demand its change of use. The flaw in the bitcoin as money argument is gold’s strength: its unsuitability to act as backing for credit, and its total inflexibility of supply.

I am not aware that anyone in the bitcoin camp has properly addressed these issues or is even aware of them. It appears that hodlers do not understand how dependent humanity is on credit. Instead, they tend to dismiss credit as being the problem. Nor is there any understanding of the relationship between money and credit in a functioning, stable economy. The very conditions which are supposed to give bitcoin its value as incorruptible currency are enough to render it entirely unsuited to act in that capacity.

The dismissal of credit is even before we are asked to swallow the fact that it is wholly inappropriate for the vast majority of users who are not tech savvy enough to even understand it. A currency must be simple enough to be understood by its users. The promotion of bitcoin and other cryptocurrencies is the dream of an elite of technological literates and speculators hitching a ride on its concepts.

Then there is the legal position. In the absence of specific legislation passed to give bitcoin or any other cryptocurrency the legal status enjoyed by gold it does not have the legal status required. Hodlers do not appreciate that legally only certain things can act as money.

In order to understand the distinction between what can pass as money and what cannot, we must define the difference between the right of possession and the right of property. If I lend a book to a friend, I allow him to have a right of possession for a period of time, but it still remains my property. The property in the book has not been transferred to him. If I went to his house to collect the book, and he was not at home, I would be free to recover the book if I saw it (though out of politeness I should let him know that I’ve recovered my property). This in Roman law was referred to as a commodatum, which is defined as “a gratuitous loan of movable property to be used and returned by the borrower”.

Money and credit are treated differently, along with consumable items, such as food and drink. When these are loaned, the property in them transfers absolutely, in return for which an obligation by the receiver is created to restore the equivalent of similar quality and quantity. To continue on from the example of the commodatum, if instead of a book I had loaned my friend $100, and going to his home to recover his obligation to me I found he was away but saw his wallet left behind, and I took $100 from it, I would be guilty of theft.

In Roman law, the loan of money, credit, and items to be consumed is a mutuum, which is defined as “a loan of a fungible thing to be restored by a similar thing of the same kind, quality and quantity”.

While in the English language the use of the terms lend and loan are ambiguous, the difference between commodatum and mutuum is still clearly recognised by us all to this day, as the examples of the different treatment of a loaned book and $100 illustrate. The same conditions apply with respect to criminal theft. If a thief steals your car and sells it on to an unsuspecting buyer, it remains your property and you are fully entitled to recover it without compensating the hapless buyer. But if a thief steals your wallet, or empties your bank account, you only have recourse against the thief and your property in the money or credit is lost.

In this legal context, the question arising is in the treatment of fully identifiable bitcoins, whose possession is recorded on a blockchain. Clearly, if someone sells you a bitcoin in return for currency you receive it as entering into your possession. But if the bitcoin had previously been stolen, say from a crypto wallet, it was nobody’s to sell and it almost certainly remains the possession of the person it was stolen from. The point is that while each bitcoin, or fraction of a bitcoin has the same value as another, the blockchain means that each bitcoin or part of it has a specific identity. Therefore, it is not fungible like banknotes or credit, nor is it consumed and so it almost certainly cannot be a mutuum. The precedents in law therefore point to the property in it having not been transferred if in the past it was the proceeds of crime, so it must be regarded as a commodatum.

This is a significant problem for bitcoin, which has become the money laundering medium of choice for criminals and tax evaders. While in Roman times, criminality was more basic, today governments have extended it to include mere suspicion as grounds for property confiscation. Software allows investigators to link bitcoin wallets with real world identities, which are easily available to the authorities from crypto exchanges. Companies such as Chainalysis have been working with the FBI successfully to identify wallets linked with criminal activity. The trail from these wallets clearly leads to those who subsequently bought bitcoin and are under the impression they are now their property.

Therefore, you cannot be sure that the bitcoin you have bought through an exchange will not be seized by the authorities on the grounds that a previous owner acquired it through the proceeds of crime. You cannot be certain you have clear title. On legal grounds alone, without the certainty of ownership bitcoin cannot act as a general medium of exchange.

Why credit matters

In discussing the practicality of bitcoin as money, its unsuitability as a medium from which credit takes its value has been mentioned, and that enthusiasts appear to have overlooked this vital function. Indeed, the creation of bank credit is seen by many in both gold and bitcoin camps as evil and therefore they say that one of the key benefits of bitcoin is it does away with the creators of credit. Those following this line of reasoning fail to understand that all money and obligations to pay are in fact credit, representing the temporary storage of unspent production. Because all of our consumption has its origin in production, the medium of exchange is a matter of intermediation.

There are two distinct forms of this credit, one in which there is no counterparty, and it is only in the form of gold, silver, or copper coined for convenience. It cannot be anything else if we rule out barter. The proper term for coin is money, to distinguish it from promises to pay in money at a future date, which is credit.

As a right to future payment, credit is always matched by an obligation on the part of the debtor. Ultimately, that right and corresponding obligation are to be settled in money — though in practice, today they are novated by way of settlement into other credit. It is not the transfer of money, but nevertheless credit is a form of property. That credit is property and has value in terms of goods and services arises from its transferability. This is apparent in valuations of financial assets, which together with the possession of the property in physical objects make up a person’s wealth.

In any economy which has progressed beyond a feudal state, it is credit which makes up the vast bulk, if not all of the circulating medium. And the more perfected the economic system becomes the less money circulates. It is simply more convenient to use credit, whether it be bank notes, bank deposits, or individual credit agreements, such as exist between families and friends.

Legally, money has a general and permanent value, while credit has a particular and precarious value. The problem we have today is that these distinctions between money and credit are poorly understood. Those who profess to support “sound money” rarely appreciate this vital distinction, routinely stating that sound money is a policy and not a definition. Accordingly, they incorrectly assume that bank notes issued by a central bank is money when it is in fact credit with counterparty risk, whose value in terms of goods and services can become subverted.

This leads us into the topic of how credit is valued. All credit, including bank notes issued by government authority, must take its value from something. But without being a credible substitute for what the Romans originally defined as money the value of credit obligations becomes inherently unstable. Furthermore, abandonment of credit’s attachment to money encourages a government to spend beyond its tax revenues by debasing the currency, and that is what is happening today at an increasing rate. It is not credit, which is the evil, but its detachment from money.

The legal position and history of gold as money

As a medium of exchange, the function of money is to adjust the ratios of goods and services one to another. Thus, the price expressed is always for the goods, money being entirely neutral. It is therefore an error to think of money as having a price. This should be borne in mind in the relationship between legal money whether it be gold or silver, which is habitually given a price nowadays in fiat currencies, and the fiat currencies themselves which, given the status of legal tender, are erroneously assumed to have the status of money. The relationship between money and credit has become stood on its head. The magnitude of this error becomes clear with understanding what legally is money, and what is credit. Again, this understanding starts with Roman law.

Roman law became the basis for legal systems throughout Europe, and by extension those of European settled regions, from North America, Latin America through Spanish and Portuguese influence, the Dutch in the Far East, and the entire British Empire. In common with the Athenians, Rome held that laws were the means whereby individuals would protect themselves from each other and the state. But it was particularly Rome which codified law into a practical and accessible body of reference generally.

The first records of Roman statutes and the case law which followed were the Twelve Tables of 449BC. These became the basis upon which individual jurors subsequently expounded, developed, and evolved their rulings over the next thousand years. The whole legal system was then consolidated into the Emperor Justinian’s Corpus Juris Civilis, otherwise known as the Pandects. When the empire relocated to Constantinople, the Corpus was translated into Greek and eventually reissued in the Basilica, at the time of the Basilian dynasty in the tenth century. It was that version which became the foundation for European law in the Middle Ages, except for England. As an eminent nineteenth century lawyer specialising in banking put it, the reason common law differed in England was that:

“The Romans abandoned Britain at the end of the fifth century and the common law of England on the subject of credit was exactly as it stood in Gaius which was the textbook of Roman law throughout the empire at the time when the Romans gave up Britain.  But on the 1st of November 1875, the common law of England relating to credit was superseded by equity which is simply the law of the Pandects of Justinian.”[i]

In all, two thousand years of legal development had elapsed between the Twelve Tables and the reaffirmation of Justinian’s Pandects in Dionysius Gottfried’s version in Geneva of the Corpus Juris Civilis, translated back into Latin in 1583AD from the Greek Basilica.

It is the Digest section of the Corpus which is relevant to our subject. The Digest is an encyclopaedia of over nine thousand references of eminent jurors collected over time. Prominent in these references are those of Ulpian, who died in 228AD and was the juror who did much to cement the legal position and distinction between money and credit. The Digest defined property, contracts, and crimes. Our interest in money and credit is covered by rulings on property and contracts.

The regular deposit contract is defined by Ulpian in a section entitled Deposita vel contra (on depositing and withdrawing). He defined a regular deposit as follows:

“A deposit is something given another for safekeeping. It is so called because a good is posited (or placed). The preposition de intensifies the meaning, which reflects that all obligations corresponding to the custody of the good belongs to that person.”[ii]

Another jurist commonly cited in the Digest, Paul of Alfenus Varus, differentiated between the regular deposit contract defined by Ulpian above and an irregular deposit or mutuum. In this latter case, Paul held that:

“If a person deposits a certain amount of loose money, which he counts and does not hand over sealed or enclosed in something, then the only duty of the person receiving it is to return the same amount.”[iii]

So, a mutuum is taken into the possession of the person receiving it. In return for a right of action in favour of the depositor to be exercised by him at any time, the receiver has a matching duty to return the same amount until which it becomes the receiver’s property to do with as he wishes. This is the legal foundation of modern banking.

Clearly, the precedent in the Digest is that money is always metallic. While anything can be deposited into another’s custody, it is the treatment of fungible goods, particularly money, which is the subject of these legal rulings. It is only through an irregular deposit (or mutuum) that the depositor becomes a creditor. By laying down the difference between a regular and irregular deposit, the distinction is made between what has always been regarded as money from ancient times and a promise to repay the same amount, which we know today as credit and a matching obligation to pay.

There is still one issue to clarify, and that is to do with credit rather than money. As noted above, Justinian’s Pandects were compiled a century after the Romans had abandoned Britain. From what was subsequently unified as England and Wales out of diverse kingdoms, common law differed in that debts were not freely transferable. The transferee of a debt could only sue as attorney for the transferor. This placed debt as property in a different position from other forms of transferable property. Justinian took away this anomaly as a relic of old Roman law (the laws of Gaius, referred to above), allowing the transferee to sue the debtor in his own name. Without this amendment, the status of a particular and precarious debt as an asset would be in doubt.

This anomaly in English law was only regularised when the Court of Chancery merged with common law by Act of Parliament in November 1875. Since then, the status of money and credit in English law has conformed in every respect with Justinian’s Pandects.

While the legal position of money is clear, the economic position is technically different. Jean-Baptiste Say pointed out that money facilitates the division of labour. Technically, money is unspent labour, and is therefore a credit yet to be used. Various other classical economists made the same point. Adam Smith wrote that a guinea might be considered as a bill for a certain quantity of necessaries and conveniences upon all the tradesmen in the neighbourhood. Henry Thornton said that money of every kind [including credit] is an order for goods. Bastiat and Mill opined similarly.[iv] The similarity of function between money and credit has undoubtedly led to confusion over the true meaning of terms.

But it is the legal difference which is of overriding importance because it was founded on the principal that there is a clear distinction between metallic money and a duty to pay. Money is permanent while credit is not. Money has no counterparty risk, whereas credit does.

The modern belief that money can be done away with and substituted with banknotes is therefore incorrect. And it is common ignorance of the established relationship between money and credit both in law and in practice which has led to the error of thinking that bitcoin can be the new money for modern times. Accordingly, we must put any such thoughts out of our minds.

The future of cryptocurrencies

It has been easy to point to the benefits of the cryptocurrency revolution. The blockchain concept promises a transformation in the recording of property ownership. And the popularity of bitcoin has alerted a wider public to the debasement of fiat currencies by governments — that surely is a public good. But it appears to have done nothing to enhance anyone’s understanding of money and credit.

The crypto revolution has created a potential evil in the form of central bank digital currencies, originally conceived by central bankers, seemingly ignorant of their own craft as a response to the threat from private sector money to their fiat monopolies. Their ignorance is of the legal position described above: after all, to detach a national fiat currency from legal money requires a denial of the true, legal position on the part of the perpetrator.

Central banks further demonstrated their denial of the laws of money by appointing a committee of the Bank for International Settlements, which coordinates central bank policies, to examine the benefits of a CBDC to a central bank and its government. Pursuing statist interests, the BIS committee’s conclusion is that CBDCs could give governments totalitarian control over economic activity. Nowhere has the legal position established millennia ago been respected, or even mentioned in their deliberations.

The reason the legal position of gold as money has persisted as authoritarian governments have come and gone is that the Romans defined an entirely natural relationship between money, what it is, and credit. Originally, money was and still is determined by people who are its users. And they create credit based upon money’s value. The practice evolved from the creation of credit based on goods that could be bartered. Credit must have been the way the Phoenicians financed their trade long before their city-states took to the convenience of coining metals, thought to be at about the same time as Rome’s Twelve Tables.

While the Romans paid close attention to the practicalities of trade and the natural evolution of payment in gold, silver, copper, or bronze coin and embodied it in their law, the state theory of money has always failed. The introduction of CBDCs is just another state theory of money. And while it promises to further the objectives of authoritarianism, it is bound to fail as well.

The sheer impracticalities involved have already caused the Bank of England in its White Paper to reject the BIS’s central proposition, that a sterling CBDC will bypass the commercial banking system and be totally under a central bank’s control. The reasons for the Bank’s approach are entirely sensible: the bureaucracy involved in setting up a CBDC, with everyone and every business required to open an account at the Bank of England would take years in the planning, testing, and implementation. And in the US, where the large majority of lawmakers depend on contributions from the banks to fund their election expenses, we can be certain that if any CBDC proposition was to be put forward by the Federal administration, it would be heavily watered down so as to not undermine existing banking interests.

The fate of the entire CBDC saga is likely to turn out to be a red herring. And in this article, I hope I have demonstrated convincingly the impossibility that bitcoin or any other cryptocurrency can fulfill the role of a currency. There only remains the question over their future if this role is denied to them.

It is now 52 years since the dollar and all other currencies with it became entirely fiat. While it is beyond the scope of this article to describe the factors involved, there is growing evidence that the current dollar-based fiat currency episode, like all others before it, is coming to an end. That being so, we can expect a new monetary system to replace it. But with bitcoin not suited to the task, we can be sure that the reason for bitcoin’s existence will turn out to have been purely speculative.

Therefore, when fiat dies, we can expect the whole cryptocurrency and the CBDC phenomenon to die with it. Mark it down as a modern Mississippi venture, or South Sea Bubble, both of which owed their existence to speculative excesses financed by credit — just like bitcoin.

• [i] See HD Macleod’s The Elements of Banking, Longmans Green & Co, 1877
• [ii] See de Soto’s Money, Bank Credit, and Economic Cycles, Chapter 1.
• [iii] ibid
• [iv] Listed in HD Macleod’s The Elements of Banking.

“While the timing of the currency’s launch remains uncertain, the increasing alliances within the BRICS group indicate that it is on the horizon,” Schectman stated. He emphasized that the sheer size of the population represented by the BRICS alliance makes the introduction of a common currency a significant event, regardless of the specific timeline.

There have been conflicting reports leading up to the BRICS summit taking place in Johannesburg from August 22-24. Anil Sooklal, South Africa’s Ambassador at Large to Asia and BRICS, stated last month that a BRICS currency was not on the summit’s agenda. He clarified that the focus of the summit would be on trading and settling in local currencies.

Although the immediate goals for the BRICS group revolve around sidestepping the SWIFT system and avoiding Western sanctions, one event in the upcoming summit that investors should closely monitor is Saudi Arabia’s participation. This is because Saudi Arabia’s involvement could have a significant impact on the global de-dollarization movement.

Schectman sees Saudi Arabia as a crucial player in the transition away from the U.S. dollar. He predicts that eventually, 85% of the global population will abandon the greenback. This possible shift is rooted in the petrodollar system, where countries need to hold dollars to purchase oil from Saudi Arabia.

Schectman referred to the deal made between the Nixon administration and Saudi Arabia in the 1970s, which established that Saudis would exclusively trade oil in dollars in exchange for U.S. security guarantees. This agreement also led to a shift within OPEC to conduct oil sales in dollars, creating a synthetic demand for the dollar.

The recent actions of Saudi Arabia, including its decision to join the China-led Shanghai Cooperation Organization (SCO), indicate a growing departure from the influence of Western powers. The SCO is a political, security, and trade alliance created in 2001 as a counterbalance to Western influence. As Saudi Arabia aligns itself with such powerful entities, it further lends credibility to the de-dollarization movement.

Schectman believes that the movement against the dollar extends beyond the BRICS bloc. If all these new alliances come together, it would represent a staggering 85% of the global population. He highlights the significance of merging initiatives such as the Belt Road Initiative, the BRICS, the Shanghai Cooperation Organization, and the Eurasian Economic Union.

The trend of de-dollarization has been rapidly accelerating and is now seen as irreversible. “We are at a point of no return – ‘past the Rubicon,'” Schectman asserts. The settling of transactions outside the U.S. dollar diminishes its demand and puts pressure on its value, leading to rising interest rates.

Schectman paints a vivid analogy to describe the process: “It’s like a game of Jenga. You keep pulling out these pieces of the dollar hegemony one by one. At what point does it tumble? It’s not going to happen overnight, but you can see the acceleration. So little by little, and then all at once.”

The introduction of a BRICS currency, backed by a tangible asset, seems inevitable according to Andy Schectman. The shifting alliances within the BRICS group, the potential involvement of Saudi Arabia, and the growing trend of de-dollarization all contribute to this movement away from the U.S. dollar. The world’s reserve currency faces challenges as various countries seek to trade and settle transactions using their own currencies, potentially leading to a substantial impact on the global financial landscape.

Editor’s Note: While many precious metals companies are using this news as a scare tactic to generate sales, we tend to look at this in the long-term. Is it prudent to buy physical precious metals or back your retirement with them? Absolutely. But don’t get pushed into a poor deal based on fear. We recommend four America First companies who can help.

One of the best things about money is that it allows an individual to set aside capital, the product of his labor, in a form that retains value. A farmer, for instance, can’t save fruit from year to year, nor can a baker save bread. Sound money is critical for lasting gains in wealth and economic progress. Sound money is why wealthy societies become dominant, and a reason other societies are poor and ripe for conquest and domination.

Rome provides a meaningful long-term template. The Roman government, in search of revenue, started debasing the denarius under Nero in the 1^st century, taking it from 90% silver to 75%. As late as the reign of Marcus Aurelius, which ended in 180, the denarius was still about 75% silver. By the end of the 3^rd century, it was pot metal that was simply plated with silver. The 3^rd century was notable for numerous coups, civil wars, assassinations, and secessions. There are plenty of reasons political chaos goes hand in hand with economic chaos; they reinforce each other.

Roman coins weren’t worth saving by the middle of the 3^rd century, and the collapse of the currency was a major cause of the collapse of the empire. In some ways, sound money was even more important in ancient times than it is today because they didn’t have sophisticated banking, financial markets, credit, accounting, or ways of measuring the rate of currency depreciation. Physical cash was king.

Currency inflation creates chaos, even in a relatively primitive economy like that of the Romans—where there was still a lot of barter. Once the rulers found they couldn’t depreciate the currency anymore, direct taxes went up substantially, but it became hard to collect them simply because the currency had no value. The soldiers didn’t like being paid with worthless tokens. This is why after the reign of Aurelius, the next century was a time of civil wars and general chaos. There was no new construction of roads or public buildings. Those who were able holed up at their country estates, which were internally self-sustaining. It was the beginning of feudalism, a foreshadowing of the coming Dark Ages. By the accession of Diocletian in 295, Rome had lost all touch with its republican roots and had become an oriental-style despotism.

Is Rome a distant mirror to today’s West? It’s entirely possible, even likely.

International Man: What parallels can be made today with the US in terms of monetary debasement and overall degradation?

Doug Casey: The parallels are very direct. We can just look at the pictures on the coins.

During the Roman Republic, the consuls didn’t put their images on the currency. The coins bore images of the gods, heroes, or personifications of various virtues. Julius Caesar was the first ruler who dared put his own image on a coin. It amounted to free advertising.

Caesar signed the death warrant for the Roman republic, followed by Augustus, his adopted son, who was the first actual Roman emperor. From that point until the end, all Roman coins featured the image of the current ruler.

In the US, we didn’t have a picture of a president on a coin until 1909, when Lincoln was deified and put on the penny; before that, pennies featured an Indian. All the other coins had allegorical images, as did Roman coins during its republic. After Roosevelt was elected in 1932, however, things changed. The coins all featured past presidents. Washington replaced a walking Liberty on the quarter in 1932. Jefferson replaced the Indian on the nickel in 1938. Roosevelt himself replaced the image of Mercury on the dime in 1946—that was a big step since he was so recently dead. Benjamin Franklin replaced Liberty on the half dollar in 1947.

Since Lincoln, Washington, and Jefferson were basically mythical-level presidents, I suppose an argument can be made for their images on money—but it was unwise since they were really just politicians. And Lincoln had the nerve to have his picture placed on a $1 bill in 1861.

Kennedy replaced Franklin on the half-dollar in 1964. Replacing allegorical symbols, or long-dead founding fathers, with recently deceased politicians is a sign of degradation. We haven’t yet put a current ruler on the coinage, but we’re getting close.

Of course, gold was the first to go, in 1933, with the accession of Roosevelt. Then in 1964, all silver was removed from coins. Current coins look like silver, but they aren’t. It’s a subtle fraud, symptomatic of the entire US—and world for that matter—monetary system. Technically since, then, the discs you may have in your pocket are tokens, not coins. Coins have value in themselves; tokens have no intrinsic value. Then in 1982, the penny—which had been 95% copper and 5% zinc—was changed to zinc with a copper wash on it.

The trend of money has been negative since the creation of the Federal Reserve in 1913, followed by World War I. Currency debasement and war underlie the ongoing moral and economic bankruptcy of the West.

The next step will be the removal of coins from circulation. Few are still worth enough to bother picking up from the ground. They’re no longer even useful in parking meters or video games. It costs three cents in metal to create a zinc penny and eight cents for a nickel. Both are entirely useless. But all coins are on their way out, to be replaced by digital currency.

This has interesting societal implications because kids won’t be able to collect coins anymore. It’s hard to save money digitally. Digits aren’t tangible, and kids like real stuff if they’re trying to save. Taking the physical reality out of money devalues the concept of money itself.

International Man: Much of the spectacular art, music, and architecture in recent history was created in times when the average person used gold and silver coins as money.

Do you see a relationship between the use of hard money and culture?

Doug Casey: There is a relationship. It’s perhaps not directly provable as cause and effect, but there’s a high correlation between junk money and junk culture. And it’s not just a question of arbitrarily changing taste.

During the 1950s, ’60s, and ’70s, older generations would sometimes decry rock and roll music. But the fact is, rock and roll music has stood the test of time. Why? It has melody, rhythm, and, in many cases, very poetic lyrics. Rock may be a step down from Bach, Beethoven, or Wagner, but it doesn’t make my dog leave the vicinity. But today’s popular music—metal, rap, hip-hop, and the rest—doesn’t even have a melody. It’s actively dissonant. The lyrics are almost all coarse and gross. There’s rarely any poetry or nobility of emotion.

The same is true of art. Much modern art is something that a chimpanzee can paint. In fact, a lot of it is just a scam, a private joke among galleries and critics who compete in bilking the public. The only good thing about most “performance art” is that it’s gone when the performance is over. I’m not a religious person, but it’s clearly a sign of decline when things like Serrano’s “Piss Christ” are considered art—and things have become even more degraded since. A lot of art is totally lacking not only elegance and nobility but has even less technical skill than Hunter Biden’s paintings. Of course, they don’t really count as art—that was just about overt bribery.

These things would have been met with ridicule and disgust before the 20^th century. There is a correlation between the way a civilization expresses itself in art and the money that finances that art. I think it’s more than just correlation. This is even true of how people dress. It used to be that when people went out, they wore coats and a tie. Of course, styles change—but some modes of dress show respect for oneself and other people. Some don’t. Now all you see are t-shirts and torn jeans.

These are all symptoms of bad money. Crappy art, crappy music, and crappy clothes go along with a crappy culture and crappy money.

International Man: Today, countries around the world are inflating and destroying their fiat currencies at breathtaking speed with no end in sight. In countries with rampant currency debasement, we often see more lying, cheating, and stealing as people struggle to make ends meet.

Aside from the obvious financial consequences of the ongoing currency debasement, what social and cultural consequences do you see coming?

Doug Casey: As bad as debased currency was for the Roman Empire, it’s going to be even worse in our advanced industrial society, with its complex and often international supply chains.

If you don’t know what the real value of the money is that you’re selling something for, things start falling apart. The State is impinging on every area of society. Inflation may be the worst product of government, but taxes and regulations are almost as destructive.

In addition, the rewards for not working—in the form of welfare and soon guaranteed annual income—are so high that it’s going to discourage people that would otherwise be entrepreneurs or workers. It’s going to encourage them not to set up businesses and simply not to work. Frankly, it’s just one thing after another. Could the Covid and vaccine hysterias be the straws that break the camel’s back? If not, maybe the Global Warming hysteria will do the trick.

Western Civilization is being destroyed right before our very eyes, and I don’t think that trend is going to change until we reach a crisis—when things get so bad that there’s a revolution.

International Man: Let’s consider historical examples and the US today. Once currency debasement and the degradation of culture have established themselves as long-term trends, what are the chances they reverse?

Doug Casey: Trends in motion tend to stay in motion until they reach a crisis. Once they reach a crisis, it can go either way. But things usually get worse again, for at least a while.

Things might degenerate slowly into something like the Soviet Union or Mao’s China. Or maybe what’s left of capitalism and personal freedoms will be overthrown quickly. We can certainly expect no good to come out of Washington now that Americans seem to have elected genuine Bolsheviks to run their government. The old order was overthrown in France in 1789, and it got worse with Robespierre and then Napoleon. Things were terrible in Russia in 1917, but they got worse under Lenin and worse again under Stalin.

I think no matter what happens, we’re in for some really grim times

International Man: What are the investment implications?

Doug Casey: People should buy gold and silver and store them in the safest place they can think of—including in a stable political jurisdiction outside of your own. And learn to speculate because prudent investing is becoming impossible in the kind of environment that we have today.

We’re very much like Rome in the third and fourth centuries. But the decline is moving at an accelerated pace. Prudent long-term investment is no longer possible the way it was before. You have to think of everything in terms of speculation.

It’s unfortunate, but over the next 10 years, everybody is going to be forced to become a speculator just in order to survive.

Reprinted with permission from International Man.

Voice of America (VOA) reported that the group – which consists of Brazil, Russia, India, China and South Africa – will touch on common currency during the 15th BRICS summit scheduled this coming August in Johannesburg, South Africa. At least three of the BRICS group’s members – Russia, China and Brazil – are backing the effort, it added.

Naledi Pandor, South African International Relations Minister, said a move away from the dollar could empower other countries. She, however, acknowledged that the project is challenging.

“I don’t think we should always assume the idea will work because economics is very difficult, and you have to have regard for all countries,” Pandor said. “It’s a matter we must discuss, and discuss properly.”

A common currency established by the BRICS group could take some time before being adopted, said Isaah Mhlanga, chief economist for the South African investment bank Rand Merchant Bank. He told VOA that the common currency the group is pushing to upend the U.S. dollar’s dominance was “just not founded by any economic fundamentals that we know of.”

Mhlanga also pointed out that given the different economic and political systems of the BRICS nations, “it’s quite difficult to have a common currency.” A more likely prospect, he remarked, is individual states conducting more bilateral trade using their respective local currencies. The chief economist’s projection is already happening, with several nations dropping the petrodollar in favor of local currencies for petroleum trading.

Nations reconsidering the use of dollar after its weaponization against Russia

Since the end of World War II, the U.S. dollar has been the world’s dominant currency – affirmed by the 1944 Bretton Woods conference. Eighty percent of international transactions are conducted in U.S. dollars, and nearly two-thirds of all currency reserves in central banks worldwide are in the greenback.

However, the dollar’s weaponization against Russia following its special military operation in Ukraine raised doubts among many nations. These countries feared that if it could happen to Russia, then it could also happen to them in the future. Political economist Aly-Khan Satchu, who is based in Kenya, thinks this sentiment has contributed to the idea of a BRICS common currency.

“The freezing of their reserves by the Americans, and a similar scenario unfolding in Europe, forced the Russians to look for a different payment solution outside the U.S. system,” he said.

“I think it’s difficult to underestimate the level of shock that various countries have experienced when Russia’s reserves were frozen. China saw that and thought: ‘Look, if they can do it to Russia they can do it to us.’”

According to Satchu, drafting a common currency “is not an easy task.” He elaborated: “There’s a question of how its composition will be constructed. There’s a lot of talk about having a commodity-based currency and therefore there will be complexities around the weighting of the various commodities.”

Lesetja Kganyago, the governor of the South African Reserve Bank, remarked that the BRICS common currency would spur debate about the creation of a central bank and where that would be located. The New Development Bank based in Shanghai, China led by its President Dilma Rousseff currently serves this purpose. (Related: BRICS New Development Bank ditching US dollar by offering loans in local currencies.)

“I don’t know how we would talk of a currency issued by a bloc of countries that are in different geographical locations because currencies are national in nature,” he said. “For the euro area to arrive at that, they had to establish a treaty where the other countries had to all surrender their currencies.”

Watch this news clip about Brazilian President Luiz Inacio Lula da Silva advocating for a common currency among BRICS member nations.

This video is from the Thrivetime Show channel on Brighteon.com.

More related stories:

• Potential BRICS expansion could mark end of dollar as world’s pre-eminent currency.
• U.S. dollar rapidly losing world reserve currency status; China, Russia (BRICS) to replace it.
• Putin says BRICS countries are establishing new global reserve currency to replace U.S. dollar.
• BRICS nations rapidly working to create common currency to counter US dollar’s global hegemony.
• BRICS member nations are creating new reserve currency to challenge the dollar, Andy Schectman tells Mike Adams.

Sources include:

• VOANews.com
• Brighteon.com
• NATURAL NEWS

BRICS, an international economic alliance of Brazil, Russia, India, China and South Africa, has received a boost in support of its de-dollarization efforts following the outbreak of the Russian special military operation in Ukraine. Moscow found itself reeling under an avalanche of Western-backed sanctions and restrictions against its ability to freely conduct trade in the global market. (Related: Potential BRICS expansion could mark end of dollar as world’s pre-eminent currency.)

Against this backdrop, Russia has taken the lead in strengthening ties between BRICS nations and laying the groundwork for the creation of a common currency to prevent Western economic warfare from affecting them.

During the two-day St. Petersburg International Economic Forum in India, State Duma (parliament) Deputy Chairman Alexander Babakov called for the creation of a joint Indian-Russian common currency to form stronger financial relations between the two nations.

“Our goal should be focused on writing new rules in the financial sphere in order to enable the use of an already common currency,” said Babakov. “It doesn’t matter whether it’s a digital ruble, a digital rupee, a digital yuan or some other currency. But this currency must follow the laws of our respective nations.”

Babakov noted that this proposed new currency should be backed by gold or other precious metals. He pointed out that the American dollar does not benefit the shared objectives of India and Russia, and their reliance on the greenback continues to give the U.S. an unfair amount of leverage over both nations.

Effort to create common currency part of ongoing de-dollarization campaign

The U.S. dollar has been called the “king of currency” due to it becoming the official reserve currency of the world in 1944, a decision made by a delegation from 44 Allied countries called the Bretton Woods Agreement.

Since then, the dollar has enjoyed a powerful status in the world as the most pre-eminent currency in use today, a status that has greatly benefited American elites and has caused a lot of pain to the U.S.’s foes around the world due to the disproportionate amount of influence the dollar has given the U.S. over other economies.

This influence has allowed America to use sanctions and other tools of economic warfare as a means for achieving its foreign policy objectives.

But in recent years, America’s main foreign adversaries, including Russia and China, have been calling for an end to the dollar’s hegemony. This process, known as de-dollarization, is the process of substituting the U.S. dollar as the currency used for international trade.

De-dollarization’s main proponents highlight how reducing other countries’ dependence on the dollar and the American economy would help mitigate the impact of economic and political changes in the U.S. on their own economies. De-dollarization also reduces the exposure of nations to fluctuations in the dollar’s value and to interest rate changes, which can help improve global economic stability and reduce the risk of financial crises impacting more nations.

De-dollarization moves have been gaining speed in the last few years, especially in 2022, when a paper by the International Monetary Fund (IMF) noted that the dollar’s share of global foreign-exchange reserves fell below 59 percent in the fourth quarter of 2022, extending its two-decade-long process of declining.

Furthermore, the IMF noted that the dollar’s decline has not been accompanied by an increase in the shares of its Western allies like the British pound sterling, the Japanese yen or the euro, which are “other long-standing reserve currencies.”

“Rather, the shift out of dollars has been in two directions – a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies.”

Learn more about the emerging threats to the supremacy of the American dollar at DollarDemise.com.

Watch this episode of the “Health Ranger Report” as Mike Adams, the Health Ranger, interviews finance and precious metals expert Andy Schectman about BRICS+ and the new global reserve currency the alliance is developing that will bring about the demise of the dollar system.

This video is from the Health Ranger Report channel on Brighteon.com.

More related stories:

• Former Treasury official: If US dollar loses global reserve currency status, there will be a complete economic IMPLOSION.
• Analysis claims that covering all lost deposits in failed banks will only hasten dollar collapse.
• Biden’s destructive Russia sanctions are destroying decades-long dominance of dollar as world’s reserve currency; collapse will follow.
• India, Sri Lanka moving toward using Indian rupee for international transactions (while ditching the dollar).
• Egypt joins BRICS-owned New Development Bank, expresses interest in becoming full-fledged member of BRICS.

Sources include:

• GreatGameIndia.com
• Firstpost.com
• CoinGeek.com
• Brighteon.com
• NATURAL NEWS