The Corruption of Currency
Editor's note: Americans are buried under more debt than ever before.
And soon, Porter says we'll face a "Debt Jubilee"... which will lead to a nightmare we haven't seen in more than 50 years.
In today's Masters Series – excerpted from Porter's newest book, The American Jubilee – he explains how the U.S. government has quietly corrupted the U.S. dollar... and lays out facts you won't hear from the mainstream media...
The Corruption of Currency
By Porter Stansberry
When the government taps out its ability to increase its tax revenue and its debts become too mountainous to maintain... it has one last way it can take what it needs. And it may be the most insidious.
It can print the dollars it needs to pay for what it wants.
This is a relatively new phenomenon for the U.S. government. Throughout most of our history, one thing kept our government from printing all the dollars it wanted – gold.
Until the mid-20th century, the dollar represented an explicit promise. It represented one small claim on the U.S. government's gold reserve. And the size of the reserve limited the dollars available for circulation.
But in 1971, President Richard Nixon severed the U.S. dollar's last tie to gold. From then on, we were free to take on as much debt as the world would lend us... and print as much money as we needed to finance it.
Since the 2008-2009 financial crisis, the Federal Reserve has largely kept the printing presses running full-tilt. Its quantitative-easing policies (printing billions of dollars and using them to buy Treasury securities and mortgage-backed debt) have caused the volume of currency to balloon.
The Fed's balance sheet – which represents the total amount of currency in circulation or in a central bank's reserves – has blown up from $1.1 trillion in 2008 to nearly $4 trillion in 2017.
Not many people understand the fallacy of these actions or their inevitable failure. The great advantage of paper money is supposed to be its flexibility. You can, in theory, print more of it when you need it to facilitate economic growth or forestall a crisis.
But it doesn't really work.
Printing money doesn't create wealth or stimulate the economy. Instead, it simply makes each dollar less valuable and leads to higher prices, a monetary phenomenon we call "inflation."
It is an insidious form of stealing. People feel wealthier as the numbers on their paychecks and bank balances rise. As nominal stock prices rise, people feel as though things are going well. But they don't notice the value of those dollars is eroding steadily.
Worse, it provides incentives for going into debt. People who borrowed today will repay those obligations in the future with dollars that are worth much less...
Inflation has been so prevalent for so long, most people don't even know it's not part of a normal economic system. Data on consumer prices from 1596-1971 in Great Britain prove that during gold-standard periods, commodity prices remain level – even over hundreds of years – during periods of massive economic growth and soaring populations.
The most important test of paper money is whether it facilitates real, per-capita economic growth. And on that score, the evidence is overwhelmingly negative.
Real wages for most Americans have been stagnant or falling for decades.
Measured in ounces of gold, per-family income in the United States has declined since 1971, retreating back to 1950s levels, despite the advent of two-income families.
Measured another way (using the government's own consumer price index as the inflation adjustment), real per-family income is essentially unchanged since 1971, again despite the fact that far more households have two wage earners today. Household earnings, in real terms, have fallen 30%-50% since the gold standard was abandoned.
The real (adjusted for inflation) median household income in the U.S. has been flat since at least 1980.
In other words, despite the boom in the economy and financial assets over the past 30 years – which boosted the fortunes and incomes of the wealthiest Americans like never before – average Americans are actually worse off than they were decades ago. And they've been forced to borrow more and more simply to keep up.
You may already be familiar with this fact...
But I bet you don't know why this has happened. Again, the reason is simple, but it's one most folks will never understand... and one you'll never hear an economist or government official admit.
The underlying economic cause is simply that wages are no longer connected to gains in productivity.
When money is sound and reliable, it doesn't lose value over time.
Our monetary system, however, isn't sound or reliable. Our politicians monkey with the money supply constantly. Sometimes, they increase the amount of money by huge amounts in response to demands from powerful groups, especially banks.
As a result, the things you need to live a regular life – like gasoline, milk, housing, and medical care – are constantly increasing in price. And these prices go up, year after year, even when wages don't.
That means even though our economy might grow, and even though lots of companies (like tech firms) are doing well, the average worker has gotten poorer and poorer.
If you study the data closely, you'll find that wages since the early 1970s haven't gone up at all. Sometimes they go down. Sometimes they go back up. But measured against prices, workers haven't gained an inch since the 1970s.
Here's a chart based on research from the Economic Policy Institute that describes the problem. As you can see, productivity in this country grew nearly 250% between 1948 and 2016, but median wages only grew 109%...
Paper money works great for the rich, who can hedge their exposure to the currency and whose access to fixed-rate credit allows huge asset purchases. But it is horrible for the middle class...
When we took the dollar off gold and allowed the central bank to continuously debase the currency, the dollar and the wages paid in the dollar no longer kept pace with inflation.
Thus, when trade or innovation leads to a gain in productivity (and the loss of a job), there is no reciprocal benefit to wages for the middle class. The replacement job is sure to come at a much lower real wage.
Any reasonable study of paper-money systems versus gold-backed monetary systems demonstrates the superiority of gold immediately. So... why does almost every modern government choose paper? The answer is because paper money allows the wealthy and powerful vested interests in our economy to manipulate interest rates, prices, the money supply, and credit to their exclusive advantage.
Think about this for a second. Imagine how much productivity in our economy has increased since 1971...
Our economy has boomed through enormous increases to productivity thanks to technologies like personal computers, cellphones, RFID tags (for inventory control), and fantastic increases to vehicle fuel efficiency.
You can see these gains in your everyday life. Lots of things have gotten better and better over the last 40 years or so.
I'd estimate productivity has increased by 4%-6% per year since 1971.
Despite our country's tremendous prosperity, the average American hasn't gotten wealthier. He's gotten poorer.
Where did all that wealth go? It didn't end up boosting the value of our currency, as you'd expect. Prices never fell. Instead, all those productivity gains were consumed by the issuance of more and more money – by inflation.
Therefore, average wages, in real terms, have declined. And all these productivity gains – all that wealth – was consumed by the financial sector, the government, debtors... all the people who benefit from inflation.
As a result, we've been left with a heavily indebted economy that's still led by consumption. Our system rewards debtors and punishes savers. It makes long-term capital investment nearly impossible because of economic volatility and financial risks caused by inflation. Worst of all, our system requires everyone become a speculator because there's no other way to safeguard savings.
What the gold standard really does is ensure a level playing field for all economic actors – borrowers, lenders, and even governments. That's why bankers (who are always highly leveraged), media barons (who constantly borrow to buy more properties), and governments (which can never balance their budgets) all abhor gold. To maintain their power, they all need paper money. The system we have now and those who profit from it would not survive a transition back to the gold standard.
The little-known reality of our paper money system is that it robs our currency of gains to purchasing power. That means the average person is working harder and producing more, but cannot buy as much as he used to. Meanwhile, asset prices have soared. The wealthy become wealthier as the value of everything they own becomes inflated along with our currency.
This explains why the wealth gap has grown so much since 2000. And it explains why the wealth gap will continue to grow, so long as our government continues its corrupt policies of quantitative easing, corporate bailouts, overspending, and over-taxing.
Simply working harder – or working smarter – isn't benefiting employees anymore. On the other hand, Americans who own assets and businesses have seen their wealth soar over the last 40 years.
It's this system that dooms every average worker to poverty and almost guarantees that the rich and the powerful will stay that way. And it is this massive gap that is ultimately fueling today's problems.
Our paper money does one other thing that I believe could ultimately bring about its own demise... It steals from our creditors.
As I've explained, borrowers today will repay their debts in devalued dollars. That's a bad deal for lenders. And at this point, America is dependent on its lenders to sustain our standard of living.
However, I believe governments and entities around the world that hold U.S. debt have grown tired of watching the value of those obligations inflated away. And I believe we're facing a mutiny on the dollar.
Regards,
Porter Stansberry
Editor's note: Millions of Americans are "enslaved"... leading to a political event like anything we've seen in more than 50 years. But there's a surprising twist, which Porter says will dramatically affect you and your money... even if you don't own a single stock.
If you want to know the real reason why the gap between the ultra-rich and everybody else in America is so large, this is it. Porter recently put together a presentation sharing all of the details. Watch it here.