Received an email from an old friend, to whom credit goes in getting MadMike rolling in PM investing. Excellent reading for a beginner just learning about the long term effects of fiat currencies. Apologies for the length, as it was an email and I have no link available.

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Anyone watching the news lately has heard about the banks around the world that are either going bankrupt or are at lease in serious trouble. The news is also telling you about how governments and central banks around the world are creating bailouts for these banks to keep them from going bankrupt so the entire world banking system does not close their doors permanently and destroy the life savings of everyone on this planet. 

Why is this happening and how did we get here? To answer these questions properly I would have to spend the next 2 days writing an e-mail that would take you hours to read. To prevent this I’ll try to give you the short version of what has happen to get us here and how I was able to predict these events over the last few months as far back as 1999.  

To make a long story as short as possible. 

In 1944
Europe’s economy has been destroyed by the events of WW2 and everyone knew that the
US was now the strongest economic and military nation in the world. Most of the gold that European nation owned had been shipped to the US to keep it from the Nazis and since gold was the currency used for world trade and the US owned more gold then all of the rest of the world combined, the Allied leaders needed to find a new way to pay for world trade once the war was over. The
UK was finish as a world power and
Europe was in ruins so the Allied leaders got together in a town called Bretton Woods New York to create a new financial system to pay for world trade. The Allied leaders agreed to use the US dollar to replace gold as the world’s top reserve currency. All of the Allied Nations would use the US dollar to back their currency and the
US would back the US dollar with gold. As long as the
US backed the US dollar with gold the world was still on a type of gold standard where the
US guaranteed that the
US price of gold would be fixed at $35.00 per ounce. This became knows as the Bretton Woods agreement of 1944. 

While I am trying to keep this e-mail as short as possible I have to also let you know that by 1944 there had already been a 40 year battle by the world’s privately own central banks to discredit gold as a currency for world trade. Bogus economic theory like the Keynesian theory of economics and eventually the
Chicago school of economics were endorsed by the world private central bankers and these theories were now taught in universities world wide to remove gold as a world currency and have it replaced by a fiat currency that they alone had the power to create. They did this because gold protected the income and savings of the working population from the bankers. Once gold was removed as a backing to the world’s money supply the private central banks could begin to steal the saving of the working and the entrepreneur class without their knowledge by the use of inflation.  

While the rest of the world was using the US dollar as their reserve currency the
US was still backing the US dollar with gold so the world’s central bankers had not yet reached their goal of a world were gold was not backing any currency specially the world’s number one currency. 

Now fast forward to the early 1960’s,  the US, Canada and the rest of the industrialised world was now creating all of the social programs we now take for granted today and the US was really beginning to get deeply involved with the Vietnam war.  The cost of the Vietnam war and all of the new social program The US government had created over the last decade was destroying the budget of the US government so the US began to created more US dollars then they had gold to back them with. All of these extra US dollars without the new gold to back them meant that it was beginning to get harder and harder for the
US to keep the official price of gold at $35.00. While the
US would sell their gold for $35.00 an ounce to any or the other world central banks that wanted to exchange their US dollars for gold. These other central banks could then turn around and sell the gold they just bought at $35.00 per ounce from the
US for $40.00-$42.00 per ounce in the world’s private gold markets. By 1971 thousands of tons of gold was being shipped out of the
US to other central banks.  This fact meant that gold was pouring out of the
US and if they did not do something quick to stop this they would be out of gold within a few years. 

The
US had 2 options, they could get out of
Vietnam and cut all the new social programs they had just created or they could stop backing the US dollar with gold. The
US chose to use option 2 to the central bankers delight. 

On Aug 15 1971 Nixon officially closed the gold window and put the
US on a fiat currency and because of the Bretton Woods agreement of 1944 put the rest of the world on a fiat monetary system. The private central bankers won their battle with gold and the entire world was now on fait monetary system which means money creation backed by nothing and the only people that could legally create this fiat money were the world’s privately owned central banks.  They now had the power to steal the savings of the average person without their knowledge by the use of inflation.  

Inflation is NOT rising prices of goods and services. Rising prices is a symptom of inflation not the cause. Inflation is the act of creating more fiat money then there are goods and services to buy. Another way of putting it is creating more money then your economy and population is growing at. 

 Here is an example: If the economy of your country is growing at 3% but the money supply is growing at 8% then your inflation rate is 5%. Since there is now 5% more money then the economy grew at in the past year this extra money pushed up the prices of many of these things we use everyday.  This is what inflation truly is.  

Inflation is never an accident.  

It is caused on purpose by the people who have the power to create money out of thin air.  

CENTAL BANKS. 

Now I have to back up a bit and explain a little about fiat currencies and their history. 

A fiat currency is nothing more then a currency created out of thin air and backed but nothing but promises. 

Fiat currencies are nothing new. The history of the use of fiat currencies goes back to Roman time over 2000 years ago in
Europe and even further back in
China and
India. 

Chinese Emperors, Indian Sultans, Roman Emperors, European Kings, Russian Czars and many dictators of history have all used fiat currencies in the past to steal the wealth of their populations and every single one of these fiat currencies died of hyperinflation. There are no exceptions to this rule. Any country or Kingdom that used fiat currencies as their national money supply watch that currency become worthless because of hyperinflation.  There is a reason for this which I’ll get to shortly. 

Many of the Emperors, Sultans and Kings of the past killed their fiat currencies in just a few years because they issued massive amounts of fiat currencies in a short period of time which caused the price of the necessities of life for the average person to go through the roof. These currencies became worthless in just a few years because the people issuing them did not understand that issuing a massive amount of currency in a short period of time destroys the value of the currency very quickly. 

Eventually some of the people of the past who were issuing a new fiat currency for their population began to understand that to add years to the life of their new currency they could not issue a massive amount of currency in a short period of time. What they did instead is issue a little currency at a time to get the population to use it then when the population was getting comfortable with this new currency they would issue a little more and they would continue to do this in regular intervals. The cost of living for the population would increase as the issuers of the currency kept increasing it’s supply but the cost of living was rising slowly so people became used to the fact that the cost of living kept rising and they began to believe that this constant rise in the cost of living is simply the way things are and there is nothing the population can do about it.  

Now after writing what I did above you would think that these fiat currencies would last forever. After all the issuers of the currency got their population to have faith in their currency and to believe that inflation is just something that happens and it is nobody’s fault. 

So what is the problem? Here’s the fatal flaw to these new type of fiat currencies which the issuer would put out new issues of currencies a little at a time on a regular basis. 

While the cost of living for the population would rise slowly the rise was constant. The cost of food, shelter, and energy would keep rising over time but wages of the people did not rise or they did not rise fast enough to keep up with inflation. So as time marched on more and more of the population would not be able to feed or shelter themselves so this fact would eventually lead to the seeds of a revolt of the common people against the people in power who were also the same people issuing the fiat currency. Many of the revolution we read in our history books were caused by the constant rise of the cost of living because of the over issuing of fiat money. 

Now the issuers of the fiat currency may of tried to make sure that the population’s wages would keep up with the constant rise of inflation but to do so would mean that they would have to increase the issuing of their fiat currencies at a much higher level and this in turn would push the cost of living even to higher levels which meant that they have to issue even higher amounts of fiat currencies to make sure wages kept up with inflation which would lead to even more inflation for the general population which would mean even more fiat currencies being issued. As you can see this eventually leads to an inflation rate that goes through the roof and the fiat currency eventually dies of hyperinflation just like the ones before them. 

So to issue a lot of fiat currency in a short period of time leads to the death of the currency in just a few years, we now see that to issue a small amount of currency at a time but in regular intervals eventually leads to the death of the fiat currency also, all it did is give the fiat currency a decade or two of life before it becomes worthless to hyperinflation. 

Before I go on I have to side track a little and give you a little more information to why leaders of the past used fiat currencies. 

The accumulation of wealth by the leaders of the past was done totally on the backs of the work done by the general population that these leaders govern. 

In
Egypt,
Greece or
Rome it was the work of slaves that generated the wealth to keep these civilisations strong. 

The problem with unpaid slaves is they have this nasty habit to eventually revolt against their masters. Also the cost of keeping slaves is very expensive because the masters had to pay to supply the food and shelter to keep their slaves alive. Also they had to pay the people who were watching the slaves and making sure they did not run away. Eventually leaders and governments of the past realised that it was better to pay wages to slaves and have them pay for their own food and shelter. Also it did not take long for these leaders of the past to also realise that they could tax back a lot of the wages they paid to their slaves/ workers so they did not go broke and this meant that most of these worker were working for very little amount of money. 

Again eventually these oppressive taxes on the working population would lead to revolts so the leaders of the past soon found out that there was a limit on how much they could tax their working population before they would revolt. 

What these leaders of the past needed was a way to steal the wealth of their working population without their worker’s knowledge or consent. After all if the working population does not know they are being stolen from they will never revolt. 

This is one of the main reasons that fiat currencies were invented. 

By using fiat currency as money instead of something real like gold, silver, wheat, or domestic animals the people in power could use inflation as a way to steal the wealth generated by the working population without the working population realising that they were being swindled by the very people who were in power to govern them. 

Now that I explained why fiat currencies came into existence there is one more way to add more years of life to a fait currency that I haven’t covered yet. The issuers of fiat currencies in the past eventually realised that lending fiat currencies to the population and putting the population into debt is not only highly profitable for the issuers of the fiat currency but it also can lead to a couple of more decades of life for their fiat currency. 

From here on I’ll use the word “bankers” instead of “issuers of the fiat currencies” because it is the bankers of the last 4 centuries who have made the issuing of debt into an art form that traps most of today’s world population and governments. Before the banker it was Kings, Emperors, and Sultans who were the primary issuers of fiat currencies in the past. Today it is exclusively central bankers and not leaders of government who issue fiat currencies and these bankers are the true political power in the world, not Presidents, Prime Ministers, or any other leaders of government.  

By lending fiat currencies to their population and charging them interest on the money the bankers lent out meant that the working population would have to work to make money to pay back not only the principle the worker bowered from the banker but also the interest the banker charged the worker to lend him the money in the first place. 

Now debt is nothing new and there are many cases in history that civilizations that were using gold or silver as money would lend out this gold or silver to people and charge interest on the gold or silver lent out. 

The difference between a society using gold and silver as money and lending this money out to their population is the people lending gold and silver as money either had to work for it, steal it or accumulate it by force. Which ever way the lender chose to accumulated the wealth to lend out to people they had to do something to get it. What they could not do is create gold and silver money out of thin air and then lend it to the working population. 

In a fiat monetary system the lender does not have to do anything to get the money to lend out because the money lent out is created out of thin air. This means that there is no limit to how much money can be lent out and the profits for the bankers are unlimited.  

This fact means that bankers have much more power then any government that rules today’s nations. Since central bankers alone can created the money of the nation they live in,  if the government of that nation wanted any of the money that central bankers create they had to either tax it from their working population who worked for that money or borrow it from the bankers and pay the bankers interest on the money borrowed. All the banker had to do was either print this money or today make a computer entry and any amount of money the bankers wanted to create is done at virtually no cost to the banker. 

When someone uses their credit card to pay for a meal at a restaurant the bank issuing the credit card does not use the savings of other people to supply you with the money to purchase your meal, the money you used to pay for your meal was create instantly and out of thin air. Up until you purchase your meal the money that your credit card company supplied you to pay for your meal did not exist. One more thing to add about credit card debt or any debt once you pay off this debt you are destroying the money that was created out of thin air. 

Central banks realised many years ago that giving out credit to the population was the best way to hand out fiat money. Putting the population into debt turned out to be a win win situation for central banks. First of all anyone using debt to pay for something had to pay interest on the debt they took on so central banks not only profited by their ability to use inflation to steal from the general population but the also got the same population to borrow their fiat money and pay them interest on the money borrowed. The second big win for the central banks was by using debt as a way to create fiat money it gave this money created out of thin air credibility. After all, the money borrowed must be paid back to the bankers by the person who borrowed the money so this money is legitimate (in theory) because the person borrowing the money must work for the money to pay back this debt.  

So the central banks have found the perfect way to distribute the fiat money they create out of thin air. They don’t hand it out to the local population, instead they lend it out to the population and the population must work to earn the money to not only pay back the principle they borrowed but the interest owed on the principle. So the central banks finally found a way to keep their fiat monetary system working forever without the fiat system falling into hyperinflation?  Right? 

Wrong! 

Unfortunately for the central banks there is a fatal flaw with using debt accumulation as a way to distribute the fiat currency the central banks create out of thin air. 

The best way to explain this fatal flaw is to give you an example of this flaw. 

Imagine that a tiny little country had $100.00 as its entire money supply. Since this country was on a fiat monetary system the country’s central bank lent out the entire $100.00 to its population and charge them 10% interest. The local population borrowed the money and they worked very hard to earn some of this money back to pay off their debt. As the population began to pay off their debt the central bankers realised they had a problem. If the entire population paid off the money they owed there wasn’t enough money in the entire country to pay back the principle and interest owed on the principle. The math looks like this: 

$100.00 lent out to local population. $100.00 equals the country’s entire money supply. The central banks charge 10% interest on the money lent out. When the population pays back the $100.00 plus interest owed they will need $110.00. The problem for the central banks is there is only a $100.00 that makes up the entire country’s money supply so there is simply not enough money for the population to pay back the money borrowed plus interest. To correct this problem the central bank can just create an extra $10.00 out of thin air and give it to the population. The problem with doing this is creating money out of thin air and giving it to the local population would send inflation much higher and eventually destroy the fiat monetary system the central banks profit so much from. So to solve this problem the central bank decided to create another $100.00 and double the country’s money supply to $200.00. The difference here is they will not hand this money out to the local population instead they will lend this money out so borrowers will have the means to pay back the original $100.00 they borrowed with interest. While this solves their problem of not enough money to pay back the original debt and interest owed eventually they end up back with the same problem when the population tries to pay back the second $100.00 they borrowed from the central banks, but now instead of an extra $10.00 of interest owed they need an extra $20.00 to pay back all the money borrowed plus interest. Again to solve this problem the central banks are forced to create more money out of thin air and lend it to the local population and they must continue to do this forever because no matter how much money they create and lend out there will never be enough money to pay back all the debt back plus interest.  

As time marches on the local population’s debt levels continue to increase as the central bank creates more and more fiat money out of thin air and lends it to the population. Finally the debt levels of the population reaches such a level that they refuse to accumulate any more debt and they either make a concerted effort to pay back all the debt they owe or they walk away from the debt and go bankrupt. Either way this ends the central banks ability to lend more and more fiat money into existence. Also please remember with my credit card examples above lending money to the population increases the money supply but when people pay back the money borrowed or go bankrupt this decrease the money supply.  

When more people are going bankrupt or paying back their debts then there are people taking on new debt the money supply shrinks and the economy falls into debt deflation. This debt deflation looks something like this. The stock market falls hard, real estate prices begin to drop, Banks and financial institutions begin to go bankrupt, commodity prices fall, and soon the economy slow down and eventually unemployment rises. 

Does this scenario sound familiar to you? The events happening world wide over the last few months are exactly what I just describe above. What is happening today is debt induced deflation and this is exactly what happen in 1929-30 that sent the world into the Great Depression. 

Are we about to enter another Great Depression like the one in the 1930’s? While it is possible that we are now entering another depression this is very unlikely at this time. In the 1930’s the US dollar had a direct link to gold so the Fed (the
US central bank) could not artificially increase the money supply enough to keep the
US and the rest of the world out of debt deflation and depression. Today this is not the case. Today the
US and the rest of the world do not have their currencies backed by gold so the world’s central banks can create as much fiat money as they want to counter the debt deflation we are experiencing today. This is what is happening today. The central banks don’t call it increasing the money supply they call it “bank bailout” and “propping up financial institutions” so the central banks with the help of the puppet governments that support them are already hyper inflating the money supply world wide. 

While the stock market will probably fall more over the next month or so, once the downward movement is over watch the stock markets rocket back up and commodity prices to stop falling and eventually rise to much higher levels then they were just a few month ago. 

Over the last 3 months the world wide money supply has increased by over 5 trillion dollars US and expect many more so-called “bailouts” in the near future and from now on.  

Today’s central banks have only one coarse of action from now on, 

INFLATE THE MONEY SUPPLY OR DIE! 

Debt deflation will only get worst as time moves on and the bailouts from government and central banks will only get bigger and more elaborate. While the central banks will be successful giving us the illusion that a depression is not happening as they increase the money supply to counter the debt deflation we are experiencing today, an illusion is all it will be.  

At the beginning of this e-mail I explained what happen to a fiat monetary systems when a massive amount of currency is created and distributed in a short period of time. The fiat monetary system will explode into hyperinflation in just a few years and the fiat currency will become worthless as the price of everything people need to stay alive goes through the roof. 

When hyperinflation reaches its peak the price of physical gold and silver will rise faster and higher then anything else so physical gold and silver WILL protect your savings as the Canadian dollar becomes worthless. 

Back in 1998-99 I began to teach myself about financial markets and how they worked so I could invest my own money without the help of a financial advisor. Almost immediately I realised that understanding how stock market work was not enough to make good long term investment decisions, what I needed to understand is basic economic theory so I could make good educated guesses on what stocks to buy. Once I began to understand what economic theories were being taught in our universities today I again began to realise that there was something really wrong with what was going as accepted economic and monetary theory. The fact that money which is only a unit of exchange to make the barter system more efficient could be created at will and out of thin air simply did not make sense to me. I decided to learn much more about monetary systems and how “money” is created and this lead me down a road I did not intend. As I learnt more about the difference between real money (Gold and Silver) and fiat money (Money created out of thin air) I realised that an economic collapse was inevitable the minute the US in 1971 took America and the rest of the world off the gold standard and put us into a fiat monetary system. What I didn’t know was when this would happen, all I knew for sure is that it will happen and it will happen relatively soon. As it turns out the
US was able to keep their fiat monetary system functioning much longer then I thought they could but they could not prevent the inevitable.  

There is no stopping what is coming, all central banks can do now is hyper inflate the money supply to keep the world banking system from total collapse. If this works and it should the world central banks will prevent a depression for another 3 -4 years but the price we pay for this bailout of the world banking system is hyperinflation and the destruction of all the world’s currencies and a world wide depression will happen anyways. 

Since 2001 I’ve been telling anyone who would listen what I believed was coming and why and how to protect yourself. Most people thought I was paranoid and I had “issues” and most refused to believe what I was saying. The events over the last year has unfortunately proven that I was right. 

PHYSICAL GOLD AND SILVER DOES NOT GARENTEE THAT YOU WILL FINAICIALLY SURVIVE THE COMING HYPERINFLATION BUT IT WILL GIVE YOU A CHANCE THAT PAPER MONEY OR PAPER INVESTMENTS WILL NOT DO! 

You could never own too much physical gold and silver!