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How The Classical Gold Standard Worked

The classical gold standard was the monetary system of the 1870s to 1914.

The world’s industrial powers defined their national currencies as a fixed weight of gold and paper money was freely convertible into gold by government and private citizens alike.

It was a golden age in many ways as the world experienced a sustained period of economic freedom and flourishing, with little of the social costs we experience today as a result of unsound money.

As Michael D. Bordo explains:

“The period from 1880 to 1914, known as the heyday of the gold standard, was a remarkable period in world economic history. It was characterized by rapid economic growth, the free flow of labor and capital across political borders, virtually free trade and, in general, world peace.”

Gold as the common money of the world allowed for easier international commerce. There was no need for business to worry about the impact of floating exchange rates.

Sound money meant high savings rates. This led to the accumulation of capital which was then able to finance industrial expansion.

The classical gold standard provided long term

2022-11-07T16:09:41+00:00November 7th, 2022|
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The History of Gold As Money

Gold has a long history and has been used as money for several thousand years.

While not formally part of the money system today, central banks still hold gold, giving it a proximate shadow status in the current system.

Of all the elements of the periodic table, gold is the one best suited for use as money. It is:

  • Scarce
  • Malleable
  • Durable
  • Portable
  • Divisible
  • Fungible

Gold’s key attribute is that it is a store of value over a long period of time. It can fluctuate in the short term but over decades, centuries and millennia, it preserves wealth.

As the saying goes, you don’t buy gold to get rich, you buy gold to stay rich.

Often people think of gold as an investment. In our current fiat system that may be true but this is not quite the most accurate way to think about gold.

It should be thought of as money. It is a superior and longer lasting equivalent of currencies such as the US Dollar, the British Pound and the Euro.

Gold is used to buy and sell things and, more importantly

2022-10-15T08:40:24+00:00October 15th, 2022|
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Why Gold Is Important To The Monetary System

Governments and central banks like to pretend that gold is unimportant and is a relic of the past.

This is wrong.

While we no longer operate on the gold standard, and instead operate on the fiat standard, the yellow metal is of critical importance to the functioning of our monetary system.

Otherwise, why would central banks bother holding it as reserves?

Nixon may have ended the formal tie of the US Dollar to gold in the 1970s, but the existence of over 8000 tonnes of gold on the Federal Reserve’s balance sheet provides an informal link in what Jim Rickards calls the “shadow gold standard.”

The existence of gold on central bank balance sheets gives credibility to the fiat system and it means the fiat system is not entirely disconnected from gold.

Without that gold, public confidence in fiat money would potentially falter as currency creation expanded. Without that confidence, the system could not last long.

As Rickards notes:

“The confidence of the entire global financial system rests on the U.S. dollar. Confidence in the dollar rests on the solvency of the Fed’s balance sheet. And that

2022-09-27T08:39:34+00:00September 27th, 2022|
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The Rentenmark: How Weimar Germany Ended Hyperinflation

The story of the Weimar hyperinflation is a familiar one.

Germany, like the other European powers, suspended the gold standard at the outbreak of World War One in 1914, abandoning the goldmark for the papiermark.

By losing the war she suffered a greater financial strain than the Allies and also had the additional post war burden of reparations.

Inflation, which had begun in 1914, got worse as the German government cranked the printing press and created enormous amounts of papiermarks, eventually triggering hyperinflation.

Most people know the inflation stopped when the government stopped printing and introduced the rentenmark, a currency with limited circulation backed by mortgages over German real estate.

But it is less well understood exactly how the rentenmark worked, how it stopped the hyperinflation and how Germany was able to get back on her feet in 1924.

It is a fascinating story, with implications for the present day.

I don’t think we are going to go down quite the same path as Weimar Germany did with our current global currency crisis.

But it is worth analysing what the effects of hyperinflation are and how

2022-09-19T10:15:25+00:00September 5th, 2022|
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How To Survive A Crypto Bear Market

[Disclaimer: I own Bitcoin and several altcoins. This is not investment advice and is provided for information only. This considers the economic case for cryptocurrency and is not a recommendation to buy. Do your own research and consult a financial advisor.]

A crypto bear market is brutal.

According to Glassnode, they last anywhere between 227 and 435 days with bitcoin drawdowns of between 75% and 84%.

In bear markets altcoins tend to fall even more, often up to 95%.

In all other markets, a bear market is normally defined as a decline of 20% or more.

However, crypto is so volatile that it can fall 20% even in a rising market. For crypto that is just a really healthy bull market correction.

Instead, for crypto, my preferred definition of a bear market is a fall below the 200 day moving average. This is a common technical analysis indicator and is a good reflection of the long term mean.

A fall below the 200 day moving average for a prolonged period of time is known as a crypto winter and, so far, these have been predictable and

2022-09-19T10:20:21+00:00August 9th, 2022|
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Why A Cold Storage Wallet For Your Cryptocurrency Is Important

An exchange is the worst place in the world you can keep your cryptocurrency. Cold storage is the best.

I would know.

Between 2014 and early 2017 I dollar cost averaged into a nice Bitcoin position.

I had a hot wallet with a little bit of Bitcoin in it. But I kept the majority on the exchange. It seemed convenient and, while I understood there was risk, it seemed such a small amount of money at the time. So I was lazy with security.

I had meant to move the funds to my wallet but had put it off because I was busy. I was changing jobs and moving cities. Custody of my Bitcoin was not high on my priority list.

When I finally got around to moving the Bitcoin from the exchange to the wallet, I logged onto the exchange and my coins were frozen. I couldn’t withdraw. Not long after the exchange disappeared.

This was the most expensive mistake of my life.

I don’t want you to make the same mistake as I did. So let me explain why you need a cold storage

2022-09-19T10:20:26+00:00July 13th, 2022|
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The Ming Dynasty’s Return To Silver Might Reveal Bitcoin’s Future

There are times in history where the government reluctantly accepts that state money has failed and the market’s money has proven superior.

One such example was in Ming China.

The government had initially banned silver and decreed that the citizens should use devaluing paper currency. Unfortunately for the authorities, the citizens continued to use silver and refused to use the paper money. Eventually the government was forced to recognise this reality and accepted that their money had failed. Ming China then went onto a silver standard.

The parallel to the present day is striking.

We live in a society with a rapidly devaluing fiat currency. There is also a rapidly rising alternative currency called Bitcoin.

We haven’t reached a tipping point yet where society at large rejects the fiat currency, but this is coming. Unless soundness and faith is restored to fiat currency, it is likely to be rejected sometime in the future.

The only questions are, when will it happen, how much of a fight will governments put up, and what money will the market turn to instead?

Like the Ming, we have silver.

2022-09-19T10:20:34+00:00May 28th, 2022|
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29 Things I Learned From Sir John Templeton About Investing

Sir John Templeton is one of the world’s most successful investors

Although sadly he is not as well known as others such as Warren Buffett and Benjamin Graham.

What John Templeton is most well known for was his September 1939 investment play where he took big positions on undervalued companies just as World War Two was breaking out in Europe.

Templeton used borrowed money to buy $100 worth of every stock on the US exchanges that was selling for less than $1 per share. He held the stocks for an average of four years and quadrupled his money in the process.

John Templeton is also famous as being one of the pioneers of international investment. At a time when US investors focused mostly on US markets, Templeton was investing all over the world. He searched for bargain stocks wherever he could find them.

This list is 29 things that I learned from Sir John Templeton about investing and investment strategy.

The first 16 are my quick summaries of ideas that come directly from the man himself in a very convenient short book titled 16 Rules for

2022-09-19T10:20:50+00:00April 19th, 2022|
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How To Be A Better Gold Investor

I first became a gold investor because I learned the history of it.

I learned about the thousands of years gold has been money.

I learned about the classical gold standard, Bretton Woods, how Nixon’s closed the gold window 1971 and how the US still holds 8000 tonnes of gold.

I came to understand that gold has been rising ever since Nixon took those famous steps, or rather that the dollar has been falling against gold.

However, I wasn’t a very good investor when I made my first gold purchase. In fact, I bought right at the peak in 2011. I knew the long term gold story and I finally had some spare cash to invest, so I bought.

It turned out to be a bad financial move. I knew it had run up but I thought it was going much higher. A lot of wise heads were saying that the government stimulus in the wake of the GFC would push gold way up.

In the short term they were wrong. It corrected and I got caught out. But I still believe in the thesis

2022-09-27T08:49:43+00:00February 26th, 2022|
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5 Lessons We Can Learn From The Inflation In Ancient Rome

The rise and fall of the Roman Empire is a cautionary tale and one that we can draw many insights from.

It’s quite natural that we look at the story of Ancient Rome and draw comparisons to our American dominated world and wonder whether a similar story will play out for us.

As Glen Bowersock wrote of the Roman Empire:

“We have been obsessed with the fall: it has been valued as an archetype for every perceived decline, and, hence, as a symbol for our own fears.”

For investors in particular there is a lot to learn from the inflation in Rome that ravaged the empire towards the end.

There are parallels we can draw between the debasement of the Roman coinage and the debasement of modern fiat currencies.

We wonder, where along the curve are we?

Are we at the beginning, are we towards the end and what are the consequences going to be?

Will we go down with civil war, economic chaos and foreign invasion and into a long period of civilizational decline, like the Romans?

Or will it be more like the recent example

2022-10-15T01:58:12+00:00January 26th, 2022|
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