QUESTION: Mr. Armstrong,
I have been following you for a few years now and am impressed with your historical perspective in all areas of finance.
We are currently in some interesting times indeed. I see so many bloggers stating that there is going to be either an outright gold standard, or some form thereof.
I really don’t see that happening in any form. The powers that be all across the world love the current system (faults and all). It allows them to skim profits in so many aspects of our lives that I can’t see them allowing any other monetary system to be established.
If you were to gaze into your crystal ball, what will be money out into the future? How will the monetary system be structured (if any different than currently in place)?
You have mentioned the possibility of a two-tiered system in the past. US $ for local transactions (either paper or digital) and another for international transactions. Perhaps backed by gold?
I am most interested in your view for the U.S.
Regards,
DI
ANSWER: The Goldbugs hate my guts for saying this, but money is like a share. Its value depends entirely upon safe and contented capital. Money rises and falls in value depending upon CONFIDENCE, not what it actually is. It has NEVER been tangible and it never will be. That is a pipe-dream that is totally unrealistic. Even Jean Baptiste Say (1767-1832) argued that people would not hoard money because states routinely debased their coinage. This was Gresham’s Law, that bad money drove good money out of circulation, meaning debasement. Henry VIII (1509-1547) was notorious for his debasement. Gresham advised his daughter,Elizabeth I (1558-1603) and made the observation how people did not recognize the debased coinage and this forced prices to rise.
These people do not even understand that when money was gold, it still rose and fell in purchasing power with the business cycle. Just because gold coin was money, did not stabilize the economy. There is absolutely no empirical evidence that the nonsense they preach is even true. We have a gold standard under Bretton Woods starting in 1944 and it still collapsed. So what is this obsession with a gold standard? Pure ignorance?
Money is really the productive capacity of a nation. Proof of that statement was that Japan became the second largest economy in the world without gold and with importing raw materials including oil. Their landmass was tiny, but it was their productive capacity that proved to be the Wealth of the Nation – not gold.
The future of money is purely digital. Look at the younger generation. They pay at Starbucks with their cell phone. I myself find I am using cash infrequently. It is easier to pay with plastic and I do not get pockets full of coins. Cars displaced buggies. EMail is displacing letters. Digital money is displacing cash. Sorry – but that is the trend and there is no reason to return to a gold standard that never worked. Gold will be a private hedge – not governmental.
