2024-05-09 16:20:01 ET
Summary
- The pure fiat system is showing signs of instability as distortions in asset valuations and the value of economic output.
- The correlation between rising oil prices and increasing US deficits suggests that the pure fiat system relies on avoiding scarcity issues.
- Scarcity issues are emerging, leading to inflationary pressures and unsustainable deficits, creating a debt trap for the US economy.
- Developing nations have an interest in ending the pure fiat financial system that is dominated by Western currencies because the current system favors Developed world consumers.
- Gold-backed as well as other assets-based currencies are likely to emerge in various forms, including cryptocurrencies, and it is likely to start with developing nations that have an interest in making the switch.
Investment thesis: Just over half a century after the Nixon administration cut the last direct link between gold and the emerging pure fiat global financial system, it may seem outright dubious to question still the viability of the pure fiat system that the global economy universally adopted. The recent economic & fiscal news, however, suggest that the pure fiat experiment will end up being a short one by historical standards, and a return to the tangible economy is already underway. Significant distortions in the valuations of assets and the value of economic output are appearing in the global economy. They can no longer be ignored, nor can the distortions continue indefinitely. If I am correct and a fiat system-ending crisis point is upon us, tangible assets are the only haven and mechanism of wealth preservation, with gold ( XAUUSD:CUR ) being one of them, and perhaps the most important one among them. If I am correct, I believe there is likely no upper limit to the value of gold when measured in fiat terms.
Pure fiat currencies maintain an advantage as transactional intermediaries, but it lost a store of value role, relative to key commodities; Gold has more than kept up with commodities prices
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As The Pure Fiat Financial System Creaks, Gold's Upside Could Be Substantial