from Birch Gold Group:
Right now, one thing that seems to be in short supply is trust. Almost no one in their right mind trusts what is going on in today’s chaotic economy.
The bad thing about this lack of trust? Most of the global financial system is based on it.
For example, here in the U.S., the Federal Reserve, Treasury and the White House are supposed to preserve that trust when it comes to handling the country’s debt. Right now, they aren’t doing such a good job (especially geopolitically). That devalues the dollar and, as a result, accelerates inflation.
TRUTH LIVES on at https://sgtreport.tv/
Here’s another example: China’s enduring a real estate meltdown right now – mostly because investors handed real estate developers hundreds of billions in downpayments for new construction real estate… Most of which is now half-constructed and fully abandoned. Overall property values were down 33% as of January.
The point I’m making here is that most financial transactions are based on trust! Debts are a promise to pay – you trust the promise. A deposit on a condo is a promise to deliver a finished condo! What happens when the developer goes bankrupt?
When trust vanishes, what are you left with?
That’s a very good question…
Billionaire hedge fund executive Ray Dalio recently asked an important question: Do you have enough non-debt money?
After explaining why pretty much every form of currency is “debt money,” he went on to explain why gold fits the definition of “non-debt” money:
Gold, on the other hand, is a non-debt-backed form of money. It’s like cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation. It is held by central banks and other investors for this reason. In fact, gold is the third-most-held reserve currency by central banks, more so than the [Japanese] yen or [China’s] renminbi.
Put simply, gold is one form of “non-debt” money that is supported during our current “trustless economy.”
To further show why this is the case, we will look to John Exter. He was a member of the Board of Governors of the Federal Reserve, and developed a concept known as “Exeter’s Pyramid.”
Many versions of this pyramid have been visualized over the years (here’s an example) but they all share one thing in common: The higher you climb up the pyramid, the less an asset’s value is tied to reality.
Here is my simplified version of Exeter’s pyramid, showing us the global economy from top to bottom.
I use “notional value” to indicate the approximate total dollar value for each category below – it’s “notional” because if anyone tried to liquidate an entire class of assets, prices would plummet… So we’re using “notional value” to indicate the relative sizes of these different levels of the pyramid.
Here’s what each category means:
But there are also at least three other ways to compare gold with the assets it supports on Exeter’s pyramid:
The “non-debt” strength of gold is further demonstrated when things are chaotic in the global economy. An article on ZeroHedge illustrates just one example of this:
But gold’s share of total reserves is presently on the rise, for one because trust in dollars is eroding due to the freezing of Russian assets worth $300 billion since the war in Ukraine that started in 2022. Second, the United States’ public debt is spiraling out of control while the Federal Reserve can’t get inflation tamed. Central banks are currently buying record amounts of gold and driving up the price.
It’s pretty easy to conclude that central banks are seeking stability, and are buying gold to help stabilize their asset mix.
The good news is, you can follow their lead…
As the world goes deeper into debt, and in the future, if households start to run out of cash in a “trustless” economy…
Then any “synthetic” assets that only fluctuate in value based on speculation could start losing their value. That also means tangible assets you can hold in your hand could become increasingly more important.