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Anatomy of a fiat currency collapse

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EDITOR'S NOTE: this article is an extensive one, which we encourage you to read, re-read and then read again for clarity. Now you know WHY we have been proclaiming articles, podcasts, videos and newsletter emails about Venezuela, Argentina and other fiat currency collapses and the horrific effects these pose on regular, every-day citizens.  All we can do is sound the alarm - getting out of the burning building is your responsibility as a reasonable, able-bodied adult.


This article asserts that infinite money-printing is set to destroy fiat currencies far quicker than might be generally thought. This final act of monetary destruction follows a 98% loss of purchasing power for dollars since the London gold pool failed. And now the Fed and other major central banks are committing to an accelerated, infinite monetary debasement to underwrite their entire private sectors and their governments’ spending, to prop up bond markets and therefore all financial asset prices.

It repeats the mistakes of John Law in France three hundred years ago almost to the letter, but this time on a global scale. History, economic theory and even common sense tell us governments and their central banks will rapidly destroy their currencies. So that we can see how to protect ourselves from this monetary madness, we dig into history for guidance to see who benefited from the Austrian and German hyperinflations of 1922-23, and how fortunes were made and lost.


The way inflation is commonly presented by modern economists, as a rise in the general level of prices, is incorrect. The classical, pre-Keynesian definition is that inflation is an increase in the quantity of money which can be expected to be reflected in higher prices. For consistency and to understand the theory of money and credit we must adhere strictly to the proper definition. The effect on prices is one of a number of consequences, and is not inflation.

The effect of an increase in the quantity of money and credit in circulation on prices is dependent on the aggregate human response. In a nation of savers, an increase in the money quantity is likely to add to savers’ bank balances instead of it all being spent, in which case the route to circulation favours lending for the purpose of industrial investment. Product innovation, more efficient production and competitive prices result; and a price countertrend is introduced, whereby many prices will tend to fall, despite the increase in the money-quantity.

We see this effect in electronic and other goods emanating from savings-driven economies in East Asia, notably Japan and China. But in economies where savings have been discouraged, particularly in America and the UK, there is less investment in production and a greater emphasis on imported goods. Immediate consumption dominates, and increased quantities of money in consumers’ hands inevitably lead to a rise in the general price level of commonly demanded consumer goods.

In a world-wide fiat currency collapse, different savings characteristics between nations can be expected to lead to variations in the speed and timing of the decline of purchasing power between different currencies. We address this point later in this article and the consequences thereof. But a more immediate difficulty for observers is the habit of unquestionably accepting government measures of the general level of prices and incorrectly calling it inflation.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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