EDITOR NOTE: It’s evident that the fiat system has resulted in reckless money printing--its effects to be found in price distortions, excessive debt levels, financial bubbles, wealth inequality, and more. The global financial system is highly unstable, and there will be a breaking point; it's just a matter of time. More fiat--and that includes digital money in the form of “stable” coins--will not resolve the situation; in fact, it will make things worse. The solution is clear: a global reset to a new Gold Standard (which, in case you didn’t know, includes silver). Yes, it sounds like an excessively disruptive prospect. But given our current situation, it’s likely the only solution that’ll work. No currency, completely unbacked by real money, has ever survived for long. There’s no reason to think that this time will be any different.
Excessive monetary stimulus, a by-product of an “undisciplined” fiat money system, will create problems for our economy as well as financial distortions, and the long-term solution is a monetary “reset,” whereby economies move away from this system and re-adopt a gold standard, said Jan Nieuwenhuijs, gold analyst at The Gold Observer.
“There are a lot of financial bubbles, there are excessive debt levels, inequality is rising, you’ve got moral hazards, all these side effects of a fiat money standard are not really what we want, and eventually we get a lot of monetary instability and I think then at that point we have to get back to a gold standard,” Nieuwenhuijs told Kitco News.
The transition from the current fiat monetary system to a gold standard has to first address the debt overhang in our economy, Nieuwenhuijs said.
“The main problem we have in the economy right now is the massive debt overhang, predominantly in the developed nations, government debt but also corporate debt and private debt, just is very high, it’s at record levels,” he said.
A potential gold standard could take several forms.
“There are several options for a gold standard, you have the classical gold standard, but you also have a gold price targeting by central banks,” he said. “If you get gold price targeting, the only thing the central banks would do is target the price of gold and that would be their monetary policy,” he said.
A gold price targeting mechanism differs from a classical form of gold standard which would allow a direct conversion of fiat notes to gold.
Currently, countries around the world are on a race to the bottom with devaluing their currencies, and Nieuwenhuijs said that this is an attempt to raise inflation rates, and indirectly reduce the value of debt still in the economy.
“Devaluing against other nations can be beneficial sometimes, but what they actually want in the U.S. and in Europe, but also in Japan, is consumer price inflation, and preferably with interest rates at or below zero, deeply negative real interest rates, [this would] wash away and lower the debt burden,” he said.
On silver, Nieuwenhuijs said that the white metal should be considered a currency more than a commodity due to its high stock-to-flow ratio, and therefore, analyzing supply and demand is not useful for predicting prices.
Originally posted on Kitco