The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- One of the most difficult tasks for those of us in the precious metals sector is to explain how and why our paper "fiat currencies" are worthless (or nearly so) to the majority of our populations. The primary reason for this difficulty is the relentless propaganda campaign to attempt to delude us into believing that this fiat paper has value, or at least to confuse the issue to the point where ordinary people don't know what to believe.
I have tried various approaches to pierce this veil of propaganda. I have pointed out how not only currency but any "good" which can be created in infinite quantities and at zero cost is by definition worthless. I then noted that U.S. dollars are currently being created in near infinite amounts -- and at
zero cost (i.e. 0% interest rates).
Separately, I observed that the U.S. dollar is nothing less than a "leaky bucket" when it comes to storing wealth. In the less than 100 years since the
was created to "protect" the U.S. dollar it has lost 98% of its value, with its current rate of depreciation greater than at any other time in history. I have explained that because our fiat currencies are worthless (or nearly so), that as a matter of simple arithmetic this directly implies that
all bonds are nearly worthless as well -- since they are denominated in this worthless paper.
Often, however, the way to convey understanding with respect to an elusive concept is to place it in the context of an analogy. This is especially helpful when attempting to combat the brainwashing effect of serial propaganda, since the analogy will be outside of that web of propaganda. Thus I will attempt to illustrate the stark differences between gold (and silver) and banker paper, through comparing orange juice to Tang -- the orange-flavored beverage.
It is an easy and obvious comparison. On the one hand we have orange juice: a natural substance which is aesthetically pleasing, is "good for us," and because it is something which occurs in nature, it is only available in finite quantities. Proof of its scarcity is seen by simply looking at its steadily rising price. Here in Canada, orange juice prices have risen by more than 30% just in the last year (sound familiar?).
The reason? The supply of orange juice is increasing much more slowly than the paper which we use to pay for it. As a matter of elementary economics (and arithmetic), with the paper supply rising much more quickly than the orange juice supply, orange juice is rapidly becoming relatively more valuable versus our paper currencies.
Then there is Tang: an artificial, chemical-laced, sugar-infused imitation of orange juice. Our natural inclination as human beings is to prefer natural to artificial and to prefer "the real thing" to mere imitations. On that basis alone, the majority of us would clearly view Tang as vastly inferior to orange juice -- despite all of the advertising which proclaimed to us that Tang was "the orange drink of astronauts."
Then there is supply. Unlike orange juice, Tang can be produced in near infinite quantities. The chemicals which go into Tang can be manufactured to exceed any possible level of demand, and should we ever run out of sugar there is always imitation sugar to replace that as well. Consequently, not only do we view Tang as being obviously inferior to orange juice, but as a matter of basic economics we expect orange juice to continue to become relatively more and more valuable in relation to Tang.
To this point, I have already provided two irrefutable bases for preferring orange juice to Tang, and most importantly those arguments translate precisely into a comparison between gold (and silver) and paper money. However, beyond those reasons, the rapacious bankers have given us an even bigger reason for shunning their fiat paper:
Now let's take our comparison of orange juice and Tang out into "the real world." Let us assume that we are at some entertainment event, where the only two beverages available to the (thirsty) audience are orange juice and Tang. Let us further assume that for some totally irrational reason that initially people have an identical level of preference for orange juice and Tang -- in other words, they start off purchasing both beverages equally.
However, the vendor selling the beverages is especially greedy, and having his beverage monopoly, he decides to take advantage of that fact. Instead of mixing his Tang with the proper proportion of water, the vendor starts adding more and more water to the Tang.
At first, the Tang-lovers don't notice the slight deterioration in flavor, but it doesn't take long for them to realize that their Tang is getting more and more watered down (i.e. diluted). The greedy vendor ignores the grumblings about the watered-down Tang, and continues to dilute it more and more and more. Soon, the Tang tastes like nothing more than colored water. No one wants Tang, and (suddenly) everyone wants orange juice. The Tang has become worthless.
Once again we have an analogy which translates precisely into a comparison of gold with paper currency. Year after year, the bankers have been increasing their supply of paper currencies at a much greater rate than our economies have been growing. Put another way, our "money" is increasing much faster than our wealth.
As a matter of the simplest arithmetic, we know this to be impossible...unless that "money" is steadily getting more and more diluted. With the supplies of our paper currencies currently increasing at roughly ten times the rate of Western economic growth (i.e. the growth in wealth), the mathematical result of this process is irrefutable: our paper currencies will soon only have one-tenth their current value.
Just as savvy beverage drinkers will inevitably shun excessively diluted Tang, eventually our deluded masses will figure out the bankers' paper scam -- and react accordingly. There is a very precise name for this economic phenomenon:
hyperinflation, where paper fiat currencies go to zero.
The initial "trickle" of people dumping their worthless paper for (valuable) gold quickly turns into a stampede, and that stampede evolves even more quickly into an all-out panic. At that point, we will be long past any help. As soon as we reach the point where people refuse to accept this worthless paper then it will officially acquire its real value -- zero.
Down through the centuries, our species has acquired a single cliché which more than any other we use to denote value in any item: "as good as gold." Despite the fact that the bankers have been foisting their fiat paper money on us (off and on) for more than a thousand years, no one has ever come up with the expression "as good as paper." Hopefully readers now understand why.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.