The Silent (But Severe) Attack on Your Savings

We could all probably agree that money is important; however, one might argue that the purpose of money is even more important to understand than money itself. 

Why was money created? What’s its purpose today? How can we best use it to our advantage?

More importantly – I think it’s vitally important to note the active attack on the average person’s savings, and what we can do about it.

The History of Currency as a Medium of Exchange:

Many are probably familiar with the barter system. In fact, you more than likely used it when you were a child to trade for something you wanted (I’ll give you 3 baseball cards for 2 of your rocks). 

This system worked, but it was rather inefficient. For example, what if you wanted to trade a goat for my 3 chickens, but I didn’t want a goat? You’d be stuck with a goat, and no chickens. 

Currency was the solution for this issue – it acts as a medium of exchange between you and the person you’re trading with. Basically, you can use it to exchange for anything others are willing to sell you. The sellers can then use your currency to purchase items they want.

Gold as a Currency:

Gold quickly became the universal currency or medium of exchange. Why? Because there is a limited supply of it, and it cannot be created or destroyed. There is no way for anyone to tamper with it. An ounce of gold will always be able to purchase things that are worth an ounce of gold – throughout time. Inflation is impossible because gold can not be minted or magically conjured at will. 

The problem, however, is that gold is heavy. It’s rather cumbersome to carry it in your pockets and purchase things with it (even when it’s minted into coins). 

To solve this problem, governments began issuing paper money that was “backed” by gold.

Essentially, being “backed” by gold meant that you could deposit $100 worth of gold into a bank and the bank would give you a $100 note, which signified that you did indeed have $100 worth of gold to exchange. 

When you wished to buy something that was worth $100 of gold, you simply gave the seller your $100 note to signify the exchange of $100 worth of gold. The seller now owned the $100 note and therefore, the $100 worth of gold in the bank. 

Anyone could, at any time, go to a bank and trade these notes in for real, physical, gold. This system provided a few advantages, the main one being that paper is lighter and easier to carry around with you than gold is. 

***For the rest of the article, we’re going to focus on the US dollar because it is largely what the rest of the world’s economies are based on. 

The Introduction of the US Dollar:

Paper money was first introduced to the US in 1690 and has been in circulation ever since. As stated previously, these dollars were backed by gold, meaning that a $100 bill always represented $100 worth of gold. 

If you watch gold prices today (2020 at the time of this post), you know that this is no longer the case. 

We’ll get into that later, but first, I’ll explain what having paper money allowed banks to do.

Since it was extremely rare that everyone would want to withdraw all of their gold at the same time, this gave banks permission to then lend out more US dollar notes than they had gold in the bank. 

Because banks were loaning out more money than was backed by gold, economic panics and runs on the bank became possible. There have been times when everyone started to panic and wanted all of their money withdrawn – all at the same time. This was a problem, because the banks didn’t have 100% of the funds actually in their vault. 

Many felt that the government should “do something” about this problem, especially after the economic downturn in 1907. 

What Happened in 1913?

On December 23rd, 1913, the US Congress established their own central bank and called it The Federal Reserve. It’s important to note that while The Federal Reserve was officially created by the US Congress, the idea was actually drawn up by a group of influential bankers of that time and is privately owned to this day. 

On the surface, this doesn’t appear to be that significant, but the Federal Reserve played a huge role in the depreciation of the US Dollar. 

It was given the power to regulate the money supply, meaning they can artificially inflate the money supply, as well as deflate it, at will. This means that the government now has the authority to print more money at will whenever it wants via Fractional Reserve Banking and inflation.

Inflation via Fractional Reserve Banking:

Although the percentage varies from bank to bank, fractional reserve banking allows banks to loan out more money than they actually have on hand.

For example, let’s say the percentage a bank is legally required to have in their vault is 10%. This means that if you deposit $100 in the bank, they could legally lend out $1,000 to other people based on that initial $100 deposit. 

Put simply, there is now $900 in circulation that technically doesn’t exist. Unfortunately for the average citizen, that simple act of lending out more money than actually exists depreciates the value of their US dollars.

For example, let’s say you’re at an art auction, and everyone in the room has $100 to bid with. Now imagine that I came in and gave you, and a select few others, an extra $900 to bid with. Suddenly, the prices of different art pieces would go up because there are more dollars fighting over the same item. The value of the item didn’t increase, but the price did because people had a greater amount of dollars to bid with. 

When more dollars are in circulation, the value of each individual dollar goes down. This is called inflation. 

1971 – The US Abandons the Gold Standard

In 1971, US President Richard Nixon took the United States off the gold standard. When this happened, pretty much the whole world was taken off the gold standard as well, since many currencies are based on the US dollar. 

No longer needing to be backed by physical gold, paper dollars could be printed freely whenever the government wanted without limit (even outside of fractional reserve banking).

For reference, an item you only needed $1 to buy in 1971 would cost you $6.42 today, and an item that would have cost you $1 in 1913 would require you cough up $26.25 today. 

Why? Because nothing needs to be backed by gold anymore, banks can loan out more than they have on hand, and the US Government can print money to cover its debts without fear of repercussion. The US dollar now only has value because the government enforces its value – it is no longer backed by anything but government force. 

Due to this, the price of gold now fluctuates based on market demand and no longer stays at a constant price 

The Dangers of This System:

Momentarily ignoring the debate of whether or not the creation of the FED or Fractional Reserve Banking was necessary or not, the results are still the same.

Your money is worth less than it used to be. If you stick it in a bank, it’s gaining a bit of interest, but not enough to combat inflation. The average rate of inflation in the US is 3.22% per year, and banks typically pay you 0.06% interest on your savings on average. 

This means your money is losing value much quicker than you’re earning interest. The $100 you have today will only be worth $96.78 next year in terms of buying power. 

Putting your money in a bank to save for your future is no longer enough. By the very nature of the USA’s current system, your dollars are losing their value. They’re not worthless, but they are worth less than they once were, and are becoming less valuable as time goes on.

We’re punishing those who choose to save, and incentivizing others to give in to their desires for instant gratification – plummeting many into crippling debt and monetary slavery.

Why bother fighting a losing battle?

What Can We Do?

Obviously, reverting the system back to the way it was would be ideal, but it isn’t likely to happen anytime soon.

However, there are things that you, as an individual, can do to protect yourself against inflation and slowly work towards a mass movement to solve these problems.

First, educate others. Nothing will change if no one is aware of the issues at hand. Create content, debate others, and present these ideas to your children and your friends.

Second, invest in non-inflatable currencies such as gold and silver (precious metals) and/or cryptocurrencies. 

Gold and silver, as discussed earlier, hold their store of value. Although their prices seem to fluctuate based on the US Dollar, in reality, their value never changes. An ounce of gold is always worth an ounce of gold (roughly), no matter how much time passes. You could use the same ounce of gold to buy the same thing both now, and 100 years ago – unlike the US dollar. 

The same goes for silver. The analogy of “freezing fruit” can be applied here. In order to keep your fruit from rotting, you can freeze it and it will last much longer than if you left it out on your counter. In the same way, investing in gold or silver freezes the value of your funds so they are no longer affected by inflation.

Cryptocurrencies were created in an attempt to get back to a gold standard-type system. For example, Bitcoin was made with the purpose of being inflation-proof in that it is finite (it’s only possible for 21 million Bitcoin to ever be in existence). Many other cryptocurrencies were coined with the same goal.

Although the prices of cryptocurrencies are going up and down like crazy right now, and are not YET a stable store of value like gold, the ultimate goal is that they will be someday.

What Will You Do?

Above all, awareness is the first step. The frog being boiled alive cannot save itself until it first acknowledges it’s being boiled. We cannot stay blind to this attack if we hope to defeat it.

The issue of freedom will always be relevant.

Freedom fighters will always be needed.

The question is not if, but when, you will be asked to join the fight.

Are you ready?

 

Until next time,

Hope Szymanski

 

Photo by Giorgio Trovato on Unsplash