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Ever since the renaissance, nations have used Gold as the de facto reserve currency in one way or another.
Way before the renaissance, one of the reasons why the Byzantine empire survived wa…
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Ever since the renaissance, nations have used Gold as the de facto reserve currency in one way or another.
Way before the renaissance, one of the reasons why the Byzantine empire survived was because they were forced to adopt Gold as a currency since Hordes arriving at Constantinople could be dealt with by bribing them rather than by fighting them, and the Barbarians demanded Gold as payment.
The Western Roman Empire on the other hand suffered from hyperinflation as a result of debasement of the Denarius - the silver coinage they used - and was never able to regain its stability.
OK, what's so special about Gold?
Well, gold is a natural currency because of its high stock to flow ratio (i.e. the mined stock per year is too small relative to the existing stock).
This gives Gold a yearly inflation of around 1.5%
The problem with Gold as a currency is that it is difficult to transport and protect.
In fact, the Byzantines adopted Gold as the official currency but the public still had a fiat currency for everything except paying taxes.
Therefore, to pay taxes people needed to exchange fiat for Gold and then pay the taxes in Gold.
This gave the Government in the Eastern Roman Empire the ability to balance the budgets on a currency with 1.5% yearly inflation.
So Europe ends up getting out of the Dark Ages and Gold is once again a currency, then Spain discovers the Americas and brings lots of Gold back to Europe.
This sudden introduction of Gold ironically led to high inflation and effectively destroyed its economy.
However, it also gave Europe as a whole a Golden Age as a stable and now abundant currency was introduced.
Eventually in the 19th and 20th Century, Gold was used as the reserve of fiat currencies.
This meant that Governments were forced to balance budgets, since they could not print more Gold.
At the Bretton Woods Conference, instead of Bancor something different happened.
There was a new currency Chad in town.
The US Dollar was adopted as the Reserve Currency, backed by Gold, and all other currencies were going to be backed by the US Dollar.
In the case of a war with Soviets, the US could inflate the US Dollar and break the parity to finance the defense of Europe if needed.
But that did not happen of course.
What did happen is that after the Korean War and the Vietnam War and the increase in domestic spending, the US Dollar broke parity with Gold.
This was all fine up until a certain point.
The US Dollar was convertible to Gold and countries such as France demanded the Gold in exchange for US Dollars.
The Game Theory behind Bretton Woods was simple:
Nations WERE FORCED to balance budgets since they could not print US Dollars,
and the United States WAS FORCED to balance budgets since it could not print Gold.
However, in 1971, to prevent other Nations from completely draining US Gold Reserves, President Richard Nixon halted the convertibility of US Dollars for Gold.
This was the end of the Gold Standard, and the world entered into something that hadn't happened since the Dark Ages:
A system based on nothing, the United States could print whatever it wanted and other countries could also print what they wanted since now all countries were floating against each other.
Now, this is fine as long as there is demand for those inflated currencies, if the velocity of money goes up it is, to an extent, irrelevant how much you print since the demand for said currency also goes up.
The problem is that disconnecting currency from gold, which had natural low inflation, caused massive damage from a game theory perspective because:
1 - Politicians could inflate without problem
2 - Balancing budgets became irrelevant
3 - They could change the definition of inflation to hide it.
This is happening because currency was disconnected from a real good with real inflation - GOLD!
Since 1971 we have been living in an insane experiment, and the troubling aspect for some is that the asset owners benefit from this experiment which is leading society to feudalism.
UBI is just feudalism where instead of paying your Lord every year the inflation they create is the tribute you pay.
Really take notice of the US Dollar Index and the price of Bitcoin.
Something serious is brewing...
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Beat Breakdown - Mathematics by Mos Def (prod. DJ Premier)
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