What is money? What is wealth? Can you keep yours?
These are concepts that we think we understand, but when pushed for a definition, we have problems coming up with one.
Money has several characteristics: Primarily it is a medium of exchange. It makes trading goods and services a whole lot easier than trying to make a barter agreement of equal value. Money is also a store of value. You can “sell” something today and wait till sometime in the future to “purchase” something without losing value. Money is also a “unit of account” which allows for the systematic, comparative accounting of things over time and place.
Money is a sacred trust. Traditionally, we have relied upon physical things such as gold and silver coins to provide all of the elements of money. You could “trade” an hour of labor today for a silver dollar, and spend that dollar next week for a loaf of bread and more things too.
That system served us well for hundreds of years.
But somewhere along the line we came up with the idea of a piece of paper to represent that silver dollar. We trusted the paper dollar because we knew we could trade it for an actual silver dollar if we wanted to.
In the beginning these paper dollars were issued by private banks.
Some of these banks weren’t trustworthy. They issued more paper dollars than they had in actual physical silver dollars in their vaults. If people thought that this might be true they would go to the bank and demand to trade their paper dollars for real money. We call this a run on the bank. When they would run out of real money to pay out to their depositors, they were forced to close.
This has happened over and over though out our history.
So the world’s governments stepped in and started issuing their own paper money. But this “money” is not exchangeable for real money (gold and silver coins) but it is “Legal Tender” which means you can use it to pay your bills and the person you owe has to take it.
But the governments have been no more responsible than the dishonest bankers from the past. They keep issuing more and more money. As a consequence the “value” of your money goes down. The longer you keep it, the less you can get for it.
So, this leads us into a discussion of WEALTH.
The “concept” of wealth is even more difficult to explain than money. Some define wealth as everything you own minus everything you owe. That’s a good starting point, but wealth is more than that. It is also an asset that can produce something that can be exchanged for money, or “earns” money as time goes by, such as interest on savings, royalties on intellectual property, or the “right” to do something.
But the problem we have is that wealth is primarily defined by money.
If money loses its value, what happens to wealth?
If the wealth is money, it is directly affected. If the wealth is a machine, land, or un-mined resources, it can survive the money problem.
But, if wealth is defined as your assets minus your debts, the money problem might wipe out your assets in the process. If you owe money on your assets, the holders of that debt will want to be paid.
In a crisis we can be sure that that the creditor-class will have political power. They will manipulate things to liberate your assets (transfer of wealth) and make sure they get paid.
In a crisis the only way to make sure you don’t lose your assets is to be debt free and keep your assets out of sight. Maybe you will need a big wall, and even armed guards.
If your assets are paper based or digitally based, there is a good chance they will “evaporate” before your very eyes. Stocks, bonds, and bank accounts will probably go to zero.
If your money disappears, but you still owe your debts, guess what will happen? Your wealth will also disappear.
Remember the GOLDEN RULE. Not the Biblical Golden Rule, but the financial Golden Rule: “He who has the gold makes the rules.”
You may think that this is a “cute” saying, but I guarantee you that it will be the operating rule during a major financial upheaval.
So what should you do?
Firstly, pay off all your debts as quickly as you can.
And then stash away some real money (physical gold and silver). Since paper money will probably disappear, the value of your gold and silver will go through the roof. Ten percent of your current wealth in gold and silver will probably be enough to compensate for your “paper losses.”
And, as in all financial crises, there will be shortages. You won’t need a car or gasoline because there will be no place to go (not to work nor vacation), but you will need food.
Those that have the ability to grow their own food will fare better than everybody else. Excess production can be traded for what you can’t or don’t grow. Barter will become the way business will be done.
No one can say when or if this will happen, but there are a lot of red flags out there. Most national debt (all developed countries and most third-world countries) is beyond the point where it can ever be re-paid. They are talking about a “Re-set.” But that is “code” for a repudiation of all sovereign debt. Not your debt, but their debt. National currencies will probably become worthless.
Most major banks have been accumulating gold and silver. Do they know something you don’t?
Believe me, even after a “re-set" they will expect you to pay your debts. And they will foreclose everything they can.
So what should you do?
Buy a small farm that is off the beaten path. Be as far from big cities as you can.
Get to know your neighbors.
Join or establish a barter club (local). Start bartering. Get used to how it works.
You need to re-think what you know about money and wealth.
If all these governments do a re-set of sovereign debt, everything you think you know about money and wealth will out the window.
Good luck and stay safe.