Changes to Money Lead to a Paradigm Shift in Investing

Money has an extensive history and has changed a lot throughout the decades. In recent times monetary policies around the world have led to big shifts in wealth.

Time of the Gold Standard

Through merchant use, gold (and silver) becomes internationally used money. In the course of the 19th century, national currencies were finally established, which were redeemable into gold. This was the time of the classic gold standard, which went down in history as "La Belle Époque".

Cutting the Gold Anchor

After the world wars, states gradually abandoned the path of the gold standard. On August 15, 1971 the gold window is finally closed. The consequence is the abolition of dollar convertibility into gold. The world now lives under a fiat standard where government money is no longer tied to any real value.

Devaluation war of fiat currencies

Without a gold anchor, fiat currencies are in free exchange with each other. Since fiat currencies are ultimately always the currency of a nation's economy, states and economic actors have an interest in debasing their currency in order to be more competitive vis-à-vis other government currencies. Fiat currencies fighting a mutual "race to the bottom" in which savers are losing out.

Ongoing monetisation of debt

This devaluation battle is financed by central banks, which monetise the debts of states. At the same time, the balance sheets of central banks are rising more and more, which ultimately means that more and more base money is in circulation.

OECD Money Supply (M3) in USD Trillions
Source: OECD

In the search for investment opportunities, the constantly newly created money penetrates ever deeper into the economic structure. As a consequence of a never-ending intervention spiral, more and more economic players are confronted with zero to negative interest rates. The zero interest rate trap is striking ever more bitterly.

Negative interest rates are a reality

OECD Interest Rates in %
Source: OECD

The loss of purchasing power is real

One US dollar has lost around 50 percent of its purchasing power in the last 25 years, while other fiat currencies are in no way inferior to it. Although the loss of purchasing power is creeping, it is fatal over decades. Fiat money and bank deposits are becoming increasingly worthless.

1970 $0.25
1995 $0.80
2020 $1.61

Welcome to Monetary Socialism

Helicopter money and approaches like that of "Modern Monetary Theory" are becoming more and more likely. Money as we know it is thus deprived of any sense and meaning. The flight from fiat currencies to real values such as stocks, precious metals, art or bitcoin will accelerate. Advancing technology is likely to further accelerate the transition from worthless money to these real values.