Gold Is the Solution for Financial Crises — Not the Cause

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by Peter Schiff, Schiff Gold:

Most people have a sense of history that goes back about two weeks. This is especially true in the world of investing and finance. As a result, people have a hard time seeing the big picture. For instance, a lot of people think the current inflation crisis was only due to the Fed failing to respond fast enough. As Peter Schiff pointed out, this inflation was in fact decades in the making.

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And as James Anthony pointed out, the current inflation problem along with all of the big economic crises that occurred in the 20th and 21st centuries have one commonality — progressive government coupled with monetary policies run by the Federal Reserve.

These government-created crises include the Great Depression, Great Inflation I, the 2008 financial crisis and the unfolding Great Inflation II. Anthony concludes that they were all “caused and perpetuated by hyperactive Progressive government. In the past crises, holding gold would have conserved savings and provided added returns.”

The following was originally published by the Mises Wire. The opinions expressed are the author’s and don’t necessarily reflect those of Peter Schiff or SchiffGold.

The Great Depression came about when the Progressives’ newly-spawned Fed, having first greatly increased the quantity of money throughout World War I, again increased the quantity of money throughout the 1920s, by 62 percent (for details on figures, see table below). There was considerable innovation-driven growth already, but this new money created out of thin air created an unsustainable boom.

Progressive regulation of utilities, which at the time were high-tech and high-growth, sparked a stock market crash. Projects failed, businesses failed, and banks failed, ruining borrowers. Both parties‘ politicians then blocked product prices and wages from being decreased in sync, which had been done throughout the remarkably-similar 1839-1843 crisis deflation and had allowed workers to keep working and investors to keep earning returns. Investors saw that the Progressive, newly-hyperactive government could eliminate their returns or confiscate their returns, so investors rationally held back on new projects. Tragically for individuals, the Progressive government controlled the price of gold and started treating it as illegal for unlicensed individuals to hold gold.

Great Inflation I came about when the Fed increased the quantity of money in the 1960s and 1970s by 176 percent. Starting in the 1970s, both parties’ politicians significantly blocked corresponding increases in prices and wages. Investors again saw that the Progressive government could eliminate their returns, so investors rationally flocked to savings-conserving assets, including gold from 1975 on, once conservatives in government again started honoring it as legal for unlicensed individuals to hold gold. Sadly, Progressives in government meanwhile started treating the inflation-driven increases in the dollar prices of gold not as holdings of constitutional money or as conserved savings but instead as taxable capital gains.

The Financial Crisis occurred when the Fed increased the quantity of money from 1995 to 2007 by 128 percent. The Progressive government also leaned on its financial cronies to lend mortgages to crony voters who were at serious risk of default and then bailed out almost all of its financial cronies. The initial increase in consumer prices was echoed and outpaced by the increase in the price of gold.

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