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THE
ROCKET SCHOOL OF ECONOMICS


What came first?
by Professor von Braun

March 30th, 2006

In this technological and electronic age of instant everythings we tend to forget that fiat currencies are a product of the banking system and are a means to facilitate trade, trade in commodities in particular.

The commodities came first and for many years currencies were commodity-backed, backed by gold and/or silver, and redeemable for gold and silver.

For some time now we have had a monetary system that is backed by nothing other than a promise to pay a promise. So far it appears to have worked and peoples 'wealth' is calculated in the coin of the realm, in most cases, the US dollar. This 'wealth' consists of real estate, stocks and bonds, and ownership of tangibles or hard assets has been discouraged by the banking/political system for some time.

Currently we are seeing commodities at or near all-time price levels in terms of the price paid. Numerous 'reasons' such as economic demand, shortages in supply, China, the weather, etc., are being given by the pundits as to why this is so.

What we are now seeing is a diversification by the 'smart' money people, away from paper assets into hard assets -- a back to the basic's move if you wish, whereby the risk of a debacle in the banking system is being recognized and reduced in part by a move into the more traditional hard assets. The investing public, it seems, are oblivious to this event -- having been distracted by cell phones, the internet, CNBC, rising real estate prices, promises of pensions and medical care, and a complete lack of understanding of what a fiat monetary system actually is.

Meanwhile the Central Bankers, all whom have signed on to the idea of print, print, print are powerless when it comes to rectifying the situation that they are now facing. Having created a banking system based or built on the production of hard assets, then removing the promise to redeem in gold aspect, the only remaining option is to inflate or die. And that option is becoming increasingly over used.

Even the idea of diversification is perhaps better described as having no choice other than to secure commodities, since there is not a viable monetary system anywhere on this planet that offers an alternative to the dollar.

Rising commodity prices are signaling both the recognition of the inherent weakness of paper currencies and the urgent need to do something about the situation; in this case, an out of control banking system that does nothing other than inflate and destroy real wealth.

Being concerned about interest rates, or collapsing real estate prices, or declining stock markets, or a dollar collapse is in this writer's view a red herring.

The real game that is now being played is "What will you have left when it's all over?" It better be something tangible and non-perishable, something that some other party actually has a need for. And that something is commodities. The purchase of precious metals, both gold and silver has been (and still is) recommended for some time with the proviso that one takes delivery. Owning commodities (with possession) removes the inherent liability connected to paper assets. Various investment fads may come and go but commodities are the base upon which industrial production is built. Regardless of what is being produced, a metal component is required.

Promises to pay promises to pay, often referred to as non-redeemable IOU's, are not going to help your portfolio of assets, especially when there is no demand for them.


The Prof can be contacted by email at profvonb2@aol.com

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

  • 22 May 2009 -- An Often Overlooked Issue!
  • 28 Mar 2009 -- Problematic Banking Systems!
  • 14 Nov 2008 -- What Exactly is an Asset?
  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
  • 26 May 2008 -- Back to Basics Again!
  • 31 Mar 2008 -- The Broken Watch -- Part 2.
  • 27 Mar 2008 -- The Broken Watch -- Part 1.
  • 06 Feb 2008 -- The Financial Equivalent of Faulty Towers.
  • 10 Dec 2007 -- Monetary Systems & Productive Assets.
  • 14 Feb 2007 -- Divorced from Reality
  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
  • 19 Jun 2006 -- When is a Reserve Not a Reserve?
  • 31 May 2006 -- The significance of August 15, 1971.
  • 08 Apr 2006 -- Keep Your Eye on the Ball!
  • 30 Mar 2006 -- What came first?
  • 11 Mar 2006 -- An Unanswered Question.
  • 08 Jan 2006 -- Where have all the projects gone!
  • 11 Dec 2005 -- Gorillas, Rising Gold Prices and Depreciating Paper Currencies!
  • 23 Oct 2005 -- Custodial Risk.
  • 16 Sep 2005 -- An Inherent Flaw.
  • 08 Aug 2005 -- Central Banks and 'Reserves'.
  • 31 Jul 2005 -- Central Bankers, Actors and 'We'.
  • 17 Jul 2005 -- Unintended Consequences! -- Part 3.
  • 07 Jul 2005 -- Unintended Consequences! -- Part 2.
  • 25 Jun 2005 -- Unintended Consequences! -- Part 1.
  • 14 Jun 2005 -- The Two Greater Fools Theory.
  • 03 Jun 2005 -- Real Money, Funny Money and YOU -- Part 4.
  • 30 May 2005 -- Real Money, Funny Money and YOU -- Part 3.
  • 26 May 2005 -- Real Money, Funny Money and YOU -- Part 2.
  • 21 May 2005 -- Real Money, Funny Money and YOU -- Part 1.
  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
  • 10 Jun 2002 -- Gold Bugs Beware!
  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
  • 20 Oct 2001 -- The Storm Clouds are Gathering.
  • 30 Sep 2001 -- What to Say?
  • 01 Jul 2001 -- ...Said the Fly to the Spider.
  • 14 Jun 2001 -- Upward and Downward!
  • 28 May 2001 -- Volatility Time, Again!
  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
  • 20 Feb 2001 -- Who Put the Holes in the Swiss Cheese?
  • 22 Jan 2001 -- US Dollar Admits Identity Crisis!
  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
  • 25 Mar 2000 -- Where To From Here?
  • 18 Mar 2000 -- The Gnomes of Zurich
  • 12 Mar 2000 -- The "New" Economy??
  • 06 Mar 2000 -- Two Questions
  • 04 Mar 2000 -- Iceberg Dead Ahead!
  • 28 Feb 2000 -- The Wizard of Oz
  • 06 Feb 2000 -- Here We Go Again!!
  • 15 Jan 2000 -- Comments on the Gold Market
  • 29 Dec 1999 -- No Raw Ingredients Required
  • 28 Dec 1999 -- No Way Out
  • 14 Dec 1999 -- Ho, Ho, Ho!
  • 07 Dec 1999 -- Greenspan's Bubble
  • 03 Dec 1999 -- Early Warning Signs


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