The biggest company in the whole wide world started off as a custodial business for physical gold and silver. People entrusted the company with their physical gold and silver in exchange for paper IOUs which they could use to barter for goods and services. In 1944, the company held more gold and silver than any other company on earth. With this clout, it was able to convince all the other companies in existence to deposit their gold and silver and use its IOUs for goods and services.
Over time, the company started printing many more IOUs than they had gold and silver in its trust. When other companies realized this, they were shocked and started exchanging their IOUs for physical gold at the fixed price of $35 per ounce. This went on for awhile until one day in 1971, the president of the company declared in no exact terms, We can no longer exchange your IOUs for gold and silver. Paper IOUs have great value and can stand on their own. There’s no need for gold and silver anymore. But rest assured that your IOUs are backed by our full faith and credit.
From that day forward, their business stopped being custodial. It became an empire whose number one business was to protect its IOUs by making them appear intrinsically valuable and very important for all the companies and people in the world. They built up a strong military to assure their IOUs were never threatened while they continued to grow as the biggest financial company in global history. The more people who used their IOUs, the more power the company garnered. They set rules and found ways to make their IOUs exclusive, punishing people who went out of bounds.
Fast forward to 2019—the IOUs are still backed by the faith and credit of the company, 22 trillion in debt to be exact, and the company still has the world convinced that its IOUs, bonds, and bills are safe assets. People still believe that the IOUs from this company are valuable, even when its debt cannot be repaid. The company is so great and powerful that it can claim its loans as assets (see balance sheet below), unlike anyone else in the world. Who would have guessed that a worthless IOU could become so valuable? < Unbelievably, there seems no end to people supporting the company and its IOUs. These IOUs are still considered ultra safe assets. But nobody stops to ask why. Why is a Treasury Bond or Bill an asset when it has no real collateral? What is stopping the company from filing for bankruptcy? Why does the balance sheet say “gold certificate account” if there are supposedly vaults with physical gold bars? Why has an audit not been done since Eisenhower? You must admit, there’s a lot that doesn’t make sense. It looks like a giant pyramid scheme.
What’s next? Bitcoin is nice idea, but it’s not on the sovereign balance sheets of nations like gold and takes an enormous amount of electricity to run. Plus, there are hundreds of other cryptos vying for competition. To me, they all look like chips in a casino. How do you value a casino chip? That’s how you value Bitcoin. Bitcoin is not gold or the gold coin that it displays as a trademark. Its value is driven by and dependent on other people who buy and sell it. People are buying and selling it to speculate in big money, not because they are interested in a safe haven asset or in using Bitcoin in the future as a currency. Bitcoin is not sustainable; it is a pump and dump idea.
Right now there is no better safe haven than gold. The “company” may push the price down with electronic “gold contracts” that they have invented to control the perception of their IOU, but at some point their ever-increasing debt will default and destroy everything. Then gold will soar to the moon.