I’ve seen lots of YouTube videos by “stackers”, basically people who have their savings in silver and gold, who talk about the incoming “reset”, the event where fiat currency will undergo hyperinflation and the value of gold will skyrocket, and the value of silver will rise to parity with gold, which will make them all rich and they will be the new financial elite.

This all sounds like something only an American could believe or take seriously. Let me explain why I think so.

Yes, in times of hyperinflation it is realistic to expect that an ounce of gold will cost a million dollars. However, it’s also realistic to expect that a loaf of bread will cost ten thousand dollars. Basically, what happens in hyperinflation is that the currency goes down in free fall, the prices of all retail products are revised upwards several times a day, there are shortages of all products in the stores because the producers are taking heavy losses due to inflation and basically doesn’t make sense to sell anything at those prices because if you negotiate the prices at the beginning of the month and you are paid at the end of the month, by the time you get the money it’s no longer worth anything. In theory, you could circumvent this by anchoring the prices to some hard currency, or precious metals if there no longer is a hard currency anywhere, but the state will not allow this because it will prevent anything other than its own currency from being accepted as legal tender. This is why black markets flourish in times of hyperinflation, because people who sell on the black market don’t care much about what the state would want, they will price things in hard currency, and the prices will be actually higher than they are today, measured in gold or silver, because they will be increased by scarcity and black market premiums. In the best possible scenario, a 1oz silver coin will buy exactly as much stuff as it would today, minus a black market premium charged by smugglers, and possibly minus a premium charged by the precious metals dealers who will exploit the situation to earn exorbitant profits. I actually made a small research here in Zagreb, and compared the purchase prices for gold bullion between a legitimate precious metals dealer (the one I currently buy from), and a chain of pawn shops that buys precious metals from the uninformed populace on the street. It’s around 20% of a difference, and the legitimate gold dealer isn’t doing it for free either, so you can imagine how bad the pawn shop is, and that is most likely what we will have access to in times of extreme crisis, and the prices will be worse than they are today. If you think I’m painting a depressing picture, just have in mind that I lived through the hyperinflation of the Yugoslav dinar, and hyperinflation of the Croatian dinar, I learned to think in German marks early on, as we all did, and I learned to manage the retail shortages and black markets, as we all did, with the little money we had. So, unlike the Americans on YouTube, I actually know what I’m talking about. It’s still difficult for me to shake the habit of spending my earnings immediately because they’ll be worthless by the end of the month, and the currency has been quite steady for the last 20 or so years.

There’s another aspect of the hyperinflation economy that’s unimaginable to the Americans, who are used to thinking in terms of investment in stocks and bonds and saving for retirement in domestic currency, who think in terms of 30 year mortgages and long-term financial planning, and that’s the fact that prices are revised upwards hourly, and your pay is revised upward monthly. All savings in domestic currency become instantly worthless. Working a steady job for a monthly pay check becomes a matter of slavery where the pay check doesn’t even cover the price of public transport to work. If you don’t change your pay check into hard currency at the beginning of the month, and then change small amounts into domestic currency daily, on demand and just in time, by the end of the month your pay check would buy you a loaf of bread or a roll of toilet paper. Every time you change from or to hard currency, you need to go through the black market people, who charge exorbitant fees, or you can go to the bank where the exchange rate is some laughable number the state would want you to believe in, and nobody in his right mind would buy or sell at those rates. The first think you lose in hyperinflation is the ability to think long term, and to plan finances strategically. You do everything on a daily or even hourly basis, you spend the money instantly because savings kill, and currency exchange robs you of a significant percentage. And I’m talking about a localized hyperinflation, where your currency is debased but everybody else’s is fine. The German mark was fine, the US dollar was fine, the Swiss frank was fine. Those were money; dinar was toilet paper, but it was the only currency accepted in the stores. On the black market, however, you paid in German marks. Also, the freelance work you did was paid in German marks, and *everybody* did freelance work if they wanted to eat and pay the bills, and they kept their “day job” only pro forma, and they put in only formal effort, which additionally contributed to the collapse of economy.

Yes, people who had hard currency because they worked abroad were the only ones well off, but that had more to do with them generating income in hard currency, not with them having savings in hard currency. Any amount of savings will eventually be spent on expenses, that’s the reality of it.

So, what happens when nobody has income in hard currency, because nobody is getting paid in gold or silver now, and I seriously doubt that will change significantly in periods that might make a difference? One projection is that everybody will be fucked, the entire global economy will have to be restructured very quickly or the breakdown will result in 6 billion people dying of hunger, violence, poor medical care and poor hygiene in a catastrophe approximating the worst-estimates of a full-exchange nuclear war. Imagine the collapse of the Soviet Union, collapse and civil war in Yugoslavia, and Iraq after its infrastructure was destroyed by America, and you’ll get a realistic assessment of what that would look like in the initial phases, from which it would get worse.

There is another possibility, and that’s the one stackers are hoping for, and that’s the reset of the global economic system, which would wipe out all derivative assets in something similar to the 2008 crisis, wipe out most of the value of USD and all national currencies backed by USD bonds or other USD derivatives, which means EUR would be hurt worse than the USD, and GBP would be hurt worse than the EUR. This ratio is already visible in the gold price per currency; USD is actually hurting the least because EUR has all the USD problems plus their own, and GBP has all the EUR problems plus their own. At a certain point, some form of gold standard will be established, with partial backing of currency with gold, which will revise the price of gold upwards to the amount necessary to back the monetary mass in circulation, and that’s the point where everybody holding physical gold might actually get rich, if the retail prices of goods and services follow the paper currency and not gold, which is a rather large “if”. There are some indications that this might be going on, because at this point the price of gold is actually rising steeper than the perceived inflation, but this might all collapse at some point because that’s what currency collapses look like: at first, due to inertia nothing seems to happen. Then the prices start going up slowly, and then they start going up like crazy, and at the point where people writing main stream news start getting it, it’s already doomsday.

There’s also the expectation that bitcoin will be the new gold and those holding the bitcoins will be the new elite. Bitcoin, as well as the entire crypto asset class, will be the first thing to be wiped out. The only thing that gives them value is perceived ability to convert them into fiat currency and other assets. This is one American decree from being blocked and then crypto will have as much value as all the other things on America’s sanctioned list. Payment industry insiders would know what that looks like. I’m what you would call a payment industry insider.

Another expectation is for silver to rise from its current 90:1 ratio relative to gold, to something closer to the historic 16:1, even 12:1 from Roman times; silver is some 17 times more naturally abundant than gold, and is a byproduct of gold mining. There are valid arguments that point to relative scarcity of silver, great potential demand, and the current price ratio that is far below historic values, however there are also the arguments for the opposite: the current demand for silver is around 60% industrial, which means that the collapse of industry and trade wars might reduce the industrial demand for silver, and the people with actual money no longer take silver seriously as a monetary metal, and their entire focus is on gold. Also, the reason why silver was historically regarded as a monetary metal is because it serves as a good material for making smaller-denomination coins, because gold is too valuable to be practical for that purpose. However, in modern times I expect the means of payment to be completely digital, which will remove the need for circulating the lesser-value monetary metals altogether. Also, I expect gold to be only a part of the currency backing, because the gold-only system would be too constrictive and ill suited for the needs of an expanding economy, which will mean that mortgages and similar forms of currency-backing with tradable economic assets will persist. Also, other metals might serve a role in currency backing, also because there simply isn’t enough gold for backing the modern economy the way it used to. However, the precious metals will serve a much more prominent role in currency backing after the inevitable demise of the USD and all derivative currencies. Even the people who currently hold gold and silver will eventually be provided a service by the banks where they will deposit their precious metals into the bank, and spend it with a debit card that will dynamically charge their gold balance. This will be more economical than exchanging gold bullion at the pawn shops or other dubious places, and most people will find it reasonable.

This, of course, assumes a scenario where the economic collapse will proceed according to the projections done by people like Jim Rickards and his colleagues. They all know the dollar is going down and the gold standard of some kind will be reintroduced after the collapse of the fiat system, but they all expect the transition to be more-less orderly. I, however, don’t see this outcome-type featuring prominently among my projections.

Due to the current geopolitical situation, gold (and other precious metals to some degree) spiked either close to, or, in some currencies, over the all-time high.

This spike is significant enough for the main-stream press to start reporting on it, which means a lot of ordinary people with poor investment skills are going to join the marketplace, and, of course, wipe themselves out, as they always do, because they don’t know what they are doing.

It is my opinion that this current price spike is a transitory event on the path towards a very serious crisis. My recommendation is to wait this out, don’t sell (if you already have metals and you think this is a good opportunity to cash in on the investment), wait for the panic buyers to sell, wait for the prices to fall, when everybody thinks this was a false alarm, buy all you can, and buy gold, because silver might be a target of very nasty speculations, for instance dumping large quantities of industrial silver on the market if China has no use for it due to tariffs and sanctions. Industrial silver is around 60% of total silver consumption, and the market is small compared to gold and this can really hurt you. Gold is essential because it’s the core monetary metal of the central banks and they see it as a strategic asset. If JP Morgan or some other big player in the silver market dumps even a fraction of all the silver they have stored in anticipation of industrial demand, the prices will drop so hard it will wipe you out if you buy while it’s expensive. Buy only if such a silver dump takes place.

Something’s been bothering me recently: I feel incredible aversion to Bitcoin, and when analogies with gold are made, it was difficult for me to verbalize what exactly is it that I find objectionable about Bitcoin. Today the final piece of the puzzle clicked, so I’ll explain.

Money is by definition an universal commodity, something that is universally accepted as a standard of value and universally accepted in any form of barter.

People who created Bitcoin think that value of money is derived from scarcity, so they designed it to be scarce. The problem is, they designed it to be too scarce, and so it’s completely useless as money, because money should by definition be a standard of value. If value of money changes over time, it’s useless as money, and that happens when money is either abundant (inflation) or scarce (deflation). This inherent scarcity makes Bitcoin a high-risk investment paper, and people can get rich with high-risk investment papers, but it’s not money. Interestingly, that’s the same reason why fiat currency is not money: it is too variable over time. Gold and silver have a track record of being a reliable measure of value over millennia. That is because the supply of gold and silver seems to scale quite reliably with demand; essentially, when it becomes scarce, it starts making sense to open another gold mine. If it isn’t scarce, it’s mined less. Bitcoin gets exponentially more expensive to mine. Gold doesn’t seem to be quite perfect as a measure of value, but it’s historically much better than anything else, and isn’t a speculative asset. Value stored in gold is frozen, coins buried in Roman times can be dug out and sold for exactly the amount of value that was in them in Roman times. Value stored in Bitcoin is fluctuating wildly.

This is my main objection to Bitcoin, but I only now managed to verbalize it properly; I assumed it implicitly before, but the idea wasn’t clear. There are also other objections, which I will also list.

Money must by definition be physical, on the lowest possible layer of abstraction. This is so because trade must not imply any technological intermediary layers. You cannot assume electricity, computers or global computer networks for trade. You can have all those layers as convenience, for instance you can have paper money that is a banknote payable in gold or silver on delivery, and you can trade banknotes instead of gold coins. You can also have a computerized bank account which shows numbers that replace the banknotes, and you can trade with bank transfers. That’s all fine, as long as you can revert to the actual money when the “pointers” and instruments of convenience fail. Basically, when a solar flare wipes out the technosphere, you still want to be able to buy and sell things. For convenience, of course you will use credit or debit cards or SWIFT transfers. However, for security in extraordinary circumstances you must be able to revert to the most basic physical form of money. This means that nothing abstract can be safely used as money.

Money must be anonymous. If your financial transactions can be monitored by the government, this will necessarily mean a totalitarian power of the state over an individual. No kind of “law and order” argument is more important than this; obedience to the law is secondary to the sovereign liberty of the individual. Everything else is slavery to the state. The ability of sovereign individuals to trade anonymously predates the existence of the state, and is more important than the existence of the state. Gold is anonymous. Fiat currency is much less so (banknotes have serial numbers), and Bitcoin is not anonymous at all. It’s the worst possible invasion of financial privacy imaginable, because once someone gets your wallet number, he can track every single transaction you made till the beginning of time. The Bitcoin ledger is a privacy disaster, comparable only to the current fiat banking system and the credit cards, which also track everything you do. The state which can track everything you do eventually controls everything you are allowed to do.

Financial transactions should be fast; seconds at the most, fast enough to pay at the department store without holding up the line. Bitcoin transactions are slow. To quote CoinCentral, “a Bitcoin transaction generally needs 6 confirmations from miners before it’s processed. The average time it takes to mine a block is 10 minutes, so you would expect a transaction to take around an hour on average. However, the recent popularity boom of Bitcoin has caused congestion on the network. The average time for one confirmation has recently ranged anywhere from 30 minutes to over 16 hours in extreme cases.”

Waiting for hours or days for a transaction to clear is not acceptable, which makes Bitcoin unsuitable as an instrument of payment for goods and services. It’s acceptable as a high-risk investment paper.

So, basically, the only criteria of money that Bitcoin manages to satisfy are scarcity and acceptability, where scarcity was misunderstood by the creators and was thus implemented in such a way that it disqualifies Bitcoin from monetary applicability.

Read this.

…we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments  

As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today.

… Being the world’s unit of account has given the United States what former French Finance Minister Valery d’Estaing called an “exorbitant privilege” by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence…

There is nothing to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted.

… In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.

… Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record.² To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.

Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent.

My interpretation: Jim Sinclair was right that the central banks intend to do a “soft landing” inflatory move, devaluing the Dollar (and Euro will, in my opinion, devalue even more since the EU has an even worse internal crisis on top of Euro being essentially a Dollar-derivative). According to Sinclair, this first controlled inflatory attempt will fail, and as a result there will be a second, “natural” inflatory event that will balance the world economy on actual values.

So, nobody can say they haven’t been warned. According to some rumors, JP Morgan has been accumulating immensely large amounts of silver recently, so you can’t say they aren’t backing up their talk with money.

As for crypto, I agree with Peter Schiff that crypto will be the first thing to collapse, and that will actually make fiat currencies look good. Everybody invested in crypto will be wiped out. The exception are the blockchain-based technologies backed by actual assets, like the Russian crypto-Ruble. After that, everybody holding significant portion of their assets in fiat currencies or their derivatives such as dollar and euro denominated bonds will be wiped out. The current rise of gold and silver is just a precursory warning shot, and I still recommend buying.

The disclaimer is that this only applies to people who actually have significant savings. If you reduce your cash supply below one month’s needs, you are actually putting yourself in harm’s way. Instead, stock up on canned and other long-lasting food (pasta, flour, sugar, beans), because in a hyperinflatory environment food supply might get disrupted. I don’t know how long this might last, so there’s no harm in assuming it might last long enough for everybody who didn’t prepare to regret it. Have in mind that I’m following my own advice, which means I’m taking this shit very seriously.