THE DOLLAR – FROM BOHEMIA TO BUST

THE DOLLAR – FROM BOHEMIA TO BUST

by Egon von Greyerz

Virtually no investor studies history and the few who do always think it is different today. The most important lesson is that people never learn. If they did, they wouldn’t be invested in a stock market that on any criteria is now at a bubble extreme. And they wouldn’t be invested in a global debt market which has grown exponentially in recent decades and which will become worthless in the next few years as debtors default. Nor would anyone hold paper money which is down 97-99% in the last 100 years and which is guaranteed to soon fall the final bit to take the value to zero.

The history of money clearly illustrates that “Plus ça change, plus c’est la même chose” (the more it changes, the more it is the same thing). The most constant factor in the history of money is the cycle of boom and bust or euphoria and despair. Cycles are part of nature just like the change of seasons.

But throughout history, mankind has always believed that they know better than previous generations and can eliminate the cycle of boom and bust. This is what the British prime minister Gordon Brown proudly declared before the economy collapsed in 2007. And the Nobel Prize winner in Economics, Paul Krugman, also believes that eternal prosperity can be generated by creating endless debt and printing unlimited money.

But history has time and time again turned hubristic know-it-alls into humbled has-beens.

FOR 6,000 YEARS GOLD HAS OUTLIVED ALL CURRENCIES

Whenever mankind has deviated from sound money, the consequences have without fail been catastrophic. The only money which has survived since it first came into use around 6,000 years ago is gold. All other money has been destroyed by greed and economic mismanagement. I believe I have quoted Voltaire for over 20 years and will continue to do so: “Paper Money Eventually Returns to its Intrinsic Value – ZERO”. Whether we go back 100 years, 300 years or 2,000 years, those superb 9 words is the most exact and scientific definition of economic history. This is the most important lesson that any student of Economics should learn. Armed with that knowledge, anyone can forecast the likely outcome of an economic cycle and especially the current one.

TULIP BULBS AND BITCOINS WILL NEVER PRESERVE WEALTH

So why are investors not taking heed and protecting themselves against risks that on a global scale have never been greater. The first reason is greed. Whether it is stocks, tulip bulbs or bitcoins, people never learn. Greed takes over and numbs any rational thinking. And that is why most investors will ride the bubble markets until they are virtually worthless.

Experience and a long professional life is a great advantage when it comes to understanding risk. Nothing beats personally experiencing major market crashes of 50% or more like in 1973, 1987, 2000 and 2007. This certainly makes you more aware of risk and therefore also the necessity to preserve wealth…..more here

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