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Author Topic: Value of sound money under carnage  (Read 244 times)
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August 02, 2015, 01:59:36 AM

Imagine a world where sound money, for example gold or silver used directly in trade (no paper substitutes) or bitcoin.

In a peaceful, normal and orderly situation, the total investments would continually expand, leading to continually higher productivity and prosperity. The value of money, measured in goods, will rise. You will get more for the money.

The world population would also continually rise, therefore there will be more savers, and the aggregate demand to hold money will rise, therefore the money value will rise.

The saving rate will be stable, we might think, but it is not certain. That can go either way. More saving means higher money value.

Under carnage, the opposite may well be true:

Distortion of the capital structure, that is investments in the wrong things, reduces productivity, making all things more expensive.

Under carnage, the population may fall, either through war but also through low reproductivity, the babies can not replace the old folks dying off on the other end. Like Japan. Fewer savers means lower money value.

The savings rate can go down because people consume their savings. Or, the general fear might make people want to save more. Impossible to say. (If they move towards the cliff without knowing, as I think is happening now, they consume their savings).

The two last points are happening just now as we speak, but we also don't use sound money. Sound money is but a small part of todays money.

It means that what we can expect in the current situation, is that money value goes down. This also goes for sound money types, both gold and bitcoin. But, and that is the key question, if people change their preferences towards sound money, bitcoin or gold, the preferred money for holding will rise compared to fiat.

tl; dr Sound money can go down in value under carnage, but they can rise if people flee from fiat to sound money.

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