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Gold Distributes Wealth, Central Bank Fiat Concentrates It

The fruits of increased productivity used to be distributed across society. Everyone benefited as the economy became more productive, new technologies emerged and new industries were born. Prosperity spread across society as jobs were created, poverty was reduced and a robust and thriving middle class emerged in America.

Then came the 1970’s and something suddenly changed. Wages decoupled from productivity and workers no longer benefited from improvements in the economy. This trend has continued unabated since the mid-70’s, with wages essentially flatlining, despite continued growth in productivity.

productivity real wages

A very small percentage of the population has continued to benefit from the increased productivity, but the vast majority have been excluded. The result has been a major concentration of wealth to the top 1% in society, while everyone else has been left with crumbs. Thus, you can see the widening gap between the red and orange lines in the chart above.

It has become so absurd that the top 1% now own roughly 50% of the world’s wealth. From the late 1920’s until the mid 1970’s, the share of total wealth held by the wealthiest families had been declining steadily. Wealth was being distributed across more families throughout society. But this trend reversed course in the 70’s.

concentration of wealth gold

The chart below shows that the top 0.1% (1/10 of 1%) now holds as much wealth as the bottom 90% combined. The bottom 90% had previously held 35% of total net household wealth versus just 9% for the top 0.1%. Times have certainly changed.

percentage househeld wealth top

Why is This Bad for Society?

Before you think that I am a communist arguing for re-distribution of wealth from the productive classes in society to the lazy, let’s dive a bit deeper.

The concentration is far greater than free markets would ever permit. This level of concentration is only possible with rampant crony-capitalism. A large percentage of those in the top 1% acquired their wealth through connections to central bankers or government officials that tilted the playing field in their favor.

The banking system acquired it through usurping the power to print money in the United States via the Federal Reserve Act of 1913. Their partner banks are granted the ability to create money out of thin air at near-zero interest rates. Those banks turn around and lend out this money at anywhere from 5% to 30% and simply sit back and collect the interest. It is a good gig if you can get it.

This isn’t the type of wealth that is achieved through hard work and ingenuity, but through backroom deals, war profiteering, kickbacks and the subversion of the democratic process. The Treasury is supposed to control the money supply in the United States and this power was stolen via nefarious methods. While it is true that the Treasury still owns and operates the printing presses, the Federal Reserve has control of the money supply through its power to create credit with interest rates and reserve requirements. Since credit is the largest component of the money supply by far, the FED is really in control of money in the U.S.

creature jekyll island griffinIf you haven’t read it yet, I recommend G. Edward Griffin’s “The Create from Jekyll Island” to catch up on the creation of the Federal Reserve. If you prefer visual content, check out Century of Enslavement: The History of The Federal ReserveThe Biggest Scam In The History Of Mankind – Hidden Secrets of Money 4, or Zeitgeist the Federal Reserve System.

It is bad for society because the concentration of wealth in the hands of few creates massive inequality. This in turn generates financial stresses, resentment and a class system that will inevitably increase crime and violence. Consumption dries up when the masses no longer have disposable incomes and the economy can grind to a halt.

It ultimately violates the non-aggression principle, as much of this wealth is attained via crooked politics and pay-for-play schemes that are backed up with government force. Those that try to compete with the big banks or largest corporations have little chance of success, as the government sets the barriers to entry incredibly high to maintain the status quo and keep their campaign contributors happy.

A thriving middle class is good for society, yet the middle class in the United States has been decimated over the past being 30 years. Meanwhile, the percentage of people living below the poverty line has rocketed higher and the homeless population in major cities continues to grow. It has become increasingly unsafe to be outside at night in many urban hotspots, as the impoverished become desperate and resort to theft and violence as a means to get by.

The Nixon Shock

So, what happened in the 1970’s to cause this major shift in the concentration of wealth?

nixon goldMany economists appear stumped when pondering this question or try to place blame on cultural changes. But I think it is clear for anyone with an objective outlook that the major event impacting our economic system in the early 1970’s was Nixon’s unilateral cancellation of the direct international convertibility of the United States dollar to gold.

To placate the critics, Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented. Of course, attempts at reform proved unsuccessful and by 1973 the Bretton Woods system was replaced de facto by a regime based on freely floating fiat currencies that remains in place to the present day.

Leading up to Nixon’s decision to de-link the dollar from gold were multiple requests to redeem dollars for gold. The money supply was increasing and Germany did not want to also devalue their currency. In May 1971, West Germany left the Bretton Woods system. In the following three months, this move strengthened its economy.

Simultaneously, the dollar dropped 7.5% against the Deutsche Mark. Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $50 million in July and France acquired $191 million in gold.

Nixon responded with the “suspension” of the convertibility of the dollar into gold, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold. He was attempting to prevent a run on the dollar and secure his ability to print more money to pay for the Vietnam war and domestic deficit spending.

Within a few years of taking this monumental step, stagflation reared its ugly head and there was increased instability of floating currencies. The dollar plunged by a third during the 1970’s. In the end, breaking the solemn promise that a dollar was worth 1/35th of an ounce of gold doomed his Presidency, and marked the beginning of the worst 40 years in American economic history.

Not only did the dollar lose value, but unemployment rates trended higher and economic growth slowed. We’ve also had an increasingly number of stock market crashes and financial panics, as economic volatility has increased absent a gold-backed dollar. There has been a magnification of the boom-bust economic cycle, which hurts the majority in society while enriching the select few.

Gold imposes fiscal restraint on governments. Their ability to deficit spend, start new wars of aggression around the globe, give handouts to secure re-election, pay back donors, etc. is all impeded by a monetary system in which the value and supply of the money is linked to a limited asset such as gold.

It should then come as no surprise that the 1% in society hold antagonistic views towards gold. Just look at what has transpired since Nixon ended convertibility in 1971.

gold standard equality

Thus, we will continue to see the elite use their media lackeys, tenured economists, purchased politicians and their captured media outlets to demonize gold and the potential return to a gold standard. It is a huge threat to the their ill-gotten wealth and power.

Gold is not only a sound investment for protecting your wealth, hedging against inflation, providing a safe-haven asset and generating significant returns during bull runs, but it is also a moral investment. Moving your money out of fiat and into precious metals (and cryptocurrencies) is a form of voting with your wallet. You are voting for a more fair and balanced economic system, fiscal constraint, free markets and the decentralization of wealth and power in society.

We advocate for avoiding central bank fiat money whenever possible, moving from big banks to member-owned credit unions, investing in assets that can’t be easily confiscated and fraudulently stolen, limiting your third-party risk, transacting via gold-backed or cryptocurrency-backed debit cards or directly in gold, silver or bitcoin when possible.

We are already seeing massive outflows from the rigged stock markets. For 10 straight weeks, a total of $30 billion has left, marking the longest streak of outflows since 2004! Much of that went to emerging markets, but a good portion has been going into cryptocurrencies and is will increasingly flow into gold and silver.

Are you positioned for the financial paradigm shift that is unfolding? Join our Premium Membership for just $99 to get our take on the markets, view our portfolio, receive trade alerts and the highly-rated GSB Contrarian Report newsletter. We focus on precious metals, mining stocks and cryptocurrencies, but also cover other high-growth sectors that can provide subscribers with generational gains. Get started today by clicking here or the button below!

By | 2017-09-07T00:04:39+00:00 September 7th, 2017|Gold & Silver Commentary|

About the Author:

Jason is the founder of He previously worked in data analytics for the world's largest research firm, consulting to Fortune 500 companies globally. Jason eventually leveraged those skills to trade successfully full-time and after helping friends and family optimize their investments, he launched Gold Stock Bull and The GSB Contrarian Report newsletter. Jason is a cycles investor with a contrarian eye for identifying undervalued assets. He has built an expertise in both the precious metals and cryptocurrency markets. Jason believes in honest money, limited government, decentralization of power and enjoys studying alternative economic models.