Gresham’s Law

By Al Thomas

Somewhat similar to the law of gravity applied to money: It all falls down.

Gresham’s Law applies to every case of fiat money in history. From Roman times to the present. In Rome the government started to change the percentage of gold in each coin. Less and less. The people were not as stupid as the rulers thought and eventually they refused to accept the new coins.

Way back in 1913 Congress in its usual stupidity passed the Federal Reserve System into existence. At that time paper money was backed by silver and the paper bill was called a silver certificate.

Take that “dollar” out of your pocket and see what it says. Read along with me: “Federal Reserve Note”. Can you find anywhere, front or back, where it is redeemable for gold or silver? No, of course not.

The last time it could be redeemed for precious metal was 1971 when President Nixon took us off the gold standard.

However, you will see printed clearly on the face of this piece of paper, “This note is legal tender for all debts public and private”.

This means if you wanted gold for a transaction and you were handed paper money the government mandates you to take it even though there is no physical backing for it.

U.S.history proves it. During the Civil War the Confederacy printed money with the promise to pay made people use it to pay debts as we do today. We all know the saying,”Not worth a Confederate dollar”.

What are our elected officials doing to those dollars today? They are printing them by the trillions. Effectively they are diluting our money every day. That cash in your pocket is worth less and less in buying power. It is the same as the Roman coins and the Confederate dollars.

Today it is called inflation. Since 1913 the Federal Reserve (which is neither federal nor has any reserves) has decreased the buying power of that paper (fiat) money by 98%. And it is getting worse every day.

Every government giveaway (welfare) program is backed (quaint euphemism) by Congress’ ability to print money out of thin air. And they refuse to stop spending or balance the budget.

As an investor what can be done now to protect purchasing power?

It must be an asset of some kind that will not deteriorate as more fiat (paper) currency is printed. Stocks might increase in value, but they also might decrease. Bonds have a fixed maturity value that will be watered down over time. A business or a farm that produces a product where the price may be increased to overcome the loss of wealth of payment will do. And precious metals. Gold is the best as it has never lost its’ true wealth in all of history.

Gresham’s Law is in full effect now. It is time to start determining what asset as an investor that will hold value in the distant future.

Article from “Mutual Fund Magic” website.