In this podcast, Detlev Schlichter, author of Paper Money Collapse, and Alasdair Macleod of the GoldMoney Foundation discuss the flaws inherent to fiat currency, the role of central banks and how gold acts as a means of financial protection.
Schlichter points out that one cannot really make a case for paper or fiat money from a fundamental economic standpoint. In contrast to commodity money it can be shown that the elastic money supply in a fiat money world must lead to economic imbalances and instability over time. The inevitable crisis can be postponed by money printing, but this will only result in an even bigger crisis at some point in the future.
They talk about the point at which lower interest rates won’t lead to more credit expansion in the private sector due to risk adversity. Therefore governments will become the “borrowers of last resort”. Further they point out how negative real interest rates affect savers and how printing money can never be a zero-sum game. It is impossible for the newly created money to reach everyone equally at the same time. There are always winners and losers from these market distortions.
Macleod and Schlichter say that rising interest rates or a loss of faith in a major bond market could be the tipping point as far as loss of confidence in paper money is concerned. Both men still see low participation in the gold market by private as well as institutional investors, as gold is still not commonly viewed as a means of financial protection.
This podcast was recorded on March 8 2012 following the Mises Europe gold standard conference in Brussels, Belgium.