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A Thousand Pictures Is Worth One Word

By Jeff Clark, BIG GOLD

In spite of constant headlines about debts and deficits, most Americans don’t really believe the U.S. dollar will collapse. From knowledgeable investors who study the markets to those seemingly too busy to worry about such things, most dismiss the idea of the dollar actually going to zero.

History has a message for us: No fiat currency has lasted forever. Eventually, they all fail.

BMG BullionBars recently published a poster featuring pictures of numerous currencies that have gone bust. Some got there quickly, while others took a century or more. Regardless of how long it took, though, the seductive temptations allowed under a fiat monetary system eventually caught up with these governments, and their currencies went poof!

You might suspect this happened only to third world countries. You’d be wrong. There was no discrimination as to the size or perceived stability of a nation’s economy; if the leaders abused their currency, the country paid the price.

As you scroll through the currencies below, you’ll see some long-ago casualties. What’s shocking, though, is how many have occurred in our lifetime. You might count how many currencies have failed since you’ve been born.

So what’s the one word for the “thousand pictures” below? Worthless.

Yugoslavia – 10 billion dinar, 1993

Zaire – 5 million zaires, 1992

Venezuela – 10,000 bolívares, 2002

Ukraine – 10,000 karbovantsiv, 1995

Turkey – 5 million lira, 1997

Russia – 10,000 rubles, 1992

Romania – 50,000 lei, 2001

Central Bank of China – 10,000 CGU, 1947

Peru – 100,000 intis, 1989

Nicaragua – 10 million córdobas, 1990

Hungary – 10 million pengo, 1945

Greece – 25,000 drachmas, 1943

Germany – 1 billion mark, 1923

Georgia – 1 million laris, 1994

France – 5 livres, 1793

Chile – 10,000 pesos, 1975

Brazil – 500 cruzeiros reais, 1993

Bosnia – 100 million dinar, 1993

Bolivia – 5 million pesos bolivianos, 1985

Belarus – 100,000 rubles, 1996

Argentina – 10,000 pesos argentinos, 1985

Angola – 500,000 kwanzas reajustados, 1995

Zimbabwe – 100 trillion dollars, 2006

So, will a similar fate befall the U.S. dollar? The common denominator that led to the downfall of each currency above was the two big Ds: Debts and Deficits.

With that in mind, consider the following:

Morgan Stanley reported in 2009 that there’s “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Our total debt now exceeds GDP by roughly 400%.

Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” On our current path, analyst Michael Murphy projects we’ll hit that figure by October.

Peter Bernholz, the leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” This year’s U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.

Since the Federal Reserve’s creation in 1913, the dollar has lost 95% of its purchasing power. Our government leaders clearly don’t know how – or don’t wish – to keep the currency strong.

Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the possibility of the greenback being added to the above list grows every day. And this will lead to serious and painful consequences in our standard of living. While money is only one of many problems we’ll have to deal with, you can protect your assets with the one currency that can’t be debased, devalued, or destroyed by irresponsible leaders.

Don’t be the investor who dismisses this message from history. Use gold (and silver) as your savings vehicle. Any excuse you have now will be meaningless and irrelevant when we enter that fateful period. Make sure you own enough precious metals to make a difference in your portfolio.

Because when it comes to money, worthless is not a fun word.

[Owning physical gold is good protection from the sinking value of the U.S. dollar; investing in the right gold miners can yield even higher returns. BIG GOLD focuses on the larger miners that have strong profit potential, and will help you build your wealth. Give it a ninety-day risk-free trial. Details here.]

About 

For over a quarter of a century, legendary investor and best-selling author Doug Casey and his team at Casey Research have been helping self-directed investors to earn superior returns through innovative investment research designed to take advantage of market dislocations.

12 Comments

  1. Charles says:

    really?

  2. geerussell says:

    “Peter Bernholz, the leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” This year’s U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.”

    This quote especially and the entire post is incomplete and misleading. Mr. Bernholz should read Mr. Harrison.

    http://www.creditwritedowns.com/2011/04/on-hyperinflation.html

    “So, hyperinflation has very specific preconditions that are not apparent in the U.S..

    No foreign currency liability: The U.S. dollar is the world’s reserve currency so the U.S. can pay for trade goods in U.S. dollars.. The U.S. does not have a peg to gold or some other currency which acts as a de facto foreign currency liability. And the U.S. government has substantially no foreign currency liabilities. All of the debt is issued in domestic currency.”

    • That’s right, debts and deficits alone don’t get you there. Right now we should be worried about deflation.

      Nevertheless, the pictures of all of the worthless paper money in this post tell you that fiat currency is a risky enterprise. I may post on how I see this at some point soon.

  3. GrantH says:

    Last time I checked our debt to GDP was around 95% not 400%, and only about 6% of our tax revenue goes toward interest payments. http://en.wikipedia.org/wiki/United_States_federal_budget

    What is this article doing on Credit Writedowns???

  4. David Lazarus says:

    The UK exceeded that 250% figure by the end of WWII but we still have never defaulted.

  5. Jose says:

    This obsession with hyperinflation when the developed world is in reality facing the prospect of deflation and years of growth below trend reminds me of people who worry about rain in the middle of the desert.

    It could happen, but it would probably be more rational to start worrying about, say, drought instead…

    • David Lazarus says:

      I totally agree deflation is the bigger issue. Though I do not think it is the problem that governments fear. Prices cannot fall to zero for everything. Far too many asset classes are grossly overvalued. From my perspective this increases the fixed costs of new businesses and puts them at a disadvantage to incumbent businesses. Deflation also creates an incentive to save, which many western economies have lost.

  6. Chaos says:

    Funny enough, in all the pictures above some peculiarities are usual:
    1) Political regime change, civil wars, etc.
    2) Usually foreign denominated debt.
    3) Lot of them were on a fixed standard (either gold or pegged to the dollar).

    Please, stop all this hyperinflation ventilation crapp. There is excess capacity and lack of demand, hyperinflation usually means not enough output and heavy political disfunctionality. In this case, probably money is the least of your problems.

    • David Lazarus says:

      The US has significant over capacity, as has much of Europe. The Chinese have incredible amounts of surplus capacity. Deflation is the order of the day.

  7. Stephan says:

    What is this? Some sort of Peter Schiff/Marc Faber parody. Jeff Clark, BIG GOLD ??? Very funny! I hope the next installment is about the looming 3rd World War and why all the gold in the world won’t help us while under nuclear attack from North Korea.