Currency (1699) 1 a: circulation as a medium of exchange b: general use, acceptance, or prevalence 2 a: something (as coins, government notes, and bank notes) that is in circulation as a medium of exchange b: paper money in circulation c: a common article for bartering d: a medium of verbal or intellectual expression
Money (13c) 1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment
Note that the first known use of the word Money in the English language was in the 13th century. The word Currency didn’t make it into the English language until more than 400 years later.
In Deflation, “Cash is King”
From our deflationist friends like Mish, Karl Denninger, The Privateer, Rick Ackerman and others, we are learning every day that the world economy is shrinking in a crushing deflation of asset values, production cuts, job losses, bankruptcies, and demand destruction that is likely to continue for many years.
From what I can tell, this is all true.
And from our inflationist friends like John Williams, Jim Sinclair, Peter Schiff, Jim Willie and others, we learn that hyperinflation is a currency event, not an economic event, that the Fed and the Treasury are massively increasing the money supply and the national debt, that the US Treasury market is in a bubble phase, and that the popping of that bubble could trigger a hyperinflationary event.
And from what I can tell, this is all true as well. So in this post my intention is to bring these two seemingly different opinions together in one unifying explanation.
A truism that we have all heard is that in deflation, “cash is king”. But according to Webster’s, cash is "ready money", not necessarily ready currency. There is a difference that this post will show. But to clear it up in our Western minds, let’s think of this truism as “in deflation, MONEY is king”.
Most of us are completely immersed in the Western mindset. This is the mindset that sees all value denominated in US dollars. This is how we have known all things since birth. We lack experience, the experience of loss of currency.
In other cultures people learn to cross-value things. In our Western culture we are taught to value things in dollar terms first in order to compare values. This will be a true handicap in the years ahead.
You might ask, “how could gold ever be valued at $30,000 per ounce?” But someone in China or Russia might also ask, “how can the US dollar be of such high value when there are more dollars in the world than stars in the heavens, and when new dollars seem to grow like leaves on trees in Washington, DC?”
Please understand that money, whether it be paper, metal, sea shells or fur pelts is only as good as the perception of value in the minds of men. If all the gold on earth became known as money, it would be used to revalue every real thing at a fair price. A tiny fraction of gold would buy much production of goods and services, on an equal basis for ALL men, not as a debt for later settlement as currencies are now.
For us Westerners, we first have to think, “how many dollars is this worth?”, and then “how many dollars is that worth?”, in order to compare the value of two things. So one could ask, if we only know value in terms of paper, can we really know value at all?
We think, what can I buy today for the lowest price? But in the modern world economy, the lowest price is a function of currency exchange rates. If the Yen falls against the dollar next year, Japan will offer its televisions in America at a lower dollar price. So which value is correct, the price today or the price a year from now?
The point is that all value judgments today are subject to exchange rate competition. And it is in this paper exchange rate environment that we denominate our net worth. Is this a safe way to hold our wealth for the future? We should ask an Icelander or an Argentine.
What we need to understand is that today, our real wealth is not what our currency says it is. In this world, paper currency is for trade only. It is for buying, selling, earning and paying, not for holding as wealth. Know this, the printers of paper never tell us, the holders of paper, what that paper is worth. That judgment is reserved for the person we offer that currency to. So once again, how can we know the true value of our assets when they are known only in a currency that finds its worth only in the exchange rate of another paper currency? 
Everything in life is relative. What this means is that every valuation we make must be made against something else. The concept of FreeGold refers to the emergence of a fair and true valuation of gold against all things, in the absence of government controls or price manipulation.
FreeGold is completely separate and free from hyperinflation. We may see either one or both in our future. I argue that FreeGold is inevitable some time in the near future. I also argue that hyperinflation is approaching inevitability. On our current course it is inevitable. But neither one of these concepts requires the other one. And while FreeGold should be celebrated, hyperinflation or currency collapse should most definitely NOT be celebrated. It is a horrible thing to witness, especially first hand.
FreeGold can exist just fine along side a functioning paper currency. The currency is used as stated above, for buying, selling, earning and paying, and gold is used as a store of wealth par excellence for the common man.
So it is with great sadness that I watch our leaders destroy the currency when it does not need to happen.
Currency collapse and hyperinflation are two sides of the same coin. When a country experiences hyperinflation like Weimar Germany or Zimbabwe, that experience is the collapsing of the currency. And likewise, when a country experiences a currency collapse like Mexico, Argentina or Iceland, a hyperinflation of prices in that currency is what is experienced by the people.
It is very common for people living in these countries to receive US dollars sent to them by friends or family living in the States. This gives them a tremendous advantage for survival. The question is, who will send us money when the US dollar is no longer any good?
Hyperinflation looks more like Deflation
The reason I posted the hyperinflation videos yesterday was to demonstrate that the ground level experience of a hyperinflation looks a lot more like the Great Depression than a period of high inflation like the 1970’s in America. The reason is that really the only thing inflation and hyperinflation have in common is in the name. Inflation is normal in a fiat money system. Deflation and hyperinflation are both abnormal states for paper money. For contrast, deflation in a strict gold currency shows economic growth. But with paper currency, mild inflation is what you want.
The answer is yes, we CAN have a deflationary depression AND hyperinflation at the same time. And I DO mean hyperinflation both in money supply and prices.
In order to see this in your mind, think of “money” in terms of “trade goods”, gold being “trade good par excellence”. Other trade goods will include silver and other precious metals, non-perishable food goods, gasoline, alcohol, tobacco, aluminum pots, soap, generators, etc…
Now denominate the price of “assets” in this new “money”. The assets I’m talking about would generally be considered luxuries, and would include anything and everything not needed for survival. Boats, stocks, bonds, big screen TV’s, computers, etc… will all continue to decrease in value when measured against real money. Denominate like this. A house costs 100,000 packs of cigarettes. Or a boat costs 60 ounces of gold. Or a 60” plasma TV costs 3,000 cans of peas. Deflation means that the price of these non-necessities will decline in “real” terms for probably the next 10 years or more.
Necessities will be the first items in which we will witness the arrival of hyperinflation. These include at the most basic level, food, bottled water, and other gear that usually shows up on survivalist lists. These are the same things I am calling “trade goods” aka “money”.
Remember, in deflation, “money” is king.
In dollar terms, these items will skyrocket. Then soon after, in dollar terms, assets or luxuries will also follow. But they will lag, and they will rise slower in dollar terms. But in real terms, those assets will continue to decline.
Remember, everything is relative. Let go of Western dollar-based thinking.
Houses are a little different. They are essentially a commodity and a necessity. However they are still in a bubble deflation, and the fact is, recently built homes exceeded the size needed for survival. So they will continue to decline in real terms until they reach a certain equilibrium, then they should start climbing in price along with other trade goods and commodities.
In his most recent newsletter The Privateer drove home the need for people to save. But then he asked this:
OK – I Should Save – But WHAT Should I Save?:
In our previous issue, the headline which began this page was: “Nowhere To Go – But Back To MONEY”. The only “collateral foundation” which remains under the US Dollar (and all fiat currencies) is its continued acceptability as a medium of exchange. The only “collateral foundation” which remains under US Treasury debt paper is its continued acceptability as means of “storing” unconsumed wealth.
The problem about what to save is exemplified by a recent headline in the UK Telegraph newspaper: “Savers facing accounts with no interest”. This article was published on January 2. On January 8, the Bank of England cut official interest rates to 1.50 percent, the lowest level in their 314-year history. The telling statement in the Telegraph article was this: “A cut in interest rates raises the bizarre possibility that some savers may soon end up having to pay banks to keep money in them.”
Bizarre indeed. What the article did NOT ask was a very simple question. Why would anybody keep money in a bank which is in existence solely due a government bailout and which guarantees in return that their savings will grow smaller the longer they keep them in that bank? Clearly, the UK Pound is not worth saving and its huge dive on currency markets over the first week of 2009 illustrates that fact. With official US rates now at ZERO, the US Dollar is “not worth saving” either, as we maintained in our last issue. Right now, people have come to their senses or have been forced by circumstances to curtail their consumption and start at least attempting to save. As the year progresses, the question about WHAT to save will grow. The Privateer will be keeping a very close eye on this one as the year progresses.
I have the answer for The Privateer. SAVE REAL MONEY. Remember, in a deflation, cash is king.” And cash is “ready money”. And money is “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” And in the very near future, gold will be the best example of this kind of real, ready money.
I don’t mean to sound like a broken record, but it is our Western perception that makes us think only in terms of dollars. And it doesn’t help that during the Great Depression, dollars DID rise in value to a degree. But back then, gold was made illegal in America, yet still backed the dollar internationally. So that is a poor example to base our thinking on in today’s crisis.
An excellent “portfolio” right now would contain a lot of gold, some smaller denominational silver, a full pantry of non-perishable food, plenty of bottled water, a generator, some back-up gasoline, and many other things that I’m sure you can figure out. These will all maintain their value. Some will gain much value. They will also serve a purpose in your life and those that are close to you.
I have said this before, but gold is money par excellence. If you have gold, you will be at the top of the new food chain. Anything that you forgot to stock up on will be obtainable if you have gold.
This is my answer to The Privateer.
There are some obvious events that could trigger the onset of hyperinflation. A collapse of the bond market, or even just the US Treasuries market could do it. Any kind of a panic selling of dollar holdings, or paper investments, will signal a shift in confidence.
The Chinese or one of the many other holders of our debt might decide they want out. This is similar to the bond trigger.
A food shortage or a gas shortage could cause panic in the people.
A large crash in the stock market, or a Force Majeure being declared by our leaders, leading to a de facto default on the COMEX could do it.
There are other potential triggers which are less likely that relate to actions taken by other governments like Russia or the Middle East. But the bottom line is that there are so many possible triggers, that I now believe a currency collapse/hyperinflation of the US dollar to be almost unavoidable.
Signs to look for
Many people ask, “What signs should I watch for that will tell me that hyperinflation is here?”
There is not an easy answer to this, because it will likely surprise almost everyone, including me. But I do have some thoughts.
Watch for a “bond crisis”. Watch the shelves of your local supermarket, especially canned goods, dry goods, and bottled water. When shortages come, hyperinflation won’t be far behind.
When the government finally imposes price controls, it is already here.
Listen to the news. Take the pulse of the public’s state of mind when it comes to shortages of food, gas, or any other necessity. Panic is the key.
Watch for a large spike in the price of oil. This could happen soon after an eruption of violence in the Middle East, or a large failure of the stock market in New York.
I could go on and on, but if you get the picture, you can develop your own list.
Should I panic?
Obviously the answer is no. But get prepared. This is fairly easy to do right now. But once it starts, it will be very hard to prepare. Preparation must be done before the dollar collapses.
Transfer of wealth
When historians look back on this chapter in our existence, one thing will be clear: That a massive transfer of wealth took place. The transfer was from those who held paper wealth to those who held REAL wealth.
And I will say it one more time, gold is real wealth par excellence. It is not the only real wealth, and it is not the only money. It is simply the best.
Whether you buy the idea of FreeGold or not, to own gold right now is to not only be prepared for any situation, but to put yourself on the receiving end of the transfer of wealth that is coming.
True and fair valuations can only be analyzed in hindsight. So it is imprudent for me to put a true FreeGold valuation on gold at this time. But I have done so in previous posts on this blog, and bear in mind that those valuations are PRE-hyperinflation.
I believe that history will show that these coming years were a time of massive deflation, when measured against the true valuation of gold. Yet at the same time, history will record a hyperinflation of the world’s reserve currency, and possibly ALL paper currencies during this same deflationary MASSIVE depression.
I do not relish this, yet I see it coming quite clearly. So the best that I can do is to prepare for myself and my family and to help as many others as I can to prepare.
And if you prepare smartly, you will still profit from the experience even if (by very small probability) I am wrong.
 Much of this Western Perception section was paraphrased or directly copied from here. My intention was to make the point without quoting Another. It was not plagiarism.