Modern Day Coin-Clipping
Coin-clipping refers to a historical practice where people or governments would shave or clip the edges of coins made from precious metals like gold or silver. They would collect the clippings and then sell the remaining coin at its face value, effectively extracting some of the precious metal without changing the coin's appearance significantly.
A coin is said to be debased if the quantity of gold, silver, copper or nickel in the coin is reduced. This practice led to a reduction in the amount of precious metal in circulation, allowing dishonest individuals to profit.
When studying the practice of coin-clipping, we can draw a parallel to today’s debasement of currency by governments through excessive money printing.
Money printing is just modern day coin-clipping. It’s ALL debasement!
This modern form of "coin-clipping" involves central banks creating new money to buy their own debt, which leads to inflation and a decrease in the purchasing power of the currency.
They are taking the currency and “clipping” its value by debasing it and adding new dollars into the economy.
Just as historical coin clipping led to a reduction in the intrinsic value of coins, the debasement of currency through money printing reduces the value of fiat currencies. Both practices lead to the loss of purchasing power for individuals - you & me.
What’s really happening today is governments are kicking the can down the road to save the baby boomers' retirement. The “can” being kicked down the road is total debt collapse of all sovereign nations.
Millions of baby boomers are retiring, and many of them hold equities as part of their savings. If the equity market were to halve, it would significantly reduce the wealth of this wealthy cohort and have a detrimental effect on the economy.
To prevent this, the government steps in by providing liquidity and debasing the currency through actions like money printing (coin-clipping). This is done to support the retirement savings of the baby boomers and prevent the collapse of the system.
So, in short, governments are taking measures to protect the baby boomers' retirement at the expense of currency debasement and potential long-term consequences for the economy.
Conversely, this significantly benefits other assets over the long-term that I have been writing about.
No one can avoid today’s coin-clipping. On a long enough time horizon, most people today are getting their money “clipped” significantly. In the premium portion, I’m going to explain why this is happening and how this is actually one of the most bullish indicators in the market today.