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Rafi Farber: Fiat is Dead – Trade it for Real Value

Tom welcomes Rafi Farber back to the show. Rafi is an investor, author, and proponent of the Austrian Business Cycle.

Rafi discusses his recent article on money as a gold substitute where he defines the meaning of sound and hard monies. Money needs to be predictable in what it measures and have a predictable supply. Debt substitutes and paper promises become problematic over time, and the entire system becomes unbalanced. These imbalances cause price and supply disruptions across sectors, including commodities like mining.

He argues that governments can’t decree value into a fiat currency. Money has value because supply and demand create a benchmark for price. He explains the regression theorem of money and how money derives its initial value. There was no original plan for gold to become money; it likely naturally evolved over time due to making trade easier.

Later, gold storage and paper receipts became problematic when more receipts than gold in the vault were created. The reason for the roaring twenties was the increase in the money supply. Money must be tied to the origin point of all transactions, and it must reference the past.

He explains the dollar supply and gold problems, which occurred in 1933 and again in 1971. The link to gold kept the dollar system functioning even though money printing continued throughout that period. Nixon acknowledged the problems in the system by closing the gold window. That was more honest than claiming to maintain gold at $35 an ounce. The US dollar can still buy gold, which is the same reason it can buy anything. When a currency is no longer capable of buying gold, that is the end.

Rafi estimates the price of gold if we returned to a gold standard. Our job is to demonetize the dollar standard so that we return to honest money. Bitcoin is also a substitute for gold and not equivalent. Essentially, the dollar is a very poor, overly inflated, and mispriced substitute for gold.

Time Stamp References:
0:00 – Introduction
0:36 – Defining Money
9:32 – Currency Vs. Money
10:45 – 1934 and 1971
16:18 – Gold & Money Supply
19:19 – Inflation & Meltdown
23:14 – Gold Substitutes
27:30 – Valuing Bitcoin
28:56 – PMs & The Dollar
30:44 – Bank – Manipulation
33:00 – ETFs & Unallocated
34:50 – MMT, UBI, & Wealth Gap
37:08 – Concluding Thoughts
40:06 – Wrap Up

Talking Points From This Episode

  • Gold Vs. Gold Substitutes.
  • Inflation and metals manipulation.
  • Silver as a monetary metal.
  • Valuing Bitcoin in terms of gold.

Guest Links

Rafi Farber invests based on the Austrian Business Cycle Theory and covers economic trends for timing the credit cycle. His marketplace service, The Libertarian Investor, helps subscribers manage the risks and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. His approach uses gold, silver, and associated stocks and investment vehicles as a low-risk, high-return methodology.

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