Over the past 70 years, confidence in the government has been declining in the United States.
During the Eisenhower and Kennedy administrations, over 70% of Americans said that they trusted the government to do the right thing “most of the time.” Now, that number is down to 20%, and it looks like that pattern is set to continue into the future.
There is also a general decline underway in other parts of the world, as seen in this graph published by the United Nations:
The data above were collected before the COVID crisis, and more recent research suggests that governments’ handling of the crisis has dealt another blow to public confidence.
So, what is driving this declining trust? What does it mean for the economy and precious metal prices? And most importantly, what can we do about it?
The sharpest decline in public confidence in government in recent memory was after the 2007 financial crisis. Millions were outraged by the fact that bankers had wrecked the economy, and instead of being punished received bailouts and multi-million dollar bonuses.
Another major factor is increasing corruption. Corruption levels remain high worldwide with no major improvements over the last decade. At the same time, economic inequality is increasing, causing many to feel like the government is not serving their interests.
As a result of the 2007 financial crisis, governments created huge amounts of currency for years thereafter under policies called “Quantitative Easing.” Since 2008, central banks worldwide have created over $25 trillion worth of currency and pumped it into their economies. Of that, $9 trillion was created in response to the COVID-19 pandemic. Most of that currency went into the hands of banks, further fueling mistrust of both bankers and governments.
Although inflation is bad in high-income countries like the US, the situation is much worse in other countries. Venezuela, Lebanon, Sudan, and Syria all have inflation rates of over 100%. In the past people in these countries typically viewed the US dollar as a safe haven, but in the aftermath of the COVID pandemic, inflation in the US hit a 40-year high.
Debt is also spiraling out of control in many countries. Governments are taking on more debt just to service the debt they already have. It’s increasingly clear that governments will never be able to pay off all of this debt. Now that central banks are raising interest rates to fight inflation, the situation is getting much worse. This is causing a loss of investor confidence in public debt like bonds.
If this trend continues, we may see people worldwide turning away from government currencies entirely. Investors will need to look for alternatives to government currency and debt instruments for protecting their wealth and seeking returns.
The exploding popularity of Bitcoin is one sign of this happening. Despite its wild volatility, billions of dollars from both retail and institutional investors are flowing into Bitcoin and other cryptocurrencies.
If the exodus out of government currencies and bonds intensifies, it will have to go somewhere, and assets that are independent of government overreach are the most likely destination.
Money is based on trust. The reason gold and silver have been valued by people for thousands of years is that there is a natural limit on their supply. In the same vein, people trust Bitcoin because it operates on a secure, decentralized protocol that is beyond government control.
People are never going to trust Bitcoin to be a stable store of value because of its volatility. Gold and silver, on the other hand, are stable because their price is regulated by mining. If the price goes up, it becomes profitable to mine more difficult-to-reach ore deposits, releasing more supply on the market. By contrast, Bitcoin production follows a fixed schedule regardless of price.
This makes Bitcoin a popular speculative asset but not well suited as a currency for everyday transactions or pricing goods and services.
Investor money shifting out of government assets may take many different routes — real estate, equities, precious metals, and cryptocurrencies are all possible winners. The biggest gains will likely go to whatever becomes a global reserve currency.
We are now coming out of an area of artificial currency monopolies. Governments have imposed fiat currencies on people for decades, but with the emergence of blockchain technology and distributed ledgers, this era is coming to an end.
We no longer need to rely on banks to keep track of balances or on governments to fight counterfeiting because new technology makes it possible for anyone to create a ledger that is immune to counterfeiting and human error.
New currencies are also borderless making it extremely difficult for governments to ban digital currencies. This is a sink-or-swim moment for governments.
The best chance for governments to survive this paradigm shift is to allow diverse digital currencies. If they don’t, they will face capital flight as entrepreneurs seeking the benefits of digital currencies, flee the country.
To understand which currencies will be most successful in this new era, we have to look at who people trust. China may want to replace the dollar with a new digital yuan, and they may attempt to gain trust by backing it with silver and gold. This would cause precious metals prices to increase dramatically, but in the long run, a digital yuan is unlikely to become a world currency. They may be able to force people to use it in China, but most of the planet doesn’t want to be at the mercy of the Chinese Communist Party.
The Ipsos Global Trustworthiness survey for 2021 found that across 29 countries technology companies are the institutions most trusted by the public. Governments were the least trusted. This is consistent with the Edelman Trust report which found that businesses are the most trusted institution.
Now that people have the power to choose which currency they use, it’s likely that there will be a shift toward more reliance on privately issued assets like SilverToken. SilverToken combines the stability and trustworthiness of physical silver with the speed and security of blockchain technology.
While speculative assets like Bitcoin will likely remain popular with those who are comfortable with risks, major moves of capital into precious metals are increasing. Using precious metals for day-to-day purchases has become impractical in a digital, globalized world, but with the rise of secure digital ownership in commodities, that is set to change.
With more and more money moving into digital ownership of commodities, commodity prices are likely to expand substantially. As to how much that expansion will be, we discussed in a previous post.
SilverToken is a prime example of why the shift from government currencies to private currencies is inevitable. With government currencies, your wealth is eaten away by inflation. With SilverToken, transaction fees go toward increasing silver reserves and the value of each silver token. The better choice is clear. Learn more today.