Soapbox: Gold and the Seven Deadly Sins

This week our CEO, Jason Cozens, spoke to the DC Finance’s Family Office & High Net Worth Conference in London. What he had to say is relevant to everyone today, no matter how much or how little wealth they have. Jason said he is “fearful of the state of the world and the global economy” because “it’s not one economic problem that we’re facing, but many. All seeming to occur at the same time, all from different fields… it’s a perfect storm”. A polycrisis – summed up as “seven deadly sins”. Any one of these sins is alarming; putting them together makes an overwhelming case for taking steps to protect one’s wealth, which for us means using gold as money.

1. Pandemics & antibiotic apocalypse

One of the lessons of the Covid-19 pandemic is that our preparedness for a novel, highly infectious global disease is poor. Compared to the 1918-20 Spanish Flu, which infected around 500 million people and caused up to 50 million deaths, Covid-19 was clinically relatively mild. But the reaction of governments everywhere to this unanticipated threat was to close society and throw supply chains of everything from palm oil to microchips out of kilter. Governments decided it was politically necessary to give financial support to individuals and businesses to help them to weather the storm. It has taken years for the global economy to start to rebalance.

Whether leaked from laboratory or transmitted by animal, further deadly pandemics are highly likely, and medical research is already struggling to keep up. Furthermore there is growing evidence that antimicrobial resistance is becoming a serious problem. Such an antibiotic apocalypse could plunge medicine back into the Dark Ages. Staying on top of the world’s health be become a mammoth task.

2. Inflation: Bubbles & Recession

Another sickness; inflation is the insidious stealth tax that eats away at the purchasing power of our wealth. We can thank President Richard Nixon for ‘temporarily’ coming off the Gold Standard in 1971 and giving birth to the ‘magic money tree’ and the ability for money to be created out of nothing. Since then, governments have been able to satisfy the demands of the electorate but only at the expense of fiat currencies such as the Dollar or the Pound losing around 90% of their purchasing power since then. Meanwhile financial and property markets have bubbled and inequality is close to the highest since the French Revolution. The rising swell of ‘free’ money has turned into a tsunami, with trillions of Dollars of helicopter money has been printed to fund Covid-19 stimulus cheques. Inflation is now at a 40 year high and we find ourselves up recession creek without a paddle, as central banks struggle to fight inflation by raising interest rates, which directly contradicts the need for a looser monetary policy if we are to avoid/not exacerbate a recession.

3. War and conflict

Russia’s war with Ukraine has already caused enormous economic – never mind human – costs. Ukraine’s economy is wrecked (and Russia’s badly hit) and estimates in September by the World Bank said it would cost almost $350 billion to rebuild the country, costs that daily are accumulating. That is almost twice Ukraine’s gross domestic product (GDP) in 2021. Ukraine needs an estimated $3 billion a month in 2023, which could rise to $5 billion, according to Kristalina Georgieva, managing director of the International Monetary Fund (IMF). According to the Organisation for Economic Cooperation and Development (OECD) the war will cost the global economy $2.8 trillion (and counting) in loss of output.

There is no sign of the war coming to an end; the rhetoric on both sides seems intransigent. It’s no longer even clear what would signify ‘victory’ for either side.
Europe has not experienced such a bitter war of attrition since 1940-45; that war cost the US $4 trillion (adjusted for inflation). To help pay for that war the US government increased taxes; in 1939 less than eight million Americans filed tax returns while by 1945 almost 50 million filed a return.

4. Debt

The world is awash with paper, with interest bearing bonds – in other words with debt, most of it issued by governments anxious to raise money to spend to placate voters. The Institute of International Finance (IIF) in Washington D.C. said that in 2021 global debt reached a record $303 trillion. The US alone has a $32 trillion debt, which costs around $1 trillion to service annually. Rising debt levels relative to GDP, large structural deficits year after year, and with flat-or-rising interest rates on those rising debts, will contribute to an inflationary fiscal spiral. Eventually at some point the world will run out of lenders, or the costs of borrowing will reach astronomic levels. Then what? While there may not be a risk of default (when a country has the ability to print its own currency with no cost, and when its liabilities are denominated in its own currency, which is the case for most modern developed market economies), there is a strong risk of currency debauchment.

5. Population

We have just reached eight billion people globally. Very soon there will be 10 billion. We have some a long way from the fear of the 18th century economist Robert Malthus, that population growth would exceed the ability of the world to feed itself, but the population growth poses a different kind of problem.

Aging.

The UN says that “population ageing is poised to become one of the most significant social transformations of the twenty-first century, with implications for nearly all sectors of society, including labour and financial markets, the demand for goods and services, such as housing, transportation and social protection, as well as family structures and intergenerational ties… By 2050, one in four persons living in Europe and Northern America could be aged 65 or over… The number of persons aged 80 years or over is projected to triple, from 143 million in 2019 to 426 million in 2050”.

This means there is a declining workforce, so fewer people will be paying taxes to support state pensions; rising healthcare costs will be an additional burden for governments; and capital may flow away from rapidly aging countries to younger countries, shifting the global distribution of economic power.

We can see this looming crunch on the welfare state right now in the UK. There are many demands for the public sector to expand its offerings, yet tax revenues are insufficient to meet all demands. This will become a problem for many countries – higher taxes will be politically difficult, while welfare demands will increase.

6. Climate change

Global warming is happening now. There is inescapable evidence to show all kinds of problems arising from this. We can see from the recently concluded COP27 meeting both how difficult it is to achieve global agreement on how to tackle warming, and the potential costs of a “loss and damage” scheme for small islands and other vulnerable nations. A deal was struck to establish a “fund” to help poor countries being battered by climate disasters. Even though the details of such a fund were threadbare – it’s to be years before the fund exists, and it’s unclear who will oversee the fund, and how the money would be dispersed, and to whom – the fact is that such a fund will impose a further burden on taxpayers, will suck capital up, and may not make much difference to the places it is intended to help.

7. Politics

The final sin. Uncertainty and economic hardship is fuelling deep divides across, within, and between many nations, often leading to policy stalemate or ping-pong between successive administrations. As the polycrisis worsens we run the risk of more extreme measures being demanded by restless publics and promised by politicians. Sustained and balanced progress will require both strength and delicacy on the part of our political leaders. The question is – is the current generation of leaders up to the job or will political polarization lead to rising radicalization or even dictatorship.

The result

We are witnessing the fragmentation of what people regard as bearing and preserving ‘value’. Fiat money has been challenged by cryptocurrencies but they have not lived up to their promises and, after the collapse of FTX, they will find it difficult to attract new investors. Yet the desire for a reliable alternative to fiat currency is undimmed.

Glint is the solution to the future of money. Not unallocated gold that can be lent out and which might not be there in a crisis, not a share in an ETF but allocated gold held in a Brink’s vault in Switzerland. Glint has made gold relevant again, digitized for the 21st century.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.