HOW DO YOU MEASURE WEALTH? – Hubert Moolman

1 December 2008

How do you measure your wealth? Do you measure it in rands, dollars or pounds like so many people do?  Or do you measure it in physical (real) assets? Does it really matter? In fact it does, because the measure of wealth you use is most probably what you will accumulate.

People measure various things like time, weight, distance etc. What is extremely important when measuring something is the actual measure one uses. The measure needs to be consistent, that is it should be the same today as it was yesterday. If the measure changes then one will draw incorrect conclusions or make bad decisions.

For example, we measure time in seconds, minutes and hours. These measures are consistent since the time we started using them. Imagine your watch is running slow. You will be late for meetings if you use your watch as a measure of time whereas you would probably be on time if you were using a watch that is displaying the correct time.

The difference between the two watches is that the measure (seconds, minutes etc.) of the “correct time” watch is consistent whereas the measure of your slow watch is always changing (the minutes and seconds are probably getting longer).

Fraud is also often committed by using a false or inconsistent measure. This happens for example when a fruit seller uses a scale that is flawed and thus sells his fruit at inflated prices. The fruit seller deceives the buyer by using a flawed scale, and the buyer then gets less than what he thought he was getting.

No wonder God says the following about measures: “Ye shall do no unrighteousness in judgment, in meteyard, in weight, or in measure. Just balances, just weights, a just ephah, and a just hin, shall ye have” – Lev 19:35-36.

Is paper money a good measure of wealth, is it a consistent measure? NO IT IS NOT, IT IS UNRIGHTEOUSNESS, IT IS FRAUD, IT CHANGES ALL THE TIME. Therefore also, any other measure that uses the rand or other paper money is in fact flawed; this includes measures such as the inflation rate, GDP, wages, salary etc.

Let me prove with an example why paper money is not a good(honest) measure.

Until about 1967, all one rand coins had an 80% silver content. There was also a R1 paper note in circulation. That is already a problem since one R1 is not the same as another just like one minute is the same as another.

Suppose you had kept one of each. Today the paper note would be worth R1 (they are apparently still legal tender) and the coin would be worth about R35 (that is the approximate silver value today). Now it is even clearer that they are not the same. The issuer (Reserve Bank Governor) of both the paper R1 and the R1 coin was in fact deceiving you because he was assigning the same value to both. The fraud only became apparent some years after.

On the surface (when looking at rand amount) it seems as if the paper rand is consistent and that the rand coin is not. However that is not true, the coin is still the same silver weight and it is that which in reality made it a measure. The paper R1 is also still the same weight however it was not this feature that made it a measure, but notional features (its perceived value) instead. Notions change all the time and indeed it has changed significantly since 1967 (the difference between R1 and R35 today, that is how much it has changed).

The wise man would have measured wealth in silver weight and would therefore have accumulated silver. He would not care for the rand value but instead the silver weight of the silver rand. He would have understood the difference between a paper rand and a silver rand. The wise man knows that one measures wealth in real assets, and not in notional values.

The foolish would have measured wealth in rand and would have collected any rands and even given up his silver rands for paper rands. The foolish would have been a victim of the fraud due to lack of knowledge of what a real measure of wealth is.

Therefore do not measure your wealth in the number of rands you have, but instead measure it in the real assets you have. Do not become a victim of the fraud; rather educate yourself.

If you find this information useful, please forward it to friends or family. If you would like to subscribe to my news letter please send me an email. My news letter is free and I send it out whenever I have something to “say”.  I do accept donations though; email me for how.

You can also find my articles at www.oreconsulting.co.za

May God bless you.

Hubert Moolman CA(SA)

You can email any comments to hubert@hgmandassociates.co.za

Fake Money Dead Money and Fake Leaders – Hubert Moolman – Must Read

15 January 2009

 

  Thanks to reading one of the websites (www.aheadoftheherd.com ) on which some of my articles are published; I’ve recently discovered the benefits of water purifiers, for drinking as well as showering water. Since using these purifiers, my skin and hair is not so dry anymore as well as my breathing is much improved. I am hoping to see more improvement in other areas in the future. 

Basically these water filters take out chlorine, among other things, which is added to water to “purify” it, or take out other harmful substances. 

Chlorine does a good job in killing or taking out these harmful contents in our water, however, it comes with its own problems. I have found these quotes that explain the use of chlorine in water purification as well as some of its associated problems: 

“Why we use chlorine is not because it’s the safest or even the most effective means of disinfectant, we use it because it is the cheapest. The long-term effects of using chlorinated drinking water have been recognized only recently. According to the U.S. Council of Environmental Quality, “Cancer risk among people drinking chlorinated water is 93% higher than among those who use non chlorinated water. The highly controversial book titled “Coronaries/Cholesterol/Chlorine” by Dr. Joseph Price, written in the late sixties concluded that nothing could negate the incontrovertible fact, the basic cause of arteriosclerosis and resulting entities such as heart attacks and stroke, is chlorine. Dr. Price later headed up a study using chickens as test subjects, where two groups of several hundred birds were observed throughout their span to maturity..” [1]  

One group was given water with chlorine and the other without. The group given chlorine water, when autopsied, showed some level of heart or circulatory disease in every specimen, the group without had no occurrence of disease. In winter conditions the group with chlorine showed outward signs of poor circulation, shivering, drooped feathers and a reduced level of activity. 

The group without chlorine enjoyed rapid growth and displayed vigorous health. This study received well by the poultry industry then, continues to be used as a reference even today. As a result, most large poultry producers use de-chlorinated water. It would be a common sense conclusion to think for that regular chlorinated tap water if not good enough for the chickens, then it probably is not good enough for human consumption either 

It (chlorine) has a disagreeable, suffocating odor that is detectable in concentrations as low as 1 ppm, and is choking and poisonous.” [2]   

Chlorine gas was also used by the Nazis, among other, as a chemical weapon. 

Chlorinated water looks basically just like pure or de-chlorinated water; however it does not have exactly the same effects as water, as explained above. Our world is filled with things that appear like the real thing, but in reality is anything but the real thing. Either they optically look like the real thing or people accept or use them as the real thing.  These things, instead of working like the real things, they work in opposite of the real things or they cause other problems (side-effects). 

We have bread made with bleached flour, adulterated fuels, soft drinks, coffee, and energy drinks that for many in part takes the place of pure water etc. These things cause health problems which are not immediately apparent, but take time to manifest. Do your own research regarding these things and form your own conclusions. Some of these could be the cause of some long term health problems you might have. 

My field is money and the economy, and it is my goal to expose lies and share the truths regarding this field. We also have non-real money that seems just like real in that it is used as a medium of exchange, a unit of account and a store of wealth. Just like chlorinated water, instead of providing confidence to economic transactions or decisions, it destabilizes the level of confidence. 

Use of this non-real money (paper or digital money) also has other serious consequences (disease in society). These are best explained by first understanding what I previously wrote on the difference between a debt claim and a capital claim. 

Money essentially represents a claim (capital claim) on a tangible asset or service.  In our modern economy we have fake claims which were created by debt (debt claim), but they are circulating just like capital claims. These debt claims on assets can only become a real claim ones this debt has been paid off, and in many cases these fake claims will never become real claims because the debt is just too big to pay off. 

After many years of using primarily fake claims as if they are real claims, in our economy, we have caused the ascension to power of fake leaders, trustees that cannot be trusted. These leaders appear like the real thing (good leaders or trustworthy trustees), but they are anything but the real thing. They work against the best interest of people. They seek to take peoples freedom or autonomy away.   

Many years of using fake money has also changed people to such an extent that they do not know what reality is anymore and are economically illiterate. 

Here are just a few examples of how the use of fake money has affected society: 

President Bush is justifying his economic intervention by saying that “I’ve abandoned free market principles to save the free market system.”- RTTNews 

US President Elect Obama and other world leaders want to spend America and the world out of the mess that was caused by excessive spending in the first place. 

French President Sarkozy and others believe that they know the best time for you to relieve yourself in the toilet. Central planning is their solution to running the world economy. Addressing the European Parliament French President Nicolas Sarkozy has called for a European “economic government”. – Eurotopics 

The world also has a lot of people who control a lot of resources (are rich) but do not understand real economics or understand real economics but mislead others through “doublespeak”. Not to say that all people who are rich are like such. Many people look up to these people, or worship them. I have written about some of these people in the past. Some commentators have aptly referred to them as the paper aristocracy. They gain their so-called success through information and privileges obtained as insiders and by misleading others. Their success is based on a formula of stealing from the poor. 

The number of people who want to eat but do not want to work has increased significantly (The welfare state has many supporters and willing leaders). 

Many people believe that government has endless resources. They think/act like government cannot default on debt obligations. 

Many people believe that one piece of paper of roughly the same size and quality is significantly more valuable than another. (For example: Zim dollar vs US dollar) 

Many people believe that real gains can be had, by passive means such as investing in a stock market or putting money in a bank. Real gains can only come by men working (such as planting and watering), and God giving the increase. 

Conclusion 

The effects of using non real money can only be addressed if we start using real money. There is no other cure.  I believe that money cannot be decided upon by government or any authority. Just like since the beginning of time, people should be allowed to use things that are acceptable (acceptable by the participants in the economy) as money and eventually one or a few things will become widely accepted and eventually replace all other forms of money. 

Because of gold and silver’s superior features, they will eventually replace all other forms of money. Note that when I say gold and silver, I mean using the actual metal as money (like coins). Not the gold or silver standard. The gold or silver standard is just another opportunity for government to  steal peoples gold and increase the number of claims on tangible assets relative to the tangible assets in the economy, the same as can be done under a fractional reserve banking system. (For those people who wrongly suggest that I support/prefer a gold standard, here it is clear and simple) 

It (gold or silver standard) also creates an unnatural concentrated position of gold and silver and this normally leads to manipulation and fraud. This is no different to having one issuer of money as under the paper money system. 

 And yes, there is enough gold or enough silver in the world to use as money. Some people use one of paper money’s short comings (the fact that there is unlimited or too much) to justify why gold or silver cannot be used as money; how ironic is that? 

Death of the world monetary system 

The central banks and world leaders know that their system (world monetary system) cannot continue for much longer without gold giving that system credibility and confidence, as it has done for the dollar when it was created. They will therefore have to start using the gold word as a possible solution. The so called current “financial crisis” is testament to the fact that the world’s current monetary system is about to end. 

What also supports this is the following: According to an article by Mike Hewitt published on DollarDaze the median age of 559 world currencies no longer in circulation is only 15 years whereas the median age for all currencies (176 in total) currently in circulation is 39 years. From this article it is clear that on average currencies (paper) do not last long. 

They do not last long because there is much competition to get the power to print (counterfeit) money; therefore so many end by acts of war and acts of independence. Also, the power to print, inevitably leads to abuse, therefore so many currencies end by hyperinflation. 

It would seem that the dollar as well as the other longest running currencies are different, because they have beaten the trend of 15 years for dead currencies and even the average of currencies still in circulation (39 years). How are the dollar and other longest running currencies still in existence able to beat the trend? By exercising better monetary prudence than in the past? I think not. Could there be anything different, in a positive way? I also think not. 

The main reason why these currencies have been running for so long is because they were mostly backed by gold or silver or were itself to an extent actual gold or silver or a combination of both. The dollar for example is backed by nothing for only about 38 years of its 217 year life. 

Another reason possibly is more successful manipulation and collusion, which is due to the significant power that the central banks and governments of these currencies exercise. For example, the USA can exercise more power than say Argentina, therefore is able to keep the monetary fraud going for longer. 

The current world system of currencies, with the dollar as the pivot, is 38 years old and if you compare that to the 15 years for dead currencies as well as consider that other than the reasons given above, nothing is different (in a positive way) about these currencies, it seems that the system is way past its sell by date. 

Well, the point is, that because the current world monetary system seems way past its sell by date and because collapse is imminent, due to the nature of paper currency, the end of this system is at hand and could end as soon as the next 1 to 2 years. 

The end of this monetary system will most likely come by way of hyperinflation or a new settlement such as a new “Bretton Woods”. This is because most, if not all paper currencies in the past, had their “natural” deaths by way of hyperinflation, and the world leaders and central banks know that their monetary system is basically already dead. That is why they had the G20 meeting on November 14-15, 2008. 

The question is really to what extent will a new monetary system be fraudulent? For I believe that it would be wishful thinking that we would have a system that uses honest and real money, while we have such fake leaders and so many economically illiterate people. 

If you find this information useful, please forward it to friends or family. If you would like to subscribe to my news letter please send me an email. My news letter is free and I send it out whenever I have something to “say”.  I do accept donations though; email me for how. 

visit my blog: http://blogs.fin24.com/hubertmooolman 

May God bless you. 

Hubert Moolman CA(SA) 

You can email any comments to hubert@hgmandassociates.co.za

GOLD, POLITICS and INFLATION – Hubert Moolman

26 November

 Highlights

Real inflation in South Africa is an average of 68% per annum over the last 3 years

We have been having hyperinflation for a while now

 

What does gold have to do with inflation and politics? The answer is simple: EVERYTHING. The following quote from a 1966 article sums it up best:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. (emphasis added) There is no safe store of value. Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit” – Alan Greenspan

(You can find the article here http://www.gold-eagle.com/greenspan041998.html)

What Mr Greenspan was in fact saying is that there is for us (the whole world) today no way of protecting our savings/wealth from government confiscation. This is so because the whole world is off the gold standard. That was when the USA abandoned the gold standard in 1971.

What is inflation in reality? It is the loss of buying power of the money we use. Where does the lost buying power go? Let me explain in simple terms. In fact let Mr Greenspan instead explain. After all, he not only wrote about this in 1966 but also executed it to perfection during his time as Chairman of the US Federal Reserve.

“Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.”

  

Is the official reported inflation figure or loss of buying power accurate? Let us see:

The official cumulative inflation rate in SA from 1 Oct 2005 to 1 Oct 2008 was 24.82%. Now instead of testing the accuracy of this figure by re-calculating it using the official calculation, I will instead use Mr Greenpan’s simple but accurate “definition”.

Mr Greenspan says that with the absence of the gold standard there is no way to protect savings from inflation. So, I deduce that he is saying that the inflation (rate) is the difference between what goods would cost if we were on the gold standard as supposed to using fiat money(not backed by gold) as we use today.

Mr Greenspan’s “definition” for real inflation makes checking the official figure, for accuracy and honesty, very easy.

I will simply calculate the difference in buying power from 2005 to 2008 between using gold as money as suppose to using rands as money. That difference would then represent loss of buying power as explained by Mr Greenspan.

So at the official inflation rate of 24.82%, a certain amount of goods would cost 24.82% more in 2008 than it cost in 2005, if we use rands as money. If we look at what the same goods would have cost in 2005 in gold ounces and compare it to what it would cost in gold ounces in 2008, we would do the following.

Price of gold on 1 Oct 2005 was R 2 986

Price of gold on 29 Sept 2008 was R 7260

(Please note that I used the closing price of GLD as listed on the JSE))

In 2005 the goods cost 3.35%(100/2986) of an ounce of gold.

In 2008 the goods cost 1.38%(100/7260) of an ounce of gold.

The price of the goods is deflated by 58.81%(deflation) in gold terms.

So in fact, if we were using gold as money, the price of the goods would have been significantly lower. So we actually have deflation when we use gold as money.

So to get to Mr Greenspan’s “definition” of inflation we simply do the following:

We equal the goods to 100% and say that the goods in 2008 using rands cost 124.82% (100+24.82%rand inflation) and using gold ounces it cost 41.19% (100% less 58.81% deflation)

That gives us a real cum. inflation rate of 203% for the 3 years((124.82/41.19)-1). That is about an average of 68% per annum. This 203% in fact is the premium (penalty) for using fiat money as suppose to using gold as money. This premium in fact goes to the issuers of the fiat money (government) as Mr Greenspan explained.

203% inflation, I am afraid is not inflation but hyperinflation. What makes this even more shocking is the fact that if you were to do this calculation in most other countries you would also come to the conclusion that they are experiencing hyperinflation.

You might ask how this is possible. Well, inflation can be hidden in many ways, which goes together with using a flawed measure. Let’s look at a few possibilities.

This is not exhaustive,you can add your own.

1. Keep the price the same but give less quantity. For example softdrinks were mostly sold in 340ml cans or even more around the world. When the metal used to make the cans got expensive (and possibly the contents) they made it in 330ml which is now basically a world standard. Look at houses for example, the price is way higher but you get much less square metres. Maybe you have observed other examples?

2. Keep the price the same but change the quality. Veneer wood instead of solid wood, gold or silver plated metals or other cheaper metals instead of using solid quality metals.

3. Improvements due to technological advances and other should bring prices down. Instead prices keep rising.

4. Cheating when measuring the Consumer Price Index etc.

5. Shifting production –over the years world production has been shifted to countries such as China where people are willing to accept much lower wages.

So, if inflation is so much higher than is generally reported, how do we protect ourselves? The answer is simple. I simply consult Mr Greenspan again for the answer, and that is, use the gold standard. One can use one’s own gold standard by simply investing in gold (and silver).

If you find this information useful, please forward it to friends or family. If you would like to subscribe to my news letter please send me an email. My news letter is free and I send it out whenever I have something to “say”.  I do accept donations though; email me for how.

You can find my latest articles at http://blogs.fin24.com/hubertmooolman

May God bless you.

Hubert Moolman CA(SA)

PS. Next time I will share my thoughts on the so called great inflation/deflation debate

You can email any comments to hubert@hgmandassociates.co.za

 

THE TRUTH ABOUT OUR MONEY – Hubert Moolman

24 November 2008

Highlights 

The Rand “lost 86.8% of its value against the pound in the last 47 years

The Rand “has lost 92.91% of its value in dollar terms since 1971″

The Rand “has thus lost 99.77% of its value against gold since 1967. That is almost all of its value”

“We are thus paying real value in taxation that is based on non-real profits”

Should a family make a long journey, they would need things like water, food, transport, information, accommodation etc. to make the journey successful. What is important is to have or obtain these things when they need them, in the right quantities and in the required condition.

 They will either take the actual things with them if possible or they will acquire the actual things later during the trip when they need them. Therefore, where they take actual things with them, they are storing the actual things and where they will acquire the actual things later during the trip, they are in fact storing an ability to obtain the actual things. To illustrate this let’s use the examples of water and accommodation.

 Water

They may decide to take enough water with them on the trip. To make this possible they therefore store water in cooling water containers. Should the family need water during the trip (assuming no other water is obtainable) and find that the stored water is in good condition and that the quantity is as was first stored, they can then use it as required. The store of water would thus have been effective. On the contrary, if there is no water left or significant water loss both due to leakage, or the quality of the water is not adequately preserved, the store of water would have been ineffective. The family could then possibly die due to lack of water or the condition of that water, their journey could be seriously delayed, or they could develop serious illnesses due to lack or quality of the water and so on.

 Accommodation

They may decide to stay at hotels during their journey; therefore they store something of value which hotel owners would accept in exchange for a room at the hotel. I call this something of value an ability to obtain the hotel accommodation.  Let’s say that hotel owners like flour and accept only quantities of flour in exchange for hotel accommodation, thus the family store flour with them during the journey for future exchange to obtain accommodation. Like in the case of the water, the effectiveness of the store of flour would determine whether the family would be able to obtain the needed hotel accommodation. If they are unable to obtain hotel accommodation they would be exposed to additional risks that could be detrimental to them successfully completing their journey.

  One can then conclude that for their journey to be successful it is imperative that their store of required things (let’s call it goods and services) or store of an ability to get the required goods and services is effective.

 Our family: South Africa

If the people of South Africa were this family and the store of goods and services (or ability to obtain goods and services) represents our money, it becomes clear that for us to be successful economically in our journey of life as a nation it is imperative that our money as a real store of value is effective.

 Let us look at the performance of our nation’s main store of value, the South African rand.

 We all know that the buying power of our rand has been deteriorating over the years and is still deteriorating. Generally the inflation rate indicates to what extent this is happening. Whether it accurately indicates the extent of this loss of buying power is another question though. Hopefully we can look at this in the future.

 For now let us look at the rand’s performance as a store of value against the performance of other popular or most used forms of money as a store of value. This comparison would give us a good idea of the extent of the loss or gain of purchasing power of the rand.

 Rand in British pound terms – The British pound used to be the world’s so called reserve currency during the 18th and 19th century, meaning that governments used it as a store of value for their international reserves.  Today a significant portion of the world’s currency reserves are still held in British pound. It is thus useful to compare the performance of our store of value to the performance of the pound.

  The rand was introduced in 1961 and at that time 1 rand was equal to 50% of a pound. Today more than 47 years later 1 rand equals about 6,6% of a pound. That means that today it represents 13.2 % of its initial value (1961 value) in pound terms or put another way it has lost 86.8% of its value against the pound in the last 47 years. Not a very convincing performance by the rand against the pound.

 Rand in US dollar terms – The US dollar is currently the world’s reserve currency. Therefore it is used by most governments and central banks of the world as a store of value for their international reserves. It is probably the most popular store of value today, therefore comparison to its performance will be very useful.

  In 1971 one rand was equal to 139% of a Dollar. Today 1 rand equals about 9.86% of a dollar. Therefore It now represents about 7.09% of its dollar value in 1971, so it has lost 92.91% of its value in dollar terms since 1971. Again, the performance of the rand is not convincing.

 Rand in Gold terms (Krugerrand) – Gold has been used as a store of value for thousands of years. Today almost all central banks keep a part of their reserves in gold. When the US dollar became the world’s reserve currency it was actually 100% backed by gold, meaning that it was convertible into gold. People used to say that the US dollar is as good as gold. Gold is arguably man’s most successful store of value as well as most popular when we take at least more than a couple of thousand years to judge. So let us see how the rand does against a store of value with such a pedigree.

 In 1967 a 1 ounce Krugerrand cost R 27, today it will cost you about R 8200 (note, that a 1 ounce Krugerrand  cost about the spot price of gold plus a small premium).  Therefore a Rand is worth 0.33% (1/8200 divide by 1/27) of the value it was in gold terms in 1967 and it has thus lost 99.77% of its value against gold since 1967. That is almost all of its value.

 Conclusion on the rand’s performance as a store of wealth

 As a store of value/wealth the rand has been unsuccessful. It has lost almost all of its value against the world’s most successful currency, gold and a significant portion as measured against the British pound and the US dollar.

 Some clever economists or banker may tell me that if you had stored your wealth in rand say since 1961 (assuming in a bank) you would have been compensated for this loss of value by the interest that is higher than that offered by British or American banks and much higher than gold which apparently pays no interest. I would then reply that this does not work for me. The ability of my store of value to do its job should not be dependent on decisions or actions by others such as the reserve bank.

 The store of value that I use should do its job inherently. In my journey example where water is the value, I would rather use a store of water that enables me to access my water in sufficient quantity at the time I require it, without outside influence or intervention. Using the Rand is like having a store of water that leaks a significant amount of water most of the time and along the way someone else (Reserve bank or others) decides the quantity of water it will top me up with. The risk here is that the “top ups” might be too late or insufficient (which it probably is)etc. I might die, develop a serious condition and never successfully complete my journey. The increased uncertainty that this flawed store of value brings, makes financial planning and survival a nightmare.

 Sometime at the beginning and during the current world credit /financial crisis I read that Mr Trevor Manuel, our Finance minister and others say that we as South Africans are not saving enough. I completely agree; however, Mr Manuel you and the powers that be are not giving us an effective store of value. You are giving us a “leaking water bottle”.  How can we possibly be expected to store our wealth using such a flawed store of value?

 What makes this even worse is that in many cases we measure the performance of our investments in this very flawed store of value thereby recording gains in our investment whereas if we were to measure it in a stable and effective store of value, like gold, we would actually be reporting a loss. We are thus paying real value in taxation that is based on non-real profits. That is certainly a quick and effective road to bankruptcy.

 Reasons why the rand fails as a store of value

Let us look at the underlying reasons why the rand has not been a successful store of value. To understand the reasons we first need to know what properties good money should have to be effective as a store of value, a medium of exchange as well as a unit of account.

Money should be:

  1. Divisible- should be divisible in smaller units
  2. Portable – able to carry it around therefore a high value should be able to be contained in a small space and weight
  3. Homogenous – one unit should be the same as any another unit
  4. Durable – should not be able to be easily destroyed or eroded
  5. Valuable – should have intrinsic value, normally because it is desirable. Should not be able to be created or discovered without reasonable effort. Thus it has to be a commodity itself.

The reason the rand does not comply with good money is because it is a paper currency. It is a fiat currency. A fiat currency is created by government decree (it is money because the government says so). The Rand is not alone; virtually all the world’s currencies are paper and fiat currency. The major flaw with paper /fiat currency is that it does not comply with point 5 above which is that it is not valuable in itself; its intrinsic value is zero.

 The issuer can create it in unlimited quantities without reasonable effort, and this is what mainly deflates its buying power (it is easy to increase the quantity of money faster than the quantity of the goods and services that it is buying). So just like the flawed store of water, a fiat currency’s ability to do its job is dependent on decisions, actions and integrity of the central banks and others. In fact the use of paper/fiat currency gives the issuers power to redistribute wealth the way they desire. Eventually the people who print the money will print it in such quantities that it will hyper deflate its buying power. By Government decree it is given a so called value and by government decree it eventually finds its real value of zero.

 “Paper money eventually returns to its intrinsic value – zero.” (Voltaire, 1694-1778)

If you find this information useful, please forward it to friends or family. If you would like to subscribe to my news letter please send me an email. My news letter is free and I send it out whenever I have something to “say”.  I do accept donations though; email me for how.

May God bless you.

Hubert Moolman CA(SA)

email: hubert@hgmandassociates.co.za