Economic News

Deutsche Bank study reveals that global exit from gold standard responsible for 40 years of financial crashes and collapses

In late September an analyst from Deutsche Bank published an in-depth study on what has triggered the slew of financial crashes over the past century, and more importantly, what might be the catalyst for the next big crash.  And with world markets and economies having gone through at least five major booms and busts in the equity, bond, and housing markets since the 1970’s, analyst Jim Reid’s conclusion for these crashes points squarely at the advent of fiat currencies, and the removal of one’s monetary system from a gold standard.

One month ago, Deutsche Bank’s unorthodox credit analyst, Jim Reid published a phenomenal report, one which just a few years ago would have been anathema, as it dealt with two formerly taboo topics: is a financial crisis coming (yes), and what are the catalysts that have led the world to its current pre-crisis state, to which Reid had three simple answers: central banks, financial bubbles and record amounts of debt.  

“We think the final break with precious metal currency systems from the early 1970s (after centuries of adhering to such regimes) and to a fiat currency world has encouraged budget deficits, rising debts, huge credit creation, ultra loose monetary policy, global build-up of imbalances, financial deregulation and more unstable markets. 

The various breaks with gold based currencies over the last century or so has correlated well with our financial shocks/crises indicator. It shows that you are more likely to see crises/shocks when we break from hard currency systems. Some of the devaluation to Gold has been mindboggling over the last 100 years.” – Zerohedge

Government Debt and Bond Yields


Frequency of financial crashes

Interestingly enough, even today most economists falsely attribute something John Maynard Keynes wrote on so many years ago regarding the gold standard, because his reference was not that a gold standard itself was antiquated and untenable, but rather that a gold standard based on an older price for the precious metal was and that it would need to be increased for it to function properly as a backstop for one’s sovereign money.  And if the global community wants to truly get themselves out of the boom and bust cycles created since their removal from the gold standard some 40+ years ago, the answer assuredly lies in returning to what had provided stability to the global monetary system for thousands of years.

Source: thedailyeconomist.com