Far Removed From Sound Money
Far Removed from Sound Money
For most of history, money represented something tangible. It was scarce. It could not be created at will. It restrained governments and disciplined financial systems.
Today, that restraint no longer exists.
We are operating in a monetary regime defined not by convertibility, but by expansion. Not by scarcity, but by elasticity.
What Sound Money Traditionally Meant
Sound money historically carried several characteristics:
Limited supply growth
Convertibility into a hard asset
Stability of purchasing power over long periods
Protection against political manipulation
Under the classical gold standard era, governments could not create unlimited currency without risking redemption demands. The system imposed discipline.
That discipline is absent today.
The Break: 1971 and After
In 1971, under Richard Nixon, the United States ended the convertibility of the dollar into gold. The so-called “gold window” was closed.
From that point forward, the U.S. dollar became fully fiat — backed not by metal, but by confidence and government decree.
Since then:
Federal debt has expanded exponentially
Money supply growth has accelerated during crises
Asset prices have become increasingly sensitive to policy
The discipline mechanism disappeared. Flexibility increased. So did distortion.
Debt as a Feature, Not a Bug
Under a sound money regime, debt growth is naturally constrained. Under a fiat regime, debt expansion can continue as long as markets tolerate it.
The result:
Persistent fiscal deficits
Central bank balance sheet expansion
Cycles of easing and tightening that increasingly influence markets
When money can be created digitally in extraordinary amounts during downturns, markets adapt to that reality. Risk assets reprice around policy expectations rather than organic savings and capital formation.
That shift changes behavior.
Inflation: The Quiet Tax
Sound money protects purchasing power over long time horizons.
Since 1971, the U.S. dollar has lost over 80% of its purchasing power. Inflation is not always dramatic — but it compounds quietly.
Even moderate inflation:
Distorts savings decisions
Encourages leverage
Rewards speculation over production
When currency stability erodes, capital allocation decisions become less about fundamentals and more about hedging against debasement.
Why the Economy Has Absorbed So Much
You’ve been asking a reasonable question: how has the system absorbed so many negatives?
One answer is monetary elasticity.
When stress appears:
Liquidity is injected
Rates are lowered
Balance sheets expand
Fiscal deficits increase
Each intervention smooths the immediate shock — but compounds long-term imbalances.
This does not mean collapse is imminent. It means the structure is fundamentally different from what a sound money framework would produce.
The Multi-Constraint Era
Today we face overlapping pressures:
Elevated sovereign debt
Asset valuations stretched by years of accommodation
Consumer leverage rising in specific segments
Persistent fiscal deficits
Geopolitical fragmentation
In prior resets, one excess dominated. Today, multiple excesses coexist.
That is not a moral judgment. It is a structural observation.
What This Means for Investors
This is not a call for panic.
It is a call for awareness.
If we are far removed from a sound money regime, then:
Asset prices are more policy-dependent
Volatility clusters around liquidity events
Cycles may be sharper
Real assets may behave differently than financial assets
The goal is not to predict dates.
It is to recognize the value in being prepared.
