Friday, February 25, 2011

Why Gold?

Ok, This one is for everyone who asks me "how high can Gold really go?"

The question is always phrased that way, and the more correct question is "How low can the dollar really go?"

The US dollar is money, just so long as there is faith in dollars. We call this faith currency. Those self-imposed power mongers back East call it legal tender, as if there were such a thing as "illegal tender" (which the laws and principles of Economic theory clearly state is impossible, for neither money nor debt have to exist at all in a healthy economic system- barter works just fine)

As monies go, Gold differs from dollars in that: so much as dollars are money as long as there is faith in currency, Gold is money so long as there is faith in money itself- that is: if things were to get so bad that people were unwilling to trade chickens for Gold, then I suppose the richest people on Earth would be chicken farmers....

Now, how does savings factor into all of this? Well, the money we save today, we intend to use tomorrow, right? We therefore need to rely on keeping our savings in a form that will purchase as much tomorrow as it purchases today. For this reason, the US Dollar completely BLOWS CHUNKS as an instrument of savings.

Today's savings are tomorrow's capital. So, let's expand on capital:

Chickens are consummable, and perishable- therefore they make miserable long term capital. Money (in any form) makes great long term capital because money is durable. Now, loop back to the point above about USdollars. If the only existent faith in US dollars is that they are money that will not purchase as much in the future as they purchase today, then ask yourself: should dollars be considered as good capital?

I hope you are shaking your head and saying "No Robert, they should not" because that is the right answer.

US dollars are best used TODAY to buy the chicken you need for dinner TONIGHT. They should not be relied on to ensure that you will still be able to buy a chicken for the same number of dollars two months from now.

To secure your future, you need a money that does not erode in value. A money that serves as a proxy for capital until the day that faith in money itself is lost.

Another way to look at it is that dollars (and other printed currencies) are fiat money, and money itself is fiat capital.

Money only serves as a proxy for the stored value of work- IE: If I work sufficiently hard and produce more than I consume, and I grant you that excess in exchange for something else, then that something should appeal to me as equivalent in value to the value of my work, right?

If you dream of the day that you will have enough money that you will no longer need to work, then you need to preserve the "work-proxy" value of your saved money. That should be a no-brainer.

5000 years of Human history (with the plausible exception of the notably brief period of 1981- 1996) tells us that one monetary instrument rises above all others in preserving its "work-proxy" value:


If you need a more "democratic" perspective- think of it like this:

The population of Earth is 6+ Billion, and half of these people are either Indian, or Chinese, and a very much smaller percentage are Americans and/or Malaysians.

Now, the Chinese and the Indians perceive gold as money, and they value Gold extremely highly (much more highly than they value their respective countries' printed currencies), so we have at LEAST 50% of the world's population in Gold's corner already, and the Malaysian's have the only Gold-backed currency on Earth at present, so they might have just tipped the Democratic scales to 51% of the vote...

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