| "All that glisters is not gold." ~Wm. Shakespeare
May 22, 2018
Oh, my! In what can we safely and profitably invest?
Derivatives? Stocks? Bonds? Real estate? Art? Gold?
The idea behind "investing" is to put a portion of one's ready cash into something that will yield a profit at some future time. We recall investing in war bonds in the 1940s. One could buy a $25.00 bond for only $18.75 and redeem it in the future for $25.00. "Invest in your country!" we were told.
The hitch was the $25.00 we eventually got upon redemption would not buy goods or services that $18.75 did when we laid out the money. (That's the consequence of monetary inflation.)
What about gold? It's touted heavily on the Internet and by telemarketers as an ideal "investment" against the threats of economic calamity. It works if a buyer has a knack for buying precious metals at low prices and selling them as soon as prices reach a much higher level, but most people don't have that timing knack. Gold's most attractive feature, in our opinion, is its ability to maintain parity against goods and services over time.
Consider the price of a man's good suit. In Philadelphia when the Constitution was drawn, a good suit, with accessories, cost 1 troy ounce of gold. When Franklin Roosevelt was elected in 1932 a good suit still cost only a troy ounce of gold. Today a troy ounce of gold will trade for some $1,300.00 which, in turn, will swap for a very nice man's outfit, including shoes, shirt, tie and underwear.
The point is gold tends to store value over long periods of time far better than the debt-based currency that passes for money today.
Gold has stood the test of some 6,000 years as a reliable store of wealth and value. But it is not always a good investment, as Bill Haynes discusses in "Investing" in gold?
you look at the
data, with very few exceptions, all of the developed countries have
gold reserves. Why?”
What got into former Fed chief Alan Greenspan when he made the above
remark back in 2014?
Nothing new, as far as we can tell. Greenspan is said to have
been supportive of the theory of gold as money since his youth.
He was once a member of Ayn Rand's inner circle of objectivists who
opposed the practice of governments issuing fiat currency.
His question deserves an answer. If gold has absolutely no future
and does not represent wealth, why would governments and central banks
hoard the stuff?
What does one do to cause the question to be debated in a public forum? Greenspan posed the question nearly four years ago. Certainly some sharp-witted monetary critic has had time to dream up a solid argument against the Constitutional requirement that the dollar be a strictly defined measure of precious metal. Simply ignoring the tenets of the Constituion is hardly acceptable. Nor moral.
A one-hour debate in prime time TV should be all that's necessary to
launch a nation conversation on the matter. In addition to the
question of why governments and centrasl banks hoard gold we could add
a sub-theme: "Would a cashless society be good or evil?"
It reminds of the the gold rush of 1980. Gold fever hit the American psyche hard and the dollar price per troy ounce soared to $850. (That's $2,584.52 in today's dollars.)
Both the gold and silver bubbles blew up thirty-eight years ago and the
price of neither metal ever got anywhere near their alltime
If one's objective is to swap surplus dollars for something that
holds value better than Federal Reserve notes, we believe there is no
contest between bitcoin and gold. "Investing" in bitcoin is
a gamble. It does not exist in intrinsic form and relies strictly
on human faith. Gold, on the other hand, has weight, beauty, and
durability going for it and does not rely on electricity to
exist. Moreover, it has been a favored form of money for several
Cryptocurrency or the real McCoy? We'd rather have a krugerrand
in the sock drawer than a computer "wallet" that contains digits whose
future purchasing power could vanish if the electricity grid fails.
ITEM: "There are now more billionaires in the world than ever before: 2,754. That's according to The Wealth-X Billionaire Census 2018, which finds that 'the billionaire population and their wealth soared to record levels in 2017.'
"The United States accounts for 25 percent of the global billionaire population, Wealth-X inds though it's home to just over 4 percent of the world's total population. In fact, there are more billionaires in the U.S. (680), than in China, Germany and India combined." THE VERY RICH
But overlooked in this account is the telling effect of monetary inflation. There is no legitimate way to compare monetary wealth today with the Rockefellers, Vanderbilts, and Carnegies of yesterday. When high inflation kicks in we can expect surveys to start counting trillionaires. But they will not be as wealthy in a material sense as, say, Cornelius Vanderbilt in his heyday.
Some Lessons Never Change
In the mid 1960s the
late economics writer Henry Hazlitt published his "Economics in One
Lesson." It's still in print.
During the outburst of heavy inflation in the U.S. in the 1970s he
published a one-page flyer that described the source of price inflation
and what to do about it.
Now that monetary inflation is stirring once more, causing an uptick in
the general price level, it's time to revive Dr. Hazlitt's one page
commentary from the '70s.
Hazlitt flew from his home in Connecticut to Columbia,S.C. in the late
1970s to appear on "The Seven Sides of Inflation," created by the
Committee for Monetary Research and Education and produced in the
studios of S.C. ETV. The ETV staff laid out a very nice deli
lunch. Hazlitt picked up a sandwich and reached
for his pocket.
"Whom do we pay?" he asked.
A staff member hastened to respond, "Oh, no, Dr. Hazlitt! This is
a free lunch!"
We wish someone had snapped a photo of the twinkle in his
eye. Almost everyone in the room knew what was coming.
"Don't you know there's no such thing as
a FREE lunch?" said the famous economics writer.
Sadly, in this day of "free" handouts the lesson has been almost