Badtux the Snarky Penguin

In a time of chimpanzees, I was a penguin.

Religious fundamentalists are motivated by the sneaking suspicion that someone, somewhere, is having fun -- and that this must be stopped.

Thursday, July 26, 2007

The Gold Standard

As some of you know, I've placed myself on a few of the right-wingnut mailing lists just for the entertainment value. While the results have been entertaining in a way, I haven't posted much about it. That's because while entertaining, they're also rather sad or pathetic.

Case in point: "Dr." Michael Savage (Ph.D.-Mail Order) sent me an email extolling gold as an investment.

Now, first of all let's dispense with a common myth that somehow gold has some sorta inherent value. It doesn't. It's just this shiny metal stuff. You can't eat gold. You can't wear gold. Gold doesn't keep rain off your head or heat your home in the winter. Frankly, as a useful commodity, gold pretty much sucks, meaning that its only value is whatever you can trade it for.

And if you're going to trade a useless commodity for something, well, gold kinda sucks there too. You can't go down to your local grocery store and pay in gold. Unlike that green toilet paper stuff with pictures of dead Presidents on it, you can't buy a burger with gold. You gotta trade it for that green toilet paper first, which is cumbersome to do and involves fees and such.

And finally, gold isn't portable. It's heavy.

All in all, this means gold really isn't very useful as a money. Maybe back in Roman times, when every farmer and shop keeper accepted gold as payment for stuff, but not nowdays. Nowdays it's just this shiny metal that for some reason has this mythos built around it that it's something special, instead of just another metal like lead or iron or copper or whatever.

So why do Republicans rattle on about the "gold standard" as if it were something desirable? Well, it's because gold has one attribute that paper money doesn't: the government can't create more of it. The amount of gold in the world is pretty much fixed, and isn't growing very fast because all of the easily-mined gold was plucked up long ago.

Now, at first glance that might seem desirable. But the deal is, it's only desirable if the amount of goods and services in your economy are fixed and the number of people in your economy are fixed. If the number of people grow and correspondingly create more "stuff" (assuming that per-capita productivity at least holds constant), what you end up with is more "stuff", but not more money. That means deflation -- i.e., if it took $5 to buy some "stuff", now it only takes $4 to buy some "stuff."

You might say, "what's so bad about that?". Well, if you're a millionaire, nothing. You have lots of money, and now that money is going to go further. But if you work for a living, your own services are "stuff". If you're a farmer, the food you grow is "stuff". So you get paid less too. So you don't come out ahead. Only the rich guy does. And if you owe any debts -- if you owe a mortgage on your house, or on your farm -- you now are getting paid less (in admittedly more valuable dollars), but you have to pay back this loan that was taken out in cheaper dollars. In essence, your wealth is getting transferred to the wealthy -- they loaned you $1000 that would be worth $800 in today's money, but you have to pay them back the full $1000.

A perfect example is the deflationary spiral at the start of the Great Depression. Herbert Hoover refused to turn on the printing presses to keep the supply of money at least steady, and as banks collapsed, the money supply collapsed -- there were fewer dollars in the economy chasing the goods and services in the economy. This deflationary spiral resulted in huge numbers of small businesses and farms collapsing as they could no longer pay their debts because the debts were not re-calculated into the now-more-valuable dollars, thus creating windfalls for the big businesses and wealthy agri-businesses that took over their assets and farms and customers. It was the biggest transfer of wealth from the working class to the wealthy class ever in American history, and a perfect example of why Republicans are always rattling on about the gold standard -- or anything else that could cause a deflationary spiral, for that matter.

So anyhow, back to "Dr." Michael Savage (PhD-Mail Order) and his gold scam. It is a scam, you know. You never actually get the gold he's "selling". It is supposedly being held in a warehouse for you that's more "secure" and besides, gold is heavy, y'know, you really don't want to be lugging around all that heavy metal do you? Reality is that you are being sold "shares" in a gold-purchasing consortium. Some of the money you're putting into this consortium may be used to purchase gold. But most of it is going to "expenses". Like the expense of paying "Dr." Michael Savage hundreds of thousands of dollars per year to tout the scam on his radio show.

So anyhow, that's the low-down on gold and right-wing scam artists. Gold. You can't eat it, y'know?

-- Badtux the Economics Penguin

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Posted by: BadTux / 7/26/2007 04:08:00 PM  


Thank you. I had just commented on my blog about knowing nothing about the gold standard thing (in relation to article about Ron Paul). This clarifies it a bit.

Still think economics is a voodoo "science."
# posted by TheCultureGhost : 26/7/07 6:34 PM  

I actually heard his ad on the radio while channel surfing. I remember thinging "Yuck! What a stupid scam!". Currency certainly has its problems, but it's a lot better than trying to trade a shiny, heavy metal for goods, especially a shiny, heavy metal that you don't actually possess (and, what's that saying about possession being 9/10th the law?). No, it's just another scam to separate the gullible from their money.

# posted by Anonymous : 26/7/07 9:47 PM  

Ghost, economics is a lot less "voodoo" if you quit thinking about it as money, and start thinking about it as goods and services. Money is just a helpful proxy for promoting the flow of goods and services in an economy, whose only value is the goods and services that it can be traded for. The science and art of economics then becomes one of making sure that the money flows around in the economy in a corresponding fashion to the way you want goods and services to flow around in the economy. That is why Republican attempts to instead concentrate ownership of everything into a few hands always hurt the economy -- they interfere with the flow of money and the flow of goods and services.

Now, there is a lot of hokum that has been built on top of this very simple concept, and there's a lot of elaborating that can be gone into as to how money gets created, how goods and services get created, and so forth, but as long as you think of it in terms of an economy being production and flow of goods and services rather than being a particular barter mechanism (money), you're 9/10ths of the way to economics zen.

- Badtux the Economics Penguin
# posted by BadTux : 27/7/07 8:36 AM  

gold actually is a very useful metal for its electronic applications, however i wouldn't trade it for steel.
# posted by peter : 28/7/07 8:43 AM  

This post has been removed by the author.
# posted by Ruby Magdalene : 28/7/07 9:36 AM  

yes. so if anyone buys gold, they should take delivery on the physical metal, bury it as insurance, and hope they never have to use it. The gold certificates are just a way to manipulate the price of gold to keep inflation worries out of the public consciousness. Make money by going long on mining and exploration shares. The price of gold is going up.....when the cartel can't manipulate public consciousness about inflation anymore and supply of gold goes down because it's been undervalued and not allowed to operate freely in the open market for 35 years. Watch over the next year and you'll see the price going up. It's a volatile market so don't swing trade. Educate yourself and know that gold represents reality based economics and that eventually our fiat system will fail, people will panic, and flock to the only safe hedge against the kind of inflation we are witnessing now; GOLD.
# posted by Ruby Magdalene : 28/7/07 9:52 AM  

Economics isn't voodoo science; it's economics. Machines that are purported to put out more energy than they use -- that's voodoo science. Cold fusion -- that's voodoo science, too. Dowsing for water? Voodoo science again. Republicans trying to concentrate wealth into their own fat, grubby little mitts as the rest of us starve and freeze to death? That's just plain old voodoo, the kind once known as "compassionate conservatism." But I digress...

I never did understand this "investing in gold" argument, so I couldn't refute what I heard. But I did sense that it was a fraud. I kept seeing it in the sidebars of right-wing news sites, and occassionally I heard it in the sponsors for right-wing talk shows, so I figured there was something fishy about it. A lot of those people live in a universe all their own. I wouldn't trust them to come up with 2 by adding 1 and 1, never mind invest in gold on their say-so.

Now I see how this crap works. Sounds like voodoo economics to me...
# posted by Mimus Pauly : 28/7/07 10:37 AM  

Voodoo is actually a fine religion and spiritual practice that has been given a bad name.
# posted by donna : 28/7/07 10:43 AM  

We use to carry gold coins in our flight suit "blood packs", a sealed plastic bag about the size of a unit of blood that contained survival junk.

We were told it impresses uneducated natives that we might encounter if we crashed in the jungle. I guess they were right, but only if they were Republican natives.

Apples, jerky, and steel arrow points were a much better trade medium with people who knew how to live in the jungle.
# posted by Bryan : 28/7/07 11:15 AM  

For the moron burying gold in his back yard -- if the dollar crashes and becomes worthless, don't try to buy anything from me with that gold. Gimme something to eat, or something I can use to get something to eat -- like ammo, guns, axe heads. Or something that I can live in, like a deer skin tipi. But gold? Bah. I can't eat gold, what good is having a buncha yellow shiny metal gonna be?

If you really want to be prepared, turn your gold into something useful beforehand. Bury AK-47's and ammo for them in your back yard, not gold. AK-47's are gonna be a ton more valuable than gold if bad shit goes down. For the rest, buy camping gear, hand saw blades, axe heads, whet stones for sharpening axes and knives, stuff like that. I'll trade you some cool shit for a new axe head if I've done worn mine to shards chopping firewood. I won't trade you shit for some stupid shiny metal.

Remember -- the only value any money has -- whether it is gold money, or paper money -- is what people will give you in exchange for it. If people won't give you food and water and shelter in exchange for gold, who the fuck cares?

- Badtux the Practical Penguin
# posted by BadTux : 28/7/07 5:44 PM  

Oh yeah, when the Soviet ruble became worthless with the crash of the Soviet Union, potatoes and turnips became the currency of choice -- not gold. You can eat potatoes and turnips. You can't eat gold.

'Nuff said.

_Badtux the Money Penguin
# posted by BadTux : 28/7/07 5:47 PM  

I think we should spend our money on duct tape and plastic sheeting!

# posted by Mixter : 29/7/07 10:08 AM  

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