Ok, I’m feeling like today is a day when I should try and vex as many readers as absolutely possible, and there’s no better way to maximize the hate mail than to deride gold and Bitcoin in the same post.
Last night, we excerpted the latest from Eric Peters, who offered the following exceedingly hilarious and exceedingly accurate characterization of carefully-polished doorstops (gold) and make-believe space money (Bitcoin):
James Marshall discovered gold at Sutter’s Mill on Jan 24, 1848. The California gold rush sparked the largest mass migration in American history; 300k dreamers flocked west between 1848-1855. They toiled to unearth 750,000 pounds of yellow metal in those 7yrs; worth $15.4bln at today’s price. Satoshi Nakamoto invented Bitcoin on Halloween 2008, and released his creation into the ether. $100bln of cryptocurrency has been magically mined in these 9yrs; equivalent to 4,860,000 pounds of gold. And both are at once valuable despite being valueless.
Yes, “both are at once valuable despite being valueless.” We couldn’t have said it any better ourselves.
People have a demonstrable tendency to lose track of common sense and nowhere is this more apparent than with gold and Bitcoin. I’m sorry, but gold has zero inherent value once you strip away humanity’s natural predisposition to love things that are pretty and shiny. You can’t eat it, you can’t burn it, you can’t do a damn thing with it other than caress it, stare at it or, if you’re Scrooge McDuck, swim backwards in it. Yes, there’s a finite supply of it, but there’s a finite supply of all kinds of things that no one would ever characterize as “an inflation hedge”. It has value precisely because you think it does and if you ever find yourself having to survive in an inhospitable environment, it will be completely useless. That’s common sense.
As for Bitcoin, it’s make-believe. Someone made it up. And people are making it up again all the time and calling it something different. One day, governments are going to ban it. And that will be the end of that. That’s also common sense.
There’s a reason why gold fanatics and Bitcoin cheerleaders tend to demonstrate an aversion to governments and central banks and I’ll tell you what that reason is. The reason is because it grates on those folks’ nerves that a centralized authority can print pieces of paper that have value simply because the government says they have value. It’s true that printing pieces of paper out of thin air is nonsense and that it should, in the end, lead to hyperinflation. It’s also true that when the Treasury prints I.O.U.s and sells them to the people across the street at the Fed (with one degree of separation), that the government is engaged in a massive, circular, self-referential ponzi scheme that should by all accounts be doomed to collapse on itself. The reason this nonsense “works” is precisely because the government says it’s going to work and that drives some people absolutely crazy.
The more money gets printed out of thin air without causing hyperinflation and the longer the ponzi scheme persists without triggering an epic collapse of the system, the crazier the gold fanatics and, more recently, the Bitcoin crowd gets. The government’s power to legitimize something profoundly illegitimate is an affront to a lot of people and so they cling to myths about the “inherent” value of a yellow metal or the “revolutionary” characteristics of a make-believe electronic payment system.
It’s true that eventually currencies fail. It’s true that empires eventually collapse. But in the meantime, railing against the system by regaling yourself and others with fairy tales about the magical properties of what, in the final analysis, are just twinkling paperweights and digital exchanges that will eventually be shuttered by government decree, is tantamount to tilting at windmills.
On top of that, it’s by no means clear that human beings will always be entranced by gold. It could very well be that when society plunges into the next dark age, people won’t be fascinated by gold anymore. Maybe people decide “yellow” isn’t their thing and instead choose a different colored scarce object as a store of value .
So my message to you on Monday goes something like this. If your plans for this evening include riding a horse to a local farm and transacting with the farmer for produce using golden nuggets pulled from your deer-hide pouch or else by promising to send him a fraction of a Bitcoin in exchange for some bushels of corn, then by all means, tell us all about the virtues of the barter system and about how governments are on the verge of collapsing under the weight of their own fiat fantasies.
But if your evening plans involve buying your corn from Jeff Bezos at Whole Foods and paying with your debit card, then please, spare me your disingenuous lecture about globalism and worthless dollars.
I like your spot-on reality adjustment closing.
Goldbugs, Bitbugs, and Bears…Oh my!
I certainly understand why everyone is confused about why gold and silver have historically been used as money. But as a matter of perspective lets consider something a bit different. SALT.
Is salt currency? Of course not, it’s ubiquitous, it’s worthless. You can just pull it out of the sea.
But of course it has been used as money and quite effectively and the reasons parallel those of gold and silver and even BTC.
So why use salt if it’s so cheap and easy to make or mine?
If you are given salt, it’s very easy to know if you got salt and how much you got (A). You lick it and weight it. It’s so cheap nobody is going to bother to sell you fake salt so it can be exchanged easily between parties that do not trust one another (B). Yet salt isn’t free it takes energy, labor, to produce it in a usable form even if all that means is putting salt water on flat sections of land and letting it evaporate. Anyone can get together some energy and make salt, all the salt they desire… but you have to put the work i(C). Then add in the utility factor as salt is a staple prior to refrigeration (D). Food needs salt, not for flavor but to keep it from rotting.
Why not use salt as money today? It’s value is too low to make carrying meaningful quantities around practical. Nobody wants to manage my rent payment of 1000 lbs of salt per month. Nobody wants to operate a salt bank and salt armored transports or do the accounting in grams of salt. It’s tedious.
But, SALT was money and probably the most perfect money the world will ever have known for its time. If nothing else you could always sit around and print money for a living.
So let’s compare Gold, Silver, USD and BTC to salt
Gold: easy to verify, doesn’t degrade, tedious to handle, anyone can mine more, no economic utility
Silver: easy to verify, doesn’t degrade much, tedious to handle, anyone can mine more, economic utility
USD: hard to verify, degrades if physical and requires effort to maintain digital integrity, easy to handle, FED can mine more, no economic utility
BTC: easy to verify, doesn’t degrade, easy to handle, anyone can mine more, no economic utility
There aren’t any clear winners until someone shows up with a gun and says… you WILL use the USD and it alone. If no one with a gun shows up… everything but the USD looks pretty decent.
Meh. Rant all you want Heisenberg, but it’s a demonstrable fact that in the history of the human race, there has been a 100% mortality rate amongst fiat currencies. The US dollar is doomed. So is the Euro, the Yen, and so forth. However, just because an event is “inevitable” doesn’t mean it’s “imminent”. In other words, gold bugs and Bitcoin bugs shouldn’t put all of their eggs in one basket.
Gold is worth approximately the same today as it was 5000 years ago. A loaf of bread in the time of Julius Caesar cost about the same amount of gold (about 1/10 gram) as a loaf of bread costs in gold today. A ski lift ticket at Vail when it opened in 1962 cost $5, today it costs $160, but if you were paying in gold the price has not changed.
Nothing unwise about owning some physical gold. Most of the planet’s Central Banks agree, as many (Russia, China, for example) have been buying all they can get their hands on for the last decade.
Will owning gold make you rich? Probably not. But NOT “definitely not”.
As Will Rodgers said “Buy land, they ain’t making no more”. If you have EVEN a small place, you can feed yourself, shelter yourself, defend yourself. It’s tangible, historically inflation proof and in the right location it can be a new start.
How’s the island ?
The realheisenblahblah has obviously stepped beyond his pay scale. I’ve bought and sold physical silver and gold for 40 years…NEVER…not even once have I..or anyone I know.. “bartered gold or silver. It was never my purpose in buying to use it in place of US Dollars..it was strictly a store of value that..in EVERY case…returned me more dollars than I paid when I eventually sold.
I know far more stock fanatics than I know precious metal nut burgers. Ever try talking rationally to someone who it’s IMPOSSIBLE for Apple to ever substantially fall..or MY God..CRASH????
Gold and silver are insurance..insurance against a lot of dangerous crap that no one thinks can happen until it happens. Bitcoin is a different animal. Lots of things are translated into Euros..Dollars..Yen..Yuan etc at some point…Real Estate far beyond gold and silver. So what?
H- just had to rub the salt (another use for it) into the day’s wounds. Thanks so much. As the dollar loses it’s buying power by the day (some more of that non-inflation inflation again) and countries who are dumping them as fast as they can a little insurance just could be a wee bit helpful in the coming months and years. Of course you have all kinds of recommendations when this whole “fiat currency” scam blows up and hurts potentially millions of people. Right now that Silver Certificate…..oops….. I mean that Federal Reserve note is backed by 20+ Trillion…oops…. I mean $20,000,000,000,000 plus whatever else that’s hidden by that same Fed Reserve scam still going on day after day. So just keep up the good work!