The Four Characteristics
of Real Money
I long for the day when gold is once again selling at $300 or $400 an ounce.
I know that sounds sacrilegious coming from a gold bug. But it’s the truth. A world where gold is no longer front page news, and where gold prices have sunk deeply relative to the dollar, will be a sure sign that the world’s economies, and America’s currency in particular, are back on solid footing.
Sadly, that moment remains many - many - a day away.
Until American politicians fashion an honest plan to reorganize our economically bankrupt nation, the dollar will continue falling in value against the only true money that remains - gold.
Go back and note the construction of that last sentence... the dollar is falling in value against gold. What every financial commentator thinks is a bull market in gold is really a bear market in currencies. Gold isn’t moving in value. It is stationary, like the sun, with all other assets - most importantly, the dollar - revolving around it.
Unlike a stock that moves in relation to itself, currencies move in relation to each other. As one goes up, the other must go down. Currencies everywhere are heading down relative to gold because Western politicians and presidents are incompetent in managing their economies, while central bankers imprudently flood the world with increasingly worthless paper.
So a falling dollar means gold’s value must rise in relative terms. That relationship will only change when the consumers of money - we the people - no longer accept that gold has value and that the dollar does.
But as long as central bankers continue their global assault on currencies, gold is the only money you can rely on to preserve your purchasing power and your sovereignty.
Good Money Must Meet Four
Essential Criteria
At one point in man’s agrarian past, cows and goats were a form of money. The Chinese traded cowry shells before moving on to swatches of deerskin. Native Americans used beads made from clamshells. They were all an accepted medium of exchange. But were they good money?
No.
Good money, as Aristotle first laid out in the 300s B.C., must meet four criteria: divisibility, durability, portability and scarcity (another word for Aristotle’s “intrinsic value”).
Cows and goats are divisible to the degree that you could exchange a side of beef for, say, a bushel of wheat. And they were portable in that you could walk your goat over to the chap selling you the wheat. But pestilence and drought limited the durability of livestock, and it’s not like cows and goats have ever been terribly scarce.
While deerskins are divisible, clamshells and cowry shells aren’t. More important, all you have to do to increase your personal money supply is go out and kill a few deer or stroll along a beach... and suddenly you’re rolling in riches! Easy access to more currency doesn’t make for sound money.
Today’s Western central bankers operate much like beachcombers — only they’re dredging the shoreline with an armada of backhoes and dumping the shells into a wampum economy. The dollars, euros and yen they create are about as scarce as fleas on an outdoor cat. Their value is based solely on faith that the pieces of paper — for the time being at least — are tradable for groceries, gas and bubble gum.
But what about gold?
Divisibility certainly is possible. Durability and portability are unquestioned. As for scarcity... well, miners around the world produced just 76.8 million ounces of gold in 2010, according to the U.S. Geologic Survey — the equivalent of about a quarter ounce of gold for every American.
Fed Chairman Ben Bernanke with his double-barreled quantitative easing campaigns created through fiat a combined 1.7 trillion dollar units — enough to fatten every American wallet with an additional 5,452 dollar bills.
Which is scarcer?
The Difference between Money and Currency
Money is real because its scarcity gives it intrinsic value.
Currency, however, is not so real.
Currency is not a tangible item you can physically hold. It is an invention of the mind we use as a stand in for something else — money. Currency can be an excellent stand in for money, so long as real money always stands behind the currency.
The U.S. dollar, British pound, French franc and German mark (before the invention of the doomed euro) were all at one point backed by gold — the so-called gold standard. But monetary authorities removed the gold. What remained were currency shells.
That’s why today’s currency looks like money. And smells like money.
But it is not money. It is a shell that we ascribe value to at the moment, but then again today’s U.S. dollar bills could just as easily be tomorrow’s cows and goats.
Money — gold, a tangible item — has not lost any value. But the currency — dollars, pounds, yen — most certainly has. The dollar’s spending power has eroded by 50% since gold was freed entirely from government price manipulation in 1973. In the last decade alone, the period in which Congress began spending with criminal disregard for the country, the dollar has lost 4.2% each year on average.
In terms of gold, however, the dollar has lost nearly 85% of its value.
And why? Because U.S. monetary officials have printed dollars at will... and none of those bills are backed by anything but the creditworthiness of a fundamentally bankrupt nation.
People need to recognize that currencies in their current form are nothing more than government IOUs that we trade amongst one another, effectively bartering green and white paper for whatever goods we happen to want. But it is not, by any stretch, money. They have no intrinsic value that is unquestioned.
Gold as money is unquestioned; it’s been the uninterrupted standard bearer of money for thousands of years.
Paper currency erodes in value every time the central banks dump more into circulation. And since currencies move like a see-saw - as one goes up, another goes down - smart people the world over realize that they can exploit the government’s fiat system by trading one piece of paper against another for profit... currency trading. As the currencies fluctuate against one another, you ride them up or down for short-term gains.
It’s a great way to make real money because if you generate more currency units than you started with, you can cash out and buy a little gold.
In the end, money vs. currency boils down to a question of scarcity. Which is scarcer - the money that takes time to produce like an ounce of gold? Or the currency that government mass produces instantly? Determine that answer and you will know where the real intrinsic value resides in the world’s competing currency systems... where the real safety lies for those who watch in disbelief at the financial folly of monetary officials.
If the dollar goes away tomorrow or next year or in the next generation, gold will still remain.
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