I was listening to Coast to Coast AM a couple of hours ago and the guest was discussing gold. The show in general attracts many right-wingers and libertarians which is why gold is a topic that would be discussed. I found the interview a bit educational.
At one time, US currency was backed up by gold (25% of each dollar was backed up). However, no one knows if our money is still backed by gold or not. Fort Knox still exists, but there has never been an audit of what is still kept there. Fort Knox has been used for many purposes including keeping safe items for other countries. Even if there still is gold in Fort Knox, it may be owned by private or non-American interests.
All of that is interesting enough, but the reason I wanted to write about it is that it got me thinking. The show guest mentioned that gold has little practical use. Isn’t that intriguing. Gold is valuable because it’s worth is almost entirely subjective. Gold’s value remains stable because it isn’t dependent on any objective factors. Basically, gold is almost entirely worthless except for the fact that we pretend it’s worth something. It’s only value is that humans like shiny things.
It’s lack of any inherent value is what makes it such a good investment. Since it’s value isn’t dependent on objective factors or practical use, gold remains valuable and actually increases with value when the economy goes down. The only use gold had in the past was in making coins and jewelry. It has been used to back up currency because in the past it was used as currency and as bartering objects.
The show guest, of course, was recommending that people buy gold because it’s such a safe investment. I understood his argument, but I saw one problem. Gold will maintain its value as long as the economy is still functioning. However, if society’s infrastructure collapses, it’s pointless to own gold. In such a situation, it would be better to own stockpiles of guns and bullets that could be used for both protection and barter.
What makes gold a safe investment is exactly what would also make it completely worthless in a real emergency. If you’re truly worried about social collapse, you’d be better off building a cabin or bomb shelter in some secluded wilderness area. And, instead of filling your emergency shelter with gold, I’d recommend filling it with food and other practical supplies.
There was one other point the guest mention which really intrigued me. When the US decided to stop using gold, some Middle Eastern countries stated they wouldn’t sell us oil for mere paper money. US military might changed their opinion on the matter and they decided it was in their best interest after all to sell the US oil. What this means is that our currency is now backed up by guns rather than gold. This is the real reason the military keeps growing. The US has become an empire with military bases in countries all over the world.
It’s all rather ludicrous. All of the world’s economy is (or has been in the past) almost entirely based on US currency, but US currency is backed by nothing but guns and debt. Other countries buy our debt while we point guns at their heads. China, however, has bought our debt while becoming a military power itself. If WWIII happens, it will likely be because of this precarious gun-backed US currency. The US holds off debt at the end of a gun. Any country that challenges the US on this issue will be in a world of hurt.
Even more ludicrous is the fact that the very concept of debt is a complete abstraction. All currency and all of the world economy is based on fear of violence and trust that violence won’t be unnecessarily used. Everyone has to keep the illusion going for as long as possible, but eventually the illusion will collapse in on itself. The US deficit is ultimately meaningless. China owns most of US debt meaning all Americans are welfare recipients of the Chinese economy. Even so, there is no reason the US would ever pay China back. The Chinese government probably understands this, but they’ve used this relationship with the US to build up their own economy at the same time.
As long as there aren’t any major catastrophes to the world economy, the game can continue as it’s presently being played. If China decides to force the hand of the US government, then war will be inevitable. And if the US wins that war, all debt would be erased as if it never existed.
I don’t know what to make of all this. I just find it amusing. The economy, currency, and gold are all a game of make-believe.