Jim Rickards: The New Case For Gold


I have responded to your comment on the climate thread.

Kitco Q: are we already on a goldstandard? 


I agree. I've never felt that the classic definition of money explains much for people like on this site who try to relate the financial world to the real world.
"Store of value". What is value? A measure of how much people like things? How do we find that out? Economists have invented "utils" as a way of quantifying this which says nothing about the underlying processes themselves providing value but merely how much people like things. You can't get very far with that approach and IMO it isn't saying much more than, "people will pay more for things they like more". Sure, great, thanks.
"Medium of exchange". Exchange of what? Goods and services? What are those? Are goods "physical things" and services "transform physical things"? Still doesn't explain much about what they are.
"Unit of mesaure". Measuring what? Relative value? We're back to defining value.
These definitions all bring in more ambiguous terms than the word "money" itself.
The Crash Course and others have gone further by saying that money is a claim on human labour. I generally agree but I'd take it further and ask what it is about human labour that makes it valuable, and what supports it. Ultimately virtually everything in the economy comes from biological matter (97% of our energy + many of the physical resources we use. Those minerals from the ground which aren't biological in origin were all processed using biological energy) which is harvested and transformed by human labour. You could say that technology does a lot of that transformation these days, not labour, but ultimately human labour built and controls technology. The fact that we have so much more technology now in relation to human labour just means that the transformational power of labour has risen dramatically.
It follows from this that money is actually a claim on ecological production (complex carbon molecules), and specifically how labour and the technology of the time transform production into things that we humans find help us satisfy our desires (drugs that make us high are just complex cabon molecules, pretty paint on our cars is just ccm's, our smartphones are made from plastic which is ccm's, plus metal and glass which were transformed in factories by burning ccm's), live our lives (give us food, heat, clothes, energy to drive -- all from ccm's), and procreate. The more effective something is at providing that, the more value we place on it and the more money it's worth.
From this perspective, this definition of money is more concrete and eliminates a lot of the fuzzy terms above that can be interpreted in many different ways and are difficult to relate to the real world economy.
But how do we find some kind of immutable scale to measure that ecological production and its relative "utility", in the form of money? As you point out, everything is relative and moves in relation to each other. Ultimately you could try to boil money down to a claim on a kW-hr of energy and compare everything to that. But even the forms of energy can fluctuate widely and in relation to each other. Currently oil, gas and coal are down. Food is up. Electricity is about the same. Human labour is a fairly constant measure since it always takes the same amount of energy to power a person for an hour, from one decade to the next. But the amount of ecological transformation that an hour of human labour can achieve is not constant over time due to the levering power of technology which has gone up so much in the last century.
What does it mean that a unit of oil energy has gone down in price 6 fold over the last few years in relation to an hour of human labour? The energy driving the economy hasn't gone up 6 fold in the last few years so it's hard to call oil a bedrock to which everything else can be measured. Maybe food would be better? It seems to be about the most solid and direct measure you could have tracking supply and demand for 7 billion people. If food production or availability go out of whack even 1% you're going to know about it.
But the key difference between money and the real things of value like energy described above is that money is a token and doesn't actually do anything other than represent value, or wealth, which of course leads gold-haters to point out that you can't eat gold. But you can't eat dollars either. Given that we are always going to have money which is just tokens representing claims on ecological production of some sort, how can we have a rock-solid scale on which to base money? I don't know. It would seem to me that in a freegold scenario the relative value of gold could fluctuate over time given the rate of mining production in relation to economic growth. Currently gold production is 1% of the total gold held, every year. That's significant. If gold goes up in price 5 fold when freed, and results in mining production doubling over the next few years, then that means the gold supply out there is going to go up 2% per year instead of 1%. Over a couple decades that could have a major effect on the relative value of gold, unless of course there are central governments managing the supply of gold to satisfy what they deem to be a good rate of inflation or lack thereof. But then we aren't in freegold anymore, and it all comes back to how the economists calculate their inflation statistics.

I guess I didn't get to my final point above. Since money is a token of potential ownership of real world things of value, or a claim on ecological production, then in order to fulfill its role according to its three official definitions (store of value, unit of measure, medium of exchange), it should be a concentrated token. 
This is what the bankers have always historically tried to control, to keep the average person using their paper as that token. It's also why they hate gold because they can't control the ultimate amount of gold out there. Bankers do everything they can to close the loopholes to prevent people from storing their tokens of wealth in forms other that paper. They manipulate the price of gold to scare people out, they flood us with anti-gold propaganda. They may even use the heavy hand if the law to confiscate it. 

Ultimately what else is there to store one's wealth in that isn't cumbersome like an acre of land or ton of copper, that will provide respite from the bankers' paper inflation? I think there are a few other options. Platinum and palladium come to mind. I don't see why gemstones wouldn't work. Jewellery. Also consider pearls. I don't understand why a few shoeboxes full of high quality pearls and sapphires etc isn't a good way to store wealth outside of the system. Totally off the radar, you can be certain that pearls won't be cinfisvated. And fairly portable too. They will hold up to inflation. If I had the money to do it over again id have a significant portion if our tokens in gemstones and pearls. 


The problem I see is that you are personally viewing the dollar as the standard by which you measure all else. Thats just a certain narrow personal view...
Well yes, my narrow personal view, and anyone else who happens to have regular dollar liabilities that they must meet.   If you have dollar-denominated debt, you need dollars to service this debt.  Likewise, if you have an annual US dollar tax liability (property, income, etc) only dollars can meet these liabilities.

So for anyone with such dollar liabilities, they must also have this same "narrow personal view" - somehow being able to periodically collect enough dollars to handle their liabilities, or suffer the consequences.

Not gold bars, not silver coins - "narrow personal view" dollars.  Whether you like them or not, if you have a Fistful of Dollars, you are guaranteed to be able to meet your dollar-denominated obligations.  If you have a handful of gold bars, maybe you can, and maybe you can't - it depends entirely on today's price.

Do you understand these two distinct situations?  In one, you have certainty.  In the other, you do not.

I'm not making claims about stores of values, or units of accounts, or any of the usual confusing monetary theory claptrap.  Its just about assessing the risk of you being able to meet your dollar-denominated liabilities with the resources you have lying around.  Dollars = "known ability to meet USD liabilities".  Everything else = "depends on current price."

I own gold.  I do not know with certainty if I can use the gold to meet my USD liabilities.  That's why I have USD lying around too.  To pay my US taxes, USD is a zero risk position.  Gold is not.

This distinction won't matter if we have an inflationary outcome.  It is vastly more important if we have a deflationary crash.  After some time passes, debtors will be selling every asset class they have in order to meet their debt payments.

Make sense?

Apples valued by the price of oranges. Fruitarian revolution!!
Money valued by weight: an oz. (of gold) is/will always be an oz. (of gold)

Money valued by fiat: a USD will always be what the FED/IMF/Rothschild's/Trump (whatever) says it is.

Is this logic correct?

From my limited perspective, I do not see the dollar as a zero risk. Perhaps if you are paying taxes today (with dollars of course), their value is known, but so is gold. Looking out long is another story, I'll go with gold.

It is an enjoyable read thus far.  Rickards dismantles the rationale and structure of GLD as completely as I've seen anyone do it but my nagging question is why someone like a Druckenmiller, who evidently sees the case for gold since it is his largest long position, buy $300,000,000 worth of GLD as his way to gain exposure to gold.  I understand the big money gets treated differently under the governing documents and can perhaps redeem for physical but that is not exactly without counterparty risk.  If you are persuaded by the case for gold why not cut out the middleman and just buy the shiny stuff?  I don't get it.

All that yada yada yada about fiat currency debasement  and skyrocketing public and private debts has been in-and-out of the media before.  At the end of the day nobody buys that bullshit because the smart speculators bailed and left all the goldbug true believers screwed.  Gold, next to silver, just happens to be one of the most screwed around commodities in the Capitalist markets.  We witnessed with the dumping of the ETF trade in 2013 and the wholesale f-ing up of goldbug's portfolios that gold fell down to it's intrinsic US$1100 which is the nominal cost of mining and refining production.  All those gold naysayers calling for $700 or $600 or whatever were dead wrong but it put the willies into the spines of even the most die-hard gold bug.  The recent gold rally is just speculator trade piling in again ready to screw another round of investors.  They will yet-again pump the news all over again but this time with the Brexit twist or someother headline grabbing dis-information.  Beware.


Money valued by fiat: a USD will always be what the FED/IMF/Rothschild's/Trump (whatever) says it is.
No that's not right.  Anyone who owns a home, and owes money on it, can "weigh" the value of a dollar to them by the amount of dollars it will take to pay off their home debt.  If you have a $500k house, and a 100% loan, a dollar is worth 1/500,000th of a house.

Same thing for anyone who owes taxes to the US government.

If "the Rothschilds" decide they want to massively devalue the dollar, that gives everyone with a mortgage an instant "free house."

In fact, anyone who owns debt is instantly destroyed - and all debtors win a prize - if "the Rothchilds" devalue the buck substantially.

Do we imagine the banks (who own debt) and the elites (who also own debt) will suddenly decide to devalue the buck?  Seriously?  You really think they'd let the little people win?

System can tolerate modest inflation, as long as rates adjust accordingly.  Elites can keep us in debt slavery without losing their principal.  But debt slavery vanishes after a massive devaluation.

Sound money, without some form of debt forgiveness, benefits exactly one group: those who own the debt.

You might ask - is that you?

@LukeLapi: ‭@JamesGRickards‬ isn't lying when he says its about #Gold , New emails show real reason #Libya was bombarded - GOLD! http://www.foreignpolicyjournal.com/2016/01/06/new-hillary-emails-reveal-true-motive-for-libya-intervention/

Rogoff makes a sobering case for owning gold in the emerging markets.Fair warning:right wing gold nuts,this is not for you.The article can be found at project-syndicate.org