Friday, May 27, 2011

Is Paper Money Better than Gold?

A recent article posted on Seeking Alpha was entitled, Gold too Variable to be a Currency. The gist of the article was that the ups and down of the precious metals gold and silver were just too steep and unreliable to form a stable currency. The US Dollar, on the other hand, was lauded as a much more suitable form of money as it's daily and weekly movements versus other fiat based currencies was more gradual.

I couldn't stop myself from commenting on this "interesting" take on money. See my responses and those of some others below:

Rick (i.e., Me): So, gold is too variable to be a currency, but the Federal Reserve Note is the Rock of Gibraltar? Let's put the FRN vs. Gold head to head:

In 1913 (when the FRN was born - illegitimately), the average house cost $3,400 - a millionaire could buy about 295 average homes.

If you bought gold in 1913 with your million dollars at $20 an ounce, you'd have purchased 50,000 ounces. The value of the 50,000 ounces today would be about $76 million dollars.

In 2011, the average house cost around $200,000 with gold at $1520 per ounce. With $76 million dollars you could buy about 380 homes!

If you kept the cash in, well, cash... you could buy 5 WHOLE HOMES now! What happened? The government and the Big Bankers stole your money using a sly instrument called INFLATION.

Sheik Rattle Enroll (alias banking shill): Rick is saying that inflation is predictable whereas precious metals are unpredictable (they can lose 30% of their value in a week). Nobody here is denying the existence of inflation, the author's chart even shows it. What you're doing is called a straw man argument.

You show that straw man!

Rick: I don't believe I am attacking a straw man. We're examining gold vs. paper fiat money as currency based on a predictability or stability component. My example above sought to show stability of purchasing power over a century. I could just as easily have gone back to the Roman Empire 2000 years ago, where an ounce of gold bought a fine toga then, and a fine suit of clothes today. I believe that is a true measure of stability!

Secondly, accepting that inflation is a part of life is the core of the problem with the US and Europe. Inflation is non-existent in money that is backed by gold and/or silver. It has only become an accepted part of reality today because every sovereign government in history granted the power to print money on demand has abused the power, thereby reliably debasing the money. Personally, I don't see why I should prefer a thief who steals from me, just because he does so reliably!

Lastly, it's true that governments and banks have also "reliably" manipulated the price of gold and silver downwards as a means to prop up their fiat paper. However, we shouldn't blame the victim for being raped by the attacker on a consistent basis, should we?

I received no further replies from the Sheik.

Time is running out fast! Hyperinflation seems unavoidable as fiat paper money is being printed as fast as the US presses can run. To protect your wealth and your family, buy gold and silver now from these top companies, APMEX Gold and Silver and Silver American Eagles.


1 comment:

  1. I don't think SR&R is a real banker shill. More likely just a typical sheep. I searched him out and got a few hits, mostly from gamer sites that he looks to have been on for a while. That doesn't fit the profile. The shills tend to have accounts for very short periods of time, with very little actively as most of it is concealed. And they don't tend to hang around gamer sites. They like politics and esp money and financial arenas.