Why Gold is a Terrible Investment and will Save the Lives of your Children

Last updated on May 10th, 2018  

Or Why “we the people” create sound money systems and the government and banks destroy them.

 

Many consider Gold to be a barbarous relic of the past. Others say gold offers a poor investment return.

But you know what gold does best? It forces bankers and the government to rob you out in the open where everyone can see.

The current monetary system was designed specifically to hide the theft of your wealth from you.

In this article I am going to use the word ‘gold’ to mean all precious metals such as both gold and silver.

Throughout history people of many different cultures and times have chosen to use gold both as a form or money and as a store of value.

Much to the surprise of US citizens even the US Constitution declares that only gold and silver can be used as money in the United States:

US Constitution, Article 1, Section 8

    [The Congress shall have Power] to Coin money ...

US Constitution, Article 1, Section 10

    [No State shall] ... make any Thing but gold and 
    silver Coin a Tender in Payment of Debts ...

Why did everyone in the past use gold and silver?

Gold and Silver can be medium of exchange, and they can be a store of value.

It is this second role, “store of value”, that makes gold and silver useful as a medium of exchange.

So what makes gold and silver a good store of value?

The problem that the laborer wants to solve is how does he store the value of his labor?

The reason the laborer wants to store the value of his labor is because of a problem called the “coincidence of wants”.

You live in a system where dollars (or other fiat currency) are used as a store of value, but let us imagine a system that does not yet have a store of value, so that we can better understand the problem that dollars are trying to solve.

A carpenter who makes tables and chairs from wood can save up the tables and chairs he makes, store them in a warehouse, and later trade them for food.

When the tables and chairs are in the warehouse they represent a store of the value the carpenter’s labor that he put into making them.

Later he can trade the tables and chairs for other items, such as food.

But what if the farmer does not need tables or chairs and the carpenter is hungry?

What does the carpenter do?

The problem of having an item to trade but not being able to find someone who “wants” the item is called the “coincidence of wants” problem.

Since food products tend to spoil relatively quickly the carpenter has to find someone to trade his tables and chairs to when he is hungry.

To solve the problem of trade and trying to find people who want your items exactly when you need some particular item people choose to use an “intermediary” item as a “store of value.”

Various items have served this purpose but far and away gold and silver have served this purpose more than any other item.

People choose Gold and Silver because

  * they are difficult to create
  * they do not degrade
  * they are easily divisible
  * they are hard to fake

While gold and silver have the properties listed above, that does not make them “valuable”.

Gold and Silver do have a small intrinsic value. Both are pretty and used for jewelry and both are used in the manufacture of electronics.

The main value of gold comes from our **agreement** among ourselves to use it as a “store of value”.

The carpenter can trade his chairs for gold whenever someone wanting chairs shows up at his door, **and** at any later time the carpenter can, when he is hungry, trade his gold to the farmer for food.

It is the farmer’s willingness to trade food for gold and the carpenter’s willingness to trade tables and chairs for gold, that solves the “coincidence of wants” problem.

The farmer and the carpenter do not need to want to trade their items at the same time, they can store the value of their trades in gold and trade the gold at any time in the future for the items they want

This is entirely a handshake agreement among us all. We are creating a mutually beneficial trading system that benefits us all. By the way, so far as we know this **handshake** agreement regarding gold has been going on for over 4000 years.

Are you having trouble imagining gold to be valueless? Just ask yourself how much would gold be “worth” if no one would trade you anything for it? If no one wanted your gold?

Gold solves the “coincidence of wants” problem and it solves the “store of labor” problem.

It represents simply a tool by which we make our trade more efficient.

What is paper money?

“Real” paper money is simply a receipt for gold that you have stored somewhere.

Rather than carrying around gold and silver our farmers and carpenters would trade pieces of paper (receipts) which indicated that they had gold or silver stored in a bank.

The US dollar was such a receipt. Here is picture of what the US dollar once was:

10 dollar gold note

It is hard to believe today, but US dollars were originally receipts for gold that you had on deposit at a bank.

Note the text along the bottom:

TEN DOLLARS IN GOLD COIN PAYABLE TO THE BEARER ON DEMAND

And that picture is of my receipt that I have in my possession.  As you might imagine the United States of America no longer stands  good for that receipt.  If I take it to the US Mint they will give me Federal Reserve Notes rather than gold  thanks to the theft carried out by Franklin Delano Roosevelt  in 1934 through his Executive Order 6102.  It was not even a law. The gold seizure was carried out by FDR entirely on his own authority as President.

Trading the paper receipts  (old US dollars) was easier than carrying around the actual gold and silver.

So we **chose** to use gold and silver as a method of exchange and a store of value and later we **chose** to trade receipts for gold on deposit (US dollars) in place of actual gold and silver coins.

Until 1914, US dollars were receipts for gold and silver. They were receipts redeemable on-demand in gold or silver.

This was a a very good thing for reasons I will describe shortly.

What is a fiat currency or fake money?

One of the confusing concepts you will come across is “should our currency be backed by gold”, or “what is an un-backed currency?”.

These kinds of questions get the problem backwards. Everyone starts off with direct barter and then moves to gold or silver coins as a medium of exchange, followed by using receipts for gold and silver rather than the actual coins.

Fiat currencies are pieces of paper that represent nothing. The US dollar today (called a Federal Reserve Note or FRN (get one out and look at it, is says so right on it)) is a worthless piece of paper that represents nothing.

No one initially accepts worthless pieces of paper in exchange for goods.

However, governments invariable perform the following theft:

1) people voluntarily chose to use gold and silver to solve the coincidence of wants problem and as a store of value

2) people voluntarily chose to use receipts rather than carrying around the actual gold and silver

3) government creates fake receipts, calls them federal reserve notes, pretends they have value, and **forces** the citizens to use them

You might wonder why anyone would accept this change? I have to admit I am entirely at a loss as to why the people in the 1930s allowed this to happen. Whatever the case may be, it  did happen. Franklin Delano Roosevelt, 32nd president of the United States,  seized all the gold held in the banks and replaced the receipts (US dollar gold and silver notes of the time) with worthless US dollars (federal reserve notes).

Prior to FDR’s actions you could take your US gold and silver dollars to the bank and exchange them for the amount of gold or silver indicated on the bill. After FDR’s gold seizure the gold was gone and the gold notes could only be exchanged for worthless federal reserve notes.

You might be chaffing at the concept that US dollars are worthless, after all you can currently trade them for things today just like you could trade old dollars for things.

Remember above I wrote that people used gold as a store of value and to solve the “coincidence of wants” problem entirely through a gentleman’s agreement?

Well the same agreement is going on today, but rather than gold and silver as the solution we now accept entirely worthless pieces of paper and rather than a gentleman’s agreement the government forces the “agreement” upon us.

But the worthless paper is working fine you say… As a matter of fact it is not. The worthless paper is enabling the theft of your wealth.

You may remember from earlier that I wrote:

People choose Gold and Silver because

  * they are difficult to create
  * they do not degrade
  * they are easily divisible
  * they are hard to fake

Federal Reserve Notes fail in 3 of the 4 categories.

Gold is difficult to mine. The creation of gold is thus limited by its difficulty to mine.

Federal Reserve Notes (FRNs) are simply created out of thin air. They can be created in unlimited quantities with very little effort.

It is important to note the difference between forged and fake. A forged federal reserve note is doubly faked. It is fake in that isn’t even a real FRN, and it is fake because FRNs are fake in themselves. They do not represent anything.

Now using worthless pieces of paper as a medium of exchange and store of value is not actually a problem. Gold has very little value outside its use as a medium of exchange and a store of value.

The problem with worthless pieces of paper lies with the bank’s and government’s ability to create them in vast quantities  out of thin air. The banks and government cannot create fake gold, but they can create fake FRNs.

Go online and search for pictures of old restaurant menus or go to the library and look at a 100 year old catalog or go to an antique shop and look for old products which have the price displayed on the packaging.

Why, 100 years ago, was a steak dinner with all the trimmings 25 cents? Why was a business suit $10. Why was a newspaper a nickel? Why was medication 10 cents? Why was a teacher’s monthly salary $50?

Why are all those items so expensive today?

When you think of things in terms of gold you will find that prices are basically unchanged.

Gold is $1325 per ounce at the time I wrote this article. In 1920 gold was valued at $20 per ounce.

So a steak dinner cost 25 cents or 1/80 of an ounce of gold in 1920. Today 1/80 of an ounce of gold is worth $16.45. Would $16.45 get you a reasonable steak dinner today?

You see it is not that gold has gotten more valuable. It is that dollars have lost their value.

In 1920 1/4 of a single dollar would get you a steak meal. Today you need at least 16 dollars to get a steak meal.

This “loss of purchasing power” of the US dollar is a direct result of simple theft. Theft primarily by the government and the banks but it includes others too.

Inflation

You will hear people talk about “inflation”. Some even speak of it as a desirable thing.

It is not. Inflation is solely the creation of fake dollars and results in the theft of your savings. Anyone who tells you otherwise is reaching into your wallet and taking money out of it.

An inflation rate of “2%”, such as “targeted” by the Federal Reserve, is just a way of saying someone is going to steal half of the value of your savings every 30 years.

When you use a difficult to fake commodity as your medium of exchange there is not and cannot be inflation. Inflation is a lie used to rob you.

Trading gold vs FRNs

Consider trading using gold:

When the carpenter sells his tables and chairs for $20 in gold, he puts the $20 of gold into the bank and the bank gives him a $20 gold note.

Later on when the carpenter wants to buy food from the farmer he can give the farmer the $20 gold note in exchange for the food.

Later the farmer can go to the bank and exchange the $20 gold note for the gold.

Or the farmer can just keep the gold note. The gold note is “as good as gold”.

Now consider trade using federal reserve notes (modern dollars):

The carpenter sells his a tables and chairs for $20 in worthless pieces of paper.

Later on when the carpenter wants to buy food from the farmer he can  give the farmer the the worthless piece of paper in exchange for the food.

So what does the farmer do with the worthless pieces of paper? He can trade them to some other person for something that he wants.

There is actually nothing wrong thus far with using gold or pieces of paper as a medium of exchange or store of value, but that is going to change.

What happens when the government or banks try to create fake money?

Fake Gold Notes

What happens when the government tries to create more gold notes (old US dollars) then there is gold on deposit at the banks?   That is what happens if they create fake gold notes?

The problem the government will run into is that there are now more gold notes out there than there is gold in the bank. If the people try to redeem all their gold notes for gold the bank will run out of gold and everyone will recognize the fraud being carried out by the bank and the government. This is where the term “run on the bank” comes from.

It only occurs when a bank prints more notes than it has in the underlying asset, which historically has been gold.

This single fact allows us, the people, to see when the bank or the government is stealing our savings.

Fake FRNs

On the other hand, think about the federal reserve notes.

Federal reserve notes are not redeemable for anything at the bank. If you give a bank a bunch of FRNs the bank will give you FRNs in return.

So what happens if the government started printing fake FRNs? Well nothing. At least at first.

The public cannot determine whether or not the government is printing fake FRNs because FRNs are not redeemable in anything other than other FRNs.

So the tool that the public had for identifying if the government or the bank is behaving badly (stealing) is gone.

Thus the bank or the government can simply print more FRNs anytime its wants.

You might ask why is this bad? Doesn’t more FRNs mean everyone is wealthier?

Are you wealthier when a steak meal costs 25 cents or when it costs $16?

Or think about is this way.

Let us say 100 years ago you had a $20 ounce of gold and a twenty dollar bill.

Today the twenty dollar bill would be worth twenty dollars and the ounce of gold would be worth $1325. Which would you rather have?

That twenty dollar bill from 100 years ago will barely buy you a steak meal today, but that ounce of gold from 100 years ago will buy you 66 steak meals.

As an investment or store of wealth the gold returned 66 times the return of the US dollar.

One of the confusing things when valuing gold in terms of dollars is that we think that the gold became more valuable, when in fact, what really happened is the dollars lost value. In 1920 you could buy an ounce of gold with $20. Today you will need $1325 to buy the same ounce of gold. Did the gold change? No it did not, which is one of the values of using gold as a store of value. It was the dollars that changed. They lost 98.5% (20/1325) of their value, or purchasing power, over the last 100 years.

What follows is a description of some of the other bad outcomes that result from allowing banks and government to create money out of thin air.

Banks pick the winners and the losers

Let us imagine you are playing a game like monopoly where people are buying property but instead of having to land on a square before you “buy” a property everyone can bid for the property.

Imagine each player has $1000 to spend buying properties.

Imagine one of the players has access to a special account at a bank via which new FRNs are created out of nothing and given to that one special player.

Who do you think will end up owning all the properties?

Indeed, the player with the access to the “free” fake money will own all the properties because he can out bid all the other players who are limited to the cash they have on hand.

The banks decide who is going to win the property bidding simply by determining who they are going to give or loan the fake money too.

In other words, the banks pick the winners and the losers.

That is a power that you and I and the founders of the country never intended for banks to have.

The “special” player in the game goes by another name. He is called the “1%”.

How a bank creating fake money robs you of your savings.

When your savings are held in gold, neither the bank nor the government can steal from you without it being obvious to you what is happening.

However, when you keep your savings in fake money, like FRNs, the bank and the government steal from your savings with every additional fake FRN they create.

Think back to our modified monopoly game  and the one player with access to unlimited fake money.

And remember that all the other players each have $1000 in savings that they can spend buying properties.

Let us assume that each player would like to own 4 properties and generally properties have been selling for $250 each.

Without the fake money from the bank all the players are playing by the same set of rules and compete equally for the properties.

However, with the fake FRNs the one “special” player can bid any amount.

Let the bidding begin.

The fact is that the most any of the regular players can bid for a property is $1000 as that is all they each have individually.

The player with the access to the fake FRNs can bid $1001 and win every single property.

What you should note here is that $1000 “dollars” will not buy any property. Those thousand dollars are worthless compared to the money the special player has.

Not only will $1000 fail to buy any property, the properties which were $250 before have now all sold for $1001. Oddly the people who sold the properties think they made a killing having sold their $250 properties for $1001 instead.

The problem the sellers run into is that because of the special player other properties they may want to buy with their new found windfalls of $1001 are in fact also $1001.

All properties are driven up in price by the special player.

The regular player’s money has been “devalued” to the point that it is actually entirely worthless compared against the fake money from the special player.

The regular player’s money is worthless when it comes to buying property, but might it still have value in other markets?

In a purely bid based market the regular player’s money is entirely worthless anywhere that the special player shows up to bid.

The only place the regular player’s money may retain some value is in fixed price markets like the price you find on goods in a grocery store.

But what happens when the special player shows up at the grocery store and starts buying all the food with his fake money from the bank?

Over time, because the special player is buying everything, the grocer raises the prices for the goods in the grocery store. When the price in the grocery store for steak goes from $10 per pound to $20 per pound because the special player is buying it all, he does not care. But the regular players do. They are now paying $20 for what they used to pay $10.

As the special player keeps buying everything in sight with the fake money from the bank, the regular players will eventually find themselves paying $16.45 for steak rather than the 25 cents they used to.

The reason people do not see the scam more clearly is because the scam is carried out over very long periods of time and because the people have no mechanism to show them that the bank it printing fake money.

Using gold or gold backed receipts for money eliminates these problems.

So you think this is too crazy to really be going on?

Why are steak meals $16.45 today rather than 25 cents like they were 100 years ago?

On what possible basis can “inflation” (theft of your savings) be a good thing?

On what possible basis can one consider providing some with early access to fake money be a good thing?

Want to know something else? The theft and the crimes being committed by the banks and the government are actually far worse than is being described in this article.

And here is something even crazier: In a sound money system (based on gold for example) the prices of goods go down over time.

Because of this last effect, you can determine if your monetary system is sound or fake based on the cost of staple foods and goods. If the costs are going up your system is based on fake money. If the costs are going down you have a sound money system.

Some of you might argue that the cost of staple goods should remain the same.

Humans are clever creatures. They are constantly finding more efficient ways to produce the same goods. In other words, in a sound money system, improved production methods leads to lower prices.

This final point is perhaps the hardest to accept:

The entire Federal Reserve System and Federal Reserve Notes were created for the single purpose of creating a system by which the banks and the government could rob you of your wealth.

It was not a mistake in the design of the system that some nefarious people figured out how to exploit.  The nefarious people were the people who designed and built the system.

So what can you do?

One, join those of us who have over that past 4000 years fought to protect the value of your labor.

Two, vote out the incumbents and vote in independents. Make sure those whom you vote for do not have family members with foreign interests.

Three, close your bank account with that big 5 bank, and open an account at a regional bank or credit union.

Four, put some of your savings into gold that you can hold in your hand. Bury it in your yard if need be or under your house. Even if your house burns down the gold will still be there. Even a single gold eagle or Krugerrand is enough.

Five, try to enlighten your friends, so we can build a sound money system. Sending people this particular article might be a bit too much for the uninitiated.  You might start with the articles on ‘Understanding‘ or simply discuss the subject with them in person.

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