Why a Return to the Gold Standard Makes No Sense
Sorry gold bugs. I'm seeing more opinions about how there will be no return to the gold standard. Guess you're wrong.
The arguments vary, but the basics seem to be: 1) The US dollar and the Euro aren't falling apart: as long as this is the case, gold will not be perceived as the "safe haven" that gold bugs think it always is. 2) The world has been off the gold standard for decades; therefore "gold as money" is a concept beyond the comprehension of most people; so people won't seek or accept gold as money.
Let's look at these two ideas and see if there's any merit to them.
First, the fact that the dollar is stronger right now and the Euro is holding up should be seen for what they are: short-term trends. What you can say about these short-term trends relative to gold is that as long as such trends hold, gold probably won't go up relative to either. But since these are short-term trends, all we can say is that gold may not rise, may even correct further, in the short term. And the short term, while interesting, and while it may influence short-term decision making, really shouldn't influence your long-term planning.
Second, while it surely is the case that most people have no clue that gold was money at one time (like for at least 5,000 years), or that it could be used as money now, ask yourself the reverse: Do people understand our current monetary system? Maybe you could start by asking a friend or neighbor if they know how money is created out of nothing by banks and that our current money is a "fiat" money. Or maybe you could ask your friend or neighbor whether he understands that our current money is a form of debt. When you realize that people don't know what our current monetary system is, and therefore don't understand what our current money really is, then the fact that they don't know that gold was money won't be surprising.
My point is that people don't know what the U.S. dollar really is, yet they accept it as money and use it. They use it because it works as a means of buying things.
On the other hand, I think you may find some people who understand that inflation has reduced the purchasing power of their U.S. dollars. And while the dollar works today to purchase items, it doesn't work as a secure means of saving over the long term.
You may even find that some people understand that bonds don't work well over the long term as a place to put your savings - in lieu of keeping them in cash, i.e., the U.S. dollar - because they know that the value of the bond's principal - the face value - will decline over time, just as the purchasing power of their dollar has declined.
As for stocks as a place to put your cash, many - if not most - people you speak with probably have had bad experiences in the stock market over the last decade or so. I suspect they might not be comfortable with putting their savings into stocks because that hasn't worked out so well for 10+ years and they may not want to take their broker's word for it that stocks will prove to be the best place to put all their money for the future.
So if people don't know what the U.S. dollar is, what our current monetary system is, and don't want to trust stocks or bonds as safe places to put their cash, then they're kind of stuck. And, I suspect, if at some point people do see gold as a reasonable alternative for their cash, then we could not only see gold increase in popularity as an "investment" but we may see the time come when people will understand that gold really functions best when it is simply used as money. They would consider it either a substitute for their U.S. dollars or perhaps as an alternative currency to their U.S. dollars. It certainly will do a better job of preserving their purchasing power over time, and that alone may convince people to have gold savings accounts of some sort. (These already exist, but aren't popular.)
As for the gold standard, it doesn't really matter whether we "go back" to the gold standard on an international basis. Maybe we won't. The more important feature of gold - at least for everyday people - is it's role as money, a relatively safe and secure in which to invest your savings over time.
For now, we'll leave the issue of the gold standard to the international economists and political leaders. After all, they've done such a bang-up job of managing the world's currencies so far, right?
The arguments vary, but the basics seem to be: 1) The US dollar and the Euro aren't falling apart: as long as this is the case, gold will not be perceived as the "safe haven" that gold bugs think it always is. 2) The world has been off the gold standard for decades; therefore "gold as money" is a concept beyond the comprehension of most people; so people won't seek or accept gold as money.
Let's look at these two ideas and see if there's any merit to them.
First, the fact that the dollar is stronger right now and the Euro is holding up should be seen for what they are: short-term trends. What you can say about these short-term trends relative to gold is that as long as such trends hold, gold probably won't go up relative to either. But since these are short-term trends, all we can say is that gold may not rise, may even correct further, in the short term. And the short term, while interesting, and while it may influence short-term decision making, really shouldn't influence your long-term planning.
Second, while it surely is the case that most people have no clue that gold was money at one time (like for at least 5,000 years), or that it could be used as money now, ask yourself the reverse: Do people understand our current monetary system? Maybe you could start by asking a friend or neighbor if they know how money is created out of nothing by banks and that our current money is a "fiat" money. Or maybe you could ask your friend or neighbor whether he understands that our current money is a form of debt. When you realize that people don't know what our current monetary system is, and therefore don't understand what our current money really is, then the fact that they don't know that gold was money won't be surprising.
My point is that people don't know what the U.S. dollar really is, yet they accept it as money and use it. They use it because it works as a means of buying things.
On the other hand, I think you may find some people who understand that inflation has reduced the purchasing power of their U.S. dollars. And while the dollar works today to purchase items, it doesn't work as a secure means of saving over the long term.
You may even find that some people understand that bonds don't work well over the long term as a place to put your savings - in lieu of keeping them in cash, i.e., the U.S. dollar - because they know that the value of the bond's principal - the face value - will decline over time, just as the purchasing power of their dollar has declined.
As for stocks as a place to put your cash, many - if not most - people you speak with probably have had bad experiences in the stock market over the last decade or so. I suspect they might not be comfortable with putting their savings into stocks because that hasn't worked out so well for 10+ years and they may not want to take their broker's word for it that stocks will prove to be the best place to put all their money for the future.
So if people don't know what the U.S. dollar is, what our current monetary system is, and don't want to trust stocks or bonds as safe places to put their cash, then they're kind of stuck. And, I suspect, if at some point people do see gold as a reasonable alternative for their cash, then we could not only see gold increase in popularity as an "investment" but we may see the time come when people will understand that gold really functions best when it is simply used as money. They would consider it either a substitute for their U.S. dollars or perhaps as an alternative currency to their U.S. dollars. It certainly will do a better job of preserving their purchasing power over time, and that alone may convince people to have gold savings accounts of some sort. (These already exist, but aren't popular.)
As for the gold standard, it doesn't really matter whether we "go back" to the gold standard on an international basis. Maybe we won't. The more important feature of gold - at least for everyday people - is it's role as money, a relatively safe and secure in which to invest your savings over time.
For now, we'll leave the issue of the gold standard to the international economists and political leaders. After all, they've done such a bang-up job of managing the world's currencies so far, right?
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