Opinion: Currencies of last resort

As one of my favorite bloggers, Sybil’s Star often says, “you can take the gold out of the standard, but you can’t take the standard out of the gold.” A case in point was the 1970’s.

gold 68-99

In 1971, President Nixon took the U.S., and the rest of the world, off the gold standard. Gold prices went up, as expected, but soon began to settle. The OPEC oil embargo of 1973 caused another bump, but again gold prices soon began to settle. Then, inflation kicked-in, and the gold market has been a roller coaster ride ever since.

Flying under the radar, silver (the poor man’s gold) is even more instructive. Inflation causes more uncertainty about the future than even warfare.

silver 1792-1993

The first little bump is war with England (1812-15), the second is the Civil War (1860-65). World Wat I (1914-18) caused a minor ripple, while the depression and World War II were non-events, as far as silver was concerned. Then there is the inflation of the 1970’s.

But why is this so? Everyone knows that gold has no intrinsic value, and silver has very little. As is often argued, the metals have no more real value than the circular rock money used by the people on the Pacific island of Yap.

Yap stone money

Gold and silver are only rocks too. It is the value we place on them that determines their worth. Given the resources we have, there is nothing else to use.

In a recent interview, President Obama said:

“A lot of independents, Democrats and Republicans — all are concerned about is what are we going to do about this long-term debt,” Obama told ABC’s Jake Tapper Monday. “We’ve got to show people that we are responsible stewards for their taxpayer dollars and that we’re taking some serious steps to at least lay the foundation — the pathway — for bringing those deficits down over the next several years.”

An unnamed White House official followed up; “Democrats have to reassure voters we are not being reckless.” Here’s why.

Gold 2000-09

silver 2000-09

Inflation is coming. Got rocks?

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