Phil > one has to conclude that they have taken the view that gold is simply a very limited hedge against a catastrophic event,
You said it, not me.
> the real game is in the paper money printing. It is a lot cheaper to print a billion dollars, than to go out and mine a billion dollars worth of gold
It's not quite like that. The game has changed. The reason that gold was used previously to "back" paper money was because the goldsmiths originally did it. Gold then became the way the banks did it. And then the central banks. With time they realized that less and less gold could be used to "back" more and more paper money. In fact, eventually, even though they said the money was "backed" with gold, no bank would ever give gold in exchange for notes. So, therefore, since the whole gold story was clearly a bluff, what was the point in keeping it up?
The truth is that gold was never ever needed to "back" money. Money is merely a medium of exchange and not an asset or an investment. In fact, today, money is no more than a number on a computer screen. It's actually just a way of keeping score. Not a game in itself.
The "printing" of money is not really printing bank notes (that's done anyway), it's actually the creation of debt, and when the government does it they call it a Treasury Bill. It's not as if the Treasury Bill is valueless, it's not Monopoly money, and in fact its value does change in line with interest rates and confidence in the country etc.
But it is true that gold is not required in any of this. The use of gold as a monetary instrument was really an anomaly from the beginning. Keynes was right -- it is a barbarous relic. If gold has to have a value, that value has to come from a property quite apart from its use in "backing" paper money. Platinum doesn't "back" anything yet it is twice as valuable as gold.
The problem people have is to realize that the thing we all believe is central to our lives (money) is actually created out of thin air. And that's probably the main reason why they kept the gold "backing" story going for as long as they did. The gold did nothing but enable the myth to exist that the money had "value". In truth, the value of money is what it does for one, what it can buy, not what it is. |
