Paper bugs are in denial
Some people just refuse to accept reality.
Why is the price of gold increasing? “Because everyone is buying it,” some will say. Okay, but that still begs the question.
Why are they buying it? “Um, um, dunno. It must be a bubble, people are entering into the market under speculative intentions.” First of all, this mainstream regurgitation completely ignores the fundamental facts surrounding metal stocks. They are very undervalued. Nothing about the gold surge says “bubble.” The price of gold will inevitably be subject to corrections in the next ten-plus years of this gold bull market. Smart savers will see these corrections not as a time to run scared, but as an indication to buy more of the stuff at a discount.
Paper bugs are simply denying what gold bugs have known all along.
Gold is real money. It is rare, it is valuable in and of itself, it is easily divisible and it has been the most constant store of value throughout all of human economic history.
What fiat currency can claim to have lasted more than a mere few decades, let alone for thousands of years? Fiat currencies are a joke. Paper bugs refuse to admit what a joke they are. They think fiat currencies are “the next best thing,” the inevitable result of civilization advancement. “Modern economies can only function on a fiat currency of paper money,” they regurgitate. What a laugh. Do they offer any economic justification for this? Or do they just assume that you will take those phony words as gospel just as they have?
How real money works
Fiat currency is paper. Paper is paper. What kind of value is that? Paper is made from trees in abundance with no regard to the price level of the currency being produced. See, with a real money, the more valuable it becomes the more incentive there is to produce it. That leads to increased production, and an increase in supply. Econ 101 students can surely understand what an increase in supply leads to. That’s right! Increased supply leads to a decrease in price. This decrease in price leads to a decrease in production, and on and on.
This whole process establishes an equilibrium between money production and its value. Hence, the value of gold remains constant.
If you saved an ounce of gold in the year 1750 then it will be just as valuable in 1800–and 2010 for that matter. In fact, increased efficiency over those 50 years would lower production costs and ultimately your ounce of gold will buy more after those 50 years than it would when you had saved it (as it happens, those efficiencies are brought about by investment which was made possible through your saving that ounce of gold).
This equilibrium is maintained solely by the marketplace, meaning it happens naturally. It leads to a stable price level and incentivizes saving, which leads to economic growth.
But what happens when money is dictated by fiat? That is, what happens when government passes legal tender laws declaring that you must use the money they want you to use, which happens to be the money that they–and only they–can produce? Well, first they are going to want to produce lots of it so that they can spend it on programs that will keep their constituents happy. These are things like retirement benefits, paving roads, keeping us safe from terrorists and providing low-interest loans for education, homes, cars, etc.
These services keep politicians in office. They want to stay in office because it’s easier to provide services when you are forcing your financiers to give you their dough. The other option for politicians is to quit office and get a job where they can only be compensated through the free will of the other party in an exchange (this is known as the private sector). They don’t want to do this. They are incapable of dealing with such a challenge. They must stay in office as long as possible.
The plethora of programs is the key for receiving votes and ultimately remaining in office. But they can only provide programs through tax revenue as the political class doesn’t actually generate wealth of its own.
Remember, though, the primary goal for the politician is to keep his ass in office and out of honest work. Raising taxes, even if it is to administer cozy programs, will not sit well with constituents. The politician is faced with a dilemma: how can you provide programs while keeping taxes low? Finding the answer to this question would be like finding the holy grail for the politician.
It turns out that the holy grail is money itself. If the politician holds a monopoly on money production, while forcing everyone to use that money, then they can spend as much as they can produce without burdening their unsuspecting voters with high taxes. In order to produce more they will surely want that money to be made of paper. Brilliant!
This is called fiat currency.
Fiat currency does not last. When Roman bureaucrats needed more money they simply debased metal coins by mixing more valuable metal with less and calling it the same coin.
American political money-producers have done the same with the penny, converting it from a copper coin to a much cheaper nickel coin coated in copper to give it that color. They then claim it is the same coin and holds the same value. But a penny in 2010 does not buy what a penny could buy in 1900.
So who are they fooling? Answer: plenty of people. Enough anyway to keep the party going until it all collapses around us and we one day realize that the “money” we have been using actually has no value. American politicians have done this with pennies, nickels, dimes and quarters (which used to contain silver).
More recently, currency production has forged ahead with the development of our financial digital network. This allows politicians to produce currency by simply typing a few keys on a keyboard. Market forces leading to monetary-price-equilibrium and price stability are completely disconnected from this process.
Disaster is inevitable all because politicians seize the power they need in order keep their jobs. They force compliance to their money rules and are allowed to kick the can and while neglecting the economically absurd policies that will end in disaster only once they are safely out of office living in their vacation home in the Caribbean.
What’s more, we further empower them through our ignorance–nay, our willingness–to support their crackpot ideas.
Paper bugs are everywhere
The paper bugs that I have run into of late happen to be New Zealanders. I live in New Zealand. These paper bugs echo the rallying cry of the New Zealand government and believe the same half-truths that socialists and statists the world over have succumbed to.
This proves the point that most people are easily seduced by the State, not matter where they are from. It also suits my purpose well because many of us have already seen the various charts and read the data showing the drop in the value of the U.S. dollar since the inception of the Federal Reserve System. It’s time for something new.
Paper bugs in New Zealand, like all paper bugs, are in denial. They refuse to accept the reality that paper currency will constantly–if not always consistently–be debased so long as a centralized authority, answerable to nobody, controls the production of money.
It doesn’t just occur in during a gold bubble (not that we are experiencing this now). Rather, debasement is a constant theme over the course of the short lifespan of a fiat currency. It simply cannot hold up to the time-tested value of real money.
The value of NZD has consistently diminished over the course of the last 40 years. The recent acceleration is not a bubble phenomenon. It is not a craze. It is a direct result of an accelerated inflation of the money supply by New Zealand's central bank. This is the same thing that has driven the decline in the value of the NZD for the last 40 years. It is only more pronounced today because the root cause is more intense.