Tuesday, June 5, 2012

In Gold We Trust — Doug Casey, Hyperinflation vs Deflation, Investments, and the Post-Apocalypse Economy

I got a chance to hang out with some avid followers of Casey Research here in the Philippines along with other friends of liberty. It was actually my first time to hear about Doug Casey and I must say that I learned some new things about money, investments, and the economy. It was quite fitting because I actually just wrote about investing in gold right before attending the dinner.

A girl uses money for heat during the hyperinflation in Germany 
because it burnt longer and was virtually worthless

The first topic discussed was the immorality of fiat currency. There was even a presentation on the history of money and how fiat currency came to be.

There were also worries of a massive and abrupt deflation as compared to the position that I've always been exposed to which is hyperinflation. This speculation takes the position that the market will eventually self-correct and money will return to its natural deflationary value. At the time of a collapse, everyone will start selling and the value of money will rise. And since no one can really tell whether there will be deflation or hyperinflation, a part of one's investments must also be in liquid paper money.

Apparently, Doug Casey even has a formula on how exactly one should divide his/her net worth into investments. Some in physical gold bullion, some in gold stocks and mining stocks, some on energy stocks, etc. I'm actually getting interested in all these finance stuff with a libertarian perspective. Maybe I should subscribe to some Casey Research publications. It's always nice to learn about how to protect one's money and how to make more of it.

There was also a strong agreement on the benefits of the internet as a means of disseminating information and serving as an alternative to mainstream media (see also Stay the Hell Away from my Internet). It is most probable that the main reason that libertarian and Austrian School positions are gaining popularity nowadays is because of the internet. We even discussed problems with convincing others, even our own relatives, into investing in gold; this is a sentiment I surely shared. In the end of it all though, money and monetary policy might just be the key into changing public opinion about statism.

I have written about a "post-apocalypse" or post-collapse economy before (see Marc Faber on Monetary Policy) and it's interesting that the person who gave a talk on money last night had a similar accent to Marc Faber (we were even in a Swiss restaurant).

All these predictions are usually marginalized or shrugged off as unnecessary alarmism by the mainstream. This has always been the case throughout history. It has always been those telling the truth who were marginalized and had the minority position. It's obvious that humanity hasn't learned from this mistake. It seems that only a catastrophic economic collapse would make people understand what has been going on.

The US and Europe have been showing grave symptoms of an economic collapse and yet the only solution they seem to be considering is more of the endless hair of the dog stimulus packages. This is the great prescription of Keynes that drinking some more is the solution to a hangover when really in the longrun it'll only make your hangover worse.

It was comforting to hear that the effects of the global collapse might not be as drastic here in the Philippines in the same manner that the recent recession in the US almost didn't affect us at all. There are several reasons for this including our natural lack of care for many of the State's attempts to control the market. Filipinos seem to have a knack for not asking permission from the government when exercising the inalienable right to engage in voluntary exchange. There's a lot of Agorist-esque counter-economics going on.

Although in such a situation that we are drastically affected, there could be chaos and those we've granted a monopoly on force and on weapons could easily justify a take over to form a junta government. I am sure it's obvious that I'm generally fearful of living in an Orwellian society.

This is why we should always appreciate property, freedom, liberty, and choices and we should never give the State authority to take away these things. During the depression in the US, the State had the power to confiscate properties like gold. It scares me that similar things can happen in case of an economic collapse. The government should always only be our servant and never our master. The little authority we are giving them today to steal from our hard-earned income may just be the monstrous authority they will be able to use to deprive us of property and liberty in the future.

The 5 peso coin in itself is now more valuable than just 5 pesos

It was also discussed last night that the 5 peso coin is actually now worth more than 5 pesos. I don't know the exact figures but this is a classic example of the value of a currency getting debased. The copper, nickel, and whatnot in the coin's value appreciated as compared to the value of the peso (which is again a direct consequence of monetary policy). So apparently, it is illegal to horde too much of 5 peso coins. You can actually go to jail for wanting to keep your hard-earned income and the State has the authority to confiscate your property.

Now it makes sense to me why old coins have so much more value today. I've always assumed that it was just sentimental value for collectors. It now makes sense why older coins were much heavier and seemed to have more metal in it while nowadays coins are so much lighter. It's always been that currency gets debased while the price of metals used appreciated.

Regardless of what happens in the future, it's a rational position to invest in gold and other precious metals like silver. Again, as I have said before, profit is probably just a small bonus of investing in precious metals. Prices of gold or silver seem to have been falling recently but in the long run my bet is that prices will soar. Although learning about the possibility of deflation is so drastic and throws off most of my own speculation. There's really so much more to learn. Being that I'm not from an economics or finance background, there's really so much more to learn. I will be writing here about monetary policy as I learn more about it so be sure to drop by again real soon!

@harryinitiative
5 Harryleaks: In Gold We Trust — Doug Casey, Hyperinflation vs Deflation, Investments, and the Post-Apocalypse Economy I got a chance to hang out with some avid followers of Casey Research here in the Philippines alon...

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