Ron Swanson, esteemed libertarian from the TV show Parks and Recreation, explains in one episode that he doesn't put his money in banks and instead buys gold and buries it in different locations much like a pirate would do. Although this show exaggerates his character and his principles, there is sense in what he is saying. Gold has always been regarded as a "hedge against inflation"; it's just historical fact and common knowledge. In this article we will examine the benefits of investing in gold (and how to invest easily over the internet), what inflation really is, and what influences the value of our money today.
It would be nice to start with 1971 when the US decided to abolish the Bretton Woods system, stray away from the gold standard, and turn the dollar into "fiat currency" which ultimately means that the value of money is derived from government regulation or law. Inevitably, the dollar then became the world's reserve. No, the money in your wallet right now isn't really backed by gold as you think. Money is printed at the discretion of central bankers. It's basically an "IOU" piece of paper backed and monopolized by the State.
10-year trend of gold
With the trend on the graph above, you can only imagine the profit those who invested in gold in 2002 back when gold was less than $400 an ounce. But you see, investing your hard-earned money in gold is not really all about profit (that's just a bonus, really). Investing in gold is all about protecting your money from the discretion of central bankers. Basically, every time they increase the money supply, our money is devalued. And it is at their discretion how much to inflate and when. Even Keynesians themselves are never in exact agreement on what to do exactly with the money supply. This is why it is really left to their discretion. F.A. Hayek referred to this as the pretense of knowledge.
Take note though that this isn't a mainstream position when it comes to the economics community. Mainstream economics is still controlled by the Keynesians and is still what's indoctrinated to economics students in universities all over the world whereas positions from the Austrian School of Economics (this is the school of thought that most, if not all, libertarians advocate) are marginalized and ignored.
I understand that "experts" (those with the pretense of knowledge, as I have said) will tend to disagree with me on this one. Who am I anyway, right? Just some random blogger from the Philippines who thinks he knows better than Ben Bernanke or Paul Krugman or many other scholars of Keynesian economics. I guess the only thing I can ask is, would you rather believe in those who didn't see the recession coming and even encouraged the housing bubble or those who predicted it and warned against it:
Going back to inflation and investing in gold, let's say you earned 1000 pesos today by giving up your time and working hard and tomorrow the central bankers decide that they want to increase the money supply. Even when you still have the 1000 peso bill in your pocket, its value has been debased. I don't really know how else to refer to this other than theft. Inflation is one of the most immoral tax of all. It's legalized theft, really. Ron Paul has a really good example to Ben Barnanke in this video:
if you liked this post then you might also like:
1. The World is Losing Faith in the Dollar
2. Sari-Sari Store Economics
3. Keynes vs Hayek Rap