• Gold Money
    05/03/2016 - 11:35
    Crude oil time-spreads have completely dislocated from inventories. Historically, such dislocations have proved to be short lived. We expect that either spot prices will sell-off again or the back...

Robert Murphy's Retort To Paul Krugman On Austrian Business-Cycle Theory

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Mon, 01/24/2011 - 16:12 | 899804 RobotTrader
RobotTrader's picture

Must be some severe austerity and dramatic cutbacks in government spending coming.

Gold is getting smacked pretty hard in every single currency today.

Mon, 01/24/2011 - 16:15 | 899810 Crisismode
Crisismode's picture

As of this time, it is off .5% for the day. That is " getting smacked pretty hard"?

 

I'm wondering what adjectives you'd use if it were down 5% on the day.

Mon, 01/24/2011 - 16:21 | 899829 lieutenantjohnchard
lieutenantjohnchard's picture

same adjective - silence - that he's using for one of his pump jobs: goog down 5% today. must be those yoga tights that he wears all day.

Mon, 01/24/2011 - 16:46 | 899928 More Critical T...
More Critical Thinking Wanted's picture

 

How about 7% off its recent peak? Does that count as a 'drop in gold prices' in your book?

 

Mon, 01/24/2011 - 16:51 | 899947 CrockettAlmanac.com
CrockettAlmanac.com's picture

And how much value has the dollar lost since the creation of the Federal Reserve System? Does that qualify as government facilitation of the looting of the populace by the bankers in your book?

Mon, 01/24/2011 - 17:34 | 900063 More Critical T...
More Critical Thinking Wanted's picture

 

How much value has a pound of grain produced in 1913 have today? Near zero, it's all rotten for good. Does it mean that grain in general is worse today? Not at all.

So your point is pretty much nonsensical. Why should the real-value denomination of a currency in use a hundred years ago match up with a currency used in a vastly different civilization today?

Fact is that the quality of life has improved markedly since 1913. Cities are cleaner, most running water is clean and does not have human feces floating in it anymore, the air is actually breathable in suburbs and you do not have to worry that your savings will be gone poof in a day in a robber-baron 'gilded age' bank run and crash.

One of these years you might even stop worrying about you or your family being bankrupted by an unexpected, long-lasting, expensive to treat medical condition of you or of one of your loved ones.

All in one, civilization has advanced mostly for the better.

You are crying back the times when hoards of gold was inherited by rich brats across many generations undeservingly, free-loading on hard working american farmers. You are of the past and others simply do not share your utopian vision (or should I say nightmare?) where 'freedom' means 'freedom of the rich to freeload on others'.

 

Mon, 01/24/2011 - 17:37 | 900118 CrockettAlmanac.com
CrockettAlmanac.com's picture

How much value has a pound of grain produced in 1913 have today? Near zero, it's all rotten for good.

Your point is pretty much nonsensical.

Right. Money should not be a store of value. Money that loses value in a dramatic fashion is good for people -- especially for the working man who has no need of savings.

 

Fact is that the quality of life has improved markedly since 1913. Cities are cleaner, most running water is clean and does not have human feces floating in it anymore...

I did not realize that improvement of the sewage system was part of the Fed's charter. How did I miss that? And I forgot that all human progress is accomplished by bankers. Those silly working class folks don't do a damned thing. And the inventors and entrepreneurs are just a drag on society.

 

You are crying back the times when hoards of gold was inherited by rich brats across many generations undeservingly, free-loading on hard working american farmers.

Right. America became more agrarian after the Fed started making life easier for the family farmers of America. There are more family farms today than ever before and they are growing wholesome, organic foods. Thank God the Fed reduced the number of factory farms raising drugged animals and GMO crops.

 

Mon, 01/24/2011 - 17:47 | 900142 More Critical T...
More Critical Thinking Wanted's picture

 

Money should not be a store of value.

Wow, exactly, you are really getting the argument, finally!

Money as a 'store of value' was the barbarous relic of the medieval ages: when for hundreds of years generations of rich families controlled most of the economy and hoards of gold inherited with zero taxes were used to exclude pretty much everyone else who did not pick the right parents ...

Instead money should be a unit of account, and as such it should have relative stability over the short run only.

In the longer run money should implement entropy and should match the natural growth of the population and the growth of the interconnectedness of societies: firstly to recognize the growth and to give equal opportunity to the newcomers, and secondly to reward actual investment and hard work over passive rent-seeking 'hoarding' behavior.

Money should also make sure that those who earned money in the 'boom years' cannot sit on those (partly ill earned ...) proceeds while the kids pay off the debt ...

Money that loses value in a dramatic fashion is good for people -- especially for the working man who has no need of savings.

Now there's a heavy exaggeration. 2-4% inflation is hardly 'dramatic'. 10% is borderline, 20% is damaging, 30% or more is hyperinflation.

It took quite some time and quite some effort to cross those thresholds, even for an egregiously mismanaged authoritarian dictatorship like Zimbabwe. No developed country has managed to hit hyperinflation in the past 80 years. Deflation on the other hand is hitting some modern economies pretty hard ...

 

Mon, 01/24/2011 - 18:04 | 900228 faustian bargain
faustian bargain's picture

...and everything you've just said money should be, is leading us to economic collapse. The money you're talking about is a tool of tyranny. It punishes those who would save their capital to improve their productivity, and strips wealth from the middle class to line the pockets of international bankers and the political class. The creation of the Federal Reserve allowed the government to expand into world wars and massive spending programs that have led to our current $14trillion debt. Our economic growth over the past century has not been organic, it has been the product of highly artificial booms and busts, and the amount of malinvestment and market distortion is so huge now, we are on a Wile E Coyote sprint through midair. Gravity will take hold sooner or later, and the people who will be punished most are the ones who have had their wealth shaved away at 2-4% per year, for the past century.

Mon, 01/24/2011 - 18:46 | 900400 More Critical T...
More Critical Thinking Wanted's picture

 

I do not see it at all how what you say follows from what I said.

I listed very specific properties of money, and I listed the reasons.

Your central claim appears to be:

It punishes those who would save their capital to improve their productivity, and strips wealth from the middle class to line the pockets of international bankers and the political class.

Why would it punish those who use their capital to improve their productivity?

If a company uses the money to improve productivity then that money is spent and results in real, tangible income. That investment has created real tangible value in form of an expanded, more efficient production entity. As such it is largely inflation-neutral: the money has been spent so it will inflate only for those who decide to not use it for productive purposes.

That is actually a good thing. For some background, have a look at this older article (written well before the current crisis, in 1998):

http://www.slate.com/id/1937/

and see why and how the hoarding of 'baby-sitting coupons' can be counter-productive.

This kind of recession psychology is fundamentally present in all types of human societies and applies to money just a much.

 

Mon, 01/24/2011 - 18:14 | 900268 CrockettAlmanac.com
CrockettAlmanac.com's picture

Why do those who claim to be smarter and more compassionate than others always advocate policies which leave the working man destitute? You can go on and on about how bankers are the best friends of the poor but most folks ain't gonna fall for it.

Mon, 01/24/2011 - 18:36 | 900362 More Critical T...
More Critical Thinking Wanted's picture

 

I'm telling you the exact opposite: there were historic periods when medieval banksters of Europe with their hoards of gold were more powerful than all the kings at the time. Whole countries were running to them begging for resources. Famine and war was common, governments were weak - private interests were strong.

Do you really want that absolute rule of corrupt, monopolistic, unelected, inherited, sociopath companies again, do you want a weak government to run to the Rotschilds for bail-outs?

Or would you like it as it is today: as annoying as a strong central government may be at times, they are at least elected every two to four years and the typical bureaucrat worries about his next paycheck and benefits, not about ripping off the whole country for generations to come.

A government will also try (for electoral mathematics reasons) to offer central insurance against various forms of common harm, such as unexpected external aggression, be that of military, criminal, contractual, judicial or bacteriological nature - common aggressions against which private insurers never had any real interest in protecting in a fair, universal fashion - to all citizens, as a birthright. That concept works pretty well in northern parts of Europe.

You apparently desire the free, unfettered rule of private companies - while you apparently do not realize how much moral and material corruption such companies have caused in the past and how much pain they are causing today in all sorts of countries where governments are weak or non-existent. Ghana, anyone?

You are simply not offering any explanation why unfettered, unregulated 'freedom' for companies would not give them power over free citizens with time. What would prevent that from happening, while it happened so many times in the past and is occuring so many times even today, in areas of the world where there are no governments or where there are weak governments?

So yes, I can see some of the problem with governments (who cannot!), but the alternative you are offering is significantly, utterly worse - and you do not even seem to be realizing the validity of this counter-argument ...

 

Mon, 01/24/2011 - 18:49 | 900414 CrockettAlmanac.com
CrockettAlmanac.com's picture

Are you suggesting that by giving monopoly power to create legal tender out of thin air to a particular group of bankers the government has decreased rather than increased the power of those bankers?

Mon, 01/24/2011 - 19:22 | 900566 More Critical T...
More Critical Thinking Wanted's picture

 

I really do not want to ruin your otherwise nice rant with annoying facts, but FYI the barriers of entry to creating your own bank in the US are pretty low and you could do it today with the help of less than 5 million dollars. (Which is pretty low compared to some other industries dominated by private monopolies today.)

It's quite a hassle and the competition is pretty fierce, but hey, you too will be able to own a bank!

To be able to have reserves with the Fed and to be able to create legal tender you'll need to have a commercial bank license, which requires more capital - but you can do that too - and China has just bought one today.

Note that you'll only be able to issue legal tender up to a hard limit of about 10x of hard deposits. Unlimited money 'out of thin air' is a myth - fractional reserve banking allows flexible debt-money to be created only up to a limit. So if you want to print billions you need to attract billions in hard deposits first.

So is it really a monopoly if you could do it too with a new bank founded by yourself, given enough capital?

But yes, I'd agree that the banking industry as a whole has monopolistic structures as well (just not in the commercial money printing area) - I just don't see how the "no regulation at all" libertarian policy would not turn this into even larger, even more crippling monopolies ... :-)

Libertarians tend to forget that monopolies are the natural end game of free markets: big fish eats small fish and such, which natural company-aggregation process eventually runs into physical limits of the planet we live on.

 

Mon, 01/24/2011 - 20:23 | 900615 CrockettAlmanac.com
CrockettAlmanac.com's picture

Yes, please continue to explain how having the power to "only" create ten times the cash they actually have while legal tender laws compel all citizens to participate in this Ponzi scheme is actually bad for bankers and is good for the working man.

But really try to sell it this time.

Mon, 01/24/2011 - 21:00 | 900888 More Critical T...
More Critical Thinking Wanted's picture

 

LOL - you really are missing all the fundamentals! If you think that excessive debt and over-leverage was not possible under the gold standard you need to re-read history ... history is littered with such failures.

Bubbles do not need money to form - they never needed it. They only needed an inflated human belief in the inherent long-term value of a particular entity and anything would be enough to form the bubble: a piece of paper representing a stock, a promise in form of a hand-shake or just a shared belief in a given outcome. (And yes, there are even exotic historic examples of gold itself forming and causing bubbles and busts.)

Really, you are misunderstanding key elements of how economies work. You are striving for 'rigidity' where there is none: the world population is growing and the complexity of our society is growing. That, almost by definition, needs a flexible monetary base controlled via the interest rate and via fiscal policy - not a deadly rigid constant one coupled to the gold standard.

 

Mon, 01/24/2011 - 18:38 | 900328 Mark McGoldrick
Mark McGoldrick's picture

@More Critical Thinking...

Your ability to dismantle libertarian buffoonery is awe-inspiring.  

I hope you continue to reveal the truth for what it really is.  

This site seems to have morphed into an echo-chamber for crusty old primates. I suppose that's a good thing if you're on payroll at RBC trying to manage the Sprott ETFs or, more simply, selling bananas - but I prefer the truth without the banana flavoring.   

Keep posting!

Mon, 01/24/2011 - 18:54 | 900438 CrockettAlmanac.com
CrockettAlmanac.com's picture

You can keep fighting against freedom but don't be surprised if someday you get kicked in the teeth by someone who isn't into your particular brand of enlightenment.

Mon, 01/24/2011 - 19:00 | 900447 Mark McGoldrick
Mark McGoldrick's picture

I'm not worried about my freedom.  

I bought silver at $30, and it's going to $500. 

I got some "inside information" from a cartoon. 

Mon, 01/24/2011 - 19:01 | 900470 CrockettAlmanac.com
CrockettAlmanac.com's picture

That's really dumb.

Mon, 01/24/2011 - 19:04 | 900480 Mark McGoldrick
Mark McGoldrick's picture

You're partially right.  It's certainly dumb.  But it's also fraudulent. 

 

Mon, 01/24/2011 - 19:16 | 900543 CrockettAlmanac.com
CrockettAlmanac.com's picture

Thanks for admitting that your posts are fraudulent. Does your confession include the requisite  remorse which would compel you to stop wasting everybody's time with your pointless tripe?

Mon, 01/24/2011 - 19:35 | 900626 Mark McGoldrick
Mark McGoldrick's picture

You're right.  Not only should I apologize, I should report myself to FINRA. 

Mon, 01/24/2011 - 19:41 | 900648 CrockettAlmanac.com
CrockettAlmanac.com's picture

Please feel free to do what you believe is appropriate in regard to yourself in your own situation.  I'll do the same. (That's some more of that wacky libertarian thinking for you.)

Mon, 01/24/2011 - 21:06 | 900965 Sean7k
Sean7k's picture

One,4% inflation over 20 years will cause a dollar to fall to .44. That's pretty dramatic to a person living on retirement.

2. No fiat or gold bullion system has been able to keep money in supply equal to growth and recession (not even close), so which Unicorn country is going to provide this.

3. Money is a form of exchange not a form of wealth as you state above and then you say people cannot be allowed to sit on it (hoard). You can't have it both ways.

Where is all this deflation in modern economies you're talking about? China- inflation. US- inflation. EU-inflation. Russia-Inflation. India-inflation. Brazil-inflation. Australia-inflation.

That is what there CB's are saying. 

You play fast and loose with facts, you make assumptions about modern living conditions with no facts to back them up, in reality, you are a liar. A trolling liar. 

 

 

Mon, 01/24/2011 - 21:44 | 901120 More Critical T...
More Critical Thinking Wanted's picture

One, 4% inflation over 20 years will cause a dollar to fall to .44. That's pretty dramatic to a person living on retirement.

Civilized countries adjust pensions on an inflation-neutral basis. Sometimes over that, if the country is long-term prosperous. In dire times they are adjusted downwards.

Even if you self-invested all your money you can buy inflation-protected TIPS government bonds and stay above par.

2. No fiat or gold bullion system has been able to keep money in supply equal to growth and recession (not even close), so which Unicorn country is going to provide this.

But that's not the point nor is it desired: the money supply couples to the real economy via various hard to map and dynamic, often psychological channels of action. What works better in practice is to observe/measure production, trade and prices, and adjust rates and fiscal spending accordingly.

3. Money is a form of exchange not a form of wealth as you state above and then you say people cannot be allowed to sit on it (hoard). You can't have it both ways.

I did not say "people cannot be allowed to sit on it". They can stuff it in the mattress if they so wish.

I say that they should not be rewarded for hoarding with a rent or with price stability or even price deflation. There should be an incentive for resources to be utilized productively and 'doing nothing' is not productive by any definition of the word.

Where is all this deflation in modern economies you're talking about?

Recent examples are Japan, Hong Kong and Ireland. Switzerland on the brink. The US was on the brink up to QE2.

Crippling euro induced debt deflation in Spain, Portugal, Italy, Belgium, Greece - probably on the brink of outright price deflation as well, as demand is dropping.

Do you need more?

Really, many countries experienced inflation in the past, and in the past 80 years only Zimbabwe managed to hit outright hyperinflation - via decades of gross mismanagement. Believe me, countries did not hit hyperinflation due to lack of honest effort ;-)

In practice it's pretty hard to hit hyperinflation and once you are in it it's easy to get out: the old currency is crap so all debt in that currency is eliminated and a fresh start is guaranteed.

Deflation on the other hand is very sticky and very dangerous, due to its 'slow creeping' nature, due to the debt trap and due to the self-reinforcing positive feedback loop that encodes deflation expectations. Deflation usually even starts with denial - in 1998 austrians denied that Japan was in a liquidity trap ... (the whole idea of the lovely money supply causing trouble was alien to them - it took time for them to adjust the story)

The far-right is obsessed with hyperinflation for some weird irrational reason - probably because that's what according to Austrian theory the US should have ended up in it a long time ago already ...

 

Mon, 01/24/2011 - 22:21 | 901254 Sean7k
Sean7k's picture

Civilized countries adjust- what has that to do with your original comment? Liar.

Money supply growth is the point. It has never been accomplished. Liar.

Japan, Ireland and Hong Kong continue to inflate there economies and prices are rising. Japan would be the closest to your argument. You can't have it both ways. Liar.

Liquidity traps and deflation are not the same thing. You're misusing terms. Deflation is actually good for an economy in need of price equilibrium and discovery. It enhances workers pay values, retirement incomes and rewards savings. I thought it was all about the workers? Liar.

Japan has failed to create organic growth because they refused to deflate. They refused to allow write downs of bank debt and real estate values. They have used their in country savings rather than actually allow real price discovery. This has increasingly hurt the working man- remember him? You're not much of a champion.

Who is this far right you're talking about? Is that a slur to win points? Hyperinflation is not a monetary event, it is a loss of faith in the currency. It is social and political in nature. You would know this if you knew Austrian economics. Liar.

 

Mon, 01/24/2011 - 22:55 | 901372 More Critical T...
More Critical Thinking Wanted's picture

You are asking what it has to do with my original comment? It strengthens it: pensions in most civilized countries are adjusted so your "those who are living on retirements see .44 of the original value" argument is plainly false.

 

Mon, 01/24/2011 - 23:01 | 901389 Sean7k
Sean7k's picture

Your original post said 2-4% inflation was not dramatic. Your answer has nothing to do with that- you said a civilized country would change the rules. That has nothing to do with the effects of inflation. Liar.

Mon, 01/24/2011 - 23:16 | 901399 More Critical T...
More Critical Thinking Wanted's picture

2-4% is not dramatic at all, why would it be?

Your 'proof' of .44 over 20 years - which btw is an unfair exaggeration on your part: with 2% the result is 0.66 - simply does not apply because the most common forms of 'retirement' would be inflation protected in some form.

Also, if there's a recession it's all too natural to expect all segments of society to bear the burden of that - instead of guaranteeing fixed payments to those who collected retirement during the boom years ...

So you are exaggerating, you are misleading and you are claiming untruths.

Tue, 01/25/2011 - 00:23 | 901608 Sean7k
Sean7k's picture

Pensions and SS are tied to the CPI which does not include food and oil. Since most inflation has been in food and oil, how are these people protected? I think a continuous drop from 1600 a month to 800 would be dramatic. You picked the numbers and now you're complaining how they turn out? 

You want the wealthy to bear the burden of having made and saved money, now you want everyone? You are one inconsistent statement after another. Do you remember the lies you tell? Is that the problem?

You are the one misleading and using untruths. 

Mon, 01/24/2011 - 23:03 | 901391 More Critical T...
More Critical Thinking Wanted's picture

 

Japan, Ireland and Hong Kong continue to inflate there economies and prices are rising. Japan would be the closest to your argument.

LOL, I guess I really must have stepped on your nuts - sorry about that!

Firstly, how come you consider Japan only "close" to my argument? More than a decade of deflation only counts as 'close' in your book? :-)

You are the kind of person who is not taking 'yes' as an answer, right?

You outright ignored that both Hong Kong and Ireland had outright deflation as well.

You entirely ignored Switzerland which is flirting deflation, and you entirely ignored Spain, Portugal, Belgium et al who are facing very real debt deflation.

And you totally skipped the very real arguments about hyperinflation. Claiming that hyperinflation is not a monetary event is like claiming that being burried by an avalanche is not a snow related incident but a loss in confidence in solid footing  ;-)

So it's an epic fail from you on all questions so far, and you are following a rather dishonest style of discussion - I'm not not sure it's worth pursuing much more.

 

Tue, 01/25/2011 - 00:36 | 901645 Sean7k
Sean7k's picture

Show me the figures. You are making claims with nothing to back them up. The deflation in Japan has been in sectors. Their money supply is continuing to increase as is their debt. This is a sign of inflation- not deflation. 

The entire EU is reporting inflation of 2% and is their target. So, unless you can back it up, your statements mean nada.

Flirting with deflation is not deflation.

Debt deflation is a whole other subject, you can't section out part of the economy and ignore the rest.

Hyperinflation is a loss in the full faith and credit of a country and it's currency. It matters not what monetary policy is used, because it isn't a monetary problem. That is why a new currency is required. 

You're a liar, incapable of presenting a sensible argument or supporting it. You are incapable of defending it. You obfuscate and misrepresent material on a continuous basis. Changing the terms of the argument to escape challenge.

You act as if you are concerned with the common worker, as you defend a monetary system that only benefits the top 1%. The debt burden for future generations as you support a system that is dependent on an increasing debt load and increasing taxes.

You are a troll that works to bust up a thread that contains information that can help the common investor make sense out of present economic conditions. Which makes you beneath contempt.

 

 

 

 

 

Mon, 01/24/2011 - 23:13 | 901414 More Critical T...
More Critical Thinking Wanted's picture

 

Japan has failed to create organic growth because they refused to deflate. They refused to allow write downs of bank debt and real estate values. They have used their in country savings rather than actually allow real price discovery. This has increasingly hurt the working man- remember him? You're not much of a champion.

Erm, are you trying to argue that more than a decade of deflation in Japan did not happen? Are you trying to claim that a lost generation of youth is not unemployed in Japan? Are you claiming that over that decade the suicide rate has not raised dramatically in Japan?

My claim was that deflation is much harder to address than inflation, for various strong reasons. You come up with fancy theories about why Japan should have had it so easy to get out of deflation, if only they listened to your marvellous austrian advice. They did not get out of it, while tons of other countries failed to enter hyperinflation - your preferred bogeyman.

I am arguing reality, you are arguing utopia.

Dude, you are misleading and misrepresenting on a massive scale.

 

Tue, 01/25/2011 - 00:52 | 901659 Sean7k
Sean7k's picture

No, I am arguing that the Japanese have selectively managed monetary policy that has resulted in some deflation, some inflation, protecting banks, industry and export industries while allowing wages to stagnate and prices to rise. 

Real deflation is a short term market correction that allows for price discovery.It allows entrepreneurs to determine when it is profitable to re-enter the market, increasing employment, growth and production.

The monster of stagflation is what has fouled Japan and is only extended by their savings rate and willingness to finance Japan's debt at zero interest rates, rather than moving their savings into instruments they could earn better interest. This is because of Central Bank intervention- not deflation.

Japan's unemployment rate is 5%. Sounds a lot better than our youth rate of 20+% dependending on your ethnicity.

How is suicide pertinent. Try establishing that correlation. 

I have never encouraged hyperinflation, nor do an Austrians. They merely warn of the impending problems associated with creating debt without regard for the ability to service and retire that debt.

Your avatar is appropriate- a bag of hot air.

 

Mon, 01/24/2011 - 16:55 | 899961 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Who are you quoting there exactly?

Mon, 01/24/2011 - 18:00 | 900213 More Critical T...
More Critical Thinking Wanted's picture

Thanks for the correction - should have quoted "getting smacked pretty hard".

Mon, 01/24/2011 - 18:16 | 900277 CrockettAlmanac.com
CrockettAlmanac.com's picture

But you have contended that money which loses value is a good thing. So if you believe that gold is getting smacked pretty hard that must be making it more attractive in your opinion, right?

Mon, 01/24/2011 - 20:06 | 900682 More Critical T...
More Critical Thinking Wanted's picture

 

Firstly, I do not have to 'believe' that gold is getting smacked pretty hard - I only need to look at the spot gold charts to see this undeniable fact.

Secondly, I think the price of gold is largely immaterial today. It is a metal which has use to make pretty things but is otherwise it is not very useful industrially. It has attracted a psychological property: the price of gold is loosely coupled to the amount of 'fear' present in the world as a whole. So if you want to trade on fear it's a good instrument. (Personally I prefer the VXX option chains as they correlate with fear much better, but hey, if gold works for you, by all means use it.)

After hundreds of years of use of gold as the 'gold standard' in the barbarous middle ages it's pretty telling (and pretty ironic) that today gold has degraded to a 'metric of fear' :-)

But personally I'd advise against using gold as a 'store of value'. As a reminder, if 30+ years ago you bought gold in the 1979-1980 inflation scare at the peak of the market, even today you'd be down with a brutal 70%+ draw-down of your original investment:

http://seekingalpha.com/article/167512-gold-s-real-inflation-adjusted-hi...

as the inflation-adjusted top of the gold market in 1980 was $7150 (!).

If you used that money in the stock market instead, you'd not have $1330 worth of gold today, but an about $50K worth of investment. So over a long period of time gold can literally be a 50x worse investment than a boring index-following fund ... Even with bonds you'd be somewhere around $20K - i.e. more than 10x better off than with gold.

It gets better: if instead of spending your $7150 on gold in 1980 you'd have waited 6 years for Microsoft's IPO, and bought 340 MSFT shares for that $7150, 9 stock splits later you'd today be a proud owner of nearly $5,000,000 worth of Microsoft stocks - instead of $1330 worth of one ounce of gold: a more than 3000x times higher return on investment.

Furthermore, if you used gold as a retirement investment in 1980 (as many old folks did it back then), and if you got seriously ill in the 90s when gold was at 4% of the original value of your investment (96% of a drawdown!), you were simply out of luck intending to pay your medical bills with that gold ... gold is mostly for those with particularly long lives, no illness, an austere life-style and an iron will to stomach decades of losing periods.

So IMO gold is not for everyone and there's certainly more stable investments available with less drawdown, or more profitable investments with more profit. As a long-term "store of value" it can be pretty lousy if you time the market in an unlucky way.

But by all means buy it! :-)

 

Mon, 01/24/2011 - 20:08 | 900736 CrockettAlmanac.com
CrockettAlmanac.com's picture

Please aim for some more consistency -- at least in the same thread. How can gold be getting "smacked down" if the price has fallen? You have said that money which loses its value is more valuable as money. Therefore, the price drop must be uplifting and not a "smack down."

In your cherry picked examples gold under performs other investments and so according to your theory that things which fall in value are good then you must like gold, isn't that correct?

 

 


Mon, 01/24/2011 - 20:58 | 900919 More Critical T...
More Critical Thinking Wanted's picture

 

You apparently have genuinely misunderstood what I wrote about inflation.

I said that flexible money with gradual, expected entropy (inflation of 2-4% annually) is a useful monetary system, for the many reasons I've outlined.

That does not magically reverse the mathematics of numbers: to the individual $2000 is still better than $1000. Nor does it magically turn the volatility of instruments into a virtue: a random 7% drop in the price of gold is still a smackdown to those speculators who bought gold at the top a few weeks ago when ZH was still pimping the new gold highs on a daily basis.

 

Mon, 01/24/2011 - 16:55 | 899962 lieutenantjohnchard
lieutenantjohnchard's picture

yep. and it hurts.

Mon, 01/24/2011 - 16:58 | 899974 velobabe
velobabe's picture

LuLu got a down grade. you won't have to pay full price any more, $170.00 for his girlie yoga tights†

Mon, 01/24/2011 - 18:55 | 900442 TruthInSunshine
TruthInSunshine's picture

Hey, Paul Krugman - go home and get your shine box.

Mon, 01/24/2011 - 16:29 | 899859 More Critical T...
More Critical Thinking Wanted's picture

 

Let me quote Murphy's central pro-Austrian argument:

This leads into Krugman's central complaint:

"Oh, and what evidence is there that the economy's capacity is damaged during booms? Investment rises, not falls, during booms; yes, I know that Austrians take refuge in cosmic talk about the complexity of production and how measured investment may not show what's really happening, etc., but where's the positive evidence of what they're claiming?"

 

I can sympathize with Krugman, but there is no simple statistic to which we can point. Austrians are correct to say that "measured investment may not show what's really happening," and correct to say that production is much more complex than depicted in Krugman's models. This isn't "cosmic talk" but a statement of basic facts.

Translation: Austrians cannot prove it but believe us, it's facts and do not believe the much simpler keynesian explanations!

Pretty lame IMO.

When austrians explain current events I feel like listening to a schoolboy explaining how aliens abducted his dog who then under duress ate his homework.

How come Krugman can explain things in 2-3 paragraphs (which can then be proven/disproven) while austrians must go on for pages and pages to get to the point, much of which is weasel worded?

 

Mon, 01/24/2011 - 16:34 | 899886 praetorian
praetorian's picture

Why does a teenager give simple, absolute answers to things like "Does God Exist?" while an older person gives a more nuanced and subjective one?

 

Answer: wisdom.

 

Cheers,

prat

Mon, 01/24/2011 - 16:53 | 899936 More Critical T...
More Critical Thinking Wanted's picture

 

Good!

So from today on we will change the rules of science and use the rules of religion instead: the longer, more convoluted, untested and unproven mathematical proof offered by older people will be considered the ultimately better one :-)

Way to go.

 

Mon, 01/24/2011 - 16:54 | 899957 CrockettAlmanac.com
CrockettAlmanac.com's picture

To which school of economics did Piltdown Man subscribe? Base you answer on the unswerving nature of scientific knowledge.

Mon, 01/24/2011 - 17:09 | 900004 More Critical T...
More Critical Thinking Wanted's picture

 

That's easy, given that Pierre was a jesuit priest it could only be the austrian faction.

(There's also a negative proof: a keynesian would have burried the skull in a coal-mine, and let it be dug up on government funding.)

So it's pretty clear-cut.


Mon, 01/24/2011 - 17:42 | 900134 CrockettAlmanac.com
CrockettAlmanac.com's picture

If it's so easy and clear cut how did you manage to get everything so absolutely wrong. Again.


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