Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Sunday, May 8, 2011

Gold is protection against depredations of the State

I return from Africa to be greeted by David Olive's latest hatchet job against gold in the Toronto Star.

Investment advisors have a tough time with gold. It doesn't pay performance fees. It doesn't pay you a little bonus when you offload a thousand shares into a client account. It just sits there looking back at you.

Olive argues that investing in gold is a drain on the economy.

MarketWatch contributor David Weidner put it best, I think, in this recent Swiftian passage:
“Gold makes a statement. It says, ‘I think the American people work as hard and are as resourceful as anyone on the planet,’ and then adds, ‘but for now, I’m just going to hide out in this bunker and eat Spam until someone else has the guts to create a new business with a great idea and gives me a job.’”
Weidner implies that gold investing is unpatriotic. I wouldn’t go that far. But as with taking possession of a Rembrandt at auction or scoring a $384,000 half-litre of Bordeaux, a goldbug is not doing his or her bit for fellow citizens.

In real terms, the cost of commodities has fallen relentlessly through time as a consequence of the progressive application of human ingenuity. Buying and holding gold bullion is, in effect, a bet against this process. So why do I (and other individuals who are similarly optimistic about human ingenuity) hold gold as opposed to, say, dollars?

It is simply because as ingenious as humans are, that ingenuity is failing before the economic influence of the State. Those of us who hold gold do not object in principle to investing in sound businesses, or even buying government bonds, provided that those bonds are denominated in a currency that doesn't lose purchasing power over time.

The real drag on the economy is the interference of government through taxation, inflation and artificially fixing interest rates so low that savers are forced into the great global casino when their preference would have been to keep it in the bank. In the bank, the money would be available for investment and capital formation. The experience of the majority in the great casino is heartache and loss of capital.

Even those of us who have been lucky enough to invest in the casino with gains that match the real (as opposed to the official) rate of inflation, lose a significant portion of those gains to taxation. Under the current system, the vast majority of us face nothing but loss of capital. Our only means to preserve that capital is to remove it from the system, which means gold, silver, productive land, preserved food, gasoline, and other similar investments too numerous to belabour here.

To say that we are "not doing our bit for our fellow citizens" is exactly the opposite of the truth. We are doing our bit for our fellow citizens by withdrawing our support for an inherently corrupt system in a way that directly damages that same system.

Keep your paper if it makes you happy, David. Perhaps you can sew it into a quilt to keep you warm at night.

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