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Quien es mas machos? Gold Bugs or Paper Bugs

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September 23, 2010 – Comments (32)

Paper Bugs like to ridicule Gold Bugs.  If you are new to the Paper Bug / Gold Bug fight, perhaps you don't know this.  On the Internet, Paper Bugs are on the run.  The Motley Fool is no exception.

Where's Waldo

I don't cry over the disappearance of Paper Bugs.  Just a short time ago, anyone wishing to discuss sound money, free market currency, gold standards, or even the prospects of gold miners was subject to constant ridicule and humiliation at the hands of Paper Bugs.

The arguments of Paper Bugs were always the same.  Gold was a fetish, a useless, stupid, shiny object that mesmerized the Gold Bugs.  Paper Bugs talked and dreamed just like Plato, just like Thomas More, just like Fourier and Saint-Simon.  Gold is worthless and one day, they predicted, even the Gold Bugs wouldn't be able to deny it..

The future is Paper, they declared.  Preferrably paper with pretty colors on it, perhaps some purple and um, teal is quite nice.  Maybe with a picture of a benevolent servant of the people on it.  Yes, that would be perfect.  Once the perfect artistry is presented in the most appealing way, everyone will see the superiority of Paper to all other forms of money. 

Paper Planes

No matter that a piece of Paper with a 1 on it is exactly the same weight and cost to produce as a piece of Paper with a 10 on it or a 20.  The first piece is a 1, the second is 10, and the third is a 20 because someone - an Authority on the matter - said so.  That person knows better.  He knows better than a  Paper Bug, and certainly Paper Bugs know better than ancient relic-worshipping Gold Bugs.

They let the Gold Bugs have it.  Ignorant Gold Bugs just don't understand money, they said.  Gold Bugs don't get it.  Money is merely a unit of account.  Paper Bug Hero, Soviet Admirer, Exalted Better-Than-Thou Intellectual, and all around economic genuis Paul Samuelson once declared people desire money simply for the purpose of getting rid off it.

Well that might have been a round about way to say that money's value derives from what it can be used to purchase.  This is the Paper Bug's understanding of money, and how dare anyone think that a shiny yellow object can be more useful in this endeavor than nearly identical pieces of paper with bright colors on them.

Commodity Schmoddity

The Gold Bugs, on the other hand, believe that money is a commodity, not just a "unit of account."  And the commodity of money has a value of its own, determined by the subjective evaluations of market actors.  This archaic notion is true because money came into existence out of the voluntary transactions of people willing to exchange things they value less for goods they value more.  Sometimes, the good they value more is the commodity money itself.  Paper Bugs call this hoarding.  Gold Bugs call this saving.

It seems to be an impossible gulf separating the Paper Bugs from the Gold Bugs.  But there is one important difference that I want you to consider before you decide quien es mas machos:

Freedom vs. Slavery

Gold Bugs are free men and women.
Paper Bugs are slaves.

Gold Bugs believe that the best money is the money chosen by market participants voluntarily. The market chose gold and silver. Free men and women, free to choose, came to the conclusion that the best money to meet their needs, was gold and silver.  Free men and women believe that the value of commodity money is determined by the needs of the market's participants.  That value can be high or low, it does not matter.  What matters is the freedom of the people to make that determination.

Paper Bugs believe that the best money is the one forced upon the people at the point of a gun by an official representing the banking cartel.  (Athough, Paper Bugs actually believe that this person works for the government and is, somehow, a representative of the people.)  Paper Bugs believe that someone else knows better than them what is the best money for all us.  Paper Bugs believe that you are incompetent, incapable of choosing what works best for you.  Only a Gold Bug would have the arrogance to think for themselves.  On matters this important, an unelected bureaucrat working with the banking cartel is the best judge on the subject of money.  And if he puts pretty colors on the paper, that settles it.

The Verdict

Paper Bugs can have their paper.  Today, one ounce of gold buys only 1,300 pieces of paper.  That's way too much to pay for paper, pretty colors or not.

David in Qatar

32 Comments – Post Your Own

#1) On September 23, 2010 at 2:32 PM, GeneralDemon (< 20) wrote:

Hi David,

I've turned into a silverbug, even if it is not as shiny.  An article in this month's Scientific American has calculated that the world has only nineteen years left of easily mined silver. 

-former goldbug, never a paperbug.

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#2) On September 23, 2010 at 2:51 PM, whereaminow (< 20) wrote:

GD,

Definitely. 

I like to say silver is Applebee's and gold is Ramsey's Steakhouse.  Every time a middle class American (what's left of them), figures out that paper is doomed, they'll buy silver instead of gold.  It's value is right in their wheelhouse.

David in Qatar

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#3) On September 23, 2010 at 3:03 PM, outoffocus (22.75) wrote:

Wouldn't that make them "digital" bugs now?

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#4) On September 23, 2010 at 3:07 PM, GeneralDemon (< 20) wrote:

Daivd,

It may be easier to eventually sell your silver due to it's lower relative price. Someone who can't afford to buy your $3000.00 gold maple leaf will buy your $60.00 silver maple leaf. Then you can go get your steak from Ramsey's.

BTW is Ramsey's good? 

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#5) On September 23, 2010 at 3:24 PM, whereaminow (< 20) wrote:

GD,

Ramsey's restaurant in Doha was good but not worth the price (perhaps like gold lol.)  I was disappointed. 

If you believe unbacked paper is doomed, with the gold:silver ratio being a little high right now, then you also must conclude that silver is currently undervalued. ChrisGraley, binve, and TMFSinchiruna have all convinced me of this and were the forerunners on CAPS with this call (hope I'm not leaving anyone out.)  I owe them a lot for motivating me to research this further.  People may not know this, but only a year ago I was uncertain about the future prospects of metals (much to Sinchy's chagrin!)

outoffocus,

LOL, maybe for the MMT'ers.  How about Digit Bugs?

David in Qatar

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#6) On September 23, 2010 at 3:44 PM, Starfirenv (< 20) wrote:

Food for thought
It is well that the people do not understand our banking and monetary system. If they did, there would be a revolution before tomorrow morning
Henry Ford  

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#7) On September 23, 2010 at 4:42 PM, GeneralDemon (< 20) wrote:

Ahh, Hells' kitchen Ramsey. Hope you called him a bloodly fat cow.

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#8) On September 23, 2010 at 5:08 PM, bootz27 (62.83) wrote:

Why would you sell your silver maple leaf for 60 worthless pieces of paper?

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#9) On September 23, 2010 at 7:15 PM, starbucks4ever (97.43) wrote:

All of this is well and good. But gold is still a major bubble at $1300. What is a bubble? It's a good argument carried to an extreme. The dollar will lose much of its purchasing power in the next decade. But not enough to justify paying even $1000 an ounce, let alone $1300. We've heard the same talk when they paid $147 for one barrel of oil, and where are these traders now? Correct, sitting on a 50% loss and praying to Goldman Sachs for another speculative rally.

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#10) On September 23, 2010 at 10:02 PM, XMFSinchiruna (27.35) wrote:

whereaminow

I think I know one thing that paper bugs and gold bugs (as much as it pains me to type those two words) might agree upon: that up there is one brilliant piece of satire!  Bravo!

Your recollection of my disappointment with your former uncertain outlook towards the metals is entirely accurate. :) Still, I felt assured you would eventually come to understand the outlooks for gold and silver. You had every single other piece of the puzzle firmly in place. 

Your timing is uncanny. The dollar passed away today.

Oh ... and macho would be singular in that case. :) 

zloj

What grants you the expertise to determine at what price gold strayed from a fundamental foundation and into so-called bubble territory? Oil and gold are not the same, and therefore your contention that gold must follow oil's example is entirely without merit.

As for the incessant chorus of bubble talk that has been hurdled at gold throughout this decade-long secular bull market, that conceptual bubble has been popped. The newspapers and magazines hailed the popping gold bubble in 2006 when gold corrected from $725 to $575. They were wrong then, and they were wrong again in March of 2008 when it corrected from over $1,000 to $700. What exactly is it that emboldens a perpetual gold detractor like yourself to presume that you are right today after being continually wrong on gold over the course of several years?

zloj in November 2008:The essence of what's happening to gold is that is fails to increase in value as the rest of the world hyperinflates. Its price increases of course, but at a lower rate, so it fails to maintain its purchasing power over time. 

zloj in November 2009: Chinese/Indian lemmings running to their destruction. When they collapse under the weight of their junk investments, including investments in gold, their central banks will be selling this gold for $50 an ounce, but there will be very few buyers.

zloj in December 2009: Digging useless metal from under the ground to be purified, molded into bars, and buried in the ground again is hardly a valid investment activity. And don't tell me about industry uses. The supply of metal in the gold-bug's vaults is enough to provide the industry with all metal it needs for many years ahead. The rest is pure speculation, and a bad one at that because you're too close to the end of the line of Ponzi buyers.

zloj in April 2010: Idiot of the day: goldbugs. Can you believe that? They are paying $1165 for an ounce of gold!

What will it take for you to understand that gold a currency ... indeed the only currency impervious to impairment by debt?

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#11) On September 23, 2010 at 10:07 PM, XMFSinchiruna (27.35) wrote:

Robuh

I have put 80% of my (dollar-denominated) investment capital to work in gold and silver equities, and I have found this strategy most rewarding as a means of "putting my wealth to work in appreciating assets".

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#12) On September 23, 2010 at 11:08 PM, starbucks4ever (97.43) wrote:

Sinchi,

Have you tried to go to a movie theater and pay for the ticket with 1/100 ounce of gold? If they accept your gold, I will agree with you that gold is a currency.

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#13) On September 23, 2010 at 11:44 PM, whereaminow (< 20) wrote:

TMFSinchiruna, 

Oh ... and macho would be singular in that case. :) 

Damn!  I had it that way at first, then changed it.  My Spanish isn't so good since I stopped doing drugs.

Thanks for the kind words.  I was hoping you found your way to this blog.  It is in part dedicated to you and the fight you've had on your hands for many years.  It is entirely due to you that I found the fundamental analysis necessary to come to this conclusion.

Robuh,

I understand your point of view, and I'm not going to attempt to change your mind.  However, I attempted subtly (and by subtly, I mean hit it with a sledgehammer) indicate that the argument is part of much larger issue: this is argument about freedom, not about wanting to use gold in transactions (or currency backed by commodity money to be more precise.)  It is absolutely about the belief that society can order itself without coercion from a third party.  I'll have more on that in my next blog if you are willing to take a short walk with me.

David in Qatar 

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#14) On September 23, 2010 at 11:59 PM, whereaminow (< 20) wrote:

zloj,

If the paper was backed by a commodity such as gold (a choice made by market participants), people would certainly use it to buy a movie ticket.  And they wouldn't think twice about it.

Sadly, many people believe that is exactly what they are doing. In the UK, a recent study found that 70% of Brits still thought the pound was backed by gold.  I don't know if there has been a similar study in the US, but I bet the percentage is high as well.

Shame on them for being so ignorant, of course.  But what's going to happen when so many people discover that their money is unbacked, and that nothing is stopping the value of the money in their wallet from plummeting to zero?

David in Qatar 

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#15) On September 24, 2010 at 12:25 AM, starbucks4ever (97.43) wrote:

70%? That's a shocking number. How can we hope that people will ever act as rational economic agents when the citizens of a sophisticated, enlightened country still think about money like medieval peasants, ? 

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#16) On September 24, 2010 at 12:36 AM, whereaminow (< 20) wrote:

State-run education has a way of turning a sophisticated, enlightened citizenry into a gaggle of task-driven, mindless androids.  Besides, school teachers aren't famous for distilling learned monetary theories to their students.

But I hold an individual ultimately responsible for accepting what is spoon-fed to him in school.   

I bet that number plummets over the next few years.

David in Qatar 

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#17) On September 24, 2010 at 12:39 AM, whereaminow (< 20) wrote:

still think about money like medieval peasants, ? 

I know you mean to say "still think about money as everyone always has and everyone always will because that's what money is."

Unless you think 1970 is medieval times..... (well, perhaps I could give you the choice of clothing being bizarre enough.)

David in Qatar 

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#18) On September 24, 2010 at 2:47 AM, MGDG (34.70) wrote:

In 2000 I needed 600 ounces of Gold to buy a home in my neighborhood. In 2010 I could buy 5 homes for that same 600 ounces. Yes I would need to exchange the Gold for paper currency to complete the transaction.

I am neither a gold bug nor a paper bug, as bugs tend to get squished. It's just an observation on my part on asset pricing over the last 10 years. If you don't own any Gold then you wouldn't care how many ounces it would require to buy anything. If you have been storing your wealth in Gold, it would be quite relevant to you.

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#19) On September 24, 2010 at 3:17 AM, NOTvuffett (< 20) wrote:

Can I buy gold with Zimbabwe dollars? lol.

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#20) On September 24, 2010 at 6:42 AM, XMFSinchiruna (27.35) wrote:

zloj

You have merely undermined your own contention that gold is in a bubble. If it were in a bubble as you suggested, then everyone ... including the movie theater attendant ... would be well aware of the accumulating value of gold and would therefore be desireous of holding some. The only obstacle between me and getting a transaction like the one you describe done is a persistent lack of awareness and understanding of gold through most segments of our society. In the meantime, If I have a movie that I need to see that badly, I can always go to my local coin dealer and sell a single 1oz silver coin that I paid $7 for a few years ago, and walk out with $20 that will cover popcorn and a giant bag of twizzlers.

Gold is money. That is not opinion, but fact. I don't need you to agree with me for it to be true ... I am merely baffled by the number of people that can stare at a wholly corroborated fact and still refuse to concede that their opposing interpretation has been wrong for years. Do you think it is I who misunderstands gold? 

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#21) On September 24, 2010 at 8:03 AM, starbucks4ever (97.43) wrote:

". If it were in a bubble as you suggested, then everyone ... including the movie theater attendant ... would be well aware of the accumulating value of gold and would therefore be desireous of holding some"

 That's a lame argument. The theater attendant is well aware that gold has some value. He refused to take your gold because he wanted to keep his job.  

 

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#22) On September 24, 2010 at 8:10 AM, ChrisGraley (29.65) wrote:

#13) On September 23, 2010 at 11:08 PM, zloj (99.57) wrote:

Sinchi,

Have you tried to go to a movie theater and pay for the ticket with 1/100 ounce of gold? If they accept your gold, I will agree with you that gold is a currency.

I have! www.goldmoney.com

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#23) On September 24, 2010 at 12:07 PM, Rehydrogenated (32.20) wrote:

*sigh*

What neither gold bugs nor paper bugs can seem to grasp is that their well protected accumulations of "savings" or "hoardings" are not investments. You can't invest in gold anymore than you can invest in dollars. In the end neither produces anything, neither makes a profit, neither pays a dividend and if you happen to make a profit on one or the other you are playing a zero-sum game. 

 

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#24) On September 24, 2010 at 1:27 PM, Lostromo2 (< 20) wrote:

zloj = paper bug

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#25) On September 24, 2010 at 1:36 PM, whereaminow (< 20) wrote:

Rehydrogenated,

I think mining stocks are definitely investments.  However, I leave the individual stock picking advice in this sector to experts like TMFSinchiruna.  This post is about money. Money creation can make the general price level of stocks rise (PM's or not), meaning that stock pickers can make money whether they understand the underlying monetary issues or not - as I pointed out in my previous post.  This post is very tongue-in-cheek, an expression of the years of verbal abuse heaped upon those who cherish freedom over a State-run economy.

David in Qatar 

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#26) On September 24, 2010 at 4:21 PM, Mstinterestinman (< 20) wrote:

I think the important thing to remember is buying a commodity directly of any kind looking at grahams principles is speculation. If your bullish on a commodity which is what gold is buy a company in your opinion that is great and mines gold. Just imo. All of my investing is common stock however I do occasionaly speculate with options and will write covered calls for increased income if I am neutral on a position. Its all about having an investment strategy which imo Gold will go to 5000 because the dollar is as worthless as Zimbabwe money is not one.

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#27) On September 24, 2010 at 5:17 PM, Rehydrogenated (32.20) wrote:

whereaminow

I agree that fiat currency is miracle for governments. It gives them the ability to manipulate anything they want, wage wars, create and sustain large deficits, and trick other countries and their own populations.

But what good is gold? Why not just take away the printing press? I think implicating gold in your ideals is playing to a base of gold investors, who are largely associated with fear-mongering, and is very distracting to your point.

If you read my blog yesterday, I admit I am not a big fan of gold traders.  

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#28) On September 24, 2010 at 6:19 PM, whereaminow (< 20) wrote:

Rehydrogenated,

The issue is not about gold, per se, although from a functional standpoint your life wouldn't be changed at all if the currency was backed by gold.  The only difference would be felt by the government, who would be constrained in their spending. Keeping governments honest, however, would not be accomplished by backing the currency.  More is required.

(As a quick side note, I notice that people who criticize government spending rarely consider this obvious solution.)

The focus is on gold because that's what the market chose, not because we "gold bugs" have a fetish for it.  We just understand that market participants should be free to chose a currency that is not subject to the whims of unelected bureaucrats.  If the market chose carrots, we'd support that (although we'd try to explain why the durability of carrots makes it less viable.)

The problem is, the market didn't chose paper. Unelected bureaucrats working with, or for, the banking cartel did.

David in Qatar 

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#29) On September 27, 2010 at 11:05 AM, ttboydxb (28.69) wrote:

I just wanted to add that I think farmland, heck land in general has been and will be a great investment going forward.  I have some pieces of land to compliment my gold and silver investments.

 

My 0.02

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#30) On September 28, 2010 at 4:41 PM, saunafool (98.59) wrote:

David,

I'm not a gold bug or paper bug. I own gold because I think the whole world is trying to out-devalue each other. The U.S. specifically has its debts denominated in dollars and has a lot to gain from a weak dollar (however if interest rates go up due to the weak dollar, then they have a lot to lose).

That said, I don't think paper or electronic money are doomed or will collapse. I simply don't know what will happen. I suspect we will spend at least a decade being like Japan, muddling around waiting for the debts to get written off. In the case of the U.S., this means waiting for all the foreclosed homes to be sold or plowed under.

I only have one question:

The only difference would be felt by the government, who would be constrained in their spending. Keeping governments honest, however, would not be accomplished by backing the currency.  More is required.

(As a quick side note, I notice that people who criticize government spending rarely consider this obvious solution.)

Why did the gold standard not stop the government from running up huge debts during the Great Depression and WWII? Or are you suggesting actual gold as the money instead of a gold-backed currency?

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#31) On September 29, 2010 at 4:19 PM, whereaminow (< 20) wrote:

saunafool,

I just put up a post about the Great Depression and the gold standard.  I think it should answer your question.  If it doesn't, please the join the discussion there.  I welcome your thoughts.

David in Qatar 

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#32) On October 05, 2010 at 3:30 PM, SweetMircha (92.05) wrote:

I think that I may be a Goldbug. The reason being is that I have a little stock pile of 22kt gold jewellery which I've aquired since 1987. Most of it arrived as gifts with a few of those gifts having very precious significance. 

With the high price of gold at the moment, I've been thinking about cashing in my 22kt gold stash for cash but am concerned about the sentimental value which it poses.  I don't know if the Bird in Hand is Worth more than its Value in the Bush.

To Keep or to Sell is a Big Question for ME right Now.

Maybe I should become a Cloudbug while I ponder my 22kt Gold's demise.

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