Scott Adams: Shiny Objects | Hacker News Reader

Scott Adams: Shiny Objects

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32 pointscwan37 comments

It's always possible that a major catastrophe will destroy our economic system, but its far more likely that we will either limp along or improve. I remember the same fears in the seventies, and the concomitant buying of gold, at the same time as the price of gold spiked to $800.00. Yes, the economy was turbulent, but that's not an indication of imminent total meltdown. In the past year the price of gold has been at record highs. Why this encourages scared people to buy is beyond me; the most likely scenario is that it will go down in value.

The idea is to diversify into lower-risk assets than the U.S. dollar or other currencies, even if those investments will cost more in the long run. It doesn't matter what gold costs right now if the USD experiences further free-fall, which is not out of the question.

This is generally the same reason there are buyers of sovereign debt (i.e. Treasury Notes) at a negative interest rate.

If the Eurozone collapses, as is more possible every day now, then that's a case in point for diversifying away from Euros. Some other choices in this Great Recession are USD, U.S. Treasury Notes, Japanese Yen, Swiss Francs, etc, none particularly attractive right now. The Chinese Yuan isn't a viable choice because it is pegged to the dollar.

[Edit:] The point is to deal with the current high risk of currency free-fall, not your normal everyday investment ebb and flow.

In the past year the price of gold has been at record highs. Why this encourages scared people to buy is beyond me

Because people are heavily influenced by the "panic! panic!" media nowadays.

Supposedly things would "never be the same again" after September 11 and the industry for comedy would collapse. Then we were meant to be dying of avian flu.. and then swine flu. And then the economy was meant to collapse some time in 2009. And then.. oh yeah.

Another panic, another year..

It's not just the economy, it's the way we're watching the government try to fix it.

Equating gold to cow manure according to the principle that only that has value which you and others think has value is ridiculous. It ignores several thousand years of history during which gold = money. The question is: Why? Because gold is relatively, but not extremely, scarce; it cannot be manufactured; it is durable; it is easily divisible; and sufficiently small amounts are valuable enough according to the above factors so as to make it practical as a portable store of value.

Since these traits, at least on planet earth, endure regardless of the various cultural and economic trends which overtake economies from place to place and from time to time, gold is insulated from the shifting winds of human whim like no other substance on earth. THAT is why gold has = money for thousands of years. No store of wealth based upon GDP or legal tender laws can compare because all such stores of wealth are transitory, and given time, will fail.

I'd like to highlight that debt isn't so much a problem as the trade imbalance is. And the idea that no currently traded specie will have value at some arbitrary point in the near future is silly: the USD might not be the currency of global exchange, but there will still be such a currency (likely the Euro, the RMB, or a synthetic currency) or exchange becomes incredibly difficult.

China is not likely to stop intervening in foreign currency markets, though there is a substantial risk to their economy if they do so. But people forget that long before China was subsidizing US trade imbalances, Japan was. And they'd likely replace China as the purchaser of dollar securities in order to stave off the inflation of the yen.

Please visit http://www.bookstore.petersoninstitute.org/publications/inte... for more information.

If things do get that bad, that gold is the only store of value, we're screwed anyway.

Guns, gasoline and leather pants (Mad Max,Fallout,etc) are where the smart money is now.

Yeah, unless you have gold, which you will, given time, without question be able to convert back to usable wealth.

Try taking a gold bar down to the gas station and buying a tank of gas and a hot dog. Do you have change for this? A couple of doubloons and a nugget?

It's battering. Gold is a commodity. So if things really did get that bad, gasoline, food, water or anything else (batteries), would be a much better bargaining medium.

That's what people don't understand when they make this argument. If you hold the physical gold, the value is up to debate and barter, your $1000 worth of gold just became $50? If you hold certificates, then it's just worthless paper.

So the scenario where gold works best is short of total collapse and in which you can get it converted to some foreign currency that is still accepted in you home country.

Again, in New Orleans, people didn't suddenly break out doubloons and start normal operations, so the short term is out.

Where is gold a reasonable investment for the "doomsday" scenario? I'd really like to know, because logically I can't think of a good reason to hold gold.

You entirely missed the point. Notice the little qualifying phrase, "given time"? Yes, in a crisis, gold is not worth much to you. But if you want a method of retaining wealth that is guaranteed to be convertable in almost any country in the world, you need gold.

"without question"

I question. You clearly take that as virtually axiomatic, but I question. Gold's ultimate value is that it is pretty and shiny, and industry has produce metric shitloads of prettyshiny since the last time gold had any real independent value as uniquely prettyshiny.

Your gold is only worth what people will give you in return for it. If society collapses, who is going to trade you gold for food? You'd better hope enough people buy your propaganda about gold's value because it's going to be your only hope; the market for gold jewelry is going to be pretty small and effectively saturated.

Gold has no value anymore. Yes, historically it was valuable, but times have changed. A lot.

God help those who are long on gold once we start asteroid mining. Be sure to dump your gold holdings before then, ideally several years before; once the market figures out what that means gold will plunge even before the asteroid gold hits the market. (By "plunge", I mean that I could see it losing 99% of its value in less than a year. No joke.)

No. Gold's value is in its intrinsic suitability as an instrument of exchange, far more than any other substance on earth. Can you point to any time in the history of civilization where gold has been worthless? I mean, really, any period of time from, say, the days of the Babylonian empire until today? Just what about today's times have changed the intrinsic value of gold? See my other post in this thread for just what that value is. It is by no means arbitrary.

This isn't like fiat currency where it's based on "our faith" like they taught us in school. It's expensive as it is because of a) some decadent people's actual demand for it b) other people's expectation for said decadent people's demand for it. Usefulness as a currency I suppose can raise the price, but only because there is an expectation of actual utility in the hands of a final consumer, somehow or other.

Really, I think gold is interesting because it's rare and thus coveted.

edit - no offense if you enjoy gold, I was just making sweeping generalizations for expediency

The economic expansion when we start asteroid mining will be so enormous that most people won't have much to worry about, financially.

"Your gold is only worth what people will give you in return for it. If society collapses, who is going to trade you gold for food? You'd better hope enough people buy your propaganda about gold's value because it's going to be your only hope; the market for gold jewelry is going to be pretty small and effectively saturated."

Well, there's also expectation of future gold jewelry markets. Assuming we live like Mad Max until the end of time, sure, who needs gold. But if we expect things to improve later, with luxuries becoming a reality again, people holding lots of gold have it made.

I'm not sure that's true. There is no value in gold, it's imaginary and over time, people have tended to give up beliefs in imaginary things.

No, it's not imaginary. Far from it. Gold is not like tulips in Holland. Not even remotely. It's value is in its scarcity, divisibility, and durability. Nothing else compares. Never has (unless you want to say Silver). That is why gold has been money for thousands of years, and that shows no signs whatsoever of changing. It is one thing that no matter what the markets do will still have value.

Is it an investment? No, and anyone treating gold as an investment is acting very foolishly. Gold is money, plain and simple. It has retained its essential value for centuries.

Scarcity does not equal value, if value is defined as "something that is useful." Perhaps the language is deficient in not making a distinction between inherent and assigned value.

Gold has real value as, for example, a material used in electronics. That is about it aside from aesthetics.

Additionally, humans ascribe (nonexistent) value to gold for the reasons you mentioned. You can certainly argue, as some others seem to, that being suitable for use as currency is value inherent but that assumes the necessity for currency. In the past, perhaps.

FWIW, gold also has value in certain cancer treatments, glass making, satellite protection, dentistry, microscopy, and certain photographic films.

Not to detract from your point though - it just has wider uses than merely electronics :-)

Correct. Scarcity does not equal value, and scarcity alone does not make a good currency. However, gold is not only scarce, but also durable, divisible, and portable. The unique thing about gold is that its value is actually in its intrinsic suitability as a currency, more so than any other substance on earth.

I can accept that with the stipulations that it is a very suitable material for currency, not necessarily the most suitable one; and that this is only true at certain early or unsophisticated stages of civilisation.

However, even then the unspoken and often ignored requirement is that there is something of real value that the currency can represent. This also ignores fluctuations in the perceived value of gold, which belies its valuation not being tied to its function as currency. Arguing that e.g. mining for gold is a service whose end product is currency, "consumed" by others is circular (but in reality that does not matter.)

I suppose it can simply be said that gold is considered to have value by common agreement; but that agreement is not irrevocable unlike some believe.

Agreed. Its actually (shhh!) currency that is imaginary. And so, to cure the national debt, we need only declare it gone.

What's really amusing to me is when gold-nuts rail against modern currencies as fiat currencies. It seems to me gold is just as arbitrarily denoted a currency as any other, it just has no explicit guarantor.

EDIT: Also, why is it so hard to imagine taking care of the debt? Or is it because he has little faith in taxpayers' willingness to pay into it?

The difference between gold and fiat currencies is that gold cannot be devalued through inflation. We don't have a machine that can manufacture gold, but central banks can 'manufacture' as much new fiat currency as they like.

I imagine that's why Scott's friends are buying gold. Not because they think the end of the world is nigh, but because they think the dollar is going to have to be devalued to sidestep the crushing debts that have been run up.

Gold and silver used to have value because our currencies were based on it. This prevented governments from printing money to inflate themselves out of debt. That is, a government with a fiat currency can devalue their own currency to also devalue the real value of their debt -- debt which is conveniently denominated in their own currency.

Commodity based currencies prevented this sort of shenanigans because of the non-zero cost of adding to the money supply (the cost of mining gold and silver is much much greater than the cost of adding a few billion dollars to a government accounting ledger).

So it seems to me the value of gold is at least in part tied to the sense that governments will need some part of their money supply to be commodity based, and at least in part to the sense that fiat currencies will eventually fail.

Can someone clearly explain the positive argument for going off the gold standard?

Money supplies need to be inflatable to keep up with the creation of wealth, which isn't static. While prices rise quickly in response to an abundance of money (booms), they don't fall quickly in response to a lack of it (recessions) and this causes a lack of necessary liquidity that feeds into itself (bank runs) making the recession worse and worse. Prices are sticky, businesses don't like to lower them in accordance with what supply and demand would dictate.

Fiat money was an answer to this, it allows the Fed to inflate the money supply during hard times to keep the money supply liquid enough to keep trade going. Of course, they're supposed to deflate the money supply during boom times to stave off unnecessary inflation and prevent bubbles.

Everyone always assumes that the value of gold isn't based in its intrinsic properties. They don't see that gold:

* Is easy to arbitrarily divide * Is scarce * Can't be inflated * Is easy to transport

These are the properties that make it valuable as a currency, not some irrational desire for shiny objects.

Gold _has_ been a solid investment for the past 8 years. It went from a low of $255 in 2001 to a high of $1,213 in 2009. So a 475% rise in 8 years.

Yes, and in 1981 it was ~$800. Which means a return of ~50% over 29 years while paying no dividends whatsoever.

You can make pretty much anything look like a good or bad investment if you pick your start and endpoints carefully.

That's a fair point in general, but you didn't make clear in your example that you were choosing one of the worst times someone could have invested in Gold. I don't think this takes away from your argument -- it's just that I would suggest specifying whether your data point was arbitrary or carefully chosen to make your point. I think this would make your general argument stronger.

I think the most interesting, non-arbitrary comparison would be an investment starting in 1971, because this whole discussion is really about a fiat currency system versus gold, and how people value gold relative to such a system. 1971 is when the U.S. went completely off of Gold to a fiat system.

At the end of 1971, a few years after Gold started trading on open markets, the price was $41.25 an ounce [1]. Today, it is $1,100 an ounce [2]. That is a 26 fold increase.

At the end of 1971, the DJIA was $900 a share [3]. Today, it is $10,000 a share [3]. That is an 11 fold increase.

Gold outperformed our current dollar system, since its inception, by more than two fold.

That's not to mention the fact that you didn't have to do anything with Gold -- you just held it. With our dollar system, you'd be a fool to just hold the dollars themselves (because of inflation), so you are forced to speculate in the stock market or other risky vehicles.

[1]: http://www.measuringworth.org/datasets/gold/ [2]: http://www.cmegroup.com/trading/metals/precious/gold.html [3]: http://www.google.com/finance?client=ob&q=INDEXDJX:DJI

Some people always say gold is a great investment, other people always say it's a terrible one. Both sides are wrong.

gold is a stopgap against catastrophe, not an investment in the traditional sense.

That's pretty much how I think of it, but I've also gotten a 39% gain with it over the past year or so.

whereas most people experienced catastrophe over the last year or so. commodities move inversely to cash investments.

"wouldn't trust your fortune to cow poop" sure I would, if it kept as well as gold

edit - and smelled as well

post keynesianism in a nutshell: http://www.winterspeak.com/

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