Fool’s Gold

[00:00:00] Wow! Nice! Yeah!

[00:00:03] What you're hearing are the sounds of people everywhere putting on Bombas socks, underwear and t-shirts made from absurdly soft materials that feel like plush clouds.

[00:00:12] Yeah, that plush. And the best part? For every item you purchase, Bombas donates another to someone facing homelessness.

[00:00:31] So do you trust your Uncle Sam? No. Do you trust our government? No.

[00:00:37] Charles, Jim, do you trust the government? Absolutely not. Andy? No. Charles?

[00:00:42] Of course not. Not on your life. Is that why gold is important?

[00:00:46] You know, it amazes me, Robert, how many times human beings have to go through this same experience?

[00:00:52] They've been flimflam since the Great Khan of China. They've been flimflammed in Greece.

[00:00:58] They've been flimflammed all over the years for thousands of years by these fake money schemes.

[00:01:03] This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.

[00:01:10] Hello, it's Robert Kiyosaki from the Rich Dad Radio Show, a podcast that has, it's fair to say, many, many, many more listeners than we have.

[00:01:20] Talking to his mates who, as far as I can tell, all have an interest in selling gold, telling us that we should buy gold because paper money is worthless.

[00:01:29] You can't even wipe your bottom on it because it's not big enough. And by accepting it, you are putting your trust in the government.

[00:01:36] So have they got a point? Or are these gold bugs no different to people going up into the hills and building underground bunkers for when society collapses?

[00:01:45] Any day now, apparently. But a lot of people do believe in gold like Zimbabwe who believe the new currency that they've got will be acceptable because it's backed by gold.

[00:01:55] But how much gold? As much as there is money in circulation. So how does that work? That's this week on the Debunking Economics podcast.

[00:02:04] Aaron from Aldershot. I love the alliteration has asked this question about Zimbabwe announcing a new currency backed by gold.

[00:02:16] He wants to know if it'll be advantageous to their economy and are any implications or impact it's going to have on the rest of Africa.

[00:02:23] So for those people who don't know Zimbabwe, they've had a problem in the past in that people don't trust their currency.

[00:02:30] This has been going on for a while. That's why more than 90% of transactions in the country are in foreign currencies.

[00:02:37] Now they hope to remedy that by launching this new local currency backed by gold and foreign currencies which will all be held as reserves by the central bank.

[00:02:47] In fact, the new currency is called the ZIG which is short for Zimbabwe Gold, Z-I-G with the little lower case I.

[00:02:55] It all looks very trendy and banks will be expected to transfer all their old Zimbabwe dollars into ZIG immediately and everyone else needs 21 days to make the move.

[00:03:06] Now this has already happened within that 21 days supposedly all Zimbabwe dollars sitting in central banks or commercial banks I should say have an hour moved over to the ZIG.

[00:03:15] So they hope the confidence of gold backing their currency will reassure people and it will stop inflation problems.

[00:03:24] So two questions. First of all, Steve, I mean, is it going to lift confidence and does confidence in the currency sort of, you know, if you can do that, does that hold back and control inflation?

[00:03:38] Let's look at the first of all the question. Is this going to help confidence in their economy in their currency?

[00:03:45] Well, if you have a situation like Zimbabwe have with the runaway inflation then people, and if there's an alternative currency you can use for exchange such as the American dollar,

[00:03:58] then people are not going to want to use the local currency and they will be using the American. And if you want to get rid of the inflation,

[00:04:06] you can do several thinking have a currency board where you replace, where you link your currency directly to an exchange rate, fixed exchange rate to the US, to the US currency or about a bundle of foreign currencies.

[00:04:23] That's one of the ways you can.

[00:04:24] So you peg it to a foreign currency?

[00:04:25] Yeah, and that sort of thing can mean that the runaway, accelerating inflation which comes out of people, you know, you know the prices are going to go up so you put your prices up in the morning and then everybody has probably your lead and so on and so forth.

[00:04:40] That hyperinflation is the sort of thing which you can restrain by saying, okay we're going to link our currency to either gold or a basket of other currency then it's a fixed exchange rate.

[00:04:55] So it can, you know I would accept the argument and I think this is the sort of thing that Jeffrey Sachs was involved in at some stage, one of the successful interventions he made,

[00:05:07] stopping hyperinflation. So at least in that front it makes sense.

[00:05:11] And they have to have the gold? So they have to, I mean, and with...

[00:05:15] That's the issue, yeah one of the issues.

[00:05:17] So I mean you'd have to have as much gold as you've got currency in circulation wouldn't you?

[00:05:22] Yeah well this is the, there's two issues about that. One is actually having the gold but the other is the exchange rate you determine between your currency and the gold.

[00:05:31] And you see some people who are advocates of either modern monetary theory or people who are aware of the fact that the government can create money way way back before MMT became a, you know, a three-letter acronym, TLA.

[00:05:47] And that includes Henry Ford and Thomas Edison.

[00:05:53] And Edison made, people were saying like money should be backed by gold, gold is money, etc. etc.

[00:06:00] I've heard that said by British MP in a meeting I was in, trying to explain how money was created to him.

[00:06:06] But the exchange rate as Thomas Edison was told about you know we should have silver backing the currency and so on and so forth.

[00:06:14] He said look the price of silver is set by the fact that it's used with, used by the government to back the currency.

[00:06:19] He said which is a particular stage I think in America's history where the dollar was backed by silver and he said when it was taken off the silver standard the price of silver halved.

[00:06:30] So a major part of the demand setting the price is in fact the fact that the government is using it as a form of currency.

[00:06:37] So that's one issue. But the main one is how do you get it?

[00:06:40] And like there are three basic ways you can get gold. One you can find it in your own backyard so you have a gold mine, you dig it up and that's where the gold cycle comes in.

[00:06:48] And Zimbabwe has a bit of that but you know not a great, you know they aren't, but not enough I don't think to bank their entire currency.

[00:06:55] No, no.

[00:06:56] And the second way you can get is by invading somebody else and sealing their car of gold.

[00:07:00] And that's what the Spanish and the Portuguese and the English did to the gold of the Incas and the Mexicans and so on.

[00:07:07] But that's a bit more difficult these days. You've got to be a global power to get away with that.

[00:07:13] And the third way and this is the one that's going to be relevant now is to have a trade surplus where you use that trade surplus to accumulate gold.

[00:07:25] And that's I think the issue for Zimbabwe. I don't know what its current trade balance is probably negative.

[00:07:32] Probably having far more imports than exports. But if it's going to accumulate gold to use that as a basis for its currency then it has to have a trade surplus.

[00:07:41] Yeah, and if it doesn't then it's using money, it's using money that's in circulation. It's using the government's money which is money that could be spent within the country is being used to acquire gold

[00:07:52] which is being used to back the currency that they want to use. I mean that just doesn't stack up does it?

[00:07:56] It's a potential reason for deflation and suddenly you don't have enough money, the money is falling.

[00:08:02] And that's what I'm not going to say that I can predict what's going to happen in Zimbabwe.

[00:08:09] But that's one of my fears. If you've got a government trying to buy gold which is using its own currency to do so,

[00:08:18] that's got all sorts of issues about whether it can actually maintain that currency regime of floating exchange rates or it's going to be running a trade surplus.

[00:08:26] And if it's not running a trade surplus, it's bleeding gold and therefore the amount of gold that exists to back the currency is falling and therefore the value of the currency is falling.

[00:08:35] Now that could get you back a detention to hyperinflation or it can cause you just a collapse in aggregate demand and the depression.

[00:08:43] Well I mean they already are in hyperinflation aren't they? So the latest inflation rate for Zimbabwe from March year on year was 55.3%

[00:08:51] They've been in hyperinflation since the 90s really haven't they? I mean think back, I mean it really started to go wrong when they chucked all the white farmers off their land

[00:09:02] and they were turfed off their land over and down here pun intended.

[00:09:06] They were turfed off their land and black owners who didn't know how to work the land took over and so productivity fell.

[00:09:12] So there was this big decline in agricultural output and then as a result of all of that as well they had sanctions imposed on the regime from the United States, from the EU.

[00:09:22] So none of that has really helped. And then since then there's been no confidence in the economy and it's confidence in the economy rather than confidence in the currency isn't it?

[00:09:31] So you can replace the currency but you've still got to have confidence in the economy and that's not going to be fixed by having a currency that's backed by gold.

[00:09:40] Yeah and that's the real problem. I mean the fact that you had a crash and the productivity of the economy is what set off the hyperinflation and this is the usual case and it's quite a valid one

[00:09:50] that proponents of modern monetary theory make that hyperinflation is not due to you bringing too much money. It's due to your destroying resources and there's in Barbican cases quite a sad one because it was done, you know the alleged reason for doing it was to redress decades of racism

[00:10:09] and give the blacks the access to the land. But there were two failings with that. One is that you know the black farmers certainly would be, there's no color basis in whether you can be good or bad farmer.

[00:10:20] But there was a color basis in whether you learned how to farm and you had the knowledge, the acquired knowledge. So when you handed over people who didn't have the accumulated knowledge of the white farmers who were thrown off, of course the output level fell.

[00:10:32] It would have happened if you gave it a blue-black or a blue-black or blue-black or blue-black, it wouldn't matter. So that destroyed a large part of the productive capacity. Then you're earning a trade deficit, money is going out of the country

[00:10:44] you know, because you're buying new marine ports and exports and then off goes the hyperinflation

[00:10:48] and they've been locked there ever since. So, you know, I think that's the issue that you're going

[00:10:53] to have. The only way it's going to succeed is not just that you've gone across to gold as

[00:10:58] backing your currency, you've also got to be running a trade surplus. And I don't, you know,

[00:11:03] that I that's going to be where the question mark can actually get to that point, I've got a

[00:11:07] feeling no one because otherwise they can't create money. I mean, that's the problem,

[00:11:11] isn't it? If they've got a certain amount of gold and they say that's it, that's that map

[00:11:15] to exactly how much currency there is in circulation. And then they can't expand the money supply

[00:11:20] unless they buy more gold. And where does that where does the money from that come from? Unless

[00:11:25] the government borrows money to pay for that. Yeah. So this is the whole philosophy of making

[00:11:32] money based on gold. But partly comes out of people believing money should be a commodity.

[00:11:37] And that's what I think I've forgotten the guy named Steven somebody rather who's a

[00:11:41] conservative member of the Conservative Party is one of these gold, gold bugs believing that

[00:11:47] money is gold period. And everything else we're using is just a, you know, money,

[00:11:51] the money is a veil of a gold in that from that point of view. But yeah, what it means is

[00:11:56] you cannot the government cannot increase the money supply. Now, one thing I haven't worked

[00:12:02] out and actually I probably play with this and find out with Minsky is that does that

[00:12:07] stop the private sector creating money? And I've got a feeling it doesn't because they can still,

[00:12:14] if they can make loans in Zimbabwe and what are they called again, zigz. Zigs. Yeah. But

[00:12:20] but if they did that, if they borrowed money, if they went to their bank and borrowed money

[00:12:24] to invest, I mean, the central bank governor has said he's committed to ensuring the amount

[00:12:29] of gold and foreign currency. So it's not just gold, the holding of the basket of foreign currencies

[00:12:33] as well. But that they those the amount of that in reserve matches the value of the local currency.

[00:12:40] So he doesn't get around that problem. So if somebody goes to a bank and borrows a great

[00:12:45] deal of money, then the central bank still going to you know, by that description is going to

[00:12:49] say, Oh, well, we better get some more gold or foreign currency to match that loan that's

[00:12:53] been made, which has expanded the money supply. And also depends upon the their actions relating to the

[00:13:00] holding of reserves and whether they match reserves or loans or not. Because again, this is

[00:13:04] I mean, I'm caught up in writing a reply to George Selgun, I think he's called

[00:13:08] Selgun who's a member of the Cato Institute and you know, conservative Austrian style,

[00:13:15] Austrian straight neoplassical monetary theorist. And he's trying to argue the case that

[00:13:20] that the government controls the money supply because it controls reserves and reserves control

[00:13:26] lending, all of which is completely false when you put it in a sense of accounting. What I'm coming

[00:13:31] back and saying is that the capacity of the banks to create money is not based upon the

[00:13:37] amount of reserves they hold. So you've got an independent system of money creation. And

[00:13:44] that would apply I think in the case even where the government is deciding to try to say

[00:13:47] its spending is backed by gold, its money is backed by gold, its government's capacity to create

[00:13:54] money would be constrained by that. I don't think the private sector would be so they could still

[00:13:59] get private sector bubbles. And we saw this in the 19th century when a lot of countries tried to

[00:14:05] maintain a gold standard and you still had burns and crashes because people were borrowing

[00:14:10] money to speculate on rising asset prices or to buy into the next big thing, things like in

[00:14:15] our railways and seam engines and so on. So I think it's a system which only constrains the

[00:14:24] government money creation that doesn't constrain the private sector money creation.

[00:14:28] Actually he's saying the amount that's held in reserve actually. He's saying that the

[00:14:32] amount of gold should match the amount of money held in reserve in the central bank

[00:14:38] presumably. So that's not the total value of all currency. So does that mean that they can

[00:14:46] expand through giving loans if there's the confidence in the economy and the confidence

[00:14:52] in the currency? I don't know, I think the private sector could still do it. I haven't

[00:14:56] bothered modeling it because no country that even though all the gold bugs are forever saying

[00:15:00] money is gold and money should be gold nobody's actually in the system that had it so

[00:15:05] I haven't bothered trying to model it but you know now that Tim's been doing it maybe when

[00:15:10] I've got something that I think people call it spare time. I must try to find some. When I find

[00:15:16] something that maybe I should go and dig up a hole on the ground and say if I can find spare time

[00:15:19] in the hole rather than gold. You got up at four this morning didn't you? You could have got

[00:15:23] up at two. I mean we can. So a single ZIG is worth getting to. I love the name

[00:15:32] ZIG. It does sound particularly the lowercase I just seems very trendy doesn't it? You know getting

[00:15:38] Ziggy with it. A single ZIG is worth about seven US cents apparently close to a milligram of gold

[00:15:44] and they bought two and a half tons of gold which I think is about 175 million I think

[00:15:52] but gold is notoriously volatile so if you've got a wallet full of ZIG and all of a sudden

[00:16:02] gold loses 25% for example then presumably my ZIGs are worth 25% less as well and if you're

[00:16:08] selling in ZIG does that mean you've got to put your prices up 25% to compensate? I mean it's

[00:16:15] I mean it's not gold is not stable. That's the thing. Yeah well this is and it did not

[00:16:22] go to using this is the other thing that there were times in history when gold was

[00:16:28] used as currency and this is so you actually physically carry gold with you.

[00:16:36] Nothing I did there. All the robberies of you know the famous American West guns thing is holding up

[00:16:43] a stagecoach and getting the gold, the physical gold out. That was stealing gold, napkins and so

[00:16:50] on and then you supposedly you know getting an assay and using them to go shopping in the

[00:16:55] local blacksmith that's when physically using gold but the normal situation is some currency which

[00:17:03] is supposedly linked to gold and of course now with the scale of the global economy now

[00:17:10] the sheer number of people compared to what it was in the 1800s there's no way you could use

[00:17:16] physical gold because you'd be working with slivers of the damn stuff that is so small you

[00:17:21] couldn't see it to try to have a gold base currency. You know gold pay the amount of gold in

[00:17:30] in the planet not just the gold in circulation but you can measure it in Olympics swimming pools.

[00:17:37] I think there's something like about two or three Olympics, mean pools worth of physical gold

[00:17:45] in existence in terms of being mined and there may be another four or five swimming

[00:17:50] pools worth of it in the crust still to be extractable potentially extracted from gold mines.

[00:17:56] But yeah I guess I take your point so I mean that's that fluctuates in value doesn't mean the currency

[00:18:01] necessarily does but there would be some sort of relationship wouldn't if you were entirely

[00:18:05] backed by gold and gold was losing value then your currency would be valuable.

[00:18:09] This is what actually brought the international gold standard because we're Bretton Woods the

[00:18:13] original foundation of Bretton Woods which was not Keynes's idea it was a Harry Dexter White's idea

[00:18:20] the American dollar was worth 35, 35 out of dollars would buy you one ounce of gold.

[00:18:25] Now these days what you think is what 2000 or $3,000 for an ounce of gold but that thing back then

[00:18:32] 35 and what then happened was and this is something which the Armistice of Rafa explains

[00:18:38] very well in the Global Minotaur have to enable this American dollar to be used in

[00:18:44] international trade there had to be international American dollars in circulation internationally.

[00:18:50] So that meant that America ended up running a trade deficit and paying for the trade deficit

[00:18:56] with its own dollars and ultimately that meant the accumulation of American dollars which

[00:19:01] led to the euro dollar market but in particular in France under de Gaulle this back in the

[00:19:07] time of Richard Nixon 1971-72 the amount of American dollars that had accumulated in the

[00:19:13] French Treasury was more than the total amount of gold in Fort Knox and this is something

[00:19:20] that's common knowledge in my youth because I was 17 in 1970 but then 1971-72 when the break

[00:19:30] occurred it was because de Gaulle threatened to send in all of France's accumulated American

[00:19:36] dollars to Fort Knox and say we want all the gold and Fort Knox and so to stop that happening

[00:19:42] that's why we went off the road. But Zimbabwe is saying well no we are going to make sure

[00:19:45] that we keep the same amount of gold to match the value of our currency which then gets back

[00:19:49] to that problem well okay what happens if your currency increases in value does that mean you

[00:19:54] then have to go and acquire more gold and how you're going to do that if you've got balance

[00:19:57] of trade deficit which is the unanswered question in all of this the unfortunate thing is that Zimbabwe

[00:20:05] I mean their number one export is actually gold so it's a bit of a problem if they are hanging

[00:20:12] on to the currency hanging out of gold for their currency rather than they can't export as much

[00:20:19] gold exactly so you know they hit their balance of trade you know rose you know perhaps they're

[00:20:24] better off just dealing in the US dollar and and and flogging their gold but anyway it would be

[00:20:30] nice if it was used for something more useful wouldn't it really their other export is tobacco

[00:20:34] which is flagging in popularity as well so I think they need to rethink their industrial

[00:20:38] strategy a bit but look when we come back more generally why gold you know why do we hang

[00:20:44] on to it why do people and the reason why I think this is interesting I had a lunch with

[00:20:49] a man of mine and he was saying you know why is gold going up so much and I said oh well people

[00:20:55] tend to go during for whatever reason they think it's a good thing to buy when there's times of

[00:21:00] geopolitical uncertainty like we're seeing in the Middle East right now and I said oh well I wish

[00:21:04] you'd known you know I wish I'd known sooner so I could have bought gold and that seems to be

[00:21:08] the idea doesn't it people want to get in and buy it because they think it's going to be a good

[00:21:13] deal and then they hang on to it and they lose its value and they forget about that but anyway

[00:21:17] why gold why this preoccupation with gold well look at that when we come back on the debunking

[00:21:21] economics podcast it's me and Steve Keene back in a moment millions of people have lost weight

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[00:22:10] u h 1.com this is the debunking economics podcast with Steve Keene and Phil Dobby

[00:22:23] so we are looking at gold we looked at the Zimbabwe situation but in this second part

[00:22:28] we're going to look more generally at the role that gold plays now that we don't have a gold

[00:22:33] reserve apart from clearly in Zimbabwe now for however long that lasts but we've still got Steve

[00:22:39] central banks with big gold reserves so the US has got those swimming pools you're talking about I

[00:22:46] think the US has got a few of those I had this idea of a gold plated swimming pool I think that's

[00:22:50] rather ostentatious isn't it really something you'd see you're in Sydney the memory will be

[00:22:55] decent suburbs of Sydney wouldn't it would have a gold plated swimming pool as you imagine

[00:22:59] so the US has got 8.1 million tons of gold Germany has got 3.4 million these are in the

[00:23:05] central bank reserves Italy's got two and a half million a little less in France 2.3 million in Russia

[00:23:13] 2.2 million in China one million million or billion by the way million tons this is million yeah

[00:23:20] yeah a tonne yeah yeah billions therefore in value yeah yeah in tons yes so it's pretty yeah

[00:23:25] quite a lot of weight uh one million in Switzerland just 845 000 in Japan only 310 000 in the UK

[00:23:34] compared to the 8.1 million in the US less than 80 000 in Australia for example it doesn't seem to

[00:23:40] have any impact on how well a country does does it how much gold they're having so this is just

[00:23:45] literally legacy gold isn't it you know it's just there because from the days of the gold standard

[00:23:51] in which case why don't the bigger central banks just sell it why are they hanging onto it

[00:23:56] oh partly because they need to have a range of assets backing the renewable not the central

[00:24:02] banks reserves here but the the government's um overall valuation and they'll have foreign bonds

[00:24:10] they'll have uh you know a range of assets and gold as an asset can appreciate and it's one

[00:24:17] therefore that they'll have part of that is sort of balancing the risk of now some currency that

[00:24:21] holding some foreign currencies going up in value or down in value and so on gold is a nice

[00:24:26] sense of hedge but it does go up and down doesn't it i mean it's in some ways it's almost

[00:24:30] predictable that it goes up in times of geopolitical uncertainty then it goes back down again well this

[00:24:34] is this is when gold this is when gold actually was um a form of currency and this is where David

[00:24:40] graver's research is so useful because people have this mythical idea that before we had

[00:24:46] fiat currencies we used to um we used to use gold or silver as a form of currency and when

[00:24:53] with david's research into the history of the when when gold was and was not used as a currency

[00:24:59] gold tended to be used as a currency during periods of enormous geopolitical conflicts

[00:25:05] so then this is looking at europe and it is the main place where it happened of course

[00:25:11] if there was the war of the roses the 30 years war the hundred years war that's when

[00:25:16] gold was used because you had all these warring tribes of europe and then the most people were

[00:25:21] worried about having a currency that would be worthless because the losing sides currency

[00:25:24] wouldn't be worth anything well yeah that's yeah so you were doing the war through ended up being

[00:25:29] fought by mercenaries there were religious wars Protestant versus Catholic that sort of thing

[00:25:34] but uh the people fighting those mercenaries you would not accept payment in your kings the king

[00:25:39] you were fighting for currency because if the battle was lost or the king was killed the currency was

[00:25:45] going to be worthless so you insist on a payment in gold this but that are people who still think

[00:25:50] like that they don't know that they see it as the doomstake currency that you know something goes

[00:25:54] badly wrong with the world like we have nuclear war or whatever they'll be all right because they've

[00:25:59] got gold but i'm not really quite sure if they're keeping it in gold coins underneath their mattress

[00:26:04] i have a funny feeling that they're keeping it in ingots in a bank somewhere in which case

[00:26:10] that's no bloody good because when the nuclear annihilation happens they probably won't be able

[00:26:15] to get to the bank fast enough and get access to uh to you know to their bank deposit box yeah so you

[00:26:21] get people holding the damn stuff yeah i think they're deluding themselves a little bit i mean

[00:26:25] the the the interesting question is when you say mention why gold and make me feel at

[00:26:29] point even why silver um and the reason the reason is that you know we first of all the

[00:26:35] elemental uh they're things which you know you we can't make elements um and you know

[00:26:41] actually how gold is made and no idea comes comes from comes from the ground literally it's melted

[00:26:47] well where did it come from before it hit the ground and the answer is that

[00:26:52] gold is at the very bottom of the periodic table in the sense of the amount of energy that's lost

[00:26:58] by the by the bonds between uh the neutrons and protons in the nucleus and you look at the

[00:27:05] light end of the spectrum if you combine two hydrogen atoms you generate helium and helium has

[00:27:11] less mass than than the two atoms of hydrogen that were fused together to create it so there's

[00:27:17] energy released at the other end you have uranium and if you split uranium into two elements the two

[00:27:23] elements have less mass than the uh than the than the uranium so again energy is released in

[00:27:29] that fission process gold lead and silver right at the very bottom where there's you've actually

[00:27:33] got to create add energy to make them come to go be created and gold is the most inert of all of them

[00:27:40] but the way that gold according to astronomy to astrophysicists the energy required to make gold

[00:27:48] is only generated when you have a collision between two neutron stars so two and a normal

[00:27:55] incredibly dense objects have to collide with each other the collision generates so much

[00:28:01] energy that it fuses lighter elements into gold and the range of the all the trend all the ones going

[00:28:06] out to uranium as well but that then explodes blasted through the universe become part of a

[00:28:12] cloud around a star and ends up with becoming deposits on the planet so that's how you make

[00:28:18] gold you crash two neutron stars to go right and so that's why we like it because it's

[00:28:22] physical and we can see it and it's impossible to recreate so it's not chemical reactive

[00:28:30] this is the other thing you know you because you have to have like you wouldn't have sodium for

[00:28:36] example because if you threw sodium in water it'd have an explosion put gold in water nothing happens

[00:28:42] so it's the very inertness of gold is why it becomes that sort of reference commodity

[00:28:48] that can't can't be damaged by the past passage of time so and I guess that answers the question

[00:28:54] about why why would you pick gold then rather than something which is more universally available

[00:29:00] because there's only a handful of countries that effectively can mine gold and they make them rich

[00:29:06] but it's curious isn't it and also I did once you put it away somewhere it'll still be there when

[00:29:11] you come back along we haven't been robbed uh whereas you put iron somewhere you're gonna have

[00:29:16] trust you have yeah yeah you have rust yeah yeah yeah I mean if we had lots of it we'd be making

[00:29:20] cars out of gold wouldn't we we know everything we made out of gold yeah but you know because

[00:29:25] yeah we wouldn't have that problem with rust but I mean it would be nice wouldn't it if we use gold

[00:29:30] for something useful rather than just saying this is a store of value because in the end

[00:29:35] well it is it just it is used I know it is in part obviously in in electronics and

[00:29:41] it's used in dentistry as well of course because of its you know it's got great conduct conductivity

[00:29:46] isn't it which is why it's using electronics a great deal but I mean as a small percentage

[00:29:51] of the total amount of gold that's used but I mean just the idea that we spend money to buy

[00:29:58] something that it just sits there as an asset class as an investment that's doing no good

[00:30:05] but it's making some countries very rich because they go to the all the effort of mining it just

[00:30:10] so somebody can feel as though they're rich because they've got something which is holding

[00:30:14] value for them it's it's just seems a bit wrong doesn't it was actually I forgot I think

[00:30:20] it was a leader of a progressive party in Italy back in the days when we thought there might be

[00:30:26] a revolt against the euro out of Italy and forgotten the name of the actual party but it was founded

[00:30:32] by a comedian and then a very intelligent comedian and he used to make a joke about what gold

[00:30:37] what how crazy it was to use gold as a form of money because you find a mine and you dig it

[00:30:43] out of the mine and then you refine it together and you put and you say you've got taken out

[00:30:47] of the whole ground and then just keep it safe and put in a hole in the ground called a safe

[00:30:51] okay so you're doing nothing with it and in that in that sense the fact that you do nothing with it

[00:30:57] is why it's got this appeal which is paradoxical it's a silly it's silly in that sense and then

[00:31:03] when you look historically and people thinking we've always used gold is that it's only periods

[00:31:07] when you can't trust the local social system your part of is going to persist that's when

[00:31:12] gold gets used right but i mean but isn't that just a fallacy these days because i mean as i said

[00:31:17] earlier if you if you're thinking that the whole world's going to go to you know to just a gooey mess

[00:31:24] you know a nuclear winter and we're all striking to survive gold's not going to make any difference

[00:31:29] to you uh oh it does make differences let you work because you can protect yourself from the

[00:31:34] nuclear radiation yeah at least yeah something travels at about 2 000 kilometers an hour and

[00:31:39] can be used to shoot somebody to take no yeah so yeah the the the real reason that the gold is

[00:31:45] effective and just come back again this this the all the conflicts during the you know the european

[00:31:50] conflicts and war the roses blah blah blah those wars with the gold they'd be the capacity to buy

[00:31:58] guns with which you could shoot people and therefore you could then say you're going to give me

[00:32:02] your resources because i've got lead in a you know in my or in back in those days would have

[00:32:08] been you know swords and bows and arrows and so on but so that's the real reason it gives you the way

[00:32:13] to accumulate physical power and that that's why uh it becomes accepted when there's still a form of

[00:32:20] conflict that can give you some form of society now if we go to the sort of i mean i'm you know i'm

[00:32:25] my horrific expectations about what human civilization is going to go courtesy of climate

[00:32:30] change in that in that world it's going to be how many guns you can accumulate that are going

[00:32:36] to determine whether you can take stuff away from other uh preppers who may be trying to survive the whole

[00:32:43] apocalypse well there we are there's american gold will be irrelevant as you have ordered guns

[00:32:47] already you were to your head yeah it is exactly completely right who cares about how much gold

[00:32:51] you if you've got gold coins in the post apocalyptic world it doesn't matter if someone's

[00:32:56] going to shoot you anyway does it but i mean it's since so since 2019 spot gold has gone up

[00:33:02] 85 percent and some of that has been inspired by the middle east war you know which has induced

[00:33:07] this spike that we've been seeing lately i mean i just don't get why we think that it's worth

[00:33:15] investing at such to such an extent to speculate so much to see to see these spikes during times

[00:33:24] of uncertainty that we know from experience from time and time again will calm down and gold will

[00:33:31] come down again it's just a it's just a speculators game yeah but that's that's the whole idea of

[00:33:37] speculating markets i mean one of my sisters worked for a um a broker and a very big part-time job

[00:33:43] which she came back from being overseas and she tells the tale of uh just having as the secretary

[00:33:50] robert being a damn side smarter than most secretaries asking one of the traders what they

[00:33:55] should be the trader thought the inflation rate was going to be for example and what number do you

[00:33:59] expect the answer i don't care so long as it's big you know positive or negative and so the thing

[00:34:04] that if my gold's going up or going down you actually want the volatility as part of being a

[00:34:09] trader yeah exactly and according to the world gold council russia is now the second largest

[00:34:16] producer of gold in the world almost 325 tons last year and they are upping their production so we've

[00:34:24] got the west has said we're not going to buy from russia but everybody else is they're producing

[00:34:28] more than they ever have um and that means that you know that they're selling their gold at a

[00:34:34] at a price which is increased because of global uncertainty which they're helping to create

[00:34:40] uh and that explains why their economy grew by uh what 36 percent though the gold component um

[00:34:49] what does it i'm trying this can't be right i must have these figures wrong but anyway they are

[00:34:53] i think 3.6 percent their their economy grew by last year and six percent of gdp is now going

[00:34:59] on military spending six percent of that so the our love of gold and our speculation in gold

[00:35:06] because of geopolitical uncertainty is being used to fund geopolitical uncertainty because

[00:35:12] it's funding russia to kill people in ukraine that is how fucked the nation you know the world economy

[00:35:19] is basically and that's actually where people do you look at uh tolkien's work in the Lord of

[00:35:24] the Rings and so on part of that involved a a dragon who accumulated gold and they just

[00:35:31] hold it in their desire and life were to have as much gold as possible to sleep with

[00:35:35] and tolkien was using that as a as a parody of the attitude of the governments of the world

[00:35:40] through accumulating gold and saying what a waste of time it is to make that the object of your

[00:35:45] international relations yeah and yet we're seeing that aren't we so i mean that's because it's

[00:35:49] not just in barbary supposedly the bricks nations are also accumulating gold this part

[00:35:54] part of the reason it's not just the uncertainty in in politics which is driving up the price

[00:35:59] of gold well it's sort of linked that you know that the bricks nations are investing in gold as well

[00:36:04] to supposedly back their currency and talk about whether it's going to be used to back a bricks

[00:36:09] currency which i think we've talked about in the past but it but i mean it but we've we've hit

[00:36:16] problems talking about it today how do you expand the money supply of your money supply

[00:36:20] is tied to a finite resource if you're running a balance of trade deficit because you can't

[00:36:26] you can't buy the gold to back any growth that you have in the money supply which you need to see the economy grow

[00:36:32] yeah and like a lot of international conflict came out of that so people often there's a very common myth

[00:36:39] particularly in austrian uh the so-called economic circles uh where people think it will be everything

[00:36:46] we have to hunky dory if we use gold and and have a commodity meaning that you can't have the

[00:36:52] creation of money by the government or by or by banks and that'll be a better

[00:36:57] world look at how great the 19th century was then you take a look at the 19th century and it wasn't

[00:37:02] you know massive numbers of political conflicts against other nations potentially caused by the

[00:37:09] partially contributed to by gold and the way you're describing for recent geo-political events

[00:37:15] and when you look at the number of what they used to call depressions not just recession but

[00:37:20] depressions they were far more in the 19th century particularly in america than they have

[00:37:26] there have been since the day since the currency and floating exchange rates so the the idea that

[00:37:35] those were stable peers when you use gold was completely wrong so here's an answer for zimbabwe

[00:37:40] you know just trading the u.s. dollar for now because you probably won't get much confidence in

[00:37:46] in your own currency till you get confidence in your economy if you've got lots of gold that you're

[00:37:51] digging out of the ground and it's of a certain quality then train yourself in making some of the

[00:37:58] world's best jewelry and add value to the gold that you're getting become known as the you know

[00:38:05] creator of things of beauty rather than just blocks of gold and build up a positive trade

[00:38:12] balance by exporting fantastic jewelry the gold that you're digging out of the ground

[00:38:18] and then you know you've got a balance of trade surplus then you can start to develop your own

[00:38:23] sovereign currency what about that for an industrial strategy for zimbabwe they can have

[00:38:26] that for free well i mean there are just the thing in china's culture is to have gold

[00:38:32] on your body as a sign of your relative wealth same in thailand so i've got it a certain

[00:38:37] personal well there's the market for it yeah whether you could actually get enough i mean if

[00:38:44] you do too much of a goal it's got to be rare this is the other thing it has to be something which

[00:38:49] is rare and that's why again the reason why gold is the point of reference of people that believe

[00:38:55] that money should be a commodity because it's the rarest the rarest metal and but if you if

[00:39:01] you then have everybody trying to wear it an ostentatious show and you're all doing it

[00:39:06] i you know you've got to be walking around 10 pounds of gold having healthier ears to show that

[00:39:10] you're richer than somebody else we'll end up looking like jimmy savill and we don't want that

[00:39:14] to happen do we uh all right very good so there we are it's a nonsense though isn't it really

[00:39:21] it's um but it's there and it won't change the attitude won't change for the reasons that

[00:39:26] people see it's solid it's reliable and you know as you've described it doesn't devalue itself in

[00:39:32] any way doesn't corrode it's always there um so you can put it away and uh in that nuclear winter

[00:39:39] you can get your golden gats out and go yeah i'm not quite sure what i do with this i wish

[00:39:43] a bottle gun but anyway uh good to talk steve catch you again next week thank you

[00:39:49] the debunking economics podcast

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