Saturday, February 2, 2008

What Will You Do With Your Gold?

"What Will You Do With Your Gold?" is an interesting article by Gary North. He discusses what happens during a "crack-up boom" where people lose faith in the currency and try to get rid of cash as quickly as possible.

He concludes
You don't get rich as a holder of gold during a time of serious inflation. Yet get rich as an investor with capital to invest after the crack-up boom has ended.

People do not see gold in this way. They see it as a way to get rich in a time of inflation. They do not understand this principle of economics:

The division of labor through invested capital is what makes people rich, slowly. The crack-up boom destroys the division of labor. Most people get poor in the crack-up boom, except those who (1) operate successfully in a low division of labor environment (think "Amish") and (2) debtors who live outside urban areas, who pay off their debts with depreciated money.

The Amish don't pay much attention to their wealth, except maybe to buy better horses. Debtors who learn how to play the pyramiding game in the boom phase generally go bankrupt after the monetary stabilization takes place.

So, don't expect to get rich in an age of inflation by owning gold. That's because you would have to sell it to get rich. Your timing had better be perfect.

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