Dollar Bugs are attacking Gold saying it’s “Price” is too high and that it’s in a bubble.
The goofiest part of this public conversation about Gold being in a bubble never discusses the key point.
Compared to what?
Answer: Why dollars of course.
Ahhh – but that is the problem.
We are in the habit – programmed if you will – to define the Value of anything as “In Dollars” or, if you are in another country, in the name of your own local Fake-Phoney-Fiat-Backed-By-Nothing Currency.
Of course we’re used to defining value this way; after all that is what one does with a Medium of Exchange: It is how we reference the Price of Things.
But what happens when Dollars start to Not Work as well? What happens when, as history has recorded many times, a particular Medium of Exchange becomes ugly, or not trusted or its Purchasing Power simply goes ‘POOF’?
Who will teach us what to use next? Who will teach us what to use as the “Next Money”?
Answer: Sellers.
Why? Because sellers always know the price they want.
Sellers, when one money is not available, or workable, will:
A) Calculate, and then
B) Re-price their goods or services in something else.
Sellers always know the “PRICE” they NEED to make a deal.
Sellers are already aware of other money alternatives:
§ Can’t pay in cash? How about a Credit Card?
§ Can’t pay for your meal? Then you can roll up your sleeves and use your labor to wash dishes until you “pay me”.
§ Don’t have dollars? Maybe I will accept Chickens, Silver, or Apple Pies. What else do you have?
When a money Starts to Stop working Sellers are already looking for what else they can get paid in.
So how will society transition to Gold and/or Silver?
First one, then another Seller, will start accepting “other money”.
At that point “Word Gets Around”.
However, there is a danger for those of us that know that Monetary Systems eventually evolve to using Silver and/or Gold as its medium of exchange and store of value.
The danger is that many of us assume that once Fiat Money stops working then the Medium of Exchange will go Straight to Gold or Straight to Silver in some way.
It may happen that way; it’s impossible to promise that though.
Sellers will start looking for and working with what is the easiest thing (money) that Buyers (and here we are talking about “most buyers”) will have with which to purchase.
In Zimbabwe, when a 250,000,000 (250 Million) Note was only enough to buy breakfast (and had an expiration date on it to boot) the Sellers knew that most buyers might have US Dollars as an alternate money.
The US Dollar became the preferred Medium of Exchange in their so-called Black Market and then eventually, when the Government’s Forced Money (a term coined by Jorg Guido Hulsmann in ‘Deflation and Liberty’) collapsed, the US Dollar became the temporary official money of Zimbabwe (the irony of this is rich and deep, don’t you think?).
Sellers made it happen.
Eventually it will happen that Buyers, and we all are Buyers, will start looking at “the money we have available” not as
§ Digits in a check book, or
§ Available credit on our Credit Card, or
§ Pieces of funny colored paper or somewhat shiny pot metal we carry in our pockets.
Someday, and I fear it will be sooner than later, none of these convenient contrivances will work, or will work the way they do now.
We will all need to keep our eyes peeled and stay alert to what Sellers are telling us.
There may be many stages and I think we are in the early part of the “Confusion/Transition Stage” where everyone who is knowledgeable about Austrian Monetary Theory, including me, is speculating on what will be next.
As I look at the Stock Market and especially the Currency Markets today, Friday, November 05, 2010, I have the uneasy perception of watching waves of rats massively running across the deck of a sinking boat.
As the boat rocks to and fro with each new swell the great gray whiskered swarm panics and lurches to where it thinks the boat will sink last. Note that this decision/reaction is constantly changing with each news tidbit that provides us a hint – What will our Central Controllers do next?
For now we simply have to hold our stomachs and speculate, guess really, what is next. We must accept, like it or not, that we are “all speculators now”, as Richard Russell, dean of the Dow Theory Letters, has said.
During the Confusion/Transition Stage people will first go to “the money” that they more or less know.
When it gets really confusing then Sellers are likely to set prices in Light Bulbs, Whiskey, Tuna Fish or Ammo – or, as recently reported happening in Michigan this past summer, in Rabbits, Silver and Apple Pies.
That will only work for a while and in those special cases where someone just happened to be looking for that extra Apple Pie (or whatever) you just happened to have.
In the coming times, if you are planning a cross country trip where you want the greatest flexibility during this transition, then you better pack some Gold for larger transactions and Silver for smaller transactions and trading.
Eventually you are going to measure your Net Worth, not by adding up digits on paper but by getting out a scale and weighing how many ounces you own and most importantly – have in your possession.
How many ounces do you own?
Michael McKay
Host
RadioFreeMarket.com
Author
“Secrets About Money That Put You At Risk”
