Tuesday, January 25, 2011

Albert Einstein: The Gold Monetary System Is Not Viable

“The gold standard has, in my opinion, the serious disadvantage that a shortage in the supply of gold automatically leads to a contraction of credit and also of the amount of currency in circulation, to which contraction prices and wages cannot adjust themselves sufficiently quickly.”

Albert Einstein


  1. Einstien was right, if you look at the history of money prior to the Fed, it was simply gold that used to crucify the little guy rather than fiat money. Instead of trying to race against the interest rate with a currency that is also inflating into being worth less, people were racing against insterest rates with a currency that was too scarce to co-locate easily. It's easy to corner something the size of a city block.

    The real solution is interest-free credit based on the supply of businesses, see the work of Thomas Greco. This idea is sort of a synthesis of stocks and gold, the money supply is ultimately checked by a negative feedback loop (in this case, the supply of transactions rather than the supply of a metal) but it's elastic based on the needs of people to transact.

    Meanwhile, gold is not a play for a new gold standard, though that would value the metals around 50k/oz. Gold is a call on the banker's bluff; stocks make sense as an investment in a world where money is racing, you've got to invest in something that actually goes out and does something. But when that system seems broken, no matter how much money is being typed into existence to salve it over, you've got to call bullshit and get your own portable bank deposit in the form of 59 protons.

    In Argentina in 2001, stocks crashed, bonds crashed, bank deposits were not accessible, but gold was worth something at the bank adjusted for the currency devaluation. I own physical metals as a liquidity risk hedge, not as a price play - that's what calls are for.