Old Maid

Remember the kids card game Old Maid?  The rules are that you discard pairs until someone is left holding the Maid.  They are the loser.  The world is playing this game with its money.  Some will “discard out” and some will be left holding the stinker.

Gold has hit a record high of $1300 an ounce.  For those of you who find economics as exciting as imitation gruel, this would be a good time to get interested.  Gold has been the real money of choice for thousands of years.  We have been trained, actually duped, into thinking that those green pieces of paper in our wallets are money.  They are not.  A dollar bill is fiat money–the Old Maid.

Gold emerged as real money as long ago as Ancient Egypt because people recognized it as a consistently reliable medium of exchange.  Fiat money only has value because a government says it is, and it works only as long as the people agree.  When they stop believing in it as money, it becomes worthless, usually overnight.

There is nothing inherently wrong with using pieces of paper to represent gold.  Gold coins are heavy and cumbersome.  Paper is easier to manage.  Likewise with electronic money.  The problem is that when the supply of money can be increased easily, it loses its value and ceases to be a reliable medium of exchange.  This is what has happened to our money.  The government has turned fiat money into a fount of plenty–for itself.  By the time people realize that those green pieces of paper they use to buy groceries are the card nobody wants to get caught with, it’s too late.

Gold prices today are a signal that the market knows the game is nearing the end.  The entire planet uses some form of fiat money and like the card game, no one wants to get caught holding the Old Maid.  Will there be a rush to dump cards in favor of gold?  No one knows for sure, and you sure don’t want to take my word for it.  However, if are smart, you will start reading up on the rules.  Educate yourself about gold.  Learn the dangers as well as the upside to investing.  Most of all, let your elected officials know that their charade is over.  Let them know that you can tell solid waste from a once-popular floor polish*.

_________________________

*Terry is too polite to repeat the whole phrase verbatim , but the popular floor polish is Shinola.

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About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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