Dr. Randy White Warning: This article goes against common conservative thought.
For the past decade or so, right-wing commentators have been encouraging their listeners to buy gold for the upcoming economic crisis.
Many of you did, and now you possess gold that is of no more value than when you purchased it, if you’re lucky. Furthermore, the economic crisis, which was just over the horizon, didn’t come, and you’re still using the U.S. Dollar like you always did. In fact, your debit card works, your checks are accepted (although no one uses them anymore), and mayhem hasn’t killed off everyone save those with guns and gold.
Personally, I think we’ve been had.
A twofold problem
Why did the right-wing commentators (both Christian and secular) encourage us to buy so much gold? I believe there are two answers.
They don’t understand macro-economics
Macro-economics is the big-scale economics of sovereign nations. Texas and California don’t operate on this scale, nor does New York or, for that matter, Ecuador.
And here’s why. Texas, California, and New York, along with 47 other states, do not have their own currency. They are dependent upon the currency of the U.S. Government. And Ecuador, though it is a sovereign nation in many regards, has chosen to not have a sovereign currency and to use the U.S. Dollar. The economies of each of these states/nations are not macro-economics in the sense of sovereign currency. Therefore, the State of California has the same economic rules as I do personally. In the end, for both of us, we must generate enough income to cover our expenses, and if we do not, we will go into debt or bankruptcy.
The right wing commentators thought that the same rules were true for nations with a sovereign currency. But it is simply NOT TRUE.
Here’s the hard facts: The U.S.A. can never default on its debt unless it decides it doesn’t want to pay. Income is totally unnecessary. The U.S.A. can shred every dollar gained in taxes and other revenue and still pay all of its bills.
How is this true? Simple. The U.S.A. owns the printing press that makes the money.
The commentators believed that the U.S.A. was spending so much money that it would eventually run out. Such a belief demonstrates a misunderstanding of the way sovereign currency works.
Now, I know you are saying, “But if they keep printing money, it will become worthless.” This belief also doesn’t recognize the way sovereign currency works. If the money begins to become worthless, the same government that has the ability to print the bucks also has the ability to shred the bucks. It can easily control (manipulate?) the value of the money by printing more cash or shredding more cash.
On a historical note, I would add that most nations of the world dropped the gold standard during WWI, and they did it as a matter of life or death. With the gold standard, these “sovereign” nations could not produce the guns and tanks that were needed to protect themselves and defeat the enemy, because they had run out of gold and couldn’t print it on demand. They realized that a gold standard (so loved by libertarians and conservatives today), would literally mean the end of their nation. So these freedom-loving nations dropped the gold standard and bought a printing press. They simply “created wealth” and used it to buy guns and tanks. This is something that sovereign nations can (and should) do. The USA did not drop the gold standard until 1933, and then only partially, in an attempt to pump much-needed cash into the depression-era economy.
Eight years ago, right-wingers convinced many that Obama would spend the value of the dollar into oblivion, that the U.S. would default on its debt, and that a bushel of wheat would cost a day’s wage. The only way to save the collapse of your dollars was to invest in gold. But the chaos never came. The inflation rate has hovered between 1% and 4% since the early 1980s. Nothing new here. Furthermore, gold has been proven many times to be a miserable hedge against inflation. (See here and here and here for starters.)
In a few months, we’re going to have another bad President (who is elected), making more bad decisions. And the right wing commentators will tell us to buy more gold. They will do this mostly out of ignorance, thinking that gold will glitter when the President has spent the nation into bankruptcy. However, the problem is that bankruptcy is impossible except by a vote of the House of Representatives.
On a related but side note (that will make you question the assumptions), the size of the U.S. debt doesn’t matter. The nation isn’t spending anybody’s inheritance. All it is doing is creating more money (whether in paper or in electronic digits, it doesn’t matter) than it is shredding. And, furthermore, when it pays those debts back, it will pay them in U.S. dollars…which can be printed on demand. If the repayment puts too many dollars into the system, causing inflation, the government can start the shredder. And who cares if the Chinese own this debt. When the government pays them back, it will be in U.S. dollars, which the Chinese will then use to buy U.S. goods and services (they will be forced to, since the USA is the country that will accept those dollars).
They do understand micro-economics
If, by my definition, macro-economics is the economics of entities with a sovereign currency, then micro-economics is what relates to everyone (without exception) who must live with someone else’s currency (that is, they don’t have a printer). And micro-economics is the second reason that right-wing commentators encourage us to buy gold.
Right wing commentators live with micro-economics. They have to have a balanced budget. And to balance their budget, they make deals with sellers of gold…who are waiting in the lobby to sell you the gold that you will need.
My advice: ignore Henny Penny. Invest wisely. Spend within your means. Have a savings account. Buy a home. Be calm and carry on.