Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

How and Why You Should Stop Thinking in Dollars and Start Thinking in Gold

  by    4   1

company-dickson-buchananThis article was written by Dickson Buchanan Jr., SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

Whether intuitively or analytically, we all know that the dollar is not such a great form of money. That’s putting it lightly though. The dollar is a terrible form of money when you take a closer look. Those who have lived longer on this earth tend to grasp this reality more clearly. Like trying to walk up a downward-moving escalator, the momentum of a falling dollar is always against you. This becomes clearer when engaging in economic planning. Whether it’s starting a business, making an investment, saving for retirement, putting something away for a rainy day, or simply making ends meet on a week to week basis, all of us have to work against a falling dollar (or fill in the blank with your fiat currency of choice.)

If that’s true, why do we keep using it?

Granted, you are forced to pay your taxes with dollars. And yes, technically it is illegal to use anything else for “cancelling debts.” But neither of those artificial props actually forces you to think in dollar terms. They certainly have an impact in conditioning you to think in dollars, but as of yet, your mind is still not totally enslaved by the State. You are free to think in terms of a better money. Of course, we think gold is the best money. In fact, here is why you should leave dollar-thinking behind and start thinking in gold terms.

Download SchiffGold’s Free White Paper: Why Buy Gold Now?

Money is commonly and inadequately defined as the “common medium of exchange.” But where the rubber meets the road, this definition doesn’t tell us anything about whether the common medium of exchange is a good one or bad one. By good or bad we mean whether it helps or harms human flourishing and civilization. Economic planning is necessary for human flourishing and civilization. Planning in a good form of money as opposed to a bad one makes a big difference.

Carl Menger, often dubbed the father of the Austrian School of Economics, preferred to define money in terms of its “saleability” or “marketability” relative to other economic goods. Marketability refers to the relative ease that particular good could be used in a market exchange. There is always a cost to bring and exchange products at market. Therefore, we can say that the most marketable economic good was the one that permitted mutually beneficial exchange at the lowest possible cost. The most marketable good in any economy eventually becomes money. It is important in Menger’s paradigm to remember that marketability precedes becoming the common medium of exchange. The “money-good” only becomes the most common medium of exchange because more and more people wake up to the fact that it works better than what they were using before. It makes it easier to execute more effective economic planning that is more seamless, precise, and accurate.

In addition to its characteristics or properties (durability, divisibility, portability, sufficient supply, uniformity, recognizability, history or store of value, etc.), money has the following three functions:

  1. Store of value
  2. Unit of account
  3. Means of exchange

We would like to add a fourth function, which is the “ultimate extinguisher of debts.” Gold gladly and easily performs this function, but the dollar, sadly, cannot. But that is another topic for another time.

The United States dollar is certainly very marketable today. US dollars are demanded not only all across our domestic economy, but all across the globe. There is virtually no scenario where someone would say, “Thank you sir, but may I NOT have another dollar?” Over short periods of time, the dollar holds up very well as a means of exchange and a store of value. However, if we zoom out a little bit, we see that the dollar begins to break down as a store of value. To illustrate this point, let’s take a look at some charts showing the gold price of the dollar. Yes, that’s right, not the dollar price of gold, but the gold price of the dollar. It’s an important distinction to make. Here are some charts showing the dollar in milligrams (mg) of gold over various time frames thanks to pricedingold.com.

usd-in-gold-200+-years

Granted, that’s a 200+ year chart, but the reality couldn’t be clearer. There have been some bumps along the way, but this is about as close to falling off a cliff as it comes. If you are planning to store value across generations (something that used to happen in this country with some frequency), then the dollar is not going to get you the goods (pun very much intended). Let’s zoom back in to around a ten year time frame to see if the dollar does any better against gold there.

usd-in-gold-1997

Ouch. That’s close to an 80% decline in a little over thirteen years. That comes to about a 6% capital erosion year over year. Unfortunately, this implies the dollar isn’t even suitable for planning ten years out.

So when is it economically safe to use the dollar as a store of value? It’s not such a clear call. Since late 2012, the dollar, priced in gold, had risen. Holding dollars starting in 2013 has been a pretty good play, although the backdrop of history paints a very risky picture. Suffice to say, dollars do not score well in communicating value across time, especially over longer stretching timelines.

Making the transition from “store of value” to “unit of account” would seem to be a pretty natural transition. If the dollar is not a good store of value over time, then why use it as a unit of account? Unit of account refers back to the French word numeraire. Going deeper, numeraire is defined as “a basic standard by which value is computed.” Accounting and the units of account utilized only work if they accurately and precisely report back to us a snapshot of where value is. The heart of the issue is that the dollar does not accurately or precisely measure or account for value. Perhaps it does so on a short term basis. But over time it starts to break down. The breakdown is significant for anyone who wants to save for more than a couple of months at a time. A different and better unit of account is necessary. Namely, one that accurately reflects the current state of value exchange as it occurs over time. We suggest gold.

How can you start thinking in gold terms again? Here is one simple and practical suggestion: Start calculating and measuring your net worth in gold. On a quarterly basis, calculate your net worth in dollars and then divide that number by the current dollar gold price. This will give you, approximately, your net worth in ounces of gold. If the number of ounces is increasing every quarter then you can rest assured your net worth is increasing in value.

However, we recommend converting some of those dollars into real physical ounces at some point. Otherwise you run the risk of your net worth increasing in bad money (dollars) while it’s decreasing in good money (gold ounces). This would end up, of course, as a net decrease in real value, which dollar-thinkers would be completely oblivious to. This is also why we prefer to measure the dollar (and other currencies) in gold and not the other way around. It shows us where the true volatility lies – in fiat currencies, not in gold.

Have you ever heard the statement, perspective is everything? Well with money, it’s no different. Looking through the foggy lens of dollar money you will get a distorted and unclear vision of the world and its affairs. Walking through life with foggy dollar lenses could lead to a very bumpy ride. Looking through the lens of gold, however, will bring precision and clarity. You will be able to see things as they are and make your way.

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

The Myth of the Non-Essential Business

As the coronavirus-induced economic lockdowns have tightened across the US, we’ve seen the emergence of a government-inspired fantasy – the myth of the nonessential business.

READ MORE →

With Heroes Like This, Who Needs Villains?

According to Owen Ullmann in an op-ed published by USA Today, there are some unsung “heroes” in the battle against the coronavirus pandemic – the brave and courageous bankers at the Federal Reserve. I think Ulmann misspelled “villains.”

READ MORE →

The Economy Is Life-Sustaining

Let me be clear upfront. I don’t think coronavirus is “just the flu.” I think the pandemic represents a significant health threat and could potentially overwhelm the healthcare system if the spread isn’t slowed. I think social distancing is wise. But I also think the draconian measures taken by governments that have effectively shut down […]

READ MORE →

You Will Sacrifice and It Will Hurt

Many people have likened the battle against coronavirus to a war and invoked imagery of the US fighting World War II. President Trump has even deemed himself a “wartime president.” The president told reporters at a White House briefing that fighting the virus would require a sacrificial national effort just like it took to defeat […]

READ MORE →

The Fed Hit the Panic Button and It’s Making Things Worse

Stock markets have been getting hammered, ostensibly because of the economic impacts of the coronavirus. Peter Schiff has been saying this isn’t really about the virus. It was the pin that pricked the bubble. If it wasn’t coronavirus, it would have been something else. Regardless, the Fed hit the panic button last week and slashed […]

READ MORE →

4 thoughts on “How and Why You Should Stop Thinking in Dollars and Start Thinking in Gold

  1. DDearborn says:

    Hmmm

    Your young I realize that. However, when you make blanket statements like:”There is virtually no scenario where someone would say, “Thank you sir, but may I NOT have another dollar?” Which is a flat out, bald faced lie, you leave yourself wide open to criticism.

    Entire countries are now trading in currencies bypassing the completely for many transactions including Russia, Iran, and China. In very real quantifiable terms many countries have rejected the “dollar”. The reason is painfully obvious, the dollar is rapidly approaching a real valuation of ZERO. In 1913 the dollar was by most accounts the strongest currency in the World. In 2016 that same dollar has a relative worth of about 2 cents. Now what person, let alone honest central bank, wants to remain tied to a currency with that kind of track record; It not just illogical, it is bad business.

    • Dickson says:

      Thank you DDearborn for taking the time to read my article and for your comments. Let me be clear. I am by no means a dollar fan. I agree with you that the dollar is falling and failing. And fast too. I mean, I work in the gold business! My mission is get gold and silver into the hands of as many people as possible before it reaches that real valuation of zero! The point I was trying to make was that as it stands today, dollars are still the global currency of choice. Russia, China, Iran and other countries may be taking serious steps to look for alternatives, but the net change has been measurably small. The dollar still holds a commanding position of the reserve assets of the world. Last I looked it was in the 70% range with the Euro in a very distant second place.

      Thank you again for taking the time to read and comment! Cheers!

  2. Steve says:

    Really Dickson, go to one of the country’s you mention and ask them if you could give them $1000 and see how many say no!

  3. jrj90620 says:

    Dickson is correct.The Dollar is still the major choice of currencies in the world.I believe it’s because the U.S. has the best salesmen in the world.Obama is a great example.He can sound so sincere and knowledgeable,when he talks nonsense.I don’t think our best salesmen can keep reality from happening in the long run.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Call Now