Fiat money, fear, and gold / by kevin murray

A lot of people have a tendency to look at the money that they have in their hand, or in their bank account, or in their assets, as being real, and to a certain degree the dollars that you have are real, but they aren't as real or as stable or as secure as most people, give them credit for being.  That is to say, the United States dollar is without a doubt, not a secure and stable instrument, which is the whole reason, why people when they are reading history or watching an old movie or an old television show, are able to see or read about some of the dollar prices, for gasoline, or for a meal, or for a hotel room, or for a car, or for a house as being unquestionably quite low in dollar amount cost back in the day.  Not to mention, the flip side of the equation, of those making money, in which, for instance, upper middle class workers had a yearly income of perhaps $3000-4000, back in the 1930s. 


Quite clearly, the dollar suffers from the ill effects of inflation, so that its value is eroding, sometimes rather speedily, such as in the 1970s, or more quiescent, yet devaluing all the same, such as at the present time.  In any event, the dollar is standardized as the coin of the realm, and is literally used for all transactions, all of the time, mainly because it is the legal tender of this country, as well as being the most convenient way to transact business, personal or otherwise.  That said, while it is absolutely true that countries, nations, and dynasties, come and go; so too, do their currencies, especially when those currencies are backed by nothing further than the full faith and credit of that nation-state.


The United States dollar is a fiat currency, and this currency is only as good as the government that stands behind it, and in particular that government's credibility, credit, longevity, and sustainability.  There are, quite obviously alternatives to using fiat currency, of which, the newest spin, is crypto currency; but there is also, still in existence, commodities, such as gold, that have historically been used by nation-states as currency, and gold is still seen today as having an intrinsic monetary value that individuals as well as countries see as being of worth enough, to actually store ingots or coins of gold for just that very purpose.


The price of gold is most often weighed against the dollar, of which, back during the FDR administration, gold was pegged at $20.67 per ounce, yet, today, gold which freely fluctuates against the dollar is currently priced at around $1231/ounce.    The price of gold, does rise and it does fall, but it does neither of these things in a very consistent fashion, except for only under one particular circumstance, which draws upon something that FDR once said, “The only thing we have to fear is fear itself," and when the people and/or institutions are fearful, gold has a very strong tendency to go up, as compared to when things are considered to be under control and stable.


The basic reason that the price of gold goes up when things are fearful, comes down to the fact that fiat currency, is in the scheme of things, all about confidence, and to a certain extent, could be considered to be a confidence game, itself; and nobody, wants to be the sucker, so a prudent person will often look for something stable, when all hell is about to break loose, and therein lies the essential lure of gold.