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The Collapse of the Dollar and How to Profit from it

23 Dec 2008


A pretty easy read, in which the Goldbug argument is pretty plainly laid out. 200 pages, said quickly: only smudging the gold with your own grubby fingers is good enough to save you from the government.

The underlying causes, which I agree with, are pretty well laid out. There are some conspiracy theories about the fed ‘manipulating the price of gold’, which are generally about the fed secretly selling gold to make the dollar look better. They are supported by a few snips from meeting minutes in 1995. I’m skeptical: I just don’t think that the markets are that stupid. If they are, then isn’t this theory complaining that the price did not rise fast enough and become a bubble, when more people should have realized it needed to happen right away?

Whatever. I’m no fan of the fed, but this is way into attributing to malice what can be attributed to serendipity.

At any rate, like most goldbugs, they highly recommend getting your hands on your gold up close and personal. No ETFs, pooled accounts, or gold certificates for a true gold-hoarder. They even have snips of legalese from the biggest silver trust ETF to prove how nefarious it is. What, they can suspend the creation/redemption of baskets if they are legally prevented from selling silver? What’s the difference from having it on hand in that case? I won’t be able to buy bullets in shady metals deals from all of my goldbug friends? Whatever.

Gold is money. But let’s have a little perspective. Gold miners are not an asset class for diversification. Read Terry Coxon.

I lived through a brief bit of goldbuggery myself, in which I had to physically restrain myself from purchasing a shack on the bayou down around my hometown, get me a safe full of gold and shotgun shells, and spend my days rocking on the porch while the world collapses outside. I think this is a human cognitive bias.

I believe that this emotion is the same, on a large, heart-clutching scale, is the same one that makes humans make bad decisions about loss. Very few people would purchase, for $100, a 50% shot at $220, even though that 50% shot is worth, mathematically, $10. Meanwhile, a $1 lottery ticket worth $0.15, but with a tiny chance at $35k, is snapped up wholesale. Studies have confirmed it, over and over: our brains are broken. We do not understand risk. We fear loss much more than we appreciate the chance for gain, even when they are equivalent. Further, we fear much more things we have no control over–such as currency collapses run by foolish economists with voodoo formulas that have failed as many times in the last 100 years as they have been tried.

So we’re helpless against the possible loss of all of our wealth, supplanted by the comforting knowledge that the last few times this kind of thing happened, everyone was calmed by a soothing world war to clear the slate. A perfect storm for our monkey brains, but, I think, not for the rational mind.

The main reason for this is that I don’t think there’s much that can be done if it comes down to owning physical gold. If you need physical gold, you need a gun, too, and I need to have bought a plane ticket 2 months ago. I fully believe that we’re marching down a historical path that led to war 70 years ago, and I see no reason why that’s impossible today. But it seems infinitely more sensible to me to be ready to run than to clutch at my wealth. If the world goes to shit, I will probably lose everything; I may not be able to get away in any case. I do not forsee scenarios in which clutching at my property does any better than accepting its loss. Shit happens.

I shall continue to invest as though the world will not come to an end (although more conservatively since Bernstein). I really need to figure out how to make the PP work when you don’t know your end-game currency.