Silver drops
On the gold standard, prods to action, and why speculation in precious metals is a hindrance to progress
Speculation in the market for precious metals took a significant hit after the President’s nominee to chair the Federal Reserve turned out to be a more conventional pick than some expected.
■ Precious metals are a real drag: They don’t do much other than looking pretty. They have industrial applications, of course. But when they’re used strictly to store value, they’re real duds -- deadweight on the economy.
■ High inflation is a problem because it destroys savings and produces panicky behavior as people rush to spend their money before it loses purchasing power. However, a very little bit of inflation (often pegged by experts at about 2%) is good for an economy, since it prods people to do things and take action rather than standing still. That’s how progress is made. It’s also important to have a money supply that grows along with an expanding population.
■ Precious metals are favored by those who want to stand still. They are not “investors” in any real sense; they are hoarders or speculators. As Warren Buffett once noted, “if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
■ Sensible people believe in the value of a carefully-managed money supply, featuring low and predictable inflation, and resistant to pressure imposed by politicians who want to inflate away the costs of their poor choices. But sensible people also know that, from time to time, a central bank can defuse a potentially disastrous turn of events by putting new money into an economy close to being paralyzed by fear. And that capability is one that hard-metal obsessives -- some of whom want to bring back antiquated policies like the gold standard -- never quite seem to recognize.