February 15, 2010
Recently, two of the smartest people that I know told me they are putting all of their money in silver and gold respectively. The thinking is that our national debt will surely crush us, along with the next wave of mortgage defaults, and the collapse of the dollar, and the drop in consumer spending, and perhaps a plague of locusts. The only option you can rule out, they believe, is that things will go well.
On one hand, I understand their points of view. I can’t imagine any way the national debt can be controlled before it buries us all. My only comfort is these three thoughts:
- People aren’t good at predicting the future, no matter how obvious the future path seems.
- Warren Buffett isn’t putting all of his money in gold.
- My failure to imagine how the debt can be contained might be just that: a failure of my imagination.
It is wonderfully absurd that the best investment option my brilliant friends can think of involves trading their stock ownership of American companies into shiny rocks. While these particular shiny rocks have some practical value, so does manure, and yet you wouldn’t trust your fortune to cow poop. The value of gold is derived primarily from the fact that people agree it has value, for a variety of semi-irrational reasons mixed in with a few trivial good ones. What happens to the price of gold if people simply change their minds about its value?
If things go so badly that the S&P 500 becomes permanently worthless, I have a hard time believing that the people who own gold will rule the world. I think it’s more likely that the people who own steel that is conveniently shaped like guns will control everything, including all of the shiny rocks. At that point, the new currency will be something along the lines of “Wash my car and I won’t shoot you in the leg.”
Optimism is mostly about imagination. For example, if you get an incurable disease, you can at least imagine someone finding a cure just in time. If nuclear war breaks out, you can imagine being part of the remnants of civilization that form the post apocalyptic society. You can imagine just about anything. But I literally can’t imagine how our national debt can ever be brought under control. When I fire up my imagination generator, I just see a blank screen.
Are any of you investing in shiny rocks?