There are a lot of dumb ideas out there, especially when it comes to economics and investing. In this episode of the Money Metals' Midweek Memo, host Mike Maharrey covers some dumb things that grabbed his attention this week including the notion that gold is "a useless metal," Kamala Harris's plan to deal with inflation, and minting a $1-trillion coin to deal with the national debt.
Mike opens the show letting everybody know he's dealing with "the ravages of the common cold."
"I figured since I am already grumpy, I would cover three really dumb things that came to my attention this week. It’s the kind of stuff that makes me wish saying dumb things hurt. Then maybe we’d get less dumb in the world. Or there would be a lot of people walking around as miserable as I feel today."
He sets things up by sharing an anecdote from his childhood.
"Let’s be honest; we all have some dumb ideas, right? I was about 7 years old, my friend Tommy and I decided we were going to dig a cave. We envisioned a massive cavern we could stand up in. It would be our secret fort. We went as far as digging a pretty deep hole in Tommy’s backyard. It was a dumb idea. But give me a break; I was seven! And our cave-building scheme wasn’t nearly as dumb as the three things I’m going to share with you today."
First Mike tackles the notion that "gold is a useless metal," pointing out that even well-known people such as Warren Buffett have made this claim. But given the fact that hundreds of tons of gold are used in technology and industrial applications, gold is far from "useless."
"Gold's inherent physical and chemical properties make it useful in many industrial and technological applications. Gold doesn’t corrode, it is an exceptional electricity conductor, it is malleable, and gold can be used to catalyze many chemical processes without being consumed. This is why we see gold increasingly used in the tech sector. In fact, gold would probably be used even more if it weren’t so rare and expensive."
Mike then pivots to the second dumb idea, courtesy of Kamala Harris.
"Guess what? It was dumb."
"It will be a day one priority to fight to bring down prices. I'll take on big corporations that engage in illegal price gouging. I'll take on corporate landlords that unfairly raise rents. I will take on Big Pharma and cap the costs of drugs."
Mike calls this a "recipe for shortages."
"That’s what you get every time government implements price controls. On top of that, none of those things have anything to do with price inflation. As faithful listeners to the show understand, price inflation is a symptom of monetary inflation, which has everything to do with money creation by the Federal Reserve. It’s not corporate greed, or Putin’s price hikes, or fairy dust as people like Harris would have you believe. Have you noticed virtually no politician anywhere actually pins the blame for inflation on the real culprit? That’s because reining in the money creation would mean shutting down the borrow and spend machine, and they ain’t doing that!"
Mike emphasizes his point by highlighting some of the July budget deficit data.
"Spending in July was up 15.5 percent over last year. Do you know who is part of the Biden administration? Kamala Harris! So, to sum up, Harris’s take on inflation is dumb."
And that brings us to the dumbest of the three dumb ideas -- the trillion-dollar coin.
"The idea is pretty simple. The U.S. Treasury could mint a $1 trillion platinum coin, deposit it at the Federal Reserve, and then the federal government could write checks against that asset. Voila! Budget problem solved. Now, it may sound a little bit like creating money out of thin air. That’s because it is."
It also may sound ridiculous, but documents recently obtained by a Bloomberg reporter reveal the idea was discussed and relatively high levels in the federal government. In other words, somebody is taking it seriously!
Mike points out that the scheme would have the same effect as quantitative easing.
"In a QE operation, the Federal Reserve buys securities (primarily U.S. Treasuries and mortgage-backed securities). The catch is the money to buy these assets doesn’t exist until the Fed “writes a check” for the purchase. Imagine your bank honoring a check you wrote even though your balance was zero. That’s QE in a nutshell. The central bank creates the money out of thin air and injects it into the economy.
"The trillion-dollar coin scheme would have the same practical effect as QE, but the government would be off the hook from having to pay off bonds on the Fed balance sheet. Instead of having to borrow money by issuing bonds for the Fed to later monetize, the government would just create the money itself bypassing the Fed middleman.
"So, what’s the problem?
"Well, we just saw exactly what happens when the Fed creates money out of thin air."
Supporters of this plan claim the government could keep price inflation at bay by simply spending the money slowly. Mike argues that would never happen. And no matter how they dolled out the trillion dollars, you would still get stuck with the bill.
"As the saying goes, there ain't no such thing as a free lunch. You would pay for the $1 trillion coin through the inflation tax – just like you’re still paying for the pandemic-era stimulus every time you go to the grocery."
So, what’s the lesson in these three dumb ideas?
"When it comes to economics, you’re always going to have a lot of bad ideas out there and plenty of people in government willing to implement them, either because they’re dumb, or because they know exactly what they are doing and it will mean more power and wealth for them and their buddies. That means you need to protect yourself."
And that leads to a call to action - get some "stateless currency" - gold and silver.
Articles Mentioned in the Show
Many Countries Turning to a Stateless Currency - Gold
Another Month, Another Massive Biden Budget Deficit
Money Metals Opens Idaho-Based Gold Depository Larget Than Fort Knox
About the Author
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
