Honest, sound money
Paper : Debt :: Gold : Savings
Compounding: a faithful friend or a vicious enemy?
Compound interest is either a faithful friend or a vicious enemy. For a saver, it is better to compound interest earned quarterly than to compound annually. Conversely, for a borrower, it is more advantageous to compound annually than to compound interest payable quarterly.
While some secondary schools teach calculus, probability & game theory, a handful educate impressionable young minds about either the consequences of negative compounding on the borrower or the benefits of positive compounding on the saver. Students then go on to fund their college education on loans. The ballooning student loan catastrophe is, at its heart, a culmination of the lack of a rudimentary understanding of personal finance.
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
Attributed to Albert Einstein
Likewise, the global personal debt crisis is the product of financially illiterate adults dealing with paper money. These grown ups live for the moment without any intention of saving for the future. Borrowing on easy terms & spending impulsively on consumption is the 21st century normal.
The prevailing culture is that the rite of passage to adulthood commences with an embarkation on a debt journey. It was never this way, in any culture.
Per capita government debt, however creatively accounted for, is a number that the common man finds difficult to wrap his head around. Statistical creativity benefits from fuzziness about how the government’s number is counted? First of all, which governent? National government? State? Local? Federal? City? Government companies? Statutory Authorities?
Our generation has drawn post-dated cheques that future generations be forced to honour long after we are gone.
The way we were
Previous generations regarded saving as an extremely desirable personal attribute. Debt was considered a detestable vice.
It is as useful to save money that you already have as it is to earn more.
Originally, “a penny saved, is a penny earned” used ‘got’ or ‘gained’ instead of ‘earned’, as in George Herbert’s Outlandish Proverbs, circa 1633, “A penny spar’d is twice got.”
By declining to spend a penny and saving instead, you are a penny up rather than a penny down, hence ‘twice got’. Football teams, who get three points for a win, class games against their nearest rivals in the league table a ‘six-pointer’. Not great arithmetic, but a good proverb.
Abridged from Phrases.org
A Penny Saved Is Two Pence Clear
Our fiscally unsophisticated, fathers & mothers were brought up on the virtue of industry. One earned one’s own money. One prudently, only spent only what one had earned after saving some of the earnings. Children were secure in the knowledge that their parents were working, saving & investing to leave an inheritance for their children & grand children. It was a time when the pound was as good as gold & a dollar could be converted to gold.
Keynesian sophistication converted us from aspiring savers into free lunch consumers. We fell hook, line & sinker for the sophism that if credit is good, debt is even better. The zeitgeist of delayed gratification succumbed to the karma of instant satisfaction.
Data scientists, mesmerized by the math & their infallibility, model the behaviour of the social networks of money & finance. The corpora delicti of LTCM, AIG, Lehman, Fannie Mae & Freddie Mac, notwithstanding the quant USP is that they can predict how markets work. After all, they have a history of being the smartest guys in the room.
We have absolved ourselves of the responsibility, to future generations, to leave them, a better inheritance, than what we ourselves had received.
Contrast our 21st century profligacy with the prudence counselled by Ben Franklin.
Benjamin Franklin, in “Hints For Those That Would Be Rich” wrote, “A penny saved is two pence clear.” In his 1758 almanac he noted that, “A penny saved is a penny got.”
Franklin used this maxim to teach how to, “…discern what might have been and may for the future be saved,” he instructed in “Advice to a Young Tradesman.” Let’s assume that two business people start out with empty balance sheets. The foolish person decides to take the day off, go out to supper (the last meal of the Colonial day) and enjoy his one penny meal on credit. Franklin noted, “Sleep without supping, & you’ll rise without owing for it.” The wise person might spend his day working, earn a penny, & then sleep without supping. The wise person then has one cent worth of assets on his balance sheet. The foolish person, in contrast, has one cent worth of liabilities on his balance sheet.
The difference in financial standing between the wise and foolish person is actually two pennies (or “two pence” in Colonial terms). One penny to clear the debt on the foolish balance sheet & another penny to equalize it to the asset base on the wise balance sheet. Thus, a penny saved from foolish purchases is equivalent to two pennies free & clear from debt.
Abridged from Blaine McCormick & Burton Folsom, A Penny Saved Was Never A Penny Earned.
First the penny coins
Then the paper dollars
When saved in today’s paper money, our pennies saved, are not pennies earned for tomorrow’s rainy day payments, capital expenses & long term investments.
By being easily debased, printed & expanded through credit creation, paper money stealthily reduces our future purchasing power. The history of money has been a history of debasement; of devaluing the currency.
Paper has failed us. Our pennies saved are not our pennies earned.
USD, EUR, CNY, JPY, RUB, INR, CHF, GBP…
Does it matter which specific paper currency is better?
Honest, sound money
Paper : Debt :: Gold : Savings
Paper money is an IOU which a government certifies as a money. Our debt based financial architecture systemically erodes savings.
This talk of “no inflation risks”, and “post scarcity economics” of robots and “free living wages” is peak hubris from the elites, an insult to the majority of the world’s aspiring middle class that works for their prosperity, and have been realizing at least 5% compounding inflation in EVERYTHING it means to be middle class (except their wage of course). Frankly it makes me disgusted. And today the failed promises of central planners is being manifested across the UK and Europe, as it has been the past few years for most of the worlds emerging market currencies (Russia, Brazil, South Africa, Venezuela, Nigeria, they are becoming too many and too frequent to name).
“Do you think gold is money?” Ron Paul, US Congressman asked Ben Bernanke, Federal Reserve Chairman, at a House Financial Services Committee meeting.
“No,” replied Chairman Bernanke.
“What is fragile needs to be broken.
You cannot bailout larger than a market.
Major banks today will all be broken.
The Federal Reserve will not exist on its present form; too fragilizing: you can fool some people for a while, you cannot fool them forever.” Nassim Nicholas Taleb
When gold is money
A penny saved is a penny earned.
When saved in gold, our pennies saved today, are the pennies earned for tomorrow’s rainy day payments, capital expenses & long-term investments.
Gold cannot be debased, printed or expanded through credit creation.
Gold is honest, sound, money. Our pennies saved, are our pennies earned.
Economics : Paper Currency :: Physics : Gold
“Debt matches one to one with overconfidence in the future.
Anything fragile is likely to go bust,” Nassim Nicholas Taleb
Gold evolved into money due to physics (natural law) and Darwinian anthropology. Gold’s ascension had nothing to do with economics or economists. Roy Sebag, Gold’s Natural Monetary Properties
Simply put, gold’s rarity and permanence provides its owner a potentially indefinite maintenance of relative purchasing power. In sharp contrast, this important principle is not true for debt-backed currencies because the collective promises therein embedded are more likely to be broken with the passing of time and vicissitudes of society. Money’s value is always and everywhere a function of passing time and energy, and gold’s tangible attributes of scarcity and permanence hold great advantage over the decay of fiat promises with highly uncertain outcomes.
Cornelius Vanderbilt, John Jacob Astor, Orville & Wilbur Wright served the community by building superior products & competing against government subsidized competitors.
Is Goldmoney the vehicle for the global community’s adoption of honest, sound money?