Debt Is Not Money

Gold’s main use, contrary to the belief of some, isn’t in jewelry or dentistry—although those uses are important. Its main use has almost always been as money. But gold’s ancillary uses are growing in importance because, given its physical characteristics, it’s a high-tech metal. It’s one of the most resistant to chemical reaction, one of the most ductile, the most malleable of all the elements, and it’s an exceptional electrical conductor.

There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don’t even carry serial numbers. That makes it truly untraceable. At current prices, it’s more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.Of course, anyone in Zimbabwe can tell you a government’s guarantee is not necessarily worth anything. A collapse of the dollar – the world’s de facto reserve currency – could spark such a change in that way of thinking.

Gold is also the only asset class that is not also simultaneously someone else’s liability. And in a world as financially unstable as today’s, you just don’t want to hold on to someone else’s liabilities any more than you have to. Especially if that’s a liability of an entity like the U.S. government.

Other currencies are no better; most are worse, and many of them are backed largely by dollars.

Governments, however, are not the only ones who think that debt is money. It seems that many people who get a bunch of credit cards, enabling them to spend beyond their means, imagine that they have money. And they also think that owning the debt of others – like government bonds – means they have money. A bank deposit isn’t really cash; it’s a debt of the bank. There are about three trillion dollars in money market funds; 100% of that money is invested in the short-term debt of banks, corporations, and governments. I would be very leery of these things. Debt is not always repaid. Money, however, simply “is.” That distinction is lost on almost everyone. Don’t be among them.

So you should own gold because it’s money, because of its security, and because it’s an excellent speculation. If you think of your gold as cash, and the dollar as a merely temporarily fashionable means of exchange, you’ll find yourself loading your portfolio with much more gold and gold proxies. That will protect you against the very rapid loss of value the dollar faces in years to come. Inflation is going to truly get out of control.

Reprinted with permission from Casey Research.

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