About gold, and why a percentage on money breaks down the monetary system.
People say, gold will not loose it's value.
I think the Islam takes a very good position, with the ban of percentage on loans. A loan is no solution for the poor. Debts are fine for those who can invest it, like a company for instance, and make more money than the interest costs. For those however, who need to spend the money on daily living, a loan works out negative. Here is the simple math: If somebody takes a debt, to buy food, his net worth initially will stay the same. He receives the money + the debt, and at this moment his net value is the same. Then, provided he will not eat more than normal, after he pays back the loan, he did not have to work longer than normal. So far no problem with that. Only, when time has come to pay the interest, this is a payment for which he gets nothing in return. After paying the loan back, NOW he has to do ADDITIONAL work to pay the interest.
Effectively, he has now less money to buy food, because he was already working full time. So by having to work for nothing, the capital of the bank enslaves him. The next loan he needs now even more, and he gets into this addicted situation. Probably well aware, but he has no choice. From this view, Karl Marx defined capital like: Dead labour, that, vampire-like, lives by sucking living labour, and grows, the more labour it sucks.
Can owning gold be a solution?
Lets see for his what gold could do.
It is supposed to do a few things. Such as keep it's purchasing power, and protect against the breakdown of paper monetary systems. Or, it is supposed to GROW it's purchasing power over a longer period, if you just want long enough. Or, it can be used as speculation object, meaning you buy it cheap, and sell it expensive.
1. Gold as a speculation object?
We can be short in this, speculating is not making money, it's just putting money from the looser's pocket in the winner's pocket, but as a whole, a group can not make money by speculating.
2. Could gold be an investment?
Warren Buffet, the greatest investor of all times, said his problem with gold is, the amount stays always the same. This is just not his idea of a good investment. Sure it's safer than money on the bank, but a savings account is also not his favorite investment.
For myself, I think it is mathematically impossible, that gold has a yield above inflation, and I will explain why. We have to agree on this definition:
A good investment means you do BETTER than the inflation rate, and if not, it was a bad investment.
Now what does is mean, we do better than the inflation rate? It means for 10 gram of gold, I can buy a bucket of daily life goods, and when gold does 10% better than the inflation rate, after one year I get the same bucket for only 9 gram. You would reach the same with a stock, which performs 10% better than the inflation rate. Suppose today, you would need to sell 10 of those stocks to buy those goods, but after 1 year + inflation rate, you would need to sell only 9 stocks, provided the stock went up 10% + inflation rate.
3. Is gold able to keep purchasing power?
Yes, but not in extreme crisis times. My parents survived the hunger winter of 1944 as kids, not yet knowing each other. My father said he would chew on old shoes in the 1944 winter, because it released the stomach pain. That's how little food there was. My mother told me during those times, gold had almost no value. For a wedding ring, you would receive only a piece of bread. Whereas during normal times, you would get a LOT more bread for it. However tobacco and coffee, you could trade for anything. In a REAL crisis, don't put your trust in gold. in 2019 there was a small, peak crisis, perhaps those of you who own stocks, will remember the extremely sudden, heavy plunge of the stock market during the corona crisis. On a daily base, it was even a higher drop as in 1929. (Only in 1929 it went on much longer). What happened? Stocks were falling like crazy. Not because they were useless, but only because much more people though economy would collapse, than people who said this would not happen. The markets become over sold like crazy. Now, if you think gold prices went up like crazy too, that was NOT the case! Gold was also falling. But WHY? Many professional owners of gold, were now selling their gold, in order to buy stocks! The best investment at that (short) time of two weeks only, would have been cash.
The following absurdity, makes clear, gold is NOT an investment. It can never perform above inflation over a very longer period. So best way, gold keeps the purchasing power, provided there is no crisis with food shortage.
Suppose after Julius Ceasar died, his family took his money from the bank, and for some reason, one dollar as left on the account by mistake, and the account was not looked after any more. But...what happened to this one dollar? The interest rate on his account was 5% per year, and the bank payed 5 cents on it, every year. Then some day, somebody finds this account, and looks into it.... What will happen? How much money would be on the account in 2007, as I write this article? Julius Ceasar died in the year 44 B.C. So we have a time span of 2051 years to cover.
Also this calculation shows, the value of gold has not been going up on a yearly basis ever since 2051 years, much in contrary to what all "experts" say. Gold only keeps the purchasing power, but is definitely not an investment in the sense of the word. Reason is simply, as we will see, it is virtually impossible to invest 1$ against 5% for 2000 years. Result of this would be more money than has ever been around, or will be.
Read all text here, and you will see, it is scientifically FULLY impossible to achieve 5% per year, for 2000 years. Whereas the golden coins from the days of Julius Ceasar, will buy today more or less the same as by then. There are lines of old texts around, telling 500 or 1000 years ago, what expensive clothes, or a house would cost, if paid with gold coins. From this I would say the value of gold is at the upmost 3...10x higher today as it was 2000 years ago. So in terms of percentage per year, very close to zero.
This is in line with the wordings of the world's best investor ever, whose name I don't have to tell you, because you already know :)
A totally different result appears, when we calculate what an interest rate of 5% will do over 2051 years. You will see it is ABSOLUTELY IMPOSSIBLE to achieve 5% for such a long time. The first year, it will give you 5 cent on a dollar, but once the bank account has grown to 2 dollars, you get already 10 cents per year. So it will go faster and faster. The way to calculate the result is like this: 1.05 to the power 5 will give the result for a period of 5 years. So enter in the calculator 1.05^5 which means 1.05 * 1.05 * 1.05 * 1.05 * 1.05 = 1.28. So the gain is 28 percent. This already reflects the "interest on interest" effect, because 5 times 5 cents is only 25 cents. Over longer periods, the "interest on interest" effect begins to accelerate and more, and already after 100 years we would have 131$ on the account. Not bad, and it sounds reasonable. After all you waited 100 years.
However, it gets totally out of control after a period of 2051 years.
For the rest of the calculation we will not leave 1$ on the bank, but only 1 Cent!
So the amount to start with is 0.01$, and yet we end up after 2051 years with a fully absurd, and impossible to understand high amount of money on the account.
The answer will sure overflow your hand held calculator. But you can also use an Excel sheet, and that does not overflow. This is what I did. This is the formula for Excel:
=0.01*(1.05^(2051))
First format an empty cell for "US$", and "no decimals", then just copy and paste that formula, and you will see this:
287907111543464000000000000000000000000000 US$.
I don't know what to think of this result, but sure the calculation is totally correct. This number is larger than you may think. Really very much larger than that. To really understand it's absurd dimension, there is nothing like it on our planet.
Once you understand the absurdity of this number, you will agree with me, 5% over a period of 2051% is fully impossible.
Lets try to do something with it, and you will see what I mean, when I say, the number is absurd.
Here are some (failed!) attempts:
1) Suppose this money would be divided amongst all people that lived in 2007.
In 2007, lived 6.500.000.000 persons on earth. That would be: 44293401775917600000000000000000 US$ per person. Mmmm. Not bad :)
But look what would happen if we INDEED all would be given that money. Would you be prepared to wash somebodies car for 1.000.000$, when you have 44293401775917600000000000000000 US$ on the bank?
With that money each person on earth could spend:
590578690345568000000000000000 US$ per year. Not bad!
Or, 67417658715247500000000000 US$ per day. Also not bad!
Or: 18727127420902100000000 US$ per second.
You see now, what a ridiculous amount, and it is available for all persons on earth, each second. This is complete beyond imagination, but this is indeed what you can do with
287907111543464000000000000000000000000000 US$.
2 ) How about withdrawing it in cash.
You think the answer will be, there are not enough coins. That is true... but lets see why that is. On out planet, the coins have to come from somewhere, and also we have to put them somewhere. Your wallet is too small, so let's just put them on the ground.
The weight of those coins is: 1439540000000000000000000000000000000000 kilogram.
Now we get a little problem, because the weight of our earth is a "little bit" less than that. Earth weighs only 5973600000000000000000000 kilogram. So the coins mass is 240983661443686 times higher as our earth. Just still suppose, the bank would hand it out. The gravitation force of all that mass would make anything near by extremely heavy. So earth's gravitation plays no role any more. This huge mass of coins would cause so much gravitation, that your own body weighs 240983661443686 times higher. I don't know how strong you are, but I think I can say, your legs can not hold that. With that gravitation, you would become as flat as a pancake. But there is more happening. The gravitation force on the coins is so ridiculously high, the molecules get pressed into each other, something which is impossible under normal conditions. This is called an atomic fusion. Molecules are almost completely empty inside. If the force is just high enough, one molecules gets pressed into the other. Once this begins to happen, mass will be concentrated into a smaller, and smaller volume, which increases gravitation force even further. This chain reaction will not stop. The whole mountain of coins gets sucked up by itself, by it's own gravity, it's called a black hole. Into that black hole will first disappear the earth, with you on it, and all those coins. Then it would begin to suck up the whole solar system, including the sun.
So, no this example raises more questions then giving answers. Let's try something else.
3) It seems we need to go out in space.
Remember in the year 1972 , NASA launched the Voyager 1 into deep space. Just to see how far it would get. Well it is still transmitting signals to earth from an incredible far away distance, while it has left the solar system and is now entering into deep, black space. How far away is this? Well kilometers are not used to describe this. It has traveled a distance of 94 AU (Astronomical Units). One AU is 150.000.000km. Now let's take all the 1$ coins we got from the bank, in the previous example. We just line them all up, and let's see how far we get out in space with that line. So we have 287907111543464000000000000000000000000000 coins of each 3cm. That gives a total length of 8637213346303920000000000000000000000000 Meter, or 5758142230869280000000000 AU (Astronomical Units). So that is 61256832243290200000000 times further away than Voyager 1. Ups... provided the cosmos is that large size at all? I am not going to calculate that, it leads to nowhere.
Any yes.... these are correct calculations ! ! ! All you need to do is put 0,01$ on the bank against 5% and wait 2000 years.
So yes, it should be possible to put 1 cent on the bank against some interest for 2000 years, but the interest rate can never be 5%.
Here is the conclusion: The same would apply for the VALUE of gold. So just put gold into a gold account, or under your pillow, can never raise it's purchasing power 5% for ever.