Warren Buffett: What’s So Great About Gold?

Gold coins and ingotsWarren Buffett, in a recent article in Fortune (“Warren Buffett: Why stocks beat gold and bonds,” 9 Feb 2012), identifies three major categories of investments — currency-based investments, sterile assets, and productive assets.

In his article, Buffett makes some comments about gold that are sure to be controversial. He classifies gold under the category of sterile assets — “assets that will never produce anything, but that are purchased in the buyer’s hope that someone else — who also knows that the assets will be forever unproductive — will pay more for them in the future.” (Photo: Linked from Buy Silver Gold)

Then he goes on to write,

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth — for a while.

He then goes on to draw a contrast between the investment value of today’s $9.6 trillion of gold and an equivalent amount of truly productive assets. With that same $9.6 trillion, he says, “we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge)” — a set of investments much more likely to produce value in the future than that big block of gold.

I’m certain there are good arguments against it, but I find his reasoning sensible and interesting. He also refers to the 17th-century tulip bubble, which I have written about previously — see “The ‘Tulip Mania’ Economic Bubble: Source of a Myth?

AB — 10 February 2012

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‘American Dream’ Film: Communicating Economic Ideas Dramatically

I’m interested as much in the way ideas get communicated as the ideas themselves. What brings this to mind is the animated film I saw today called The American Dream. This is the most creative expression I’ve seen of the more non-mainstream view of economics — the idea that the Federal Reserve is an evil conspiracy against America.

Some of the film’s explanations are less controversial — how banks manipulate the economy and create what amounts to a house of cards that is supposedly too big to fail. But the film does move into some uncomfortable areas, almost advocating violent revolution — patriotic language and images are used to whip up sentiments. Still, as I said, the most interesting thing to me is the innovative presentation of the creators’ arguments.

By the way, I also like Chris Martenson’s “Crash Course in Economics” — kind of a ‘chalk-talk’ approach — as another example of creative presentation of economics ideas.

The American Dream is a half-hour film available in two parts on YouTube.

AB — 25 January 2011

The annoying thing about The Big Oligarchy

The annoying thing about The Big Oligarchy …

the banks

the insurance companies

the government

the giant firms

and their privileged controllers

… is that you pay into It all your life through premiums, taxes, and the money It makes from the float on your cash …

but then when you ask for the promised (or implied) benefits, It begrudges paying you and does Its best to stonewall.

AB — 26 March 2010

How Can Local Economies Transition to a Petroleum-Scarce World?

Today I read an interview in New Scientist with Rob Hopkins, a key figure in the Transition Towns movement — see “Rob Hopkins: Getting over oil, one town at a time.” He writes about how communities can transition to a more sustainable economy at Transition Culture.

Hopkins describes the Transition Towns concept as follows:

A Transition Town is formed when a group of individuals gets together to ask how their community can mitigate the effects of a potential reduction in oil and drastically reduce their carbon emissions to offset climate change. The scheme has become so successful we now have 250 official Transition Towns and Cities worldwide, with many more interested in becoming involved.

One of the strategies being used to help communities transition to a petroleum-scarce economy is EDAP (Energy Descent Action Plan). Here’s a Slideshare presentation that explains how this process is working for some communities:

AB — 7 February 2010

Pumping up the Big Bubble

From the Bubbleconomics point of view, the U.S. government’s efforts over the past year can be seen as an attempt to keep the Big Bubble pumped up. The current economic design requires a strong and powerful system of banking and investment, which is why the government has focused so much on propping up the banking system. The hope is that the banking bubble can stay inflated long enough for the real sectors of the economy to recover.

With that background in mind, we thought it was interesting to see this comment on Monday from RiverFront Investment Group (see “2010 Outlook — Reflation and Beyond: A Delicate Balancing Act“):

The Great Reflation experiment has achieved its objective of engineering an economic recovery through government spending, credit creation, and lower interest rates for both corporations and mortgage buyers. As the Federal Reserve contemplates removing monetary accommodation, it faces a delicate balancing act: We think the Fed will continue to err on the side of reigniting inflation rather than risking a return of deflation and will not hesitate to extend its program of purchasing government debt beyond its scheduled termation in March if it deems necessary.

To clarify what is meant by “reflation,” here is how it is defined on Wikipedia:

Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes. It is the opposite of disinflation. It can refer to an economic policy whereby a government uses fiscal or monetary stimulus in order to expand a country’s output. This can possibly be achieved by methods that include reducing tax, changing the money supply, or even adjusting interest rates. Just as disinflation is considered an acceptable antidote to high inflation, reflation is considered to be an antidote to deflation (which, unlike inflation, is considered bad regardless how high it is).

AB — 23 December 2009

‘The whole economy is a pyramid scheme’

That was a quote I picked up from the recently-posted trailer for a documentary called Collapse, which features the ideas of Michael Ruppert, an independent journalist who predicted the current financial crisis in his newsletter From the Wilderness. The movie opens in theaters Nov. 6, 2009.

From the trailer I picked up an interesting quote from Ruppert in the movie:

It’s not that Bernie Maddof was a pyramid scheme. The whole economy is a pyramid scheme.

The mortal blow to human industrialized civilization will happen when oil prices spike and nobody can afford to buy that oil, and everything will just shut down.

Watch the trailer here:

AB — 28 Oct. 2009

Author of ‘Life Inc.’ Bashes Corporatism, Points to a New Way

Recently I’ve learned about a new book, Life Inc., by Douglas Rushkoff, scheduled for release June 2, 2009.

In a recent video, Rushkoff says he believes humanity is at a crucial point, not just a crisis but an opportunity. He thinks this is “probably the first moment in the last couple of hundred years that we’ve had to rebuild our society and our economy on principles that serve humanity instead of killing life.”

Rushkoff says he doesn’t believe banks should be rescued — but that we should let them die “so that we can get on with business.” What he means by that is new forms of business and investment that focus on local communities.

In his new book and in the video talk, Rushkoff advocates ways people can “start investing in one another and with one another and make their towns better, actually earn returns that you’re not going to get from your Smith Barney broker – I promise you that – and see the return of your investment in the place you actually live. That’s not hard to do.”

In the Life Inc. book, and in the video in a briefer form, Rushkoff traces the history of the current economic predicament. He points to the Renaissance as a crucial starting point. During that period, he proposes, the world economy changed fundamentally when monarchs, to stem their loss of power, ceded monopolies to corporations:

The renaissance was not a golden age. It was the end of a golden age. The renaissance was the moment in history when kings decided they were going to monopolize all of the value that people were creating throughout western Europe.

Instead of letting people make stuff and trade stuff, they created chartered corporations ….

 They picked individual businesses to charter and in return for the exclusive control over an industry or over a region, that company would then give the king shares of stock.

People would have to work for corporations. Instead of letting people in different towns make their own money, everyone would have to use coin of the realm. Instead of people creating and trading and selling art, now you would have to have a sponsor, a patron, who would then bring you to court and let you be an artist.

This centralization of economic power has continued as the model up to our time, says Rushkoff, and has resulted in a worldwide “dehumanizing trend,” in which humans are disconnected “from their own labor, from their own consumption, from their own pleasure”:

The society that we built for the industrial age was built to mythologize the mass-produced object, because we needed to create a society of consumers who thought that buying all of this stuff would somehow make them happier.

Here is the entire video talk:

AB — 11 May 2009