Posted by A. B. Dada on 14th February 2006
I’m about to leave on my 2 week trip to Europe and India in a few minutes — O’hare was nice enough to give me an outlet, and my T-Mobile wireless connection gives me a great broadband connection sitting in the lobby. Living on a personal gold standard is very confusing to the average human. We are familiar with money — it is paper currency in bigger denominations, and it is coin currency in smaller ones. Almost every country has paper, but over the past 100 years they’ve transitioned to checks and then debit cards and soon there will be other options for storing money.
Most gold bugs don’t live on a personal gold standard. In fact, I am the only person I know who lives this way, even my gold bug best friends can’t do it.
First, what is the personal gold standard? Instead of retyping this, I will use the term MiG - Money is Gold. My label “personal gold standard” is not really accurate, either, as I use palladium, platinum, silver and even land property as currency — as money.
Second, my MiG repudiates banking, loans, credit cards, debit cards and even cash accounts such as stocks, bonds, 401Ks and other “investments.” I don’t even believe in houses as an appreciating investment. It seems crazy at first — most people look at the volatile price of gold versus a currency (such as the US Dollar) and look at how much I’ve “lost” over the 4 years I’ve started to attempt to transition to the MiG.
If you look back 5 years, 10 years, 20 years, gold (and silver) has generally been a loser versus paper currencies and investments based on paper currencies. Yet I look at it in a completely different way. I look at what money means to me, and what it means to society. For a great read on money, please read Murray Rothbard’s book — it is free, it is in e-book format, and you can download it now spam free at http://www.mises.org/money.asp The title of the book is “What Has Government Done to Our Money?” and it sets the precedent for my MiG.
If you own gold and your paper money is tight (you don’t have a lot to spend), try taking US$100 out of the bank and also get yourself a 1/10th ounce gold coin (worth around US$50-US$65). Go shopping. After coming home, you’ll find the paper money is gone, usually, and the gold is still there. If you come home with both in their entirety, try this again. Eventually your paper money is gone, replaced by something “valuable” whether it is a product or a service. When you exchange paper money for a product or a service, do you think “Am I profiting from this transaction?” Is the product you are gaining worth more than the paper money you are giving up?
In most instances, the answer is no — especially if you are living paycheck to paycheck or on a very tight budget. It is usually no if you have a lot of debt (including mortgage payments, car leases and apartment rent). Whatever you gained from the transaction meant giving up your cash money — in the end, the item or service you gave up will not hold value in 2 years or 5 years, sometimes it devalues overnight (such as a new car).
It was this understanding that lit a light bulb in my head. One day I realized I had blown almost US$2000 cash that I had just earned a few weeks earlier, and the items I spent it on weren’t really valuable or useful. Some of the items were use once, get a lot of happiness, and then forget it, as the next batch of paper cash brought in new exciting items so I’d forget the old ones.
Rarely do we buy anything of true long term value. We see some investments go up in price — houses, rare antiques, stocks, bonds, etc. Yet the reality is that these increases in value are merely increases in US dollars — they may not really be increases in overall wealth. The US dollar has a tendency to fall over time in value — Rothbard’s (free e-)book offers advice on why this happens. It is really hard to gauge how much it drops, because the numbers that are offered (Cost of Living Adjustments, Housing Equity increases, and 401K values) are not really stable in terms of what they’d get you if you had to sell them.
If you bought Stock XYZ at US$1 per share, and you bought 1000 shares, you invested US$1000 in the stocks. If your tree trimming service was US$25 per week, you could say that 25 shares could have bought you that tree trimming service the day you bought them. Fast forward 5 years, and assume that your stock has gone up about 10% a year. It should be worth US$1465 or so in current US dollars.
This word “current” is very important — you did not make 1465 US dollars back until you sell the stock, and when you do, the dollars are worth less than they did 5 years earlier. My own experience in lawn mowing services was paying US$10 one year, and in the same house I paid US$25 5 years later. So to buy lawn mowing services 5 years later based on selling some of these stocks, I’d have to come up with US$25 to pay the guy. I would sell US$25 worth of stock (which is now US$1.47 per share), I had to sell 17 stocks, versus the 10 that I original had to sell 5 years ago.
Some services and products depreciated over the 5 years, some appreciated, and some stayed the same. Because it is hard to really know what living costs will be in 5 years, it is very hard to gauge investments based on their current US dollar value the day you sell them. Even worse, it is even harder to judge how much that product or service is REALLY costing you in US dollars — some of your tax dollars goes to making goods cheaper or more expensive. If any dollars were taken out of your taxes to lower the price of your goods you’re buying, you have to add it back in. What about taxes taken out of your income used to lower (or raise) the prices of goods you don’t buy? How do you adjust for that? Even more than that, are there services or products you bought in order to save you time so you can work harder to pay your debt and taxes? Are these services or products things you’d do yourself if you didn’t the tax and debt burden?
Once I realized that the dollar was a loser, I gave up on the stock market almost entirely. I realized that I wasn’t actually giving paper money to a company to own their stock, I was buying the stock from someone who bought it from someone years ago and that cycle goes back to the person who bought the stock 5, 10, 100 years ago! The company sees non of my money, it just goes to someone else who feels they’ve made enough profit to get out of the position.
That lightbulb above my head got even brighter — not only did I pay paper money for a product that is usually worth less today (even considering the entertainment or productivity value in my life), I bought it on debt. The positive thing behind debt is that you get to pay off an item of yesterday’s value with dollars worth less today — in some cases you come out a little ahead. Yet if we revalue the item when it is done being paid of, you’ll soon find out you lost no matter what. I would not be surprised if I spent nearly US$500,000 in my life on junk. All of it is either gone (lost, sold on e-bay, lent and never returned, or taking up space). The items that are taking up space are paying a portion of my land costs, too, so they continue to take my money without offering much back.
I combined these three thoughts — items rarely offer more value than their initial price, investments rarely beat the real costs of living if you keep track of that, and debt versus inflation may seem like a win until you consider thought #1 — the item is probably worthless. Look around your house or apartment — how much stuff do you want to replace? The TV? The couch? The bed, carpetting, countertops, the car in the garage, the wife? How much would the items get you if you sold them — taking into account the time you need to package, advertise and ship these things?
So there I was, completely baffled how a man who can make 6 figures in a year was not just broke, but the cash money I received was generally useless. I looked at my father’s years of hard work, and while he lives nicely today, it isn’t the kind of life you’d expect out of 45+ years of labor. I look at my mother and she’s still working. I look at my friends, and many of the older ones are retired and broke, and their parents are generally in the same boat. I have maybe 3 or 4 friends and possibly 3 or 4 customers who really live a great life, but the stress levels of maintaining that great life might cost more than the outside image tells you.
I was never a good relationship person — I wasn’t honest, I wasn’t happy, I wasn’t responsible, and I definitely was not full of self esteem. Geek loser. This changed when I was 18, and I write a site about it. The change from loser to winner happened overnight when I realized the “tricks” to relationships. The change from broke to rich is still in progress, as I am still developing the mindset needed to stay away from paper currency, useless items of declining value, and I still have some debt to pay off from one of my businesses that failed (luckily the other businesses are profitable enough to get that cleaned up in 6 months or less).
My next article will actually explain the process to convert from paper currency, debt and monthly utility payment scrambling to a life of freedom — I have a decent little home, all my things are very high quality but I paid very little for them, and my bills are paid for well in advance (this year I want to be 5 years paid up on all my bills). I can do this with VERY little income — I believe I will retire almost all my businesses this year or next except for one, and live happily on under US$30,000, and I will be able to give my lady more time, my outside family much more attention, and I will be able to not stress about the stupid things.
Will I be “rich”? Not a chance. But will I be stable, happy, comfortable and be able to travel, see friends, help my community and feel honest and shameless in my purchases? I believe so — no matter what happens to the stock market, the wars, the price of oil, or the emergencies that occur from time to time. My only sadness is that I still have to pay a huge portion of my income to take care of the needs of others who don’t have the responsibility to make small cuts now in order to receive huge benefits later.
Discuss this article, comment or criticize it at the Global Unanimocracy Network forums. I am boarding a flight now so I’ll try to log on in 10 hours or so!
