CEO of Monetary Metals Keith Weiner was on Real Talk with Zuby discussing the difference between gold and “digital gold”.
In this episode Keith and Zuby get into
- Declining marginal productivity of value
- The problems with the dollar system
- Why is gold money?
- The inherent volatility of Bitcoin
- Investment vs Speculation
- Exponentially rising debt
Zuby: What’s up? Ladies and gentlemen, boys and girls around the world, I would like to welcome you back to the Real Talk with Zuby podcast. On today’s episode, we are going to be talking about something we have not discussed much at all on the podcast, if at all. And this is gold and precious metals. And who better to do that with than the CEO of Monetary Metals? And this is Keith Weiner. Welcome to the show.
Keith: Hey Zuby, thanks for having me.
Zuby: No doubt, man. Happy to have you on. So before we jump right in, please tell people a little bit about who you are and what you do.
Keith: Most gold companies are about selling gold, and then they sell that with the promise that the price of gold is going to go up. So then you can sell it and make a profit. We are a little different. We are about paying interest on the gold, in gold. So something closer to we’re not a bank, we’re not regulated like a bank. But something more like that concept where you bring your gold, you deposit it and earn interest on it, in gold. We believe in a gold standard as a free market in money in which everybody is empowered and enfranchised to make their own decisions. If you don’t like the terms, you can take your gold home. If you like the interest rates and trust the system, then you can deposit it, earn interest, which is the key feature that was lost in the dollar system a long time ago.
Zuby: What was it that got you interested in gold to begin with?
Keith: So I built up a software company called DiamondWare, which I sold through a company called Nortel Networks in August 19 of 2008. So right before the crisis erupted, right before Norel began to collapse, we were the last acquisition they ever did. So as the fall of 2008 unfolded, at first I was kind of bemused of what seems sureal to me. And then as things continue to progress, I became alarmed. What’s going on? Started to study markets and the economics to figure out really how to protect myself. I had worked for 14 years. Both this business sold that made some money, didn’t want to lose it all because crazy things were happening. Eventually came to realize that there’s a problem in the monetary system. It’s not working, certainly for the average person, but at that point, not even for Wall Street. And the solution clearly had something to do with gold. And then eventually formed a business idea for how to try to solve the problem.
Zuby: I hear you. So a lot of people, I honestly think most people don’t really understand money itself or really think much about it beyond the numbers they see on the screen or the paper notes that they hold in their hands. So can you talk a little bit about money and what money is? You mentioned the gold standard. If you can talk a little bit about the history of the USA and other countries coming off the gold standards and what the implications of that have been. I think it would be really enlightening for people.
Keith: When you save money, everyone thinks in terms of a medium of exchange. I go to the store, I want to buy a shirt, I go to the restaurant, I want to buy dinner, and then I hand over something, and that’s a currency or medium machine or something like that. And that’s certainly true, and that’s certainly important. But more importantly than that, I think, is the idea of final payment, the idea that you’ve either delivered some goods or provided a service, and you don’t care to take a flyer on the system. You don’t care to just let it ride and continue to grant somebody credit. So today in the dollar system, to have a money balance is to be a creditor, is to extend credit. Whether if you own a dollar bill that says Federal Reserve, note you are a creditor for Federal Reserve, and then you have to ask, what does the Federal Reserve do? Well, they lend it to the government and the banking system. If you deposit that dollar bill in the bank, well, now you’re a creditor to the bank, you could buy a treasury bond. Now you’re a creditor to Uncle Sam. And what is Uncle Sam doing?
It was while they’re borrowing trillions and trillions and doling it out on all sorts of things that either you think are wonderful or think they’re stupid, but either way, they’re racking up a debt that you have to question if they ever could hope to repay it. And so the idea of final payment is that we’re physical creatures that live in the physical world. Final payment is a physical thing that you can take home, and then you’re just quits on the whole thing. Like you are seven years old, you’re playing marbles in the sandbox with the other kids, and if there’s a bully or tyrant or whatever, just people are cheating, you just have the right to take your marbles, put them in your pocket, get up and walk away. And it has to be a physical thing. And when you look at all the commodities, whether it’s oil, whether it’s copper, whether it’s wheat, gold turns out to be the best thing for final payment. So that’s what it was in the United States until 1933. President Roosevelt did a couple of things. First, he made it illegal to possess gold. So as in go to prison, it was the same as today.
If you possess a certain funny white powder as the cashier was throwing in prison, which is a pretty harsh thing to do to somebody. And of course, the cops can kill you in the process of arresting you. Oh, well, too bad. Then they just take you to the cemetery and that’s it. But what this does is it disenfranchises the saver. Prior to 1933, if you didn’t like the interest rates, or if you didn’t like the terms of the banks were offering, or if you didn’t like the risk of the banking system, you could withdraw your gold coin and say, okay, I quit. I’m taking my marbles and leaving. After 1933, they disenfranchised the saver. And now you’re forced if you hold the money balance anyway, you’re forced to have the dollar. Of course, after 1933, you were forced, period, after gold was removed, the last link of gold was removed by Nixon. In a couple of years later, Congress re-legalized the possession of gold. But today, to hold gold carries a price risk. And if you’re a really conservative saver, that price risk is not acceptable. You have to hold a money balance. To hold the money balance is to be a creditor.
And so then the interest rates can go off the rails and it can fall to zero. And beyond. All kinds of other really perverse things can happen. It’s because we’ve disenfranchised the saver. If the saver had any real teeth with his preference, then that could never be possible.
Zuby: And what have been some of the real world implications of going off the gold standard, not just in the USA, but also on a global level with all these different fiat currencies?
Keith: I’d say two primary things, I guess three, it enables government to spend such stupefying amounts of money, and with that spending, they become more and more powerful because they become the hand that feeds more and more different things, it corrupts science, corrupts education. It corrupts everything that it touches. Because let’s say you’re a scientist. It’s no longer whether your theory is more valid. It’s whether your theory is more politically correct. So whether you’re teaching the idea that anybody can be any gender they want to be, whether you’re teaching the idea that man is destroying the planet by incinerating it in an inferno, whatever it is. There’s one side that is eligible for unlimited government funding, and there’s another side that you’re out in the cold. So they have enormous amounts of power. Obviously, they can hire huge numbers of cops, arm the cops, with tank-like vehicles and all kinds of stuff. Number two is that the debt in the system at all levels, so this is private business, corporate, banking, government debt at all levels grows and grows exponentially. It’s an exponentially growing curve. If you take a look at what that looks like post 1971, it’s scary.
I say to people many times, if you’re not scared, you don’t get it. This is terrifying. $30 trillion. To put that in perspective, assuming there’s maybe 100 million Americans that work in the private sector, which is the only sector we can support, it, that’s something like $300,000 for every working person. The married couple, $600,000. There’s no way that can be paid. And it’s still accelerating. I mean, we’re adding trillions a year to this. And the third thing is the interest rates, which should be stable and was on the gold standard is destabilized and it can either shoot the moon or after World War II, maybe 1947 approximately to 1981, we had the interest rate skyrocketing to levels the world had never before seen, which creates all kinds of destruction, as you can imagine, including gutting the American economy of jobs in the manufacturing sector, devastating huge swathes of cities in the Midwest in particular. And then after 1981, it begins falling. It’s been a four decade long fall. I know we’re in a correction right now, but that correction will come to an end and I think with a vengeance. And the savers are just being chewed up and spit out.
Imagine if you could get 2% in the bank. Even 2% isn’t enough because of course the Federal Reserve has a mandate to debase right on the Federal Reserve website. Their official policy stance is so called “price stability”. Don’t even get me started about George Orwell. That price stability is defined as relentless 2 percent inflation. Orwell would be looking at, I think, guys, this wasn’t supposed to be a recipe book here. It was supposed to be a warning. So if you’re getting 2% interest on your dollars and the Fed is taking away two percent of the value of those dollars every year, it’s not that simple, but conceptually, people get that, then you’re basically just keeping even and you can’t even get 2% anyway. You’d be lucky to get 0.2%.
So you have falling interest rates or destabilize interest rates. You have exponentially rising debt and you have just the absolute rise of Leviathan state that is powerful enough to give you everything that you could wish for and therefore powerful enough to take away everything that you care about, both in the same one fell swoop. Yeah, those are some of the harms done by the system.
Zuby: That’s a lot. One question I’ve always had, and I’ll be honest, something I’ve never really understood is when all of these countries and all of these governments are all in this ridiculous amount of debt, who or what are they all in debt to? And at what point is this debt supposed to be paid? I mean, you can’t just pass this off to generations forever. It can’t just be deferred eternally. So I’ve always been confused by this concept of like, every government being in trillions of debt to somebody and this debt number just keeps on growing. And at what point is this supposed to be reconciled?
Keith: Well, I think we’ve passed the point in which there is any supposition of any reconciliation just because the dollar amount of it has grown beyond… Let’s say pick a 30 year amortization period and say, okay, pick some interest rate. There’s no way to amortize the debt anymore. The average working person cannot support $300,000 on top of their mortgage, their car payment, their credit card, their student loan, and they’re apportionment of their state debt. County debt, city debt, corporate debt, business debt. I mean, it’s just that on top of that, what that ultimately is, is you’re taking a real resource from somebody. So let’s reduce this to sort of the Robinson Caruso. Suppose you and I are on a boat and we crash land on some island and we don’t have any radio, there’s no electronics of any kind. There’s no way to communicate. Here we are, we’re stuck in this island, but there’s plenty of vines to weave fish nets out of, and there’s plenty of coconuts, and there’s some fresh water and a basin and a volcano at the top of the center of the island, at the top. So we can drink, we can eat, and we have both coconuts and fish.
So you’re the fisher guy, I’m the coconut guy. And we start to accumulate some savings of both dried fish, drive in the sun and dried coconut meat and keeps for a while. We start to accumulate some capital. Borrowing is when you take some cumulative capital and you consume it, but that should be for productive purpose. So let’s say you’re fishing and all you have is this really crude net that you can leave an hour or two because you don’t have the time to design and build a net that takes, let’s say, a couple of weeks. You’re going to starve. You say, Keith, I want to borrow all these saved up dried coconuts you have, and they’ll repay you in fish. But if I had a week, I could build a canoe and get farther out to where there’s bigger, better fish, and I can make this net that’s going to catch a lot more of them a lot faster. And so if you do that, so you consume all the coconuts I’ve saved up. That’s the downside. But the upside is now you can produce ten times as many fish, and they’re better fish besides, because you can now get over the reef or whatever it is.
And then I said, Okay, now that you’re richer and you have all this dried fish, I want to borrow because I want to build, I want to make a machete out of volcanic rock or whatever it is. I’m going to increase my productivity. So every time you borrow to increase your productivity, that’s a good thing. When government borrows, it should go without saying, but let me say it explicitly. It’s not adding anything to production. It’s calling it borrowing, but it’s basically just consuming it. So imagine you borrow all my dried coconuts and you just simply eat them and then just party on the beach and be lazy and don’t do anything. Okay, that’s fine as long as it lasts. But what do you do for an encore? Now you owe me all this coconut or fish or something, but you haven’t got any. And so when you get to the end, when you get to the end of the accumulated capital in this case it would be a very limited amount. It would never happen because the two people would be too obvious. You need to make it complicated enough and obfuscated enough, obstacle enough that nobody can really figure out what’s going on.
You’re consuming the accumulated capital. We live in this incredible advanced civilization that basically depends on capital accumulated over many centuries. That’s what we’re consuming and we call it debt. So we replace a real good with a piece of paper that’s a promise to pay even more of goods and yet we’re not doing anything to produce those goods. When you get to the end it’s going to be a very bitter day because there’s no way to say, well let’s go back to the good times. Take a look at Venezuela from the Venezuelan perspective. During the time of Hugo Chavez, things were good and then he died right around the time essentially they ran out of all the capital they could get their hands on Nicholas Maduro. Things haven’t been so good and everyone’s like, why can’t we go back to the good times of Chavez? You can’t because his times were good. If you call that good. Anyways, his times were good because he was consuming the capital or eating the seed corn could be another analogy. Once you run out, that’s when the real misery sets in and that’s where they’re at. And there’s no way that you can’t get the capital back.
All you can do is work hard to reproduce it. But that takes many years or decades. That’s not a lot of fun. Tighten the belt and eat less and save for the future.
Zuby: So how does gold fit into this all as an asset, as an investment, as a form of money? If someone is interested in trying to avoid some of these problems right now a lot of people obviously are talking about inflation because this is something that has been spiking in various countries, especially after two years of what I would consider nonsensical government policies, assuming they were actually trying to help anything. So how does gold fit into this whole picture as a solution?
Keith: In a working free market, a gold standard just doesn’t make it possible to have that kind of profligate borrowing because the saver is in control. When he sees a government or anyone else for that matter borrowing without means or intention to repay, they simply won’t lend. Assuming you have a system as we have, where the savior doesn’t have that choice and they’re going to borrow anyways, then gold is a way of essentially opting out of that system saying, okay, well the government’s going to do what it’s going to do but I’m not going to be a lender to that. And perhaps more importantly, I’m not going to be the sucker who’s holding this piece of paper that is intended to go down at a rate of 2% per year. That’s the stated policy aim. And then of course it can go down a hell of a lot more than that. Imagine if you have a cinder block on a stone shelf, and you’re pushing on and you’re pushing on it, and you’re pushing on it and it’s not going anywhere. Well, there’s a risk that you finally get it going and then you just shove it right over the edge.
They don’t have any near as much control over the consequences of their actions as they presume. There’s very much a wizard of Oz… there’s a little guy behind the curtain who knows a little bit, just enough to be dangerous, and then the levers and the knobs. So if the currency is going down at some unpredictable and possibly jerky rate, then by holding gold you’re avoiding that. Okay, whoever holds that is going to take losses. But that won’t be me because I’m going to hold gold instead. That’s essentially the argument. And of course there are times when so I argue you can’t really understand gold by thinking of the dollar as money and gold is a volatile commodity that goes up and down. In the same way, I like to paint a visual picture. Suppose you’re on the deck of the ship and the ship is sinking slowly, so it has a leak in the hull somewhere, but it’s a small leak. It’s not going down right away, but it is slowly sinking. And you happen to be in a storm where the waves are going up and down 20 meters and you’re staring at a lighthouse and you’re saying, why is the lighthouse going up and down and mostly up?
The lighthouse isn’t going anywhere. You just have the wrong vantage point. So if you’re sitting in the dollar looking at gold saying, why is gold going up and down and mostly up? It’s the same exact thing. So of course people want to time the ups and downs of those waves, and there are ways to create those waves by introducing energy into the system. When gold is at a low point, ie the dollars at a high point, buy gold and goes up, and then you sell it. And if you can time those perfectly, there’s at least an illusion that you can get rich that way. I’m not sure that too many traders get rich by trading chart patterns like that. But if you say, wait a minute, let’s take a more objective view. Gold is the lighthouse here, and we’re looking at the dollar now. We realize it’s the dollar going down and up, mostly down. It gives us a longer term view to say hold the gold and not the dollar, but also kind of a more clear understanding of what’s actually happening. If gold is money, which is certainly my premise, then prices and values of other things are measured in money terms.
The dollar isn’t money. It’s a very widely used credit. It’s the most marketable credit. Money is the most marketable physical good or commodity. Then things become simpler, clearer. Before Copernicus, everybody thought that the sun and the other planets revolve around the Earth. And it created this complexity. You had to explain the retrograde motion. The planets are going around and then they go backwards for a bit and they go around some more and then backwards for a bit. So even describing that motion in equations became very complicated. And then in terms of explaining the cause of this, nobody could come up with a cause. Obviously, there isn’t a cause. Once you realize everything’s going around the sun, things become a lot simpler. And now the cause is simply gravity. It’s the same thing here that the theory becomes simpler, your conceptual grasp of it broadens and it becomes much more obvious versus the dollar centric versus the heliocentric view.
Zuby: What is it that makes gold implicitly or inherently valuable?
Keith: I wouldn’t say it’s inherently valuable. But what I would say is that man has a set of needs that comes from his nature. And animals share certain parts of our nature. Animals have to get oxygen. Animals have to get water. Animals have to get food. They have to get a warm, dry spot. They have to sleep. So sort of the same hierarchy as far as it goes. But man is capable of reason, which means production beyond just hunting for a piece of meat. And that also means planning for the future. So as you look at all the things that are available that are either available in nature directly or can be extracted from nature with the application of production, each type of good… So let’s just take the basic commodities, whether it’s lumber, copper, wheat, soy, oil, timber, whatever it is. Each one of those things has a particular purpose. And a lot of people like to play gotcha and say, you can’t eat gold. That’s right. And you can’t eat oil. You can’t eat copper, you can’t eat cotton. There’s a lot of things you can’t. These commodities are not for eating, but for something else.
Yes, gold. You know, it’s pretty. People like the word of jewelry. It’s shiny. It’s all these things. Which is true. The gold isn’t for eating and gold isn’t for electrical conduction. That maybe it’s very thin plating for contact or something. Gold has this other purpose, which is the monetary purpose. And I think there’s something I think is pretty well known, at least in gold circles, but not well understood. And that is virtually every bit of gold ever mind throughout human history, which is at least 5,000 years. A friend of mine wrote a book called The Dawn of Gold. And what she argues 13,000 years ago, the Neanderthals were picking up gold nuggets out of the stream beds in Europe, valuing them. But at least 5,000 years, we don’t know. It’s obviously pre history, all that gold. And through the present we continue to buy gold. All that gold is still in somebody’s hands, which is extraordinary, means there’s no such thing as a glut and gold in any other commodity. If, let’s say, the farmers plant the wheat crop and all of a sudden the weather conditions just are perfect. The right amount of sun, the right amount of rain, the bugs are absent that year because it was a late frost or whatever it was.
And the wheat harvest is 3% greater than expected. The price of wheat is going to crash. So there’s a glut in wheat and the glut conditions remain until excess consumption comes into the wheat market and reduced production pulls supply out of the wheat market. And then you work with glut off and hopefully within a year or two you’re back to normal. There’s no such thing as glut in gold, which is an extraordinary thing. You can draw a lot of inferences from it. But the simplest one that I like to use is suppose you’re walking through the desert here and I live in a suburb of Phoenix. So 20 miles out of town you’re in the middle of the desert. And in the summer it gets hot like it could be 115 to 120 degrees. So for metric people, that’s 45 to maybe 50 degrees centigrade and bone dry like you’re putting your head in the oven. If you’re hiking around there in the afternoon, it will turn deadly very quickly. You become very dehydrated. If you don’t get water, you’re going to die. Suppose you’re wandering around, getting pretty close to death, but still stumbling around and you see a guy selling one liter jugs of water on the back of this pickup truck.
What is the first liter of water worth? You’d empty your wallet for, you empty your bank account for, it your life. What’s the second liter worth? Well, that’s how you’re going to get back to civilization. You pay a lot for that too. Maybe a bit less. What’s the third? Well, that’s a spare. What’s the fourth worth? Well, it’s like extra insurance, maybe. By the fifth liter, arguably there is no value. And so we call that diminishing marginal utility, that is the value of each unit, at its margin, it’s rapidly dropping. And even in the case of water in the middle of a lethal desert like this, the value gets to zero very quickly. In the case of gold, after 5,000 years of production and mining, we haven’t reached any kind of diminishing point. The nth plus 1oz of gold is still worth just as much as the nth ounce. It’s not a diminishing curve, which means not water. But gold is a suitable and objective measure of economic value, which means that people use it as a unit of account. There are so many virtues that come of this and all because gold has this unique property of being kind of rare, but it’s actually not that rare.
It’s common enough that everybody can have some. I mean, if you had a hypothetical element called unubtainium, it might be really rare and really scarce. It wouldn’t work as money because nobody could get their hands on it. If you have something as common as sand or water, it wouldn’t work as money because everybody can get as many hands full of it as they want. So you kind of need to find that right thing in the middle. Gold doesn’t tarnish. Gold is infinitely divisible, but also recombinable. Every particle of gold is the same as you go through all the properties. Something other that’s really interesting and more on the emotional side than the economic side. Have you ever held a piece of solid, like 100% pure, 24 karat gold?
Zuby: I actually have, yeah.
Keith: It is astonishingly heavy. It’s much heavier than has any right to be for its little size. A brick of gold the size of an old iPhone. The small iPhone, it’s a kilo, like 2.25 punds. And then the modern iPhone size, the big one, I guess, gold be five or six pounds. It’s much heavier. So when you hold a piece of gold and then you hold any other metal, the other metal feels like cheap and sort of worthless by comparison. I’m sure that to the ancients, that must have been an important thing. Gold is about twice as dense as silver. So if you got a piece of silver and a piece of gold at the same size, the gold is twice as heavy. Would that impacted people emotionally to think they prefer the heavy one? You bet.
Zuby: Absolutely. So I think it’s impossible to have this conversation without talking about bitcoin. I’ve done a lot of conversations around bitcoin over the years. It’s something that I myself am very interested in. It’s something that people colloquially, often referred to as “digital gold”. Now, firstly, before even getting into comparisons, what are your general thoughts on bitcoin? Is that something you’re interested in or are you interested in both gold and bitcoin? Or are you someone who’s just in the gold camp? How do you see it?
Keith: I’m very interested as a monetary economist, as a monetary scientist, somebody who is studying how these things actually work. I’m very interested in that sense, and I’m also interested in that these things give us the ability to conduct experiments using the real world as a lab and kind of see how they work. So my conclusion, I’ve written quite a lot of material on bitcoin, is that it isn’t money and it isn’t sound. And I love the term digital gold and, of course, all the imagery. When anybody tries to graphically depict their bitcoin, it looks like a piece of gold that’s implanted either with or embossed with some sort of electronic circuitry from a circuit from the 70s, we can actually see the traces and everything on it that are really big, or the bitcoin b with the hash mark through it embossed on this gold coin, and it’s intended to convert gold. But of course the most important thing about gold is a physical thing that you can take home when you don’t care to take a flyer on the system. And bitcoin, there is no taking home. You could print it on a QR code or you could put it on a USB piece of hardware, take that home.
But that’s just the numbers that comprise the key. Essentially the bitcoin itself is essentially the keys to unlock a particular record on a public database, which is called a blockchain. So fundamentally it isn’t like gold at all economically. I’ve just said gold has the quantity of gold that’s in human hands is increasing without any particular limit. And it’s been increasing. Not today, not yesterday, not last year. It’s been increasing for at least 5000 years, arguably many more thousands of years than that. With bitcoin somehow they thought they knew that the quantity had to be capped at 21 million total. And I think that right there shows the difference between the two, the bitcoiners are terrified of the idea that if the quantity would go up, then the value would go to zero. And in the case of gold, I don’t think anybody holds gold is afraid that a new gold mining start up is going to dilute or destroy the value of gold.
Zuby: But the whole idea of bitcoin being limited to a supply of 21 million, that’s an argument for it being literally more precious and more rare than gold is. Every single year gold is being dug up out of the ground as we’ve alluded to. But on the flip side of that, we know that bitcoin supply is fixed and limited. So as adoption increases, the relative value of bitcoin would increase.
Keith: Well, the price should go up, which is why they’re all speculating on it. But in terms of as a monetary good, to call it digital gold… We know that the value of an ounce of gold has not fallen below the cost of 1oz worth of labor and oil and everything else to produce it. After 5,000 years, the value hasn’t diminished. And the bitcoin is believed, and I think rightfully so, that if the bitcoin quantity were allowed to go up where the gold quantity does, it wouldn’t have that property at all. So bitcoin is based on this idea of a fixed quantity and therefore it’s kind of like a short squeeze of rising value based on more and more people trying to get the same quantity. But if the value is unstable, if the value is rising like that, then that renders it unusable certainly for debt agreements or long term contracts of any kind, whether it be employment, long term property rental, nobody would dare to nominate any kind of long term agreement in bitcoin because the obligor, the debtor would be bankrupted by the rising price of bitcoin. So bitcoin is an unstable value.
That’s the trade off. That’s the other side of the flip side of the same coin. If I can make a bad analogy using a coin here, the flip side of the fixed quantity coin is unstable or unhinged value, and the unstable value then renders it unusable for debt contracts, which means unsuitable for financing productive enterprise. And then therefore it becomes a speculators, token or chip in the casino.
Zuby: Okay. So you think the gold comparison is quite inaccurate for those reasons. In terms of an asset class, though, given those different properties, how do you see bitcoin and gold sitting alongside each other? What do you think is better? For what purpose, shall we say, versus.
Keith: I’ve tweeted this many times in the first half of my sentence, I think pisses off the gold people until they read the second half. And that is bitcoin is obviously superior at skyrocketing and also crashing. So if you’re trying to time the waves of things going up and down, gold doesn’t go up and down very much in dollar terms. Bitcoin goes up and down enormously in comparison. If you’re good at catching those waves and timing it, you gold make a mint. So if that’s your goal, then bitcoin is a much more attractive asset class for that. As an economist, I have to take a step back and say, what? And this is another one of those harms of what the Fed has done. You asked me earlier, I said, these are three of them. He said it’s a lot, but actually there’s more.
What the Fed has done is crushed and return on investment ultimately. So I make a distinction between investment and speculation. Okay. And this is not a criticism of any speculator. The Fed has forced us all into this game. I blame the Fed who created the game and forced everyone into it, not the people that are forced to play the game.
I wasn’t really clear on that. But investment, you’re financing production. Somebody says, I want to borrow this money. I’m going to build a factory and buy the tools building, drop the building to stamp out either more of an existing kind of widget or I have a whole new kind of widget that’s going to make eveyone’s life better in some way. And so by financing that, you’re enabling that new production. That guy makes a lot of money. The profits of the investor comes from part of the profits of that new enterprise that your financing enabled. In speculation, you’re not financing anything. You’re buying an asset. And then if your thesis is good, the asset goes up in price and then you sell it. Your profits come from the savings or the capital or the wealth of the next speculator. So you fork over. Let’s say you got an early in bitcoin and you bought it at $100. And let’s say you timed the first big wave up and you gold it at $19,100. You got it almost exactly at the top back in December 2017. So you have a $19,000 profit. That profit is simply the savings of the next speculator.
You forked over $100 to somebody who’s getting out. He thought $100 was high, and then you waited until the right moment, and then someone else forked over $19,100. So you have $100 capital back. Presumably you don’t spend that. $19,000 is your gain. So look at what happens at $19,000. Part of it goes to the tax man. Part of it goes to whatever brokerages and exchanges and other middlemen. Some of it may go to newsletter writers and conference organizers or whatever that you participated in to educate yourself along the way. And then you have whatever $12,000 game that you can spend and you can go and buy consumer goods with. But those consumer goods are being bought with the savings of the previous speculator. Sorry, the next speculator who bought it off of you, you’re spending his savings. So the Bible contains the story of the prodigal son as a story with a moral in it, which is, don’t spend your life savings, your family legacy. I don’t think very many people want to do that. However, an endless bull market gives people the means to spend someone else’s savings. So it makes it like a prodigal society and it’s all wonderful fun, just as socialism under Chavez was wonderful, as long as the seed corn lasts, as long as the capital is there to consume.
And that’s what an endless bull market really fuels. It’s a process of conversion. When I say that word conversion is a legal overtone, like an illicit taking of somebody’s property. It’s a conversion of one person’s wealth into another person’s income to be spent and consumed.
Zuby: But what about over the long course of time? Because, of course, right now, I think one issue with comparing gold bitcoin is time scale itself with one of these assets. We’re talking about something that human beings have been interacting with and using and valuing for literally thousands of years. With another, we’re talking 12/13 years maximum. We could even say a decade. And of course, I think it’s around 2140, when the last bitcoin would be mined. So for a lot of people who have the vision of the bitcoin standard, the idea is that over the course of the next century, these price fluctuations will stabilize as adoption increases and as the number of new bitcoins going into the system decreases, there will be a point where it becomes far less volatile. So right now you’re correct with the potential speculation at this point, with these very wild swings that are happening month to month, year to year. But the idea is that over the long course of time, bitcoin will become a much more stable asset, and then by that time period, also, you’ll have a greater Lindy effect because it would have been around certainly not anywhere near as long as gold.
But it would have been around for I’m talking like a century from now, let’s say. What are your thoughts on that?
Keith: I don’t think bitcoin has any mechanism to cause its value to be stable. Now, this gets into kind of a controversial area, but I think that if the price of something is set exclusively by the marginal speculator, the speculation is the only thing that really the price static process is speculation and speculation alone. And I don’t think you can ever be stable. I think it’s like the ocean. There’s always waves, sometimes there’s little ripple waves, and sometimes there are giant tsunamis, but the ocean never reaches an equilibrium because there’s various inputs of energy in various forms, including sunlight, falling water, falling rock, all kinds of things happen. And the oceans are always being disturbed by influx of energy. And I think that bitcoin is always going to be like that. And then on top of it, I would argue that because it’s quantity of fixed, even relatively small changes in demand necessarily this is a feature, not a bug, this is by design, not by accident, and not something that can be corrected. Small changes in demand necessarily mean large changes in price. That’s a feature, not a bug. So how does it become stable?
Well, I’ve had a lot of arguments with a lot of people, including the guy who wrote the book The Bitcoin Standard. And basically the answer is, well, hand wavy. Hand wavy. And besides losing the other hand, you’re just a gold bug argument made hominem because your company is a gold company. You’re invalid in this argument. I’m like, okay, you want to make that argument, that’s fine, but you haven’t won the argument. You just wake up with your hand. But I don’t think there is a mechanism for stabilizing its value.
Zuby: Okay, the reason I’m asking all these is a lot of it is I’m personally, I’m quite fascinated by the kind of binary split that people have with a lot of people view it as bitcoin or gold. Right? Personally, that’s not my personal perspective. I’m extraordinarily interested in bitcoin. Everyone knows I’m a bitcoin holder, and I’ve been an advocate for it for several years. I’m a big fan of bitcoin. However, I don’t think that bitcoin and gold or even other currencies and this will annoy the bitcoin maximalist. I don’t think that bitcoin and even all other cryptocurrencies that there are no others that can coexist with it and so on. So I’m not in the sort of gold or bitcoin camp. I’m like, okay, these are two different assets which have some similarities in their properties. As we’ve discussed, they have some very different ones for the most obvious thing in the world, one of them is a physical metal. One of them is a digital asset class. Just that in itself puts them in very different categories for me. And I think people get interested in these things for different reasons. Some people are traditional investors.
Some people are speculators, some people are traders. Some people are just looking to store their wealth so that it doesn’t lose value by the typical inflation of the dollar, pound, or euro and so on. Some people are looking for a medium of exchange. I mean, day to day, it’s not like we some people are like, oh, well, you can’t spend bitcoin. Most places don’t accept bitcoin. I’m like, well, you don’t go into places. There are places where you could sell gold, but we don’t walk around with gold bars and gold coins at this point either. So to me, I’m kind of in the middle of all this thing, rather than having a binary view of, okay, it has to be this one or it has to be that one, I think both have value and both have a use case.
Keith: So let me respond with first an earnest statement and then have a humorous joke. The earnest statement is in a very broad sense, I think we agree. Let’s have a free market. Let’s have the government stop taxing gains on these things. And there’s so many other ways the government has I love the term nudge. This was Cass Sunstein, twisting everybody’s arms to buy into affordable health care act. We just have to nudge the people if they don’t want to go. Let’s get rid of all this government nudging. We have the tax code via regulations, and the regulations are quite pervasive. So it’s even down to financial advisors and banks, reasonable imprudent investment decisions, all kinds of things that bias everybody in favor of the dollar against both gold and bitcoin. Let’s have a free market, and let’s see what wins in the free market. Electric cars versus gasoline cars. Schools that teach wokeism versus schools that do the traditional three R’s and kind of leave it at that. So in that sense, I think we agree.
Then to your comment about bitcoin maximalist. Every time somebody says bitcoin is the only legitimate cryptocurrency and all the others are bleep coins on twitter, I post an old Dilbert cartoon where Dilbert goes to Dogbert, and Dogbert is always the scheming, let’s be evil and take over the world kind of thing with them scheme that he’s concocting.
Dogbert, what are you doing? And Dogbert looks up at him and says, I’m working on press releases for bogus green energy solutions. Here, listen to this. By 2030, scientists predict that you’ll be able to power your home with the breeze from your refrigerator door. And Dilbert says, oh, great. Now how am I going to tell the legitimate green energy solutions from the scams? And Dogbert says seriously? You think there are legitimate ones? I like to post that when someone comparing one versus another.
Zuby: Yeah, with me in general, with everything number one there. I’m not an expert on every subject, and I don’t pretend to be. One reason I love doing this podcast is to learn more from other people. And also, I think with so many things, it’s important to always keep… you can have strong beliefs and positions on things that you’ve thought a lot about, but always keep that door ajar. I always become skeptical when someone wants to shut a door entirely and not even entertain other ideas or positions or viewpoints or perspectives in anything. I think that’s kind of, I don’t know, it’s kind of concerned. And actually, I think it’s a bit rooted in fear because I think if you’re totally uncomfortable with someone even bringing up another idea or having a different perspective or anything, and the answer is just to attack and go with the ad hominem or name calling or whatever, it makes me think, well, that reeks of fear to me. I get someone having a very strong perspective, but it’s like, well, you could be wrong, right? I could be wrong, right? The gold maximalists could be right. The bitcoin maximalist could be right.
The people who think that this thing is that this altcoin is going to, in the long term beat bitcoin, I don’t think they’re correct. I think bitcoin is very different and unique from all of the other cryptocurrencies for a whole host of reasons. Just like I think gold is unique, there’s lots of metals out there, but gold has very specific properties that make it unique and valuable. And so to directly compare it to another metal is not good. But if someone was like, hey, you know what, maybe here’s why silver is better than gold, or here’s why platinum is better than gold, I’ll listen to them. I want to hear the perspective.
Keith: I think the question that bitcoin has to answer, and I’m not going to frame this as a conclusion, I’ll frame this as a question. The observation is in every other technology, whether it’s engines to power things, whether it’s the automobile. And who was the first maker of the first automobile to every other technology, computer networking. If you remember computer networking in the 1970s and 1980s, you had NetBIOS, and you had banyan finds and novelnetware. You did have TCP IP. It was one of the computing standards. In which technology is the first one developed the best, and remains remains on top forever? And in order for the trillion dollar bet riding on bitcoin right now, in order for that bet to really be the right bet, that bitcoin would have to be right, not only best now, but best forever. And that means that there’s a whole categories of innovations that can’t occur, because if they occur, they wouldn’t occur within bitcoin. They would occur as an innovation with some new coin that came out and then it wasn’t backward compatible to bitcoin. Then the new coin would take share from bitcoin, and bitcoin would eventually be displaced by it.
What’s the argument that bitcoin has to be it to be all and end all, and that although bitcoin represents a technological innovation over, let’s say, gold, then there can’t be any further technological innovations over bitcoin or certain categories of them, anyways. So what prevents that is essentially the question. And I’d rather leave that as a question. I don’t know the answer to that, but I think that’s something that somebody should be thinking about.
Zuby: Yeah, well, I think it’s fantastic food for thought. And I’ve had many bitcoiners on this podcast. It’s been great having you on, Keith, because you actually are the first person I’ve had on to specifically talk about gold and to discuss some of the things we’ve talked about today. And this is not the end of this ongoing conversation. So thank you so much for coming on. I’m before we jump off, where can people find you online?
Keith: So, on Twitter, I’m @RealKeithWeiner, my company’s website, Monetary-Metals.com and then I have lots of commentary and analysis of bitcoin, gold, currencies, interest rates, all the usual stuff. And obviously lots of information on how investors can get started earning interest on their gold and silver, as well at monetary-metals.com.
Zuby: Awesome. Keith, thank you so much for coming on the show, man. Really been enlightening and really enjoyed talking to you. Thanks for sharing your insight.
Keith: Thanks for having me. Bye.
Additional Resources for Earning Interest on Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.