Gold salesmen are always publishing papers that assert that paper money is worthless. Here's a standard pitch. Always remember that they're SELLING something!!

Money is not valuable because it's backed by precious metal, or exchangeable for precious metal. It's valuable strictly because it's a medium of exchange -- I will give you goods and/or services in exchange for money. As long as I will do that, the dollar has value -- for you and me.

The idea that it's paper, and worthless, is really crazy if you think about it. That implies that any written agreement between two people is worthless. "Not worth the paper it's written on" somebody would say. And of course, a contract is simply a meeting of the minds, and if we don't have that meeting, we really don't have a contract. People shouldn't sign contracts if they don't understand, and have "a meeting of the minds." Their signature signifies that they do understand.

The phrase "A man's signature is not to be taken lightly" is often quoted in Business Law.

Back to money. Most of the money involved in commercial or government transactions is not currency. People are always fond of saying "If the government needs money, they can just print more!" but of course, neither the government nor the banks needs a printing press to create money. When a bank loans you money, it is creating that money from nothing, basically. They cut a check, for accounting purposes, and put the money in your account. No cash involved. You can write a check on that account to pay debts, and there's still no cash involved. The vast number of business transactions in the world don't involve currency at all.

Ralph Fonseca goes to the US and negotiates a hundred million dollar loan for Belize. Do you think he comes back with a suitcase full of money? Of course not. That money will probably never become currency.

People are fond of calling it "funny money" but it's not funny. It's just as real as currency.

Now, having said that, do you understand why I say the US and its social security system, are not "bankrupt" and will not go bankrupt in the foreseeable future. Social Security puts a deposit in my bank in the US every month, and it is _money_, whether I ever change any of it into currency. I do -- I write a US check to a Belizean friend and he gives me Belizean dollars to spend in Belize. He takes my check (I left the "Pay To" blank) and sells it to a Belizean businessman who needs US dollars to buy things for sale in the free zone. I also pay my credit card accounts with an online transaction which transfers money from my bank to the credit card company. No currency involved.

If you want to buy gold, do it because you think it's a good investment; don't do it because you think the money you have now is worthless. Gold is a good investment at around $700 an ounce; a "good suit" costs over $800. But you'll have trouble spending it. <grin>

Rick Z.

New:  Here's a recent letter I received about this topic, together with my response.