Gold hit $1700 in overnight trading last night, and it is time that I write a post celebrating this $100 incremental increase. This is only a mere three weeks after thanking Ben “Gold-is-not-money” Bernanke for $1600 gold. It used to be that dollars were fixed in price to money, gold and silver. Then, it was taken off the precious metals standard and become “money”–but it is what is called a “fiat” currency, a currency that has nothing real backing it. This means that the dollar has no “intrinsic value”. Nouriel Roubini and the other bright luminaries with PhD degrees have said that gold has no intrinsic value, and thus I created this series to remind them that the dollar is not money. It was once a note that gave the bearer the right to money on demand, but now it cannot be used to demand money any more.
This is a basic economic fact that I’ve known since my teen years when Carter was president and the US Federal government was likewise devaluing the dollar. It took Paul Volcker and severe interest rates and austerity to put the dollar back on track. Now the United States has suffered a belated downgrade in its credit rating from AAA to AA+ and we are seeing a renewed debauching of the currency. Still, there are those who claim that it is gold that is in the bubble, because look at how high the price is in dollars! I would remind people that the dollar has no intrinsic value, and the fact that we measure things in a currency with no set value is a form of reification–the value of the dollar is an abstraction because it is the ultimate derivative product, which has no discernible reason that it should be worth anything except that it can be used to pay debts and taxes. To measure gold, which has real intrinsic value, in dollars, which have none, is reification, the assigning of a concrete value to an abstraction.