Why There Are Gold Bugs & Silver Stackers

What makes you say that?I would fully agree that stocks do come with risk, but the fact they are bought and sold in dollars is not why they are risky.If you were looking for something low risk then treasury bonds would have been a great choice. It looks like the return on a 5 year treasury bond in 1995 was 7.4%. Returns were crap in the 2000's because interest rates were so low, but even then there were a lot of lower return mutual funds designed for safe investing. There were tons of options other than commodities like precious metals. Gold has value because you can trade it in for dollars. If you couldn't trade gold for dollars then it would not have any value. It would just be a paperweight. The value of gold is based on what other people are willing to pay for it, in fiat currency. The only upside is that gold prices probably won't ever tank like a stock can.

I also don't want to poo poo investing in gold. It can be a solid (pun intended) part of any long term investment portfolio. It's always a good idea to have a mix of higher and lower risk investments, and to also adjust the risk within a portfolio depending on your specific situation.

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Gold is considered a safe investment. It is supposed to act as a safe haven when markets are in decline, because the price of gold typically doesn’t move with market prices. As a result, gold also can be considered a risky investment, as history has shown that the price of gold does not always go up, particularly when markets are soaring. Investors typically turn to gold when there is fear in the market and they expect prices of stocks to go down.

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Furthermore, gold is generally not an income-generating asset, though there are some gold bonds. Unlike stocks and bonds, the return on gold is typically based entirely on price appreciation. Moreover, an investment in gold carries unique costs. As it is a physical asset, it requires storage and insurance costs. And, while gold is traditionally thought of as a safe asset, it can be highly volatile and drop in price.

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Taking into consideration these factors, gold works best as part of a diversified portfolio, particularly when it is acting as a hedge against a falling stock market. Let’s take a look at how gold has held up over the long term.
Has Gold Been a Good Investment Over the Long Term?

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I think that is a perfect description of where gold fits into investing. It's a little bit of a hedge against the market, but its volatility and insurance cost is still something that needs to be taken into account.

Current inflation is higher than the goldilocks zone. However, high inflation is still way better than deflation. That might have been lag from the previous year where there was food inflation of about 11%. That has calmed down quite a bit and is coming back under control.

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The average price of food in the United States increased 2.2% in the 12 months ended February, after posting an annual increase of 2.6% in January, according to the latest inflation data published Mar. 12, 2024, by the U.S. Labor Department’s Bureau of Labor Statistics (BLS). As recently as August 2022, the rate of inflation for food at 11.4% was the highest since May 1979.
Food Inflation in the United States (1968-2024)

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Yes, there was a period of high inflation recently. It's back down. It could go up in the future if we see a massive increase in the US industrial plant that some are predicting as a consequence of reshoring Chinese manufacturing. Inflation does happen which is why it is always a good idea to have money invested instead of sitting in a bank account. Gold can be a solid part of any investment portfolio.If you want to see what an economy looks like when there is little to no inflation, look at Japan. They have had a stagnant economy for decades, and the lack of inflation is a symptom of that stagnant economy.

I'm just a Joe Blow when it comes to investment. With that said, if someone came to me for advice on how to invest 40k for the long term I would have told them to split it between two market index funds (say NASDAQ and S&P) and forget about it for 20 years. Don't touch it. Don't even think about it. Just let it be.10% return on 40k over 20 years would be about 230k.

That's my approach as well. I have found that the key to investment is self control. Invest it in a solid fund, then Jedi mind trick yourself to forget it exists until a given date.

Inflation also means debts get cheaper over time. I wish I could have bought a house ~10 years ago because that mortgage debt would be pretty cheap right now. That's because of inflation. It also means capital sunk into infrastructure is going to return higher profits in the future.If we have deflation, then there is incentive to hold onto your money because stuff will be cheaper tomorrow. This stops money flow into the economy resulting in economic contraction (which is bad, in case anyone is wondering). Inflation encourages spending because today is the cheapest the stuff is going to be.

The bedrock of any specific currency is the money supply, economy, banking system, and government of the country that issues the currency. The US dollar is strong because it is has the largest economy by far, the largest money supply, a fairly independent banking system, and the world's longest standing democracy that doesn't mess with its currency that much.The bedrock of the global financial system is the ability to trade with anyone for anything without needing a navy to protect your merchant fleet. This was part of the Bretton Woods agreement that the US put together, and the US served the part of being a global navy that protects everyone's merchant fleet. The flip side of this deal was that you had to stand with the US against the USSR. With the end of the Cold War this arrangment is a bit strained. Or just commodities in general. I would suspect that there are some decent commodity hedges that would act as a buffer against market losses.

That's why they use indexes which sample different products from different markets to get an estimate on inflation. Which means the economy has grown by leaps and bounds since 1888. Pick whichever train you want, but you are going to need dollars in order to buy anything.

Of course they do. Why wouldn't they, if they have the extra cash? This allows them to keep more profits in the future instead of sending out those profits to other shareholders as dividends. The other more nefarious reason is that they pay their CEO's in stocks so that the CEO can pay lower taxes (i.e. capital gains). That's rather vague. I wouldn't be surprised if you heard that. There's lots of nonsense out there on the internet.The world already holds trillions in US currency, more dollars than exists in gold. This creates a massive buffer for the US banking system.If you feel some existential dread about the near future of the US currency and economy over fiat currencies, debt, and whatever, then you shouldn't be worried. Again, Japan is a bit of a canary in the coal mine for us. Their debt to GDP ratio is 250% (twice that of the US), and it's even higher than that once you factor in pensioner programs that don't have the tax base to support them. Their demographics are horrible from an economic point of view, and their economy has been stagnant since the early 1990's. You know what? They're doing OK. There's no economic apocalypse in Japan even though their economic numbers look way worse than ours. And they aren't even the world's currency for trade, something that gives the US way more margin for error.

That's because they thought they could ride the capital investment train forever. Turns out, you need domestic consumers as well, even if demography isn't on your side. Also, investing in really bad projects for no other reason than to stimulate the economy turns out to be a bad idea.China's issues have nothing to do with fiat currency. However, their penchant for overly manipulating their currency may come back to bite them. For better or worse, you can't exchange Chinese currency for any other currency anyway.We can also stack up a few other massive issues. Their local governments are dependent on land sales, and the realty market has absolutely cratered due to massive overbuild. Something like 35% of Chinese GDP is tied up in realty. Their Belt and Road initiative is crashing and burning to the tune of several trillion.

That's not how national debt works. There is nothing we are holding in collateral that is forfeited if the US does not pay its debt. There's no equity. The US either prints money or issues bonds.As far as I am aware, every country has debt. It's part of being a country.At the same time, its smart to pay down the debt during good economic times (i.e. right now) so that there is more head room to borrow against in the case of an economic downturn. That really depends on the bills. For example, the money we spent to rebuild Europe and Japan (i.e. the Marshall Plan) was the best money this country ever spent given the returns it has given. Also, the financial support of NATO allies has been repaid many times over in terms of national security.The US has the influence it has now because of foreign aid and money spent elsewhere. A lot of it is absolutely worth it.

Why is it a problem if foreigners buy US Treasury bonds?The public buys US Treasury bonds, so the US Treasury is in debt to the public, not the other way around.
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If our national debt doubles or triples, then fear would be a rational response. However, I don't think fear is a rational response with current debt levels. Increasing the debt by about 800 billion a year is essentially free since that treads water with respect to GDP.The only real problem the current debt causes is an opportunity cost. We can't invest in big projects or big changes in the economy because of current debt. It's something akin to someone comfortably paying off one mortgage, but not having quite the income to comfortably afford a second mortgage on a vacation home.

Just to put some numbers on this.2023 total tax revenue = 4.4 trillion
2023 interest on national debt = 0.689 trillion
2023 interest as percent of tax revenue = 15.7%Would it be really nice to have 690 billion to put towards projects like converting to greener technologies? Yes, absolutely. Would it be of some benefit to lower taxes by that amount? Absolutely. Is the government collapsing under the weight of interest payments? No.

Phat is hoping to scoop up the crumbs that fall off the table of the rich. He's hoping there will be more crumbs if they are allowed to keep more of their money, apparently. Trickle Down economics sounds a whole lot more like getting pissed on, at least to me.