Don’t count on gold in a downturn

The way the price of gold keeps rising, a person might think that no matter what the downturn, gold would prove to be a good investment. I think that if things don’t fall apart too much, gold will be an OK investment. If things really start falling apart, though, it is not clear that gold will work nearly as well, especially if we expect gold to function as a currency itself.

If things don’t fall apart too much

If we keep teetering on the edge, but our current financial system remains in place, gold seems likely to be a good investment–whether it is coins or gold bars, gold shares or exchange traded funds. People are frightened, and because of this, seem likely to keep bidding up the price of gold for some time to come.

If our system flounders for a while and then recovers, gold should be at least an OK investment. The price of gold under such a scenario is likely to go up during the period of distress, and then come back down, as the distress leaves. An investor might do really well if he sells at the high point, before it goes back down.

Part of what makes gold look like a good investment now is that the alternatives look so bad. Almost any paper investment is exposed to the possibility of decline in value related to recession and increased debt default, and recession appears to be just around the corner.* People sometimes think of gold as an inflation/deflation hedge, and it is possible it will fill that role this time around as well, if everything stays together (except for the inflation or deflation).  The risk at this time would seem to be deflation, especially in stock and bond values, and in paper investments of all sorts. Gold has a reputation for being a good hedge against deflation, because its value held up well during the Great Depression.

If somehow, the country goes back on the gold standard in the midst of all of its problems  (very unlikely, it would seem), then the gold might really be worth a lot, especially if government doesn’t confiscate privately owned gold.

But what if things truly fall apart?

If things fall apart enough that banks close, and we don’t have our current financial system, then we really need gold to act as a substitute financial system. I don’t think it will work very well for this purpose, though.

For one thing, most things we want to buy on a daily basis are small things–a loaf of bread, some water, or perhaps a bicycle. Even if we had some gold coins, they likely wouldn’t work well for this purpose, unless there was a convenient way of making change. Silver coins would seem to be much lot better in this regard–at least the value of a coin might be somewhere closer to the range of what you might want to buy. A one-ounce gold coin that is worth nearly $2000 would be hard to trade for most things. Even a 1/10 of an ounce coin (worth close to $200) would be out of the range of many things you might want to buy.

The government could theoretically make certificates for a portion of a gold coin–but that would imply a better-functioning government than I expect will be the case. If the country isn’t on a gold standard (or gold-silver standard), it is hard to see that the government will issue certificates for a portion of a gold coin. An entrepreneur might issue such certificates, but then a person would have to trust that entrepreneur. Does the entrepreneur really have gold coins backing up his certificates, or is this just a scam? I understand that this is the way fractional reserve banking got started.

Gold coins would additionally have the problem of being easy to steal. Once a thief sees a buyer trade one gold coin for some kind of goods or services, there is the temptation to follow the buyer home to steal however many more coins might be there.

Counterfeit coins could be an issue too. Given the relative rarity of the coins, people wouldn’t see them on a day-to-day basis, and might not know exactly what they should look like, especially if there are several types of coins in circulation, some issued by different countries. Counterfeiting using gold plating or a lower percentage of gold would seem to be a possibility as well.

Gold bars would seem to be even harder to trade than gold coins. The buyer would have to believe that the bar is really gold, so some type of evaluation of each bar would need to done. People qualified to do this will not live on every corner, so both the potential buyer and seller may have to take a trip to get a suitable analysis performed. Or maybe a shortcut could be made for this process–but one can see why coins have been so popular in the first place.

Certificates for gold bars locked up somewhere or for gold mining stocks would seem to be even more problematic than gold bars. If the “regular” financial system isn’t functioning, it might not be possible to sell them.  If the bar is really there, and can be retrieved on demand and the gold mine is in fact still operating, then the shares of the company may have value, but it will be difficult to trade the “paper gold” for what you want.

If the paper gold is simply an ETF without any physical gold behind it, then the shares will disappear if the company issuing those shares goes out of business. Even when physical gold is involved, there would seem to be higher risk that something will go wrong, and the gold backing up the “paper gold” really isn’t there. Even a long-term electrical outage could be a problem, especially if all of the ownership records are electronic.

Gold may be useful in a few specialized instances–if a person needs to bribe a border guard, to let the person across a closed border, or to try to obtain medical treatment that is not otherwise available, for example. In such instances, a person would be close to desperate, and gold would seem to have as good a chance as anything as working. So as a back-up for occasional desperate situations, gold might work  fairly well.

Alternatives to gold

What options are there for investment, other than gold, that might do better in truly desperate times? It would seem like anything that could help you function better for the long term in the new economy that might arise after the failure of the current financial system would be better. Investment in skills that might help you in the new economy, or in land or equipment that might help you work the land might be helpful. Investment in moving back closer to family might be helpful, for people who would feel better with the support of, say, their adult children.

We seem to be entering truly unusual times. If one system fails, what we truly need is an alternative system to take its place–complete with new government, new currency, new land ownership rules, and a change in the way things are done to match the new reality of very little fossil fuels and much less long-term wealth.  If there are ways we could figure out these things in advance, it would be great, but it is hard for us to even think in these terms.


*The current financial system needs growth, and without economic growth, it will collapse from debt defaults. I have written that I believe that there is an underlying reason for this lack of growth–it is that the world is running out of cheap oil. We have plenty of expensive oil, but the without cheap oil, we quickly hit recession, and it becomes much more difficult to repay debt. The debt problems tend to accumulated in the government sector, because their tax revenue drops at the same time their expenditures for unemployment benefits and bailouts sky rocket. This Money as Debt video explains some issues related to the financial system’s need for growth.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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121 Responses to Don’t count on gold in a downturn

  1. Jvp says:

    Dear Gail
    I watched Money as Debt twice and found it very informative as well as your postings, so thank you in advance.
    I have a question about fractional reserves:
    As explained in the video the same money can get lent out over and over again in smaller amounts depending on an arbitrary ratio.

    My question is what happens if the money from the buyers Loan is then used to pay off the sellers debts rather than being deposited.

    I guess we are still left with the overhang of interest but isn’t this also what happens in the real world?

    I just worry that such simple explanations can add to the confusion of our predicament by painting an exapme that is too narrow.

    Thanks in advance

    • The money situation is more complicated that what the little video shows. For example, businesses don’t necessarily take out debt just because it is offered–a business needs to have a reason to expand, for example. So it is hard to make fraction reserving work exactly as planned.

      In response to your question, there is usually of long chain of payments involved when a loan is paid out. For example, I take out an auto loan, and buy a car. The auto dealership deposits that check in the bank, and then pays its various obligations–salary of the salesman, rent on the building, cost of the car from its supplier, and then these people in turn pay their various obligations. So there is a whole chain of bank deposits going on, not just in one bank. It is more the sum of all of the deposits that grows, as the loan injects additional money into the system.

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  3. markbc says:

    I don’t see holding gold as a way to buy things during the upcoming hyperinflationary depression. It is for the long term when a new monetary system is established, in some quasi-stable world. You can be certain that gold will be MUCH more valuable than it is today. Since there is many times less silver available now than gold, I see silver becoming even more valuable than gold potentially because it is used industrially for many many applications.

    To buy things during the monetary collapse, dried food will be the best currency.

  4. RobM says:

    I’m tired of reading passionate opinions on gold. If you want gold, buy it. If you don’t want gold, don’t buy it. Me? I can see both sides so I went 50/50 cash and gold. I would prefer to be in farmland but personal circumstances prevent this at the moment.

  5. Wikipedia has a reasonable dissertation on the history and functions of money – including gold and other commodities

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  7. wye landsend says:

    When I think of all the material preparation I could do with $1700, or $3400 or $17,000 or what have you, I am hard pressed to justify purchasing an ounce of gold or the equivalent in coins or gold-focused securities.

    I’m pretty sure manufactured ammunition will be a more valuable currency than useless gold or silver. And you’re more likely to be robbed for your guns and ammo as well (not to mention food), I would think, than for your gold.

    You folks talking about hidden caches and obvious caches (allowed to be stolen) had also better have a good hiding place – and see the bad guys coming in time to retreat to it, and the resources to stay there until the baddies leave – because the people who will steal from you in that situation will also kill or enslave you without a second thought, or take your kids, or your wife, or any other number of horribles. Am I wrong?

    You want to be in a community, with some plan for collective defense. Including means of spotting and reporting what’s headed down the road in your direction (hostile groups), and a plan for reacting, be it temporary retreat to holes in the woods or defense – or a choice between the two depending on the size of the threat.

    It isn’t pretty. Game it out and plan.


    • weaseldog says:

      On the blog ‘Surviving in Argentina’, FerFal has discussed this situation. He says that horrifying crimes have been committed in isolated farms by roving bandits.

      He says that the bandits have captured farm houses and spent days entertaining themselves with their captives, Eventually killing them and moving on to another farm house when they exhausted the stores.

      • There is a downside to living in an isolated area. We probably would do well to learn what has happened elsewhere. It seems like you really need to be part of a community, all of whom are equally protected.

    • Jb says:

      Yes, but if you don’t buy gold at $1700, you won’t be able to cash it in for $3400, or $17000, or what have you… 🙂 So the only reason not to buy gold now is if you think the whole world is going to collapse imminently. In that case, I’d agree with you. I’d rather have several cases of Mountain House #10 cans.

      Many describe the rising price of gold as the inverse value of FRNs. IOW, as long as the Federal Reserve Bank, the ECB, et al continue to prop up the failing western economic model, the price of gold in FRNs will continue to go up. I don’t see them stopping voluntarily anytime soon. Do you?

      • wye landsend says:

        Well, you may have the resources to do both. My post was based on the assumption that one has the resources to do one or the other (amass gold/silver or amass material resources up to and including land) effectively enough, but not both. Just about the time gold quadruples in value from the record high it’s at now – the goods may be flying off the store shelves and the power starting to blink. Good luck selling your shares and retrieving actual cash from your bank? I don’t know. When you know the curtain is rising, will it be too late to shift gears to material preparation?

        • Jb says:

          You make an important point – each of us are facing a variety of challenges and our responses to those challenges may vary. If you are familiar with Mountain House, then you know that it has been difficult to acquire their products since December; ie: stuff is already flying off the shelf. According to my local supplier, there are only 6 freeze dried food companies in the US. You can imagine what happens if there is a widespread panic: the webservers will crash with people trying to go on-line to make purchases.

          I started ‘prepping’ over two years ago and acquired my basic preps immdiately while I still had ‘pocket money.’ Thank you.

  8. Andras says:

    I red an article about the link between money and the energy. I would recommend to read this for unterstanding more about the role of gold in this system. Moreover it may give you a view about that what was lost in 1971…

  9. DaShui says:

    Gold is way too old fashioned. I think we will all be using Bitcoins in the future.

    • I think that anything that depends on software (and our current electrical supply) won’t work for long.

      • Les D. says:

        Software is not a problem: as long as you have the source code it can be maintained with very low energy usage.

        Electricity is not a problem: you can generate the small amounts needed with solar or wind power.

        The real problem is computer hardware. The average modern computer lasts about five years before a disabling hardware failure (often a hard disk or a capacitor) occurs, and repair can only be done by replacing the subassembly affected. When things wind down the supply of spare parts will dry up, and so will the supply of new computers.

        I would imagine a few computers might be kept running for twenty or thirty years by cannibalizing other computers, but that will be the end of the computer age.

        • Bicycle Dave says:

          Hi Les,
          This is a really interesting question. At this point, a huge number of people (couple billion?) put great value on the services of the Internet. I suspect you are right about the hardware, but I’m not sure about “the end of the computer age”. Is it possible that a “crystal set” (simple radio for you young folks) version of a PC could evolve? Probably just text on some kind of screen technology that could be built on a local level with common materials and simple processes. Keyboard (really don’t need a mouse) should not be that difficult. Power could be much like the hand crank emergency radios. I’m not so sure that we will lose all ability to make things like copper wire at a local level – for those that survive and remember (and have some engineering books) there might be an intense drive to re-invent some of the most valuable basic technologies.

          Probably wishful thinking as I’m so addicted to this technology. But, even some very basic (even intermittent) communication ability modeled after today’s Internet could be extremely valuable. I worked in India near the beginning of their Internet age – all kinds of technical problems but intense passion to make it work and achieve the benefits.

    • markbc says:

      “Gold is way too old fashioned. I think we will all be using Bitcoins in the future.”
      Why not government-issued fiat currency?

  10. Bicycle Dave says:

    Humble suggestion to all: please indicate to whom a comment is directed. I’ve learned the hard way how easy it is to cause confusion (and sometimes hard feelings) when this is not done. I gather someone made an offensive remark – maybe Gail removed it. Anyway, the ensuing remarks about some racial comment are confusing because there is no indication of the source. So far, this is a very civil group – even if we disagree about some stuff. Hope it stays that way – and, a little policing by Gail is welcomed.

  11. DavidB says:

    I think Gail properly set the tone of the piece with the two sub headings.
    ~ If things don’t fall apart too much.
    ~ But what if things truly fall apart?
    If the economy goes to the wire but rebounds, then yes, gold and silver will prove their worth as a store of value as thinks pick up.
    But in the ‘truly falling apart’ scenario kicks in, then I suspect gold will almost be a liability. Why?
    There will be two types of interested parties.

    The first will be people who still see it as valuable. You would have to hide the fact that you have gold from them, or protect your gold if they find out you have it.

    The second, would be people that view food, shelter, water etc as the real store of value. If they are working towards sustainability for themselves and their family, no amount of gold being offered would make them part with food in return. Indeed a better offer, would be to help them work their land in return for potatoes, onions carrots etc.
    Gold would return to its ancient trading value when (if?) there is a surplus of goods beyond what we, our family, or community immediately need.

    I think Arthur Robey is right developing ‘hedged’ bets. We have to live in the world as it is, but it makes sense to accrue skills, plans, and processes that do not rely on complex technologies. Understanding how to use a compass and a map, would become very valuable as SatNav and Google Earth begin to flicker out.

    Though I don’t own a boat, I too can sail one. But I suspect there will be many ‘abandoned’ weekend boats that could be put to work. How to shoot and skin a rabbit. Bit of food preservation. How to store seed. A bit of guerrilla gardening. Knowledge of some little inlets on some barely occupied Scottish islands.

    In the event of Gail’s second scenario, ask yourself the question. If raiders came to steal from you, would you rather they steal your 6 months stash of food, or your stash of gold
    Please guys! Take the gold and be on your way!

    • That is a good point:

      If raiders came to steal from you, would you rather they steal your 6 months stash of food, or your stash of gold
      Please guys! Take the gold and be on your way!

      • DavidB says:

        Thanks Gail.
        Adding to my earlier comment, it might also be wise to use the engineering principle of sacrificial anode, and:
        Store, and hide 5 months of food, and three quarters of your gold extremely well.
        Store, and hide 1 month of food and a quarter of your gold very poorly.

        • weaseldog says:

          That’s good advice.

          Ever watch and pay attention to, “The Seven Samarai”?

          In that film the farmers had fields and cashes of grain our in the open, where it could be stolen or destroyed. Then they also had secret fields and caches of food and valuables.

        • Andrew in the Bay Area says:

          Very smart thinking. I do this at my current residence now and plan on doing it at my transition residence too not too long from now.

  12. weaseldog says:

    As an aside, In one article they put the risk that the core of the Dominion plant could be breached by an earthquake as something like 1 in 22,768. I wonder what the odds are that every plant in Japan could be damaged by the same quake? Probably like one in a billion….

    • Ed Pell says:

      How does that work 1 in 22,768 per year, per lifetime of the plant, per each 6.0 earthquake?

      • weaseldog says:

        They didn’t specify.

        I think they just pulled that number out of someplace dark, most and warm.

  13. weaseldog says:

    In the quake yesterday, Dominion lost power from the grid and automatically shut down. The seismology sensors had been removed to reduce maintenance costs, so the plant did not shut because the quake was detected.

    Since Fukashima, it’s become common knowledge, that even though infinite funds seem to be available to keep adding reactors, maintenance funds are in short supply and plants are seeing deteriorating upkeep. This is normal for industrial operations. Anyone who’s worked in factories understands that you don’t keep spending big bucks for upkeep on a plant that has a limited lifespan. Cutting costs, after all increases profits.

    For plants that have been operating decades past their intended lifespan, consider that each year, decisions have been made on maintenance with the assumption that the plant is going to be decommissioned soon. Patches get applied to patches, rather than shutting down the plant, and replacing expensive and dangerous parts. After all why replace an expensive part at the cost of hundreds of thousands of dollars, if it’s lifespan exceeds the decommissioning date of the plant? If you can make it limp along a couple more years with a quick welding job that compromises safety a little, then you’ve saved a lot of money.

    On the other hand, money for new reactors, is easier to come by with Federal loans and subsidies. Generating the money might only require that a few legislators get wined and dined. And big profits can be made from new construction.

    • I don’t think that people realize the extent to which we depend on nuclear reactors for our electricity. On the US East Coast, nuclear accounts to 30% to 35% of our electricity production. If old nuclear plants are taken out of service, there is a major gap in our electricity supply. At the same time, the EPA is talking about changing regulations in such a way that electric power plants will take old coal plants without any scrubbers out of commission. Many of these are on the East Coast too.

      I can’t say I disagree with the need to do these things, but doing these things would leave the East Coast seriously short of electricity. Putting patches on patches leads to a situation where something could go seriously wrong.

      Meanwhile, we have the electric car folks telling us that we will be able to add plug-in hybrids to the grid. Somewhere there seems to be a disconnect.

      • Ed Pell says:

        If we are going to use nuclear we should use the newest and safest Gen III+ (or Gen IV) rather than extending the life of old Gen II reactors. For some reason the debate is framed as no nukes or extend the existing nukes. We need to add the third option new safer nukes.

        • weaseldog says:

          Even nukes can’t help us so long as we’re stuck on exponential growth.

          It currently takes about 50 nuclear power plants to create the same power as 1% of our oil consumption.

          To get back to a healthy 3% growth, we need to complete and put online 150 plants every single year. That number must grow by 3% every year.

          I’ve heard claims that the theoretical thorium reactors could produce ten times the power of our current Uranium reactors. So we’d have to complete and put online 15 of those every year.

          I don’t see 150 uranium nukes or 15 thorium reactors going online this year, or next year or the year after that.

          Of course once oil goes into decline we more. with a six percent decline we need to complete 450 conventional or 45 Thorium reactors every year. When Nat Gas and Coal start declining increase the number to compensate.

          And suppose we assume that it takes 15 years to build a plant. That’s 6,750 conventional nukes, or 675 Thorium Reactors under construction at the same time. That’s an incredible amount of resources to divert from current private and governmental projects. we might have to end almost all private and government construction and maintenance projects to free up materials, labor and to control costs by keeping demand down.

          Last I heard, the current ambitious plan is to build four conventional reactors over the next twenty years.

          I think that the quantity of reactors needed, their cost and the lack of personnel to man them is a serious problem is using them to offset, then replace fossil fuels.

          I’m not at all optimistic that as our economy declines, that there will be the political or societal will to engage in their construction at such a rapid pace.

          Seriously, think of the bankers. They need more money, and they have the best lobbyists.

  14. JS says:

    Another great post Gail, prompting an excellent discussion. Thanks! If things really fall apart then I think the best we can hope for is major re-localization after a prolonged period of horrific chaos and “every man for himself”, particularly in and around cities. Its an awful scenario to fathom, especially thinking about our kids… I think a lot depends on what happens in terms of war and all things nuclear: Will land and livestock be left in tact? Or will they be trashed by abandoned power-plant (meltdowns) or even some scale of nuclear war? If land is somehow left in tact and workable, then the chance for re-localization and working communities is real. Under these circumstances I think gold & silver will continue to be used as a tool for standard, local trade right along side the barter system that would emerge spontaneously.

    Your argument about the usefulness of silver coin vs gold is logical to a point. It makes sense to have more “bulk” in preexisting, recognized silver coin for everyday transactions. (Preexisting, recognized coins have a higher chance of retaining the confidence about their authenticity and the exact amount of silver is perfectly known and accepted…If things went bad, people would quickly know the exact amount of silver in the old dimes & quarters. ) But gold will retain its place for larger transactions such as purchasing a piece of land, cattle etc.

    Part of the reason I think the use of gold & silver will continue is because, after thousands of years, it has been burned into our collective psyche as a practical way to store value and facilitate trade.

    • Jim Kunstler reminded me that in his book “World Made by Hand,” silver coins plus barter predominated for everyday transactions, and gold was used for a few bigger ones. That may well be the way things turn out.

      I think coins work a lot better than gold bars and other odd pieces of gold, just because of the exchange difficulties. As a person works through the likely difficulties, it is easy to see why standard metal coins have been so popular.

      I expect that even if gold, silver, and today’s metal coins are used for transactions, the supply will be short of what would be needed for wealth accumulation, and perhaps even what is needed for everyday transactions. We don’t use coins for very much now. Working with a small supply of coins, relative to the population would provide a partial response to the need for currency, but would fall short of what is really needed. How would a person pay for a house, or commercial real estate, for example?

      • JS says:

        I’m inclined to go along with Kuntsler’s vision of the use of silver and gold: Silver for smaller transactions (and not all of these transactions, since as you point out, coin is not plentiful enough to be present in all transactions for so many people. Standard barter will also be the norm.) Gold, for larger transactions, which will be very rare compared to today’s standards. By that I mean, gold will continue to be a rarity and so will the large transactions that gold permits. I suspect that relatively few people will be buying real estate in the future (compared to recent history where every mother’s son has bought and sold a house or flat…) But those relatively few who do have gold (or who can eventually acquire it) will figure out how best to make those larger transactions. Again, the practicality of storing value in gold and silver is ingrained I’d say. While its not a perfect system, I sense it will certainly once again play an important role in the future.

      • Jb says:

        In a ‘World Made By Hand’ there are no banks, no commercial loan officers, no home appraisals. Buildings lie empty because of die off from lawlessness, disease and famine. Newcomers who arrive in town offer an ounce of gold for the city school. There isn’t even a vote by the townspeople or transfer of title. There are no titles! For heavens sake, we can’t find the paper work NOW let alone post collapse!

        Kunstler is suggesting, and I happen to agree, that any functioning group will revalue an ounce of PMs based on their unique situation. To suggest that gold will be worthless seems silly to me – we simply don’t know what the future holds so why not prepare for a variety of outcomes to the best of your abilities?

        • I don’t think I said worthless–more that it won’t work as a currency very well, because of not being available in small enough coins. It may be that if food is very scarce, people will value the food more highly and gold, and won’t sell it at any cost.

          I think we do have to prepare for a variety of outcomes. Part of our problem is that there really are no ideal solutions, so we end up trying to do a little of several things. We also don’t really know how things will really turn out.

          • Jb says:

            Sorry Gail, my comment on ‘worthless’ was intended for the ‘you can’t eat gold’ philosophy and not directed at you or anyone else in particular. Buying PMs is one strategy that I think is worth pursuing at this point in time. Us ‘savers’ out here are getting clobbered. Lots of great comments; thank you for the discussion.

  15. John Evans says:

    Thanks Gail for again “telling it like it is.”

    Arthur Robey will not be alone.

  16. justnobody says:

    Gold is just another escape for people that are in denial. They cannot accept that you don’t control your life and life as no meaning other than the continuation of the specie. Once your job is done, it is time to go. We had a little break because of oil but the break is almost over. Only the most adaptable might survive. There are worst evil that death.

    • Loren Bergeson says:

      Good comment, justnobody. Even though your statement sounds depressing at first, it actually gives me a sense of peace and well-being. Even after I’m past child-rearing age, I may have enough strength left to help out the next generation (i.e. continuation of the species). If not, it’ll just be time to go!

  17. Jimmy says:

    This conversation reminds me of the kind of talk that went on during the height of the Cold War when people imagined a post nuclear war world. Well, I guess that never happened. Neither will a world in which there is no oil. What will certainly happen will be a world in which energy becomes increasingly expensive. Just as cheap and abudant energy shaped the 20th century, expensive energy will reshape the 21rst. End of the world? I don’t think so. Different world? Certainly.

    • weaseldog says:

      If oil is infinite and exceeds the boundaries of space and time, why should it become more expensive?

      Having it become more expensive implies scarcity. The expense includes the cost of materials and labor needed to produce the oil. To produce these materials and power the labor, you need to burn fossil fuels. At one time, the energy of one barrel of oil was needed to produce one hundred barrels. Over time, the ratio declined. We’re approaching 1/2 in may parts of the world. If you add in additional financing costs and investor returns that need to be met, then at 1/2, some fields just can’t be pumped profitably, so no one will bother.

      Forget Fields were you have to burn two barrels of oil to get one barrel of oil out of the ground. This is the scenario where you can prove oil will never run out. It’s not worth getting, as your costs exceed returns. So the oil will always be there.

      Consider the analogy of infinite money. If you’d like to give me two dollars or a one dollar return, I can promise that I can provide as many one dollar bills as you like, in exchange for two one dollar bills. My supply of money can be considered infinite if you want to engage in this exchange.

      Expensive oil works much the same way. If you want to invest the energy of 100 barrels of oil to get a barrel in return, then you can synthesize oil from lots of sources. You can pretend for a time that this sources is infinite. You just need infinity times 10 in energy to invest.

      You make a good point about how something that has never happened before, can never happen. Our planet had never seen a fission bomb explode before 1940. This proves using your logic that no fission bomb has ever exploded. For billions of years there were no automobiles. If you take a snapshot of the year 1492. We’re see that there were no automobiles, proving that there will never be automobiles.

      Heck! In the day of the dinosaurs, the world had never seen a species that could use technology to eat pretty much the entire planet, proving that humans will never exist!

      You logic is fun!

      There will always be oil. Oil that we’ll never pump, because it takes more energy to get, than we’d get out of it. So technically you’re right. But humans will not always have oil. It will be just beyond reach.

      • Stravinsky7 says:

        Weasel, I agree completely. In the end eroei economics and political mandate will decide what oil comes up to us.

        Wars will be a limiting factor.

        On an off note, all this Doomer talk has left me feeling depressed for the past two days. I am hoping it is just too extreme a prediction, similar to the $1000 dollar barrel of oil that was predicted by some in years past.

        • weaseldog says:

          I never bought the reasoning behind $1000 oil.

          I realized after reading Campbell and Laherre all those years ago, that if oil prices rose too high, it would cause a run of bankruptcies. This would eliminate jobs and depress wages. Then demand for oil would drop and the price would drop.

          Gail lays out how this works, very well on this blog.

          Colin Campbell was originally calling for sustained high oil prices, but now he’s on board with the cyclic price argument. Since we’ve actually been able to see the price go up and down and see it’s effects, the folks in the sustained high price camp are dwindling.

          The depression comes and goes. It gets better. You do what you can. None of us are getting out alive anyway.

    • The myth of available, but increasingly expensive, oil has been sponsored by peak oil groups. I see it as just that–a myth.

      If you don’t have a job, and are reduced to buying whatever you can, with the proceeds of what you sell from growing crops in your back yard, how much oil are you going to be able to afford to buy? There is a belief that the current system of jobs, finance, travel, electricity, and everything can keep going, even with less and less oil. If indeed, you can keep the whole system operating, yes, there will be oil. But our whole networked system keeps contracting, to match the real amount of oil available, and when that happens, the number of jobs available goes down. At some point, contraction overwhelms the whole system, and the banks, electricity companies, and governments start failing. We haven’t reached that point yet, but signs keep getting stronger that we are getting close.

      • Sue says:

        Gail, I agree with you that this world-built-on-cheap-oil is completely unsustainable and it is inevitable there will be some sort of collapse.

        My question for you is two fold:
        What is your best guess on the timing?… and what do you see as more likely, a total and abrupt collapse into “mad-max”, or more of a “soft collapse” a la Paul Gilding, with the possibility of some sort of rebirth, at least for a while.

        • I have probably been more fearsome than I should have been so far, so maybe I err in the direction of thinking about a fairly fast collapse, in not too many years.

          My problem is difficulty seeing what will replace current systems, if they fail. If farmers somehow cannot buy the seed and fertilizer they need, or the electricity is out where they would get fuel for their farm equipment (so it can’t be pumped), or the banks fail, so we can’t buy the food the farmers raise, because there is no way of compensating all of the middle men in the process.

          • weaseldog says:

            It’s hard to forecast these things.

            I think in many ways the system is still resilient. After each crash, people will work in their self interest to try to restore the system.

            So my pet theory is that for some time to come, we’ll stair step down.

            I think we must eventually to a point though, when most everything we take fro granted has to end.

            I’ve been involved in small scale farming and gardening most of my life. One of the things that I can’t help but be aware of is how much work is involved irrigation. Post crash, i think much of the farmland that we as a society assume will always provide for our needs, will go fallow for lack of water. We pump water from 100-300 feet down to provide irrigation for most of the Midwest. When we can’t do that anymore, these fields will dry up and blow away with the wind.

            A number of folks have informed me that we’ll just irrigate from the rivers like we used to. I think, (because I’ve done this), that this can support a family of subsistence farmers, but there is no way it will support the cities. I know that most Americans have no idea how difficult it is to move water uphill by muscle power. It doesn’t matter what mode you use. Water is heavy. To water crops you need a lot of it. you can talk digging canals, pipes to feeder wells, or wagons with water tanks, pulled by oxen. It’s all frigging hard work for a small return.

            • Owen says:

              Nah, it’s very easy to forecast these things. It may be difficult to get them right, but it’s easy to forecast.

              Most US cities are on rivers. It may require a lot of muscle power to lift water uphill. It also requires rather a lot to bury bodies. Because of that, they’ll be tossed into the river to hopefully flow away, but more likely will clog up the whole shebang and rot.

              You won’t be using that water source for irrigation, or anything else. For years.

              This is all why the whole gold scenario seems so ludicrous to me. It’s window of societal level in which it has value is so very narrow as to be meaningless. If the city wants to contract with me to haul bodies out of that river and bury them, I’m not taking gold as payment.

            • I have noticed that even in Georgia there is a lot of irrigation, and we average an inch of rain a week, which is more than Seattle gets.

              It is not just irrigation, either. It is all of the soil amendments and sprays, and even things like netting to keep birds out of trees. A person might think organic farming would be safe, but my experience has been that it uses irrigation, trucked in soil amendments, and sprays made from “natural” substances, but these still need to be transported and handled properly.

            • schoff says:

              I remember years ago with the historical staff member in the back yard of a home in Williamsburg – “this is the Fall garden”. I asked what about the Summer garden, and their response was no one in Williamsburg had a summer garden, it took too much effort to water it. This is with shallow wells in the middle of their yards.

              There is a reason why corn, wheat, various grains and animal husbandry were so big, the plants had more drought tolerence then a tomato, and the cows/pigs could walk to the stream.

            • I think we need to be looking more at history, to see what worked in the past. It can give us some clues about what is likely in the future.

          • Andrew in the Bay Area says:

            Gail, what I love about reading your writings is the

        • Bicycle Dave says:

          Hi Sue,
          Over on TOD, we often see potential future scenarios categorized according to their authors: Cornucopians, declinests, and doomsters. The Cornucopian folks see endless possibilities of technological solutions that can support even a human population of 20B. The usual stuff they advocate is electric cars, vegetarian diet, nukes of various sorts, etc – plus an absolute faith in the creativity, adaptability, inventiveness, resilience and (above all) the undefeatable human spirit that has always conquered its challenges. Their caveat is that we simply need to choose to the solutions they propose. To some extent, many of the proposed solutions could be helpful – assuming that one totally ignores that there is zero evidence that any of these suggestions will be implemented soon enough.

          John Michael Greer is a spokesperson for the slow decline folks. His book “The Long Descent” has this concept: “Industrial society is following the same well-worn path that has led other civilizations into decline, a path involving a much slower and more complex transformation than the sudden catastrophes imagined by so many social critics today.” He generally sees the greatest changes being generational – people living today will see gradual change but the next generation will have a much different world. Much like my life today is significantly different from my life 60 years ago.

          You can read comments on this blog by Owen (who could be right) to get a pretty good idea of the doomster POV. Other doomsters sound much like survivalists.

          IMHO, Gail is somewhere between Greer and Owen.

          One of the main reasons I follow Gail’s blog is because I think she provides some of the most useful info in trying understand the nature and probability of various scenarios that can unfold in the coming years. I think anyone who predicts specific timetables and events will most likely be proven wrong. Personally, I’m trying to make a mental catalog of the most likely scenarios and then watch for early warning signs so that my family and friends might make some meager adaptations – at least not be caught flat footed.

          The Black-Swan scenarios (major war, pandemic, asteroid, etc) are probably not worth worrying about because any preparations would be so extreme for most of us. At the other end, the Cornucopian hope is just plain silly and has no probability of continuing any form of BAU – hoping for this is useless. It seems to me that it is the middle ground we should think about. As a first priority, Gail often talks about enjoying the life we have while taking measures to “power down” to a more basic lifestyle. I agree. Beyond that, I think the biggest issue is what we call home – where we live. Big cities seem to be bigger risk than rural or semi-rural. It is hard to image how these places will deal with shortages of energy and basic commodities (shooting squirrels is not going to be an option):

          NY Metro Area – 19 Million
          LA Metro Area – 13 Million
          Washington-Baltimore – 7 million
          Chicago Metro Area – 10 Million
          Mumbai Metro Area – 18 Million
          New Delhi – 15 million
          Mexico City Metro Area – 22 million
          San Francisco-Oakland-San Jose – 7 million
          Tokyo, Japan – 35 million
          Sao Paulo, Brazil – 18 million
          Moscow- 10 Million
          Paris – 10 Million
          Soul – 10 Million

          If we just grind through a “long descent” maybe these places will slowly fade like the Maya civilization and many of us will “muddle through” – bicycles, beans and radios instead of SUVs, steaks and TV. On the other hand, a more rapid collapse could easily spell a nasty die-off with serious repercussions for outlying communities. In a Mad-Max scenario, living in a semi-rural location as we do, I guess I would flee to our son’s rural farm long before the gangs started forming – I wouldn’t try a defense strategy. In the case of a slower and more orderly collapse (oxymoron?), I think this is where a lot of practical advice put forth on Gail’s blog comes into play.

          The huge question is: when does the show start and how can we tell that the curtain is about to rise? That’s when the programs will be handed out. I really don’t know if we are talking 2 or 20 years. And, what is on the program could take many forms.

          • Andrew in San Francisco says:

            Very smart comments and thoughts. Thoroughly enjoyed and agreed.

          • Owen says:

            You do not want to know when the show starts.

            If you know, then the well armed urban gangs know. They get an early start streaming outwards.

            My personal indicator is the day the tanker from Nigeria enroute to Houston is intercepted by a Chinese frigate, which uses no force. It, instead, offers more money for the cargo than Houston is paying if it will divert to Shanghai.

            When that story hits the radar screen, you have about 6 months before nuclear weapons are employed to advance national interests.

            And btw, that offer will not be in gold.

          • I would place bets on two years (or even less) before I would on 20 years. Too many things are going wrong now.

          • Jb says:

            And I would say that ‘collapse’ is a ‘process’ not an ‘event’* and in that regard, it has already begun.

            * Unless we’re talking about an asteroid or Mr. Krugman’s alien friends. 🙂

          • Sue says:

            Dave, thank you so much for taking the time to write all that out. It greatly increased my understanding of the wide range of views out there. Looks like Greer’s book is my next read.

            I’d also recommend Paul Gilding’s book “The Great Disruption” to interested folks.

  18. Arthur Robey says:

    I agree with Gail.
    I am having a three way bet. Silver, paper cash (in case deflation is caused by evaporating credit) . And I buy the necessities of life.
    I have learned how to sail and make sauerkraut and I know how to cook dried beans.I buy wheat and grind it myself to make flour and make porridge from groats.
    By positioning myself on the edge of civilisation I anticipate that a lot of land will become unviable and unreachable without fossil fuel in which case I shall colonise it using my yacht.
    I ensure that my health is as good as I can make it. Hence no more shift work.
    My pension fund will evaporate like the morning mist if Wall street touches it so I have converted it to the safest, least aggressive portfolio. It is still not safe but it is the best that the Government will let me do.
    I am paring my expenses right down now so that I can be in control of my situation.

  19. Harquebus says:

    You can’t eat gold. Convincing someone to trade their food for it ain’t gonna be easy. Tulips comes to my mind.

    Read more

  20. Ian says:

    These comments remind me about the Twilight Zone episode involving a gold theft. Before the thieves can cash in, the gold has become worthless.

  21. MikeH says:


    You say But what if things truly fall apart? and then go on to say most things we want to buy on a daily basis are small things–a loaf of bread, some water, or perhaps a bicycle.. If things truly fall apart, systems financial or otherwise will cease to exist except at local or possibly regional levels, at least, until a new normal evolves. That doesn’t mean that there won’t be commerce perhaps even some degree of commerce for profit. But in most cases, the exchange will for goods and service on a barter basis. Those that have little to barter will make do with less, perhaps much less, and perhaps not survive. Food and water will be critical. Housing and clothing less so depending on how close to the equator you live.

    Some folks bet on technology as the solution. Perhaps it will be. But just in case it isn’t, they’d better hedge that bet. Perhaps we should be looking at the low tech solutions that exist in the third world. We tend to discount the third world as backward and undeveloped. By our current standards they are. But much, much lower standards might bring us into the range of the third world. It might not be such a bad idea to look at the third world as a positive resource rather than a negative resource.


    • I remember reading a suggestion somewhere that instead of sending Peace Corp members to Africa to teach them how to do things, we should be doing the reverse–finding some people who are familiar with third world practices, and bring them here. It might be more useful.

      • schoff says:

        I’ve been pointing my friends (in the US) to a website of successful tools in Africa that can be delivered in the US. Practices are obviously harder. Beyond tools and practice in agriculture there is infrastructure, i was in my newly mowed lower fields near the creek, looking at the three parallel swale/hills that slow the velocity of the surface water and retain the soil. At thousands of feet long, I was thinking, I wouldn’t want to rebuild them with a shovel. I’ve seen some picture of projects of mygrandkidsfarm and like mine, some would be much more difficult to create without the production of glass, plastic, or even 6×6 lumber.

  22. Owen says:

    Owen can’t respond further because the Reply button is turned off again.

    • I am not sure if you are joking.

      I have had problems with responses to this post landing behind my “spam” filter, probably because of words the filter believes may be objectionable. I have to manually override the filter, to get them to show.

      • Owen says:

        Not joking. The thread above had a question about 800K as presumed US population post Die Off (before the horizontal technology line starts squiggling along awaiting death from natural disaster). I could not elaborate because there’s no reply click target after those comments.

        The comment that says “you are a doomer . . . .” has no reply click.

        Then you replied to that comment and your reply has no reply click on it.

        There’s an Andrew reply after your comment . . . no reply click. And an EdPell comment is next . . . also no reply click. Such clickable Reply targets appear later, and I thought maybe there’s a depth of thread limit, but I don’t think so. Shrug.

        Not smacking anyone here, but this software is pretty weak. There are zillions of blog products that allow comment posting with editing etc. I suspect some of it’s freeware, too.

  23. Texasjune says:

    You got that right, Cowboy – add to it those that know how to work for a living. Those that have never gotten their clothes or hands dirty, or sweated outside of a gym – might be the newly disadvantaged. Sometimes, life is so ironic. Preparation is always wise.

  24. Andrew in the Bay Area says:

    Gail, Gold is falling today! Did you ever think you’d be such a market mover? 🙂

    • I think the price move is related to actions in Libya. Gadhafi probably out; people expect our problems are over, oil will return quickly, and problems will go away.

      But perhaps it was people reading my post.

      • Andrew in the Bay Area says:

        I think it’s exactly what you said in the first paragraph making it head south again. Next crisis tomorrow or Thursday will send it up again….

        This conversation has been instructive for me. While I still think G and S will have some purpose in the future, the extreme scenarios definitely call for a diversification of physical wealth into other more useful assets as a hedge if nothing else.

        • schoff says:

          I concur, one always needs a diversified portfolio. I look at G&S the same as I do the 750 sqft of perfect raised bed in my yard, the handtools, my chickens, 40 fruit trees, and the Remington 870. My and my family’s skills are equally an investment, retraining from EE/CS to Farming/Wine/Herbs with shelves of books in those arts is a very portable investment.

  25. Ed Pell says:

    After a deep crash the things that have value are breeding stock (chickens, pigs, goats, lambs), farm land, simple farm tools, land that could be made into farm land.

    • We need breeding stock of animals suited for are future needs –resilient in a range of outside temperatures, for example. I don’t think that the animals that have been bred for industrialized farming really are the ones we want for the long term.

      • Texasjune says:

        Don’t worry about cattle and pork, Texas has that covered. Our cattle have survived (so far) 110 degrees this year during a record drought. With the free-range wild hogs we have, if it wasn’t for regulations, we could feed at least ten states! Every state has assets, they just need to recognize them!

      • Very good point, Gail. I worry about this because along with the passing of generations of practical experience in our oldsters, we are loosing generations of breeding to suit small scale farming. We may not need these for another generation but when we do we’ll find they are gone with no way to get them back, we’ll need to start from scratch.

        Just one example is the Guernsey cows my neighbor raises along with Holsteins on her small dairy. The Guernseys have been overbred to the point 2/3 die before they are 6 months old. I do a little outside work in trade for bull calves which we raise on bottles but I won’t bring home a Guernsey.

        There are still some good, old blood lines like the Shorthorn and Milking Devon that were designed to be multi-purpose – milk, meat and draft animals. But like Guernseys, tomatoes and lap dogs, many popular cattle are bred to look a certain way instead of perform a certain way and so you wind up with

  26. Gold, unlike other commodities, has no intrinsic value except psychological. Demand for gold then is high when people actually have wealth but are scared.

    But how much demand will there be if things ARE bad and people are scared but the reason appears to be the end of growth?

    If you bought gold back when then good for you but I sure wouldn’t buy it now at quadruple the long tern real average and at all time real highs. Especially if your fear is long-term/permanent recession caused by declining cheap FFs.

    If a person feels things might get bad, then “wealth preservation” should take a backseat to much more basic preparations because wealth is simply not going to survive, at least for 99% of us.

    Like Krugman said:
    “Market prices almost always tell you something useful. But sometimes what they tell you is that there’s a marketing scam in progress.”

    Just my .00001 oz

  27. Les D. says:

    I see the real problems as the high value of small amounts of gold, and the security problems of storing gold.

    The counterfeit problem is really a non-problem: if the value is the gold, not its form, all the trader needs to do is validate the amount of gold in the piece offered for trade. The technology for doing this has been known for centuries if not millennia: gold is denser just about any other metal (there are a few exceptions which are even more valuable than gold) and is insoluble in nitric acid. Validating a piece of gold can be done very reliably by measuring its volume, weighing it, and submerging it in concentrated nitric acid if there is still any doubt. Volumes can be measured quite accurately by measuring the volume of water displaced. Precision scales for measuring weight of a coin or other small object cost less than $20. Nitric acid might be a bit harder to get (due to shipping restrictions) but 70% nitric acid currently sells for $30-$40 per liter.

    Any counterfeit would be lower in density than gold, and unless it was gold plated would react with nitric acid. But gold for use in coins on a gold standard need to be very near to pure gold, because impure gold fails both the density test and the acid test.

    As for the facilities not being readily available: within two miles of my house there are at least five businesses advertising that they buy gold. I’m sure each of them has the ability to carry out these tests.

    • You are no doubt in a city, to have all this gold-buying going on around you. I expect if you were in a rural area, it would be much less common.

      How well the whole system would hold up is unclear. Will nitric acid still be made? I notice that according to Wikipedia, “. . . anhydrous nitric acid should be stored below 0 °C to avoid decomposition.” With at best intermittent electricity, such storage may be difficult. Transportation of goods may be difficult too, making it harder to obtain nitric acid, even if it is made.

      • Les D. says:

        While the “whole system” may be necessary to validate gold the easy way, it is not really necessary. The nitric acid is only a final confirmation (the “acid test”) and in any case is quite easy to make at home if you have any nitrates available. If a metal object is yellow, malleable, and has a density around 19 grams per milliliter it pretty much has to be almost pure gold.

        Measuring small volumes accurately is fiddly and time-consuming, but quite practical with simple equipment, even if you have to make it yourself.

        Measuring small weights accurately can be done with a simple balance, as long as you have reference weights. I’m confident I could build such a balance with scrap materials, and convenient weights might be U.S. cents (2.500 grams) and nickels (5.000 grams). Smaller weights could be made by cutting these coins into smaller pieces, or by making a large number of smaller identical weights (for example by cutting small squares out of a sheet of thin aluminum) and counting the number needed to balance a cent. Such a balance should be capable of determining the mass of an object smaller than a few hundred grams to better than a tenth of a gram.

        • weaseldog says:

          Tungsten has been successfully used to counterfeit gold.

          • Les D. says:

            Tungsten is neither yellow nor malleable. It’s also a whole lot harder than gold, and is much harder to melt (about 2400C harder: the melting point of tungsten is higher than the boiling point of gold).

            I can see a gold bar being forged by having a tungsten block buried in its middle, but you would need a pretty good industrial base to make something like that. A modest amount of cheating could be achieved by mixing old light bulb filaments into gold, but a large quantity would be easy to detect.

            Once something like that was suspected, traders could melt and recast gold bars to validate them. That sounds extreme, but it’s low tech. The tungsten component would not melt.

            • weaseldog says:

              A few years ago, there were news stories about several major banks discovering that that they had many $millions in gold bars that were counterfeited with tungsten. Essentially they were coated with gold. This practice has been going on for a while. The bars had been in their vaults for years.

              Other rumors abound that many of the major institutions have counterfeit bars and would really rather not formally recognize it. After all, a lot of paper certificates have their value based on these stores.

              Let’s consider a moment a gold bug that has a dozen small bars of gold in sealed wrappers. The value of the gold is enhanced because they were sealed by the mint. If that collector melts down the bars, they lose value two ways. The plastic seal is destroyed, and stamp from the mint is lost.

              If the collector leaves the gold in the plastic, he can buy sell and trade at full value all he wants. If he melts down the gold as a test, he immediate loses money. If it turns out to be counterfeit, he loses all of the value in the gold.

              So the smart move is to never verify if your bars are real or not. So long as they appear to be real, they retain their full value.

            • weaseldog says:

              One article the counterfeiting of gold bars.


  28. Bob Hunter says:

    Seems to me that the wisest person would do both that (preparation with goods and a setup to make food) and save gold and silver….it’s not like humanity is going to be hunkered down and unable to trade or store wealth or create it forever and its not like the reality of those with more and those with less and those with more living better is going to go away either.

  29. Shunyata says:

    Gail is writing from the perspective of, “What if things truly fall apart?” Grocery store shelves are empty. Gas pumps are dry. Electricity is intermittent at best. In this environment, it is not possible to “store” wealth in proxies like gold and you are simply not going to preserve your savings. You need to prepare today for an entirely different way of living tomorrow.

    In this environment I don’t want your gold. I can’t eat it and I am likely to have it taken away by someone with a bigger gun. A squirrel, a log for my fire, or a bottle of aspirin will be far more valuable than ANY amount of gold. And knowledge to set my own squirrel trap and clean my own squirrel will be more valuable yet. You need to prepare today for an entirely different way of living tomorrow.

    • Without a functioning currency system, I am afraid the world would quickly deteriorate to the one Shunyata describes. It is hard for an electrical company to pay its workers, or purchase coal or natural gas from a distance, without a functioning financial system. This is part of what makes everything fall apart at once, if the financial system disappears and can’t be quickly replaced.

      • weaseldog says:

        If no one buys coal, the coal mines are abandoned and flood. Muscle power could never pump them dry.

        • weaseldog says:

          Our mines go to deep or require fossil fuel for mountain top removal.

          It is impossible for human or animal labor to keep the pumps running and the air flowing. Even if you could make it happen, the quantity of food and water you’d have to provide for the thousands working a mine, would make it cost prohibitive.

          Yes, a long time ago, on a planet completely different from the one we’ve created, people could collect coal on the beach from weathered outcroppings. We don’t live on that planet anymore. All of the stuff that’s easy to get with high energy tools and chemicals has been gotten. Now it’s getting increasingly difficult to do it with super powered technology.

          When the white man came to the Americas they found a landscape over brimming with ancient forests, and teeming with wildlife. They describe the rivers as being choked with fish. The lakes were so full of fish that you could cast a net anywhere and get a bounty.

          That world is gone. It’s extinct.

          Our descendants will have to make due in a very different environment.

        • weaseldog says:

          And for the your comments on race and slavery…

          The Spanish originally tried to enslave Americans Indians. But that didn’t work, because they would just run away.

          So the British brought Irish slaves to work the plantations. They had a similar problem, Irish slaves looked and talked, much like Irish Free men. Many were already accustomed to hard lives and found it easier to run West and live in the forests, trading with Indians. Appalachian culture was heavily influenced by them.

          The reason that the colonials brought Africans as slaves, is because it’s easy to see that they are different. If they ran away to another town, they couldn’t just lie about where they came from and be believed.

          Still in the early days of slavery in the Americas, the Irish were still considered the superior slaves because they required less training and already knew the British customs.

          The world still has slavery. It’s never ended.

          Attacked you? No, I just questioned your motivations.

  30. Andrew in the Bay Area says:

    My position is that the elites continue to keep this sinking ship afloat as long as they can doing anything they can (bribes from the Treasury, military force, banking manipulations, money printing, etc.) so their assets can remain valued high and they can exit (for the ones who get it). This has been a good thing for me as Gold and Silver seem like the obvious answers. I’ve even started panning for fun on the weekends and it has turned fairly profitable. Gold and Silver functioned at one time as the core of the financial system and I believe they will again. Yes, Gail, theft is a serious problem but frankly I think the world we are returning to is going to be a much rougher one and a shotgun or ten will deter the thieves…or they’ll die from one…or they’ll hang. In our material comfort we have become way to lenient with criminals and they know it and abuse it every day of the week. Public sympathy for this will disappear as peak oil makes this world worse.

    Thanks for your thoughts, Gail. I think it makes me want to buy more silver for daily purchases as I have already been doing as it seems to make a lot of sense. Gold nuggets and other placer deposits are interesting alternatives as well as they come in small denominations. You can also get gold 1 grams and in other small denominations which I like.

    • It seems like 1 gram gold pieces would be a nightmare to authenticate.

      • Andrew in the Bay Area says:

        Well, for most in this modern society, I agree…but we use to do it back in the day in the Western States during the Gold Rush times and I think we can do it again. Gold has specific properties that can’t be faked that are relatively easily to test for (specific gravity, density, malleability, etc.). Believe it or not some of the 1 gram bars come from some respected assayers and come with a certificate that would be fairly hard to fake in the future I foresee. I actually think you are right Gail, about Gold and Silver being relatively worthless for some period until thing stabilize to some degree. Whether that is in my lifetime or my yet to be born kids, I’d like us to have something that has always been considered to have SOME value for rough times after the stabilization period.

  31. Texasjune says:

    Gail, your article is excellent and enlightening. Thank you. It is way too late to consider a gold standard again. That failed decision to drop it has already destroyed the value of gold. That said, it would be a major mistake to try to attempt collecting a few coins from individuals in the general population. That action would be viewed as yet another attempt to suppress 95% of society. I wouldn’t recommend breaking the final tie between the wealthy and ‘all others.’

    With the current low levels of jobs in a sick economy for whatever reason, the average American is not at all concerned about the ‘preservation of wealth,’ but rather survival. That fact needs to be taken into consideration when deciding any monitory policy. The fact is, gold, silver, precious metals, is a wealth concern. These are commodities – not currency. Regardless what they do, the average person will use current paper money in transactions. If that should become an unreasonable burden/inflation – they will barter for food and services among themselves. It would be wise to understand this about the majority of American citizens. It is those that hold the skills and abilities to work and preserve a civilized way of life where everyone benefits under shared resources. This is my perspective from the bottom of the food chain, for what it’s worth.

    • Andrew in the Bay Area says:

      Your points about services and goods bartering is right on but I also think there will always be a need for storing value outside of land (the source of all wealthy) for large transactions. I actually expect certain old-line industries that are now regarded as boring to become big deals again: lumber, mining (even if low scale and low tech), horse stabling (liveries), whatever light manufacturing we can figure out, etc.). This is of course after the period I’d call “The Die Off” when the big cities are hell and everyone is killing each other and doing all sorts of other nasty things. Silver is the key for the common man in the future. It is accessible and always has been and likely always will be.

      • Owen says:

        It is post Die Off when gold and silver very explicitly have zero value.

        Post Die Off you’re looking at pure barter. There is scarce communication with communities even 50 miles away. And never ever ever forget that the direction is down, not up.

        The Die Off happens. The global population goes to 900 million. In the US that would be maybe 800,000. They will be in little farm communities and they will talk with one another via radio until the radios fail (there will be no more radios, everyone will work on farms, not radio factories). When they fail, no more contact unless adventurers travel community to community, and they’ll do that only if they can find food along the way.

        There is entirely too much thought focused on a Die Off and subsequent recovery. No, there’s no subsequent recovery. This is not a situation where “society went wrong and if we can reset, we can do it right next time”. That’s not reality. This is a situation where oil is running out and it doesn’t matter what society does, or did. Geology doesn’t care about morals.

        So gold will mean nothing. Food will mean everything. Humankind will bump along a horizontal technology curve until natural disasters wipe out each community one by one over a few thousand years. And that’s that.

        • Andrew in the Bay Area says:

          You are a doomer beyond any doomer I have ever met. How the hell do you even function in a normal day if you think everything is doomed and there is no hope at all anywhere?

          • Unfortunately, I think the scenario Owen is describing is one possible outcome. Somehow, we need to live today’s life, even if things are less good ahead. We have had the privilege in living in a period where the common people have electricity, cars, computers, telephones, and many things that people over history wouldn’t have dreamed of. Many of us have lived beyond the average life expectancy of people in history.

            We somehow have grown to think that what we have now is our “right.” In fact, we can only live within earth’s limits.

        • Andrew in the Bay Area says:

          Your explanation completely ignores the 4,000 years of human history where Gold and Silver did indeed mean something and still does to the majority of people in the world (yes, that means explicitly outside of the U.S. and the Western world). Your explanation of complete die off within a few thousand years also ignores the fact that humanity survived climate change (which did occur in the past WITHOUT much human influences…there were too few of us), plagues, droughts, natural disasters, etc. for what, 6,000+ years in human history and most likely another 10k or more? No one is saying that land, food, security, and healthcare etc. are not more important than Gold and Silver. It just seems to me that you are grossly underestimating their importance and viewing them from a modernist, highly dismissive POV not consistent with history or the reality of human’s psychological feelings about these metals. Perhaps human’s lust and desire for gold and silver is very negative and senseless, but it remains a staple of human civilization that has served a purpose throughout our history.

        • Ed Pell says:

          A 90% die-off would leave the US with 30 million people. No idea where you got 0.8 million that would be a 99.7% die-off leaving the planet with 21 million people. There are lots of sustainable places in the world.

          • I agree that 30 million perhaps sounds more likely than 0.8 million for the United States. But we really don’t know. We have a lot of nuclear power plants that we may not be able to decommission properly, for example. China and India seem to have had very high populations even at the time of the birth of Christ.
            Part of the high early population for China may be that it had coal very early, and this may have helped population. Population in colder areas may need to be quite a bit lower, (more than 90%) without fossil fuels.

        • schoff says:

          Owen is a bit on the “end of history” side of doomerism, but great art and literature can be written without electronics and inkjets. I’m sure many of the readers of this blog have read Tainter’s book, but has anyone read “After Collapse, The Regeneration of Complex Societies”? It explores the angle of “fall and rise” which has been seen a number of times both during written history, and prior. btw, Invented in 1887 the spark gap transmitter doesn’t really need a radio factory to be built, it is more than sufficient to talk between these isolated towns……

        • weaseldog says:

          The nuclear power plants are an issue I’ve worried over for some time. I don’t see how a nation going bankrupt, can afford the luxury of spending over a $trillion to decommission all of them.

          The USA will keep them limping along as long as possible, while cutting budgets for them on a regular basis. Keeping up staff will be an interesting problem in itself. The current staff is aging. Young Americans aren’t graduating with the needed skills. foreign markets are going to increasingly drain our talent.

          i think it’s extremely likely that most of them will meltdown over the next 50 years.

          And the die-off scenario that Owen talks about is over thousands of years, but over the next 100. It’s the sort of result we expect if we apply the same sort of modelling done for ecosystems, to human civilization.

          The problem is a collision of exponents. Exponentially increasing consumption slamming against exponentially decreasing resources.

          The trouble with math involving exponents, is that it’s timing is very resistant to large swings in the inputs. On world oil supply, doubling the expected supply only buys another 30 years so.

          There is a lot of optimism that today’s problems will be solved in the future. As our civilization is crashing now, I’m not sure what optimism in magic fixes is really worth. Say Fusion power could be made feasible in 50 years and in 25 civilization has degraded to a degree that fusion research is done anymore? What good is that? And why should I worry about gold as a currency in 1,000 years? It just ludicrous to argue that we need to hoard gold now because it will be our basis of currency in a thousand years. Am I reading this disconnect properly?

          I like math, and I like playing with models. With modern computers and excel spreadsheets it’s very easy to forecast different kinds of trends and depletion curves. For myself, I believe that if we don’t experience a bigger miracle than the oil age, in the near future, like 1-5 years, then this civilization is going down. It would be even better if this miracle was bundled with time travel and we could use it to change the past.

          So why do I bother to keep going? Well, I like to be alive and do stuff. I’m going to enjoy the show while it’s still worth watching and participating in.

          Why do you bother? You’re gonna die. Why not give up now? Or do you believe you’re immortal and will live a blessed life for all eternity?

          You may feel free to disagree with everything I’ve written. I don’t mind.

        • let’s really hope that somehow, through our incredible magic, we avert die off

          when all of what we are today
          is dim dim distant past
          a racial memory mostly myth
          known to the shaman caste

  32. karuppu says:

    you are absolutely correct. the writer of this article is totally negative in approach

  33. norton says:

    It’s funny that you don’t address the issue from a confidence angle. You really should not look at the veracity of gold as a means of trade but look at the value of assets when you can’t trust the government anymore. What they are doing to the dollar is creating a distrust of the government and the FED which will lead to chaos in the world monetary systems since no one will know which fiat money to support. When that happens, the confidence will ultimately come back to precious metals as a store of value. You can use precious metals to exchange into whatever monetary unit happens to be the most stable for day to day transactions, whether it be script paper or chicken bones. To disregard gold and silver because it is not useful for buying a loaf of bread is really a specious argument. The holding of precious metals is about the preservation of wealth from an untrusted and devalued monetary system. Fiat money systems have ALWAYS failed. Gold and silver have ALWAYS held intrinsic value. That’s why our founding fathers wanted PMs to be used for a monetary system.

    • Owen says:

      There is no ALWAYS because there is no history.

      There has never been a world before where 7 billion mouths depended on food planted by 450 horsepower tractors (that can run on oil and nothing but oil) on farms of 10s of thousands of acres. That oil disappears, and so do the 7 billion and I don’t care how much gold sits where to underpin what currency.

      This world never existed before. There is no history.

      Gold has no involvement with any of this. Gold has meaningful value within a very narrow window of catastrophe and it’s a window that closes as soon as you’re within it.

      You can’t eat gold. You can’t buy food with it. Not now. In The Circumstance Where It Is Supposed To Have Value. If there is collapse and abandonment of all financial infrastructure, no one will sell you food for gold. They would be insane to sell you food for gold. Hell, they can just sit back and wait until you starve and then take your gold, should they want a paperweight, should they be able to make paper.

      • Texasjune says:

        On the ability to run diesel engine tractors on a farm without oil … not insurmountable. I have a feeling we have people with the knowledge – given a barrel of rendered fat and white lightening, those engines will run!

        • Owen says:

          5.6 million BTUs per barrel. That’s what’s in oil. That 450 horsepower tractor doesn’t get 30 miles per gallon. It has to be 450 horsepower because you only have so many weeks to get fields plowed, planted and then in fall, harvested. 10s of thousands done in 2-3 weeks.

          It takes oil and a lot of it. There is no scalable solution that can feed 7 billion people.

          Those engines can be made to run! They can. For about 15 minutes.

          • DownToTheLastCookie says:

            I’ll bet less then 1/10 of 1% of annual oil use is for your “450 horsepower tractors”. Not an issue. Transportation on the other hand. Big Issue !

            • weaseldog says:

              Right, farmers could get a priority for fuel, then farmers could use tractors to harvest their crops, then watch them rot.

              Without the transportation network, the crops don’t get to stores or processing centers. Distribution doesn’t occur without fuel.

          • schoff says:

            450 HP tractors are great for 1000’s of acres, 1000’s of miles from their customers who eat them, or hundreds of miles from the ethanol plants, and the feed lots, when you want less than 1% of your populace doing agriculture directly, and can afford 20 times their number on some form of quasi-welfare, while paying the farmer world history low $ for food. I suspect this model is going away.

            For the farms ringing the cities as in the past in the 100 acre or smaller size, the 40-80 hp tractor works just fine, including pulling a 1962 PTO combine doing wheat. Now admittedly it requires my two sons to help, but then again their aspirations for PHD’s in Psychology and Computer Science seem as archaic as further investment in 450HP tractor factories. But I could be wrong, maybe we will discover a super giant field every year, and the Indians and Chinese can be satisified with their current life styles, but probably not.

    • to exchange into whatever monetary unit happens to be the most stable for day to day transactions

      I think this is where we are not seeing eye to eye.

      If you still have monetary systems that are worthwhile for exchanging gold, then I don’t see a problem. The problem arises if those monetary systems disappear.

      I think it is partly a question of what you think is the worst that can happen, and how it happens. I suppose the United States could cease to function as a nation, but the state of South Carolina has its currency and the state of North Carolina has its currency, and many other states have their currencies. If you can still trade gold in a different currency, you are OK, probably. The question is whether those currencies will be there when you need them.

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