146 THE BiG DROP
banks to want to go back to some kind of gold standard?
Obviously, it would take a collapse of confidence in paper
money. The gold standard would be a desperate move to re-
store confidence in the system. Then, you have to figure out
what the likelihood of that happening?
The more money central banks print, the closer we get
to that confidence boundary and the point where we might
actually have to implement a gold standard. That’s the kind
of instability built into the system. Confidence is fragile. It’s
something that can be lost very quickly.
How can confidence be destroyed quickly?
Think of a bank run. You wake up in the morning and the
bank is on sound financial footing, but some people, for what-
ever reason, hear a rumor that the bank is actually not sound.
So, they run down to withdraw all of their money immediately.
Their neighbors, seeing them lined up in front of the bank
say, “I don’t know what’s going on, but I better get my money
before they run out,” and they get in line too.
The line gets longer and the buzz increase causing even
more people get in line. Next thing you know, the bank is
bankrupt even though it started out the morning perfectly
fine. That’s the classic scenario of a run on the bank.
We don’t have that dynamic today. People don’t line up at
the bank anymore. They do everything digitally. Plus, we have
deposit insurance and other things that mitigate that risk. But
the fact of the matter is that psychology hasn’t changed at all.
A little rumor, even if it’s false, or some person getting in line,
could start the run on the bank.
Gold, right now, looks like the floor is around $1,100 an
ounce. It’s been smashed down to that level four times in the
recent years.
That said, I did have a conversation recently with Jim
Rogers. I think we all know Jim Rogers is one of the greatest
commodity investors in history. He said that no commodity is