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Dice Have No Memory: Big Bets and Bad Economics from Paris to the Pampas by William Bonner

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Chapter 7

Back It with Bullion

The Dow in Gold Terms . . . Where to from Here . . .

August 6, 1999

I’m not making this up. “Pshiiit!” was a popular soft drink in France during the 1960s. But it’s hard to find now. Probably out of business. And probably driven out of business by more powerful brands—like Coke.

The advantage of being the leading brand is even more significant with money. This is where Metcalf’s law applies. The more people who use one brand of currency, for example, the more valuable it becomes to the users. It is simply more widely and more readily usable. The dollar is the Coke of the currency markets.

Today, you can take a dollar and buy 1/258th of an ounce of gold. Or you can buy 1/10,793rd of the Dow index. As I explained to my assistant, Addison, there was a time within the memory of living Americans at which the ratios were about the same. A dollar would get you either 1/500—more or less—of an ounce of gold, or 1/500th of the Dow. Measured in gold, both the dollar and the Dow have been investment success stories. The dollar has doubled. And the Dow—get this—has gone up 42 times. DR readers, however, are cautioned that this trend and this relationship are subject to change without notice.

A lot of things came together to create this trend. The collapse of communism; the restraint of Volcker . . . followed by the more generous habits of his successors and counterparts in America and Japan; the application of Metcalf’s law to the dollar. All of these things ...

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