Preface – a few days ago, I wrote a piece stating that gold is the center of the financial solar system, not the dollar. When they replaced gold with the dollar, it messed up all systems and the only way to hold the system together is through artificial means – like manipulation.
With this, I also touched on these waves are actually financial energy disbursement…
“This wave pattern occurs often in nature, including wind waves, sound waves, and light waves” – all of this is energy disbursement. Just like financial energy disbursement…More on that in future writing”
So these waves, we will try and harness their power and store it in the best means possible. We will release it by spending gold, and we will capture it by selling it in gold.
I wrote a piece a few weeks back I wanted to dig deeper on. In it, I mentioned how Steve St. Angelo talks a lot about gold and silver being energy stores of wealth. I would like to first state I’m a huge fan of Steve’s and my concept is building on his idea. He got me thinking about it, and I would like to make potential suggested changes.
His idea more or less talks about all of the energy that goes into mining gold is then stored in these bars. From the gas to move the trucks, to the energy to build the trucks, to the energy to move the bars – and this energy is usually found in the form of fossil fuels. Meaning, in a sense, the energy from all of this is captured into these bars. And, they have value because of this energy. Furthermore, he warns of peak oil that can then have a terrible effect on mining.
He discusses PHYSICAL energy meant to create these bars. My idea is FINANCIAL ENERGY to create the bars. Let me explain a big concept here.
It is said that an ounce of gold can buy one man a fine tailored suit, and has been able to throughout the ages. Averaged over time. In the year $2000, an ounce of gold was $250. So no, that’s not a fine suit. Today, it’s $1750. So yeah, that’s in the ballpark. I also mentioned that in 1964, two silver dimes could buy a gallon of gas and 57 years later, those same two silver dimes could buy a gallon of gas.
Three main concepts which are the basis of my disagreement with Steve’s initial statements.
The FIRST concept here is that these bars have a constant FINANCIAL value over time – RELATIVE TO OTHER THINGS. I showed in my previous writing how gold is the center of the financial solar system, in my opinion, and you can then measure everything valued in gold much more easily than trying to evaluate things of value in dollar terms.
The SECOND concept here is that over time, the energy expended to produce goods and services over time decreases. This is likely due to improved methods and increased efficiencies with technology.
The THIRD concept here is that while the cost to produce most goods and services decreases – things like gold become more rare and the costs to produce things like this go up over time. This also increases the pile of gold in existence at a relatively steady rate. Meaning, inflation of the GOLD monetary system is relatively static, meeting the population rate of increase.
So my physics classes in college will finally become of some use. When you move an object, you are exerting force upon it. This is measured in NEWTONS of force. So if you want to pick up a heavy rock, it may take 500 newtons of force to pick this rock up. Steve is looking at this as if a person is moving or a machine is moving it, it’s still 500 newtons of force. However, the machining and methods used to create that energy are now at play here. Let’s look at three examples.
- Man – if a man is to pick up that rock and move it, he must be fueled to do such. Meaning, he needs food to do this. It takes him time to do this. Let’s say 15 minutes. This may also take 100 calories of energy to move this.
- Machine powered/fueled/built by fossil fuels – the same newtons of force are used to do this, but you are now using a machine that was built by man using fuel. There is less time to move this. The energy calculated for this truck may be a factor of all of the energy used to produce the product divided by the time used to move the rock. Maybe this takes 30 seconds.
- Machine powered/fueled/built by green energy – the same newtons of force are used to move the rock, but the energy derived to move the truck and build the truck may have come from nuclear rather than fossil fuels and stored in batteries.
Productivity and energy
What we are looking to do with productivity is to get more work using less cost. Energy is not a factor in this equation. But, assuming you want to move a LOT of rocks, and each rock takes 15 minutes for a human to move, but 30 seconds for a machine, you then extrapolate this out for a year for how many rocks you may want to move. You may find that one machine may take the place of 40 men doing the same job. Additionally, you then find that by buying the machine and giving the machine a 20 year life, you have a capital expenditure upfront for the machine, but a 20 year life of it to then spread this cost over, so to speak. You then find that the yearly cost of buying this machine and operating it is 1/10th the cost of having those 40 men who are union employees.
So you then become more productive. You used the same newtons of energy to move those rocks….but….now instead of 40 men who needed to then buy food to do the work, you have trucks built and running with fossil fuels.
You need to then get into a lot of crazy math. The 40 men need food. All of this food is then produced by all of these farmers. Those farmers need food. So the energy equation for manual labor starts getting crazy big to satisfy the calories the men use.
If you look into the machine, you might have 10 men in the factory producing this machine, and then all of the metal that was mined and refined to do this. However, all of this energy is then in the equipment that has a life of 20 years, so all of that energy is then split for perhaps 2,000 hours a year for 20 years, or 40,000 hours. So to move this rock, it takes 40 seconds, or 1/40,000th of the machine for an hour, and then divide that by 60 minutes, and then by 2 – or….
To move that rock, is 1/4,800,000th of the energy used to produce the equipment plus the energy used for the fuel,.
In the LAST example, assume all of those guys who worked at the factory to build the truck used to arrive in fossil fuel cars. Now, they all have battery powered cars. The equipment in the factory WAS powered by electricity created from natural gas, but now it is from nuclear. The metal mined to produce the truck is now all mined by battery powered vehicles powered by nuclear.
So with the LAST example, the energy used to create the truck may be the same, give or take – but now the means of powering that truck are green with batteries and solar/wind/nuclear.
The LAST example shows how potential advances in battery technologies, nuclear, and green can then potentially use little to no fossil fuels in the entire process.
Overall, what this shows is that 100 years ago we were less productive with mining than today, and the energy used may have been X. Today, we may produce 100 times what men did with their backs and sweat and perhaps use X/24 for the amount of energy used. My contention is that with technology and efficiencies, 100 years from now we may be 10x more productive and use x/24 the energy we use today.
Therefore, I feel that if gold can buy the same relative goods over millennia, but productivity and tech continuously reduce the energy need to produce it, then it’s possible that the ENERGY STORE metric isn’t necessarily correct. Meaning, 100 years ago, we may have needed 1 trillion newtons of force to mine one ounce of gold, and today, we may have only needed 50 billion newtons of force to mine that same amount. So one ounce of gold 100 years ago in theory should have more energy stored than today’s gold. However, that’s not true.
If I’m looking at the constant, it’s the FINANCIAL ENERGY store that is the same.
What? Let’s look at the math here….
Financial energy and goods and services – understanding Return on Investment (ROI)
What really bakes peoples’ noodles over time is inflation of US dollars. You look at nominal values. As I have shown with my gold example, you can pretty much see over the last 50 years that most goods, the Dow, and real estate all are roughly within 20% of gold’s value, plus or minus. you have some outlier areas, but they always seem to mean revert – in gold. This is a terribly important concept. Because, what if this was true not only for the last 50 years, but 5,000 years?
This would show a constant….
The PHYSICAL energy used to produce goods and services all improve at the same rate. Meaning, when you go to mine gold in 1900, you have limited means of technology. The same limited means a tailor may have to get the goods to produce his suits. The same limiting factor on machine that makes something more expensive in labor hours holds true for sewing fabric.
So…one can suggest that as a function of time…technology improvements drive costs down in everything. And, as a result, productivity increases.
What is constant, everywhere, is the first rule of business. Day 1 of business school. First sentence I heard.
“A business is in business to make money”.
If you understand this concept, it means you will not produce goods for LESS than the cost to produce them, or you go out of business. Likewise, you also learn in economics, that if you charge too MUCH for something, someone else enters the market and sells it cheaper, thus pushing you out of the market.
Overall, this means in order to produce a good or service, you have…..
Inputs –> Processes/refinements –> Output
Inputs are x dollars, processes are physical energy and methods, and outputs are financial dollars in y.
Now, if the outputs are LESS than the inputs, you do not make the product.
Additionally, if the MONETARY inflation enters the system and inflates the DOLLARS in the system it would stand to reason that all goods and services would appreciate at that constant rate of inflation. What I did was measure everything in gold, as it appears everything has a static relationship relative to gold.
However, if you look at this in a gold input/output as opposed to a nominal dollar output, you gets….
Grams of gold to produce good (x) –> process/refinements –> grams of gold produced by good/service (y)
You then take (y-x)/x to get the ROI in gold. THIS is your constant. And THIS is what you are trying to store in gold or silver.
For example, when you mine, the costs in dollars to build the mine, staff the mine, buy the trucks, and get the fuel may turn out to be $2 billion over the life of the mine. If the expected outcome (output) is $3 billion, adjusted for inflation over that time, you have a profit then of $1 billion. So, this could be a 50% return on investment.
You then STORE that relative value in gold. You have just stored FINANCIAL ENERGY that can be used at any time over millennia. Perhaps that ROI number is 50% for all mining. I know this usually the IRR, but humor me.
If you have a known constant in mining, across all mines, ever – you can see the financial energy going into it, and you can see the financial energy output, perhaps 25% for all things ever mined.
This 25% is your constant. Or whatever the IRR/ROI is of the process you are doing. We like to measure output of ROI in dollars – but again, let’s measure in GRAMS of GOLD. GOLD is your money store. And THIS is what it capturing all of the financial AND physical energy used to create the output. RULE: You do not put FINANCIAL STORED ENERGY into this process unless the output is greater STORED FINANCIAL ENERGY. You are using materials, knowledge, skills, methods, and procedures to do this.
Meaning, you take whatever value you have now, and use processes and technology to then increase the value of that by 25%. You then STORE this financial energy for later usage in the form of GOLD (money). Most people have this as cash, but that is a depreciating store of value due to monetary inflation.
So when you are mining for gold, essentially the idea is to take your gold stored energy, crack it open, and increase it by 25% to store it later.
Additionally, what I showed in my previous column is that gold, as a money asset class, has relative value to other items in that class and in other asset classes.
So…..whether you are mining for gold, creating a suit, refining gasoline, whatever…
x goes through ABC to produce y.
ROI = (y-x)/x
This ROI is constant when producing goods…like suits, gold, silver – and THIS is why they have relative value to each other over time.
So this ratio, essentially, measured in gold grams (or ounces) could be 25%, on average. Perhaps certain industries like mining may need higher ratios due to the massive capital expenditures. Perhaps services may require less. Maybe this is less in industries with less capital expenditures.
Gold is the one item of all of them that has an indefinite lifespan. Otherwise, we may value things in goats. Or suits. Or tulips. Silver can tarnish. Gold appears to be the best OUTPUT of all processes. Cash may be the currency tool of easy use, but the gold output of any process captures the FINANCIAL ENERGY put into the process.
Steve also talks a lot about an energy cliff. And, when this comes, all hell will break loose. It’s VERY possible. He mostly discusses the concept of peak oil, lack of exploration projects, and how wind and solar have zero chance to make up for this loss of energy being produced. I think this is spot on. However, I wanted to paint a picture here I touched on above.
For me, I believe new discoveries in battery technology will be the next biggest thing since the microchip. Before that, nuclear power. Before that, the printing press. There’s a lot of other things you can fire in there, but here’s my top 3 inventions of all time
- The printing press
- The future battery
- The microchip
I put the printing press at the top because it was the single-most important discovery in all of history because of the way you can educate your population – which then fuels discovery – and productivity. Microchips further invented micro computers which then helped with office space productivity by many orders of magnitude.
But I feel the Lithium Ion battery may be 5-10-20 years away from a time where we can store ungodly amounts of energy. Right now, you have Teslas that can go what….500 miles on a single charge? When you are talking about physics above with newtons of force, this same thing holds true with battery power. Amp hours – all that fun jazz. See, one problem we have with “green” power generation is we can’t really store it. I worked for a company that produced hydro electric turbines for hydro dams all over the world. See – they generate power, but you then have problems perhaps at night time when demand goes down. Maybe they re-route some of that power, but they may turn off turbines to then stop generation. With solar, it’s a constant stream when the sun is out. Or, wind turbines when the wind is going. But your base power plants like nuclear generate all the time. Other power sources may dial up and down usage as generation is needed.
Which then always got me. All of this power from dams we could generate and store for later? To me, the thought was simple. Find ways to store this energy for later. Problem solved. Except it’s not that simple.
I feel that in the next 20 years or so, we may be able to create great amounts of battery storage with better and better technology. We can thus capture more hydro, solar, and wind at peak times, then perhaps draw off of these batteries at other times. Furthermore, I feel like the battery pack Tesla sells, these might be in every house. Maybe you have solar panels. Maybe you can store weeks of energy in your local battery at your house, even with 2 electric cars? Maybe you can sell energy back into the grid batteries on demand?
When Steve talks about the energy cliff, he might not be wrong – but batteries that may cost too much now may become more in fashion at $150 oil. As more attention goes to these batteries, more and more are produced, which drives costs down.
What they happens is a battery infrastructure is developed. At power plants, houses, cars. We will be able to capture and store more power than ever before. And with that whole amp-hours thing, energy density is needed for portable packs to run in giant trucks. Mills can run off of these grids, that have more power created from hydro and stored.
Necessity may drive us to a battery revolution. And with this, the generation of this energy itself may take less energy. The raw materials mining can run on battery driven, AI directed vehicles.
So I do not disagree with Steve on the energy cliff coming – but I feel this may then have us hyper focused on battery storage technology so we can better store energy from existing sources that we may be turning off.
This may mean a major move away from petroleum fuel products down the road. And, as a byproduct, this can contribute to the “green” society that uses significantly less fossil fuels. I don’t see this changing for planes anytime soon, but if we can get this battery revolution going, this could prove to be perhaps one of the top inventions of all mankind – the “high density energy storage battery”.
This is what led me to think that gold and silver may not be “energy stores”, but financial energy stores of wealth.
Wrapping this up
Whether you mined gold in Egypt during the time of pharaohs or during the California gold rush of 1949, or even 100 years from now – you can observe the energy needed to produce goods and services will decline with process improvement and technology. However, what would be constant over time would be the fact that gold is the storage of that input and output, and the investment of gold (money) into business (making suits or mining) all returns a constant output which is a factor of ROI. This resulting output is thus a financial energy store of value. Physical energy needs may VASTLY change over time, but the FINANCIAL ENERGY used to get this output is a constant over thousands of years will remain constant.
If you have gold as your financial store of energy, you can then convert this to currency (like the dollar) in order to activate its value. You can then take that cash, and convert it to another item within that “money” asset class, OR you can convert it asset classes like stocks (business) or real estate. By converting to currency and moving it to stocks or real estate, the idea is that you are then transferring this store of energy into something else that is tangible. The OUTPUT of that process – should then potentially resolve as increased cash – converted to money (gold).
Therefore, gold – and other items – are financial energy stores. Gold just happens to be the most durable of them, which makes it perfect to be the heliocentric center of our society’s financial solar system.
These energy stores can be activated and deployed to grow this asset and then store the output back into gold. While houses are a great store of wealth, over time they need repair and upkeep, and have costs associated with taxes. While the value may grow over time, there is an upkeep cost. The value this appreciates over time should be greater than the upkeep cost. When selling, this can thus be converted back to cash and gold. With stocks, you are buying shares in a business that could last 5 years or 1000 years, but the odds are you will observe business cycles and find advantageous times to sell, thus being able to transfer this gain into cash and store in gold for thousands of years, if needed.