TOILET PAPER, CHICKS AND GOLD BARS

I’m not counting any chickens. ~ Jeff Bridges  

How’s your Sheltering-in Place (Sh-i-P) coming along? We’ve been at it since Monday, March 16, which seems like... The SF Bay Area counties now have extended their Sh-i-P orders through May 3. Further extensions, with masks, are only a matter of time.

Don’t worry, this blog doesn’t get within 6 feet (or should it be 27 feet, see here) of casting judgement on how rigorously any of us are following our Sh-i-P rules. It is only semi-virus-related so I consider it mildly other-worldly, since covid-19 occupies 110% of the public’s conscious attention, or so the media presumes.

Instead, this blog centers on toilet paper (TP) and chicks 🐥 (not the Dixie kind) that have flown off stores’ shelves, just like TP. For more fiscally-focused folks, I also consider gold, a precious metal that humans have valued through innumerable crises of every sort, including ones like this one.

It’s an understatement to say many aspects of people’s behavior have been changed over the past several months, during this initial chapter of covid-19. Countless folks’ expectations have become frenzied by Sh-i-Ping, the Administration’s pinballing, sometimes deceptive messaging and the media’s ceaseless proliferation of coronaviral stories – letting us know for example when Papua New Guinea registered its first coronavirus case. Such untethered expectations change personal consumption patterns, create panicked, feverish purchasing and subsequent emptied shelves. Voila, resulting scarcities of toilet paper, chicks, and glass gem popcorn seeds, among other items.

Toilet Paper: (FYI, the use of the colon as part of this subsection title is purposeful.) What is it with TP anyway? Normally it is an ordinary, inexpensive consumer product that sells for $0.67 per roll at Costco, when it’s in stock. That’s very different than TP’s price in Venezuela, where hyper hyperinflation has taken its toll. A roll of TP in Caracas costs at least 2,600,000 bolivars. Yet another of the multitude of reasons to not live there.

Toilet paper has been around for a good long time. The first documented human use of TP happened in China during the 6th century AD – 15 centuries ago. In Ancient Rome, a sponge on a stick was often used, and, after use, placed back in a pail of vinegar. In other locales, wealthy people wiped themselves with wool, lace or hemp. Less wealthy folks used rags, wood shavings, leaves, grass, moss, water, snow, seashells, or corncobs. The rise of publishing in the 18th century led to the use of newspapers and cheap, popular books’ pages for cleansing.

However, actual rolls of TP didn’t accompany toilets until more recent times. Commercial toilet paper began in the mid-19th century, with a patent for roll-based dispensers filed in 1883. Indoor plumbing first started to be placed in American homes in the mid-1800s. In 1940 nearly one-half of US houses lacked hot piped water, a bathtub or shower, or a flush toilet. Toilet paper dispensed from rolls was first popularized in 1890 when the Scott Paper Company began selling it, coinciding with mounting use of indoor, flush toilets. Now more than seven billion rolls of toilet paper are sold yearly in the US. Over time, deflation has struck the rolls. The size of a general single sheet of TP has shrunk 26% since 2000. Nothing’s sacred.

Today’s TP scarcities recall another shortage when Johnny Carson joked in his December 19, 1973 Tonight Show monologue that “there is an acute shortage of toilet paper.” There really wasn’t any shortage; on stage, he verbally made it up.

The first OPEC oil embargo also was happening when Johnny joked and created large amounts of public anxiety as well as blocks-long queues at gas stations. Carson’s audience apparently found his jest more frightening than funny. His “news” sent large numbers of shoppers into grocery stores to buy and hoard toilet paper. Thus an actual shortage was born. The Scott Paper Company urged people to stop panic-buying their product. Nevertheless for several months, TP was in short supply or actually absent from store shelves. TP was bartered for, traded, and even sold on the black market.

 That was then, the present-day TP shortage, shown above, arose from consumers’ anxiety-driven purchases, but not from a misplaced joke. It has been happening not just in the US, but in Australia, New Zealand, Hong Kong and Japan. Why? Perhaps shoppers fearful of coronavirus quarantine measures have stockpiled essential supplies to last out a week or two (or more) of isolation. In Hong Kong, ambitious thieves actually held up a supermarket to steal a TP delivery.

Buying TP is a relatively cheap action and satisfies people’s need to think they are “doing something” when they feel at risk. Also, customers may sense that buying TP is part of their crucial “preparation process” for Sh-i-P. Finally, TP is utterly non-perishable, has few straightforward substitutes and is one of the rare products someone can buy in larger-than-normal quantities that is guaranteed to be eventually used before it goes bad. Hence, large expanses of emptied-out TP shelves exist here, as displayed above. Not to worry; breathe deeply, it’s hopefully temporary.

Chicks. Everyone loves baby chicks, especially at Easter-time. Demand for new chicks is off the charts this year. Flocks of people have been rushing to raise backyard chickens amid their coronavirus concerns and egg shortages. Hatcheries report an increased demand for baby hens as more people want to grow chickens for eggs, meat and companionship. Baby chicks are certainly cute, as shown below, and look great under the Easter bush.

 The USDA reported last week that the national inventory of shell eggs decreased 10% for the second consecutive week and the nation-wide supply of Large eggs declined 14%, characterizing the current run on chicken eggs across the nation. As a consequence, wholesale prices for shell eggs continue to show sharp daily increases, rising to levels not seen since March 2018. In some areas, wholesale prices of eggs have tripled during the past three weeks, which has spurred more panic buying of eggs and chicks.

This year, Cackle Hatchery, based in Missouri, has seen its chick sales rise 100%. It’s been so hectic at McMurray’s Hatchery in Iowa that callers wanting to order chicks have been put on long holds. The hatchery is nearly sold out of chicks for the next month. McMurray’s has seen a rise in “homesteader types” and others who want to raise their own chickens. A growing number are first-time, wanabe chicken farmers.

“This has to do with the perceived hoarding that is going on,” Bud Wood, McMurray’s owner and president, said of the surge. “People are afraid they won’t be able to buy eggs and chickens in the grocery store, and they don’t want to have to go to the store and possibly be infected.” “They’re panic-buying chickens, like they did toilet paper,” stated Tom Watkins, McMurray’s Vice President.

My daughter Lindsay and her family have already raised backyard chickens several times, and are about to start anew. As a veteran chicken-raiser she offers the following observations. Newly-hatched chicks are fragile creatures that first take careful indoor tending, including the use of heat lamps to keep them warm. Her kids have likened them to little-dinosaurs. Once they’re living outside, you must keep your chickens safe from predators. One of their chickens was picked off by a dive-bombing hawk while they were still young, and several others met their demise by racoons. Be prepared for the long-haul; it takes six to nine months for them to mature enough to produce eggs. Once they’re big enough, letting them free-range in a large run during the day means your yard’s bug population will surely decline because of their constant search for food, as well as have more nutrient-rich eggs and happier chickens. Remembering that they’re farm animals is key; they’ll poop everywhere and their cage needs to be cleaned out regularly. However, you can use their composted droppings as a high-nitrogen fertilizer in your newly-created virus “victory” garden. (Don't use fresh chicken manure, it'll burn the plants.) Finally, if you add a bit of cayenne pepper to their food, you’ll get really gorgeous orange-yolked eggs, that aren’t spicy. Yum.

Gold. Given the deep drops in stock prices and increased market volatility, demand for gold is rising, even for 400 troy ounce (27.4 lb.) bars similar to those in Ft. Knox’s vaults. There are over 368,000 golden bars at Ft. Knox which used to “back” our dollar until 1971. Thank goodness the market for gold and gold bars isn’t closed like your favorite local bar is. You’ll want that quarantini for home delivery, right? So let’s take a shallow dive into gold, where unlike TP and chicks, shortages don’t exist, yet.

 Gold is a precious metal that has been used for coinage, jewelry, and other arts throughout recorded human history. The first precious metal coins, made of electrum an alloy of gold and silver, were used as money around 600-500 BC in several places around the ancient world; in China’s Yellow River valley, in India’s Ganges River valley and by the king of Lydia in western Asia Minor (modern Turkey). The Lydian coins weighed anything from a slender 0.006 troy ounces up to half an ounce, varying by value. These coins were stamped with animal heads, such as lions and rams to discourage counterfeiters.

The world’s largest gold producer is China, by a large margin. The US, the fourth biggest producer, supplied 253 tonnes in 2019. About one-half of all gold produced is used in jewelry, 40% in investments and 10% in industry. Overall, there is about one ounce of refined gold in the world for every person. Being a mature commodity, the world supply of gold increases at approximately the same pace as population growth. The several gold crowns that I “wear” in my mouth thus have accounted for an infinitesimally miniscule portion of “industrial” gold usage.

Many investors look to gold in periods of market turmoil because they believe it holds value through recessions better than other assets. And guess what is now coming to an economy and stock market near you, a recession. Over 10 million Americans filed for unemployment benefits in March. Precious metals like gold have often served as a hedge against market volatility, political instability, currency weakness, and economic collapse. Demonstrating this increased demand, the price of gold has recently risen, as shown below.

GOLD SPOT PRICE, March 19 to April 3, 2020 

Will investors turn to gold as covid-19 continues its horrific assault on our health? Or will it be fools’ gold? If the nastiest predictions about the economy’s second quarter performance become valid, it’s certainly possible gold will be good. Will it be another golden age? Exceedingly unlikely.

A BUG AT THE BANK? SAY IT ISN’T SO

We don’t have the gold standard. It’s not because we don’t know about the gold standard, it’s because we do. ~ Allan Meltzer    

Gold has been used by humans as a symbol of value and prestige since antiquity. Its purest 24 carat form is a bright, reddish-yellow dense, soft metal. Gold occurs as nuggets in rocks, in underground veins and alluvial (loose sediment) deposits. So-called “gold bugs” – people who reverently believe gold is the ultimate standard of value – have occupied positions of societal power and influence for a very long time, but not recently. Gold bugs haven’t sat at the citadels of US public authority for almost 90 years; that may soon change if #45 gets his way. Oh my.

Consider first some golden history.

The seemingly eternal allure of gold obliged our ancestors to find it. People have mined gold for at least 7000 years in what’s now eastern Europe and the Caucasus, as well as China, India, Mesoamerica, Spain, Ireland and Wales. Because gold served as the primary medium of exchange within the Roman Empire, they developed and used ground-sluicing methods on a large scale to extract gold. Historians believe the Roman invasion of Britain in the first century AD was principally motivated to expand their supplies of this prized metal.

The first precious-metal coins were used as money in several places about the same time, around 600-500 BC; in the Yellow River valley in northern China, in the Ganges River valley of N.E. India and by the king of Lydia in western Asia Minor (modern Turkey). The Lydian coins, shown below, were made from electrum – an alloy of gold and silver. Officials stamped images on bean-sized lumps of electrum that helped guarantee the value of each coin, and discourage counterfeiting. If only.

Lydian coin

Following the lead of Lydia, most nations have employed gold specie to conduct commerce for centuries. During the Middle Ages, Byzantine gold coins were used throughout Europe and the Mediterranean. Twenty-two carat Spanish Doubloons were widely used in Europe and the Americas from the early 16th to mid-19th centuries. During its primacy, the Doubloon served as a multi-nation de facto gold standard, a monetary system in which the standard unit of currency is based on a fixed quantity of gold. The US formally adopted the gold standard in 1873, using its $10 gold eagle coin as the nation’s primary currency unit. The US mint produced gold coins of various denominations from 1872 through 1933. Like many other nations, our country effectively abandoned the gold standard in 1933 during the depths of the Great Depression. It finally and officially severed the link between the dollar and gold in 1971. The image below shows our “lady liberty” gold dollar coin first issued in 1849.

US Lady Liberty gold dollar coin

The late 1840s ring a very special chime in the golden history of the US.

The California Gold Rush began in January 1848 when James Marshall found a placer nugget in a river at Sutter’s Mill in the Sierra Nevada foothills almost 50 miles northeast of present-day Sacramento. Proclamations of his discovery created such a popular incentive for people also wanting to “strike it rich” that over 300,000 people soon headed for California from nearby and far-away places. They came from each of our then-30 states and every territory. They also arrived with the gleam of gold in their eyes from around the world, including the Sandwich Islands (aka Hawaii), China, Latin America and Europe. Because of gold’s draw, California rapidly became a state in 1850 without first being a territory, unlike any other western US region.

There turned out to be a lot of gold in the Sierra Nevada. By the end of 1848, the first year of the Gold Rush, $10 million in gold had been produced. The biggest nugget ever found was a bit larger than a shoebox and weighed nearly 200 pounds. By 1865, $785 million worth of gold had come out of the ground in California, probably making the difference in which side won our Civil War. This multi-million dollar mountain of gold represented 60% of the total US budget in 1865. It significantly contributed to keeping Union soldiers clothed, fed and paid, and bought much-needed guns, bullets and armaments. This massif of gold would be worth $12.9 billion in today’s dollars. Very, very little of this gargantuan sum stayed in miners’ pockets; merchants like Leland Stanford and Mark Hopkins became far richer. Notwithstanding putting California on the US map, the Gold Rush also decimated numerous indigenous Native American communities. Untold environmental damage accompanied the mining, especially the hydraulic variety that used 30,000 gallons of water each minute.

Where did all this lustrous California gold come from? Not from fairy dust. According to John McFee’s superb Assembling California that intertwines the state’s geological and human history, the Sierra’s deposits of gold were precipitated 150 million years ago when the third and last giant (10,000 square mile) island-arc fragment of the Pacific plate – the Smartville Block – accreted into the westernmost North American plate near where Auburn, California is now. The Smartville Block not only doubled the width of what is now California, but created its bountiful Mother Lode as well. California’s Mother Lode has produced more gold than any other state – more than 106 million ounces since 1848. In modern times about 38% of gold is used for jewelry; coins and official government uses, 22%; electrical and electronics, 34%; and other uses, 6%.

Now that we’ve scratched the surface of the history and source of most of the nation’s gold, let’s return to the present time and Judy Shelton, who adores gold.

Dr. Shelton has recently been nominated by #45 to fill a vacancy on the Federal Reserve Board of Governors. Although her nomination may not be as far-fetched as the president’s previous attempt to install the totally unqualified Herman Cain on the Board, she is quite controversial. She belongs to the justifiably much-endangered, very conservative tribe of modern-day gold bugs. Like her fellow bugs, she wants to reverse President Nixon’s decision to drop the gold standard and re-adopt it now. She has publicly praised #45’s tax cuts and deregulation policies. She approves of the president’s misguided trade war with China as a means of forcing it to “play by the rules.” As I’ve mentioned before, no one's won this war. So far the president’s tariffs have cost us taxpayers $28 billion. That’s what the Trump admiration has paid the farmers they wounded, with no end in sight. Nice call, Judy. 

Virtually all knowledgeable monetary economists believe returning to the gold standard would harm the economy and its citizens. The Federal Reserve’s principal means of influencing the macroeconomy is by increasing or decreasing the nation’s money supply depending on expected economic conditions. It increases the money supply if a recession is expected, thus reducing interest rates to spur loans and investment. The Fed decreases the money supply causing interest rates to rise, towards the end an expansion, if higher inflation is expected.

Monetary policy is hardly an exact science, but it would be significantly constrained under a gold standard. Why; because our money supply would essentially be determined by how much gold is produced.

Dr. Shelton has stated, “we make America great again by making America’s money great again” through returning to the gold standard. That’s patently absurd. Dean Baker, a macroeconomist who was one of the first to identify the 2007–2008 US housing bubble that lead to the Great Recession, likened returning to the gold standard as prescribing chemotherapy for someone who doesn't have cancer. An apt diagnosis Dr. Baker.

Turning the economic clock back and re-adopting the gold standard, as Dr. Shelton and Mr. Trump have fantasized, would link the money supply to gold production. If they actually thought through this fundamental relationship imposed by the gold standard, they would not at all be pleased. I don’t believe they’ve thought about it at all; it’s simply a sporadic gesture memorializing the unfamiliar “golden days” of the past. It would not please #45 one single golden leaf to learn that China is the world’s largest gold producer. 

Since the end of the last recession, US gold production has increased a meager 0.87% per year. This is why many economists believe that a re-imposed gold standard would act as a limit on economic growth. As an economy's productive capacity grows, then so should its money supply. But because a gold standard requires that money be backed by the metal, the scarcity of gold constrains the ability of the economy to produce more capital and grow. Thus a gold-standard based monetary policy could no longer be used to stabilize or grow the economy.

It’s likely that the Senate, under the imprudent leadership of Mitch McConnell, will confirm Judy Shelton. A single gold bug will then sit on the seven-member Federal Reserve Board. Her practical and institutional influence will be limited. But that’s one too many bugs at our central bank for anyone who wants an independent Fed to be a viable economic counterforce to #45’s feckless thrusts. Where’s the political Terminix when we need it?