The Gold Standard is Not Without its Costs

News from the department of “life is bigger than art:” A few days ago I posted a fictitious account of a future Wells Fargo Bank operating on a revived gold standard. Turns out the real Wells Fargo, now a regular large commercial bank with its roots in the California gold rush, has a branch in downtown San Francisco at the site where the bank was first opened in 1852. The branch had an exhibit of historic artifacts, including gold nuggets from the gold rush era. I say had, because last night thieves rammed an SUV into the lobby and made off with the nuggets!

All of which underscores the fact that security is among the real costs associated with a gold standard. There is no law of nature that says free banking has to be based on gold, as I pointed out in my post. The market would, if free to do so, sort out costs and benefits and find the sort of system or systems that best satisfies consumers.

I love Wells Fargo; They Hate Me.

While I have this blog window open I’ll add some unrelated comments about Wells Fargo. I am a happy customer and I credit this to the stiff competition among banks at the retail level. I regularly get solicitations from banks offering $100 bonus to open an account, with strings attached, of course but I stick with Wells Fargo. At the macro level our current banking system is gravely flawed but it works well for us retail customers.

I get free checking, a handy web site, and ATMs all over the place. When my credit card was hacked recently, they replaced it promptly and took my claims about false charges at face value. My average credit card balance last year was nearly $4,000 and I paid zero interest. That’s because I pay it off at the last possible date, which is 25 days after billing. I pay an $18 annual fee but got $300 in cash rebates last year. I never pay late fees or penalties of any kind.

I do not have a savings account with Wells Fargo because those accounts are a joke. Their most popular savings account yields (drum roll) 0.01%. Not one percent, but one hundredth of one percent. For every thousand dollars I might keep in a savings account, I would get ten cents in annual interest, taxable. I do, however, hold shares of Wells Fargo preferred stock which pay 6.8% current yield (for you experts, a somewhat lower yield to call). The shares appreciated about 70% since I bought them at the bottom of the Great Recession.

So I am a money loser for Wells Fargo. They earn merchant fees from my credit card use and that’s about it. They count on their average customer’s ignorance and lack of financial discipline to generate fee income and to carry high-interest balances on their credit cards. Dear reader, if that describes you, don’t despair. You can get out in front of the wave and let the banks work for you, not the other way around. It just takes a little knowledge and some discipline. Most important: if you can’t pay cash for a purchase (or use a credit card paid off before interest kicks in), you can’t afford it! That includes cars. Save up your money and buy a junker. Mortgages are OK for home purchases because of tax breaks, but even there, start with a healthy down payment.

Here endeth today’s sermon. Go in peace and freedom!