John Nash RIP: “Beautiful Mind” Game Theory May Lead to Gold Standard
by Mark O’Byrne, GoldCore
– ‘Beautiful Mind’ Nobel winner Nash dies in tragic crash
– Nash was subject of movie “A Beautiful Mind” with Russell Crowe
– Nash was renowned mathematician who developed game theory
– Game theory suggests that world may be forced back onto a gold standard
– Debased dollar vulnerable to bitcoin, crypto-currencies, silver and gold
– Gold standard could cause a price reset at $10,000
The death of mathematician John Nash on Sunday was met with a degree of sympathy and publicity seldom enjoyed by mathematicians whose contribution to society is usually a quiet, unappreciated one, behind the scenes. The 86 year old was killed with his wife in a tragic taxi accident in New Jersey.
The 2002 movie “A Beautiful Mind” with Russell Crowe popularised the story of his work on game theory – a mathematical study of how decisions are made – and his life with schizophrenia. He developed what became known as the ‘Nash Equilibrium’ for which he won the Nobel Prize for Economics in 1994.
Game theory, according to Wikipedia, is the study of strategic decision making. Specifically, it is “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.”
The most famous scene from “A Beautiful Mind” shows him applying his nascent theory in a social setting. While he and his college friends sit in a bar drinking a group of girls enter, one of whom is a particularly stunning blonde woman. As the young men prepare to descend upon the girls in an attempt to win the favour of the blonde girl, Nash devises a strategy.
The blonde girl is obviously very used to male attention and it probably earns her the jealous resentment of her friends and so the scenario of a group of young men vying for her attention is not likely to lead to a favorable outcome.
Instead, Nash suggests that his friends focus their attentions on the other girls – ignoring the blonde. The other girls thereby enjoy some male attention perhaps amplified by the satisfaction that the beauty is being left on the shelf. The humbling experience then brings the blonde into the range of the young men whereas, had she received their initial attentions she would likely have been unobtainable.
In his excellent 2012 book ‘The Golden Revolution’, John Butler describes how Nash’s game theory would suggest that the era of fiat currencies is drawing to a close and the world will soon be forced back onto some form of gold standard.
Butler believes that the BRICS nations, especially Russia and China, will not stand for a dollar reserve currency in its current form and that this will likely cause them to move back to a form of gold standard. Indeed, since publication of the book the central banks of some BRICS nations have been rapidly acquiring gold – particularly the Central Bank of Russia and the People’s Bank of China (PBOC).
In an important interview with Reuters in 2012 Butler suggested that if one country – he cited Russia – were to back its currency with gold it could cause a 20% collapse in the dollar in just 24 hours. In order to stabilise the currency and in an attempt to preserve the reserve currency status of the dollar the U.S. would be forced against its will to back its currency with gold.
If the dollar were to be fully backed by gold it would cause a dramatic spike in the price of gold. With M1 at nearly $2980 billion at the time and stated gold reserves of 8,500 tonnes, gold would have to be revalued at roughly $9,900 per ounce.
Critics will attack Butler’s bold call in terms of the timing of these events as clearly $10,000 per ounce gold did not happen in 2013. However, the substantive points Butler makes regarding game theory, a return to some form of gold standard and gold potentially being revalued to $10,000 per ounce remain valid.
Indeed, events in recent years such as
– the continuing deterioration of the U.S.’ fiscal position (national debt now over $18.24 trillion and unfunded liabilities of over $100 trillion)
– the continuing debasement of the dollar and decline in its position as sole reserve currency
– Russia’s and China’s steady accumulation of gold bullion reserves
– China’s using gold as an important strategic tool in order to position the yuan as a rival reserve currency and enhance Chinese monetary, financial and economic power
all suggest that Butler’s timing will have been wrong but the call may be proven correct in the fullness of time as competitive currency devaluations and currency wars escalate .
The status of the dollar as a global reserve currency is by no means guaranteed. A fiat currency which suffers continual debasement through currency creation on a scale never seen before in history will not be tolerated indefinitely.
Continuing demand for gold and silver bullion throughout the world and especially in Asia and the emergence of cryptocurrencies and bitcoin show the world is moving towards alternatives already.
Owning physical gold in secure vaults will protect one’s wealth from the instability stemming from a disruption to or transition from the current fragile international financial and monetary system.
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Today’s AM LBMA Gold Price was USD 1,194.00, EUR 1,095.56 and GBP 774.77 per ounce.
Friday’s AM LBMA Gold Price was USD 1,211.00, EUR 1,083.45 and GBP 772.96 per ounce.
Yesterday was a spring bank holiday in the UK and the U.S. observed Memorial Day.
Yesterday, gold dipped below $1,200 an ounce near a two week low while the U.S. dollar climbed higher after Fed Chair Janet Yellen was seen to reaffirm the central bank’s tightening stance on monetary policy.
Overnight, gold bullion in Singapore was down 0.8 percent at $1,197.46 an ounce and gold has traded sideways in London too.
Today, there is more U.S. economic data due – core durable goods, durable goods orders, HPI, flash service PMI, CB consumer confidence, Richmond manufacturing data, and new home sales. Negative data should see gold rise and positive numbers could see more weakness.
The outlook for Greece remains very uncertain. If they do not make their IMF payment next week it may trigger more safe haven demand for gold bullion.
The risk that the heavily indebted Chinese economy goes into recession and drags the U.S. and the world with it remains underestimated. China’s top banking regulator warned overnight of rising credit risk from real estate, local government debt and “unconventional” forms of finance, sources with direct knowledge told Reuters.
The regulator highlighted Beijing’s struggles to prevent risky debt from engulfing a stuttering economy.
In late morning European trading gold is down 1.06% at $1,194.05 an ounce. Silver is off 1.99 percent at $16.76 an ounce and platinum is also trading off 1.37 percent at $1,132.20 an ounce.
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