What NYC Taxicabs Can Tell Us About the Future of the Gold and Silver Markets
This article was submitted by Addison Quale, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
A fascinating situation is unfolding in New York City, highlighting the clash between government-enforced monopolies and the free market. More importantly, it also foreshadows what will eventually happen to the gold and silver market as the US dollar and other currencies collapse.
As you may know, Uber has made tremendous inroads into the taxi market in NYC. With its greater convenience, low prices, and employee-friendly work conditions, its success threatens to drive the city-regulated yellow cabs out of business.
Jeffrey Tucker highlights the tremendous impact Uber has had on the New York taxi business in a piece he wrote for The Freeman:
In less than one year, we’ve seen the astonishing effects. Not only has the price of taxi medallions fallen dramatically from a peak of $1 million, it’s not even clear that there is a market remaining at all for these permits. There hasn’t been a single medallion sale in four months. They are on the verge of becoming scrap metal or collector’s items destined for eBay.”
A New York City yellow cab medallion confers the right to own and operate a taxi in the five boroughs. As Tucker points out, it was recently worth as much as $1 million. That was before the rise of Uber. Now its value is estimated at around $400,000. That represents more than a 50% decrease in cost.
But even at that discount price, there hasn’t been a medallion purchase in four months. There is literally no market for taxicab medallions right now.
That raises an important question: why has the market completely locked up?
Obviously, if you recently purchased a medallion for $1 million, you are pretty upset right now. You want to recoup as much of that investment as you can. Ideally, you want to sell it for at least $1 million so you can recover your cost. Of course, you’d probably be willing to take a loss to get out from under it. Maybe you’d accept somewhere in the neighborhood of $800,000.
But thanks to Uber, the market dictates your medallion is only worth about $400,000. Considering the current trends and the growth of Uber’s business, that figure might even be generous. From a buyer’s perspective, why would you even pay that much? Part of the value of a taxi medallion is based on the assumption the government-run monopoly can continue to ward off potential competitors.
It clearly can’t. Perhaps NYC taxi medallions are on their way to becoming completely worthless.
Long story short, anybody wanting to buy a medallion at this point will only pay a fraction of $1 million. But taxi medallion owners are unwilling to take that kind of hit on their investment. As a result, no deals are being made.
This demonstrates perfectly what happens when an asset’s bid is withdrawn. In other words, when it goes “no bid.”
Keith Weiner illustrates this phenomenon by creating a scenario in which a massive earthquake is predicted to decimate Los Angeles:
Suppose there is stress in the market, a crisis impending or active. The bid recedes, and can even withdraw entirely. For example, what if the US Geological Survey were to say that there will be an earthquake in Los Angeles, 15 on the Richter scale, and nothing taller than a dollhouse will be left standing? You would not find any lack of offers to sell real estate. But what is the price of a house in LA? There wouldn’t be a bid in LA, and maybe not as far south as Chile, as far north as British Columbia, and as far east as the Mississippi River. The bid would come back into the market when the threat was over (perhaps at a much lower level).”
Weiner describes a situation in which the housing market in LA has gone “no bid.” Buyers aren’t willing to pay the prices sellers are asking because all of the houses are likely to be destroyed. In fact, nobody is really willing to pay anything. There aren’t any buyers. The market has disappeared.
How does this relate to gold?
In the monetary world, the US dollar depends on a government-enforced monopoly to support its value, the same way taxicab drivers in New York depend on the city government to enforce taxicab medallions.
So what happens over time as the US government sinks deeper into debt and eventually loses its ability to pay its bills? What happens over time as the government resorts to more and more to ZIRP, NIRP and quantitative easingjust to keep the line moving? What happens as more and more people opt out of the Federal Reserve’s monetary Ponzi scheme and begin to hold their assets outside the banking system? What happens when hyperinflation hits and prices for day-to-day goods skyrocket causing people to lose trust in the value of the currency? What happens when shops start to demand payment in gold and silver instead of dollars?
At some point, owners of gold and silver will refuse to trade their metal for any amount of US dollars. You could roll a wheelbarrow full of currency to a gold owner and plead with him to take $10,000 in exchange for his 1-ounce Gold Eagle. He will refuse. He’ll say, “With the dollar falling in value this fast and the government’s monopoly on money broken, I think $100,000 is appropriate.” You’ll balk because not so long ago, gold was trading at $1,100. You can’t stomach the loss.
At that point, the US dollar will have gone “no bid,” because everybody wants to hold hard assets.
Totally far-fetched and unrealistic you say?
Not at all.
This scenario has played out for every fiat currency that has ever existed. Time and again, people eventually wake up to the fraud foisted upon them by governments and central bankers, and the free market finds a way. Just like the free market is breaking the back of the New York City government-enforced taxi monopoly via Uber, it will eventually find a way to break the back of the US dollar.
When this come to pass, people will be free to widely use the only true and honest money in existence: gold and silver.