The Gold Standard?

[nicoenarg]

i wish people would stop using the term "conspiracy theories". it's a way to automatically discount somebody's opinion right off the bat without even stopping to remotely consider the information they are presenting.

i don't understand how you can also say that no arguments have been made for why a tangible backed asset is better. it's so that governments and banksters can stop stealing from the people by printing money out of thin air.

gold is not the perfect solution. it is an attempt to force governments to live within their means by tying the quantity of money to something physical. surely, the world economy would not be in the situation it is today if we did not have rampant money printing.

and that is not a conspiracy theory.

It is a conspiracy theory when someone says "OH MY GOD, someone has a picture with Lord Rothschild, they are TAKING OVER THE WORLD!!!!!!!!!" or some such thing. Anyone writing statements like that has no proof to back it up, and to be honest, I have no proof to go against it either because the theory was created out of thin air by someone who believes in a worldwide conspiracy of some sort.

If people believe in these CONSPIRACY theories, I'm fine with it, but if you're going to cry foul when someone doesn't pay attention to the theories that sound almost as real as the existence of Zeus or Mithra, then it would be better for you to present proof. And by proof I mean PROOF, not opinion.

If you say the world hides the truth and that's why getting any proof is hard then we're going in circles with these conspiracies.

You say gold is better to stop the governments from printing more money. How do you stop countries and individuals with the most gold from using gold as a weapon? How do you make sure that people remain honest?

The problem with the world today is fiscal irresponsibility, not any one system of economic thought. You can have gold, silver or fiat currency, nothing's going to change until there is a proper framework in place that makes sure that at the end of the day responsibility and justice prevails.

Your "quick fix" method of gold solves the current problem on the surface, not the root of the problem. Yes if you get rid of fiat currency or back it with gold, you've got no extra money than the gold that is present, but where's the guarantee that, say, China doesn't bomb the rest of the world to stone age to get the gold if they don't comply with its threats? Or the US? Or Saudi Arabia?

Its beautiful when you talk about everything as if life was a theory but when you're hit with reality you think "Oh but I didn't say it should be this way, they didn't follow it exactly...next time around it will be better."

Why don't we stop kidding ourselves already and think of something that actually works! And I'm not presenting any ideas, like I said, I am not either for or against any opinion presented here. But I do see huge problems in both systems. Fiat currencies breed irresponsibility and gold breeds fertile ground for imperialism.

 

[PhilipDT]

Sorry I got a bit left behind by this thread, real life and all. To clarify

This is what the whole thread was originally about: Gold's value HAS already been created out of thin air. As such it could be debased far more rapidly, and violently than growing the money supply could ever debase the dollar.

i don't follow you at all on this one. how has its value been created out of thin air and how could it be debased far more rapidly than paper money? it's not physically possible to create gold at the same rate as paper.

How has the value been created out of thin air?
Its value has been created out of thin air because its trading price is the result of a very long term speculative bubble. People have basically agreed to accept gold at a certain price because they're confident that someone else will be willing to buy it later for more regardless of the intrinsic value or any related supply/demand considerations. Kind of like the tech stocks in the late 90s, buy now because they'll be someone wanting to buy for more tomorrow, doesn't matter that the company doesn't do anything, doesn't make any money, doesn't have any plans to make any money, and has burned through $100 million in VC in the last 12 hrs.

How could it be debased faster than paper money?

Bubble bursts. Just takes a critical momentum, one or two things before everybody is trying to sell and get out before it goes any lower. Not saying its going to happen, but I could easily see this latest round of air thats being forced in to the bubble in the last 3 years as being what brings it to the bursting point.

It's not physically possible to create gold at the same rate as paper.

True, but there is no need to actually create gold in order to debase its value as a commodity. Because gold trades almost independently of its demand for real (non speculative) industry. Also, mercury 196 can be transmuted into gold, currently its not economically feasible to do so but in the future who knows? Look at what happened to natural pearl prices with the introduction of cultured pearls to the market.

 

[TrevorCito]

Thanks for every reply and counter reply.

I'd like to hear in positive terms
what are the merits of a fiat currency

To me, a fiat currency enables rapid changes in money supply which is a powerful tool in the hands of a responsible central bank and government. It can be used to stimulate or depress an economy quite effectively through the volume and rate by which it circulates.

While money (fiat or other) sets the price at which something is sold or purchased, it does not determine the value.

Two important factors that contribute to economic growth are the volume of money in circulation and the rate at which it changes hands or moves through the economy.

If an economy has too much money in circulation and it changes hands too rapidly then the economy will overheat, inflation will increase. The converse is also true... if there is not enough money or it doesn't move fast enough then growth will not occur fast enough and there will be deflation.

Now consider the second point, the rate at which money changes hands. What would be the point of having ample money supply if people just put the cash under their mattress or didn't spend it? So, to have a healthy economy the impediments to circulation must be removed so that people invest and circulate the money they have. Slow circulation slows growth whereas fast circulation speeds up growth. Impediments to circulation are numerous: Consumer confidence, corruption, burdensome government regulation, theft of YPF shares by the government, dollar controls and a million other factors that we're seeing play out here in Argentina.

Fiat currencies eventually collapse (mainly due to irresponsible economic policy) but that doesn't change the value of goods or service we sell or buy. That is why between periods of low and high inflation, the intrinsic value of property or other goods generally remains the same while prices fluctuate like crazy.

Fiat currencies linked to electronic transactions are incredibly efficient. Together they boost circulation speed by removing impediments to invest, spend and buy. Imagine if you had to transact everything with gold coins and there was no paper currency (rome)? What if you had to transact everything with paper money and finally, imagine a world without electronic transactions or ATM's.

I hope my simplistic understanding of things makes sense.

 

[Matt84]

Ah! Finally! Thank you Trevorcito. Admitting that a fiat currency will eventually fail allows me to understand it as a valid instrument with its own limitations. Like something real, instead of a utopia or a theory.
And it explains why America and the Dollar expanded throughout the 20th century, but the Franc didn't.

I'm still trying to put everything together, but I'll still quote a paragraph of a text I've already linked countless times.

The whole world was dealing with new forces, resulting from the application of capital to machine production on a vast scale, and there had just appeared for the first time in full magnitude that monstrous contradiction which we name overproduction. This was a worldwide phenomenon, but stranger here than in European countries because this country was newly industrialized on the modern plan and knew not how to manage the conditions it had created; could not understand them in fact.

Isn't the same thing happening right now (in the US)? Facebook, google, mac.... all of them climbed to the top after 2001, after the supposed 'end of America'.
We put capital into machines more than ever, and we have not overproduction, but overthinking (or too much information), something in my opinion even more monstrous.






@Nicoenarg, thank you for correcting that fact about the Franc. Amazing how much it fluctuated after that plebiscite and then after Greece.

 

[redrum]

How has the value been created out of thin air?Its value has been created out of thin air because its trading price is the result of a very long term speculative bubble.

100% right, i totally hear you on this one except for the fact that i don't believe gold is in a bubble. i don't think it's even close. people have been saying it's in a bubble when it was at $800. when your mailman, taxi driver and butcher start talking to you about gold, that's when you know it's time to sell. ask anybody on the street if they own gold, ask your friends and family members. the vast majority, probably 95% own zero gold. most people don't know anything about gold. how does it work? how do i buy it? in what form do i buy it? where do i buy it? what do i do with it once i own it?

How could it be debased faster than paper money?Bubble bursts. Just takes a critical momentum, one or two things before everybody is trying to sell and get out before it goes any lower. Not saying its going to happen, but I could easily see this latest round of air thats being forced in to the bubble in the last 3 years as being what brings it to the bursting point.

of course, that's why you need an exit strategy for just about every asset you own except for maybe properties and mickey mantle rookie baseball cards. but as i said earlier, there is a time and a place for everything and now is gold's time so why not protect your purchasing power and make some money along the way? for me, precious metals are a no brainer when you consider everything happening today.

It's not physically possible to create gold at the same rate as paper.True, but there is no need to actually create gold in order to debase its value as a commodity. Because gold trades almost independently of its demand for real (non speculative) industry. Also, mercury 196 can be transmuted into gold, currently its not economically feasible to do so but in the future who knows? Look at what happened to natural pearl prices with the introduction of cultured pearls to the market.

i certainly don't plan on holding gold long enough for them to announce that they can start producing it in a lab. again, i have to go back to my earlier posts. we are in a unique time right now given current economic conditions and one of the largest beneficiaries will be precious metals. i personally don't care one way or the other what i invest in(within limits) as long as i'm able to preserve purchasing power. i have no emotion in the game.

just think of gold as money. it's a currency in a zero sum game. if all other currencies are being debased via excess printing, gold wins by default.

to those who say we're not going to start carrying gold coins in our pockets to pay for things, of course not, nobody is saying that. how impractical would that be. that being said, transactions are subject to the terms that are agreed upon by buyer and seller and there are plenty of people who will accept metals as forms of payment. see below:

Utah Makes It Easier To Pay In Gold And Silver
http://www.huffingtonpost.com/2012/04/20/utah-gold-silver-currency_n_1440171.html

Missouri House backs making gold legal tender in state
http://www.columbiamissourian.com/s...i-house-backs-making-gold-legal-tender-state/

PAY WITH GOLD, SILVER, PLATINUM OR PALLADIUM
http://www.goldmoney.com/online-payments.html

Gold-dispensing ATMs: Coming to a city near you
http://money.cnn.com/2010/05/27/news/companies/gold_atm/index.htm

anyway you can always exchange your metal for the local paper currency and buy your products that way as well, the more common method.

 

[Matt84]

just think of gold as money. it's a currency in a zero sum game. if all other currencies are being debased via excess printing, gold wins by default.

so back to monetary policy, a fiat currency would perform better in a non zero sum game? As long as it's managed by competent technocrats like the Euro (sic),
backed by the mightiest military in the World like the Dollar,
or backed at least indirectly by huge gold and currency deposits and long term law abiding people like the CH Franc.

Thanks for the rest of the post regarding gold as a personal investment.

 

[Mano Negra]

There many differences, including the portability of gold and the fact that gold requires no maintenance/upkeep and it is not charged property taxes.

But also generates no income stream???

 

[Mano Negra]

Thanks Flurec,

Interestingly, there is gold (and just about any other mineral) not just here but in any planet, whereas there's oil, as far as we know, only on Earth.

Are you saying that a fiat currency is needed to expand credit? as I put it to 'incentivate' growth?
In a very deflationary scenario (like Switzerland the last century) there would be next to no credit?

When you say that a fiat currency is backed by the government that issues it, it implies that a currency is only as strong as such government.

Goldhoarders and Productives alike,
Can we all agree-setting aside any political alignment- that the value and popularity of the US Dollar came into effect at the same time it replaced its backing from gold to military might?

The loaded question there is simply, could a non interventionist state (like Switzerland or even China) ever make its currency popular? Like the yen was at some forgotten point in history?

I think the Swiss are worried about their currency becoming TOO popular!

 

[ElQueso]

i certainly don't plan on holding gold long enough for them to announce that they can start producing it in a lab. again, i have to go back to my earlier posts. we are in a unique time right now given current economic conditions and one of the largest beneficiaries will be precious metals. i personally don't care one way or the other what i invest in(within limits) as long as i'm able to preserve purchasing power. i have no emotion in the game.

http://www.wired.com/wiredscience/2012/04/planetary-resources-asteroid-mining/

Not reproduce it in a lab (although it could, technically, be done, but is way too expensive), exactly, but it's far more plentiful, and once in space, probably more easily accessible as well. Of course, getting into space is an expensive proposition at the moment.

Does gold become a fiat currency when it can be supplied at will?

BTW - I'm not saying that gold shouldn't be used at the moment to store value, and probably wouldn't be an issue in the next 10-20 years anyway.

Just a comment about things that people have said are "always going to be" (and I'm not saying that's what you're saying, redrum). An example of the short-sightedness of programmers and database designers of the previous century related to the "millennium bug" comes to mind.

Programmers/designers had a bad habit designing and using the year field in databases to capture only the last two digits of a year. That works fine when the century is always the same, but 00 (2000) minus 98 (1998, say) is -98, not 2, when calculating the amount of time passed.

Of course, people thought there was a good possibility of a melt-down, planes falling out of the sky, etc. Realistically, it caused a bit of pain with all of the applications written that had this flaw to be converted to store years properly. I spent a good year examining our processes at the end of the millennium and found mostly that it was usually programs written in things like COBOL and FORTRAN, decades old applications, that had the real problems. Most commercial-level applications we worked with (and those that used more modern infrastructure like SQL Server or Oracle) weren't affected.

I point this out because 30 and 20 (and even 10) years before the millennium, many designers didn't think their applications would still be used so far into the future.

I'm not so sure that, sitting here now, knowing that we make technological advances much more rapidly than in the past, we shouldn't think very seriously that tying economies to gold would be a good idea.

Of course, I've just started studying economics seriously and am still a bit confused about some things.

Perhaps additional deflation of a gold-backed currency due to the sudden relative abundance of gold (and many other precious metals), since gold already would cause prices to deflate as production/value increases (as I understand it) faster than the supply of gold, would not be a such a bad thing, and still better than market fluctuations caused now by fiddling with interest rates?

I am reading a book by Tom Woods, a prominent Libertarian, that talks about a lot of this stuff. Deflation is not bad for an economy overall if the reason for the deflation is because of increased value vs money supply and falling of prices due to such, as opposed to someone (like the Fed) coming in and raising interest rates and suddenly restricting the supply of new, cheap money and helping to cause a recession.

As he says, it does affect certain companies that didn't plan correctly, but the assets still exist, though held after an adjustment by different owners as a failed company is sold whole or it's assets in pieces. But the production capabilities and resources pretty much stay the same, just more correctly distributed.

He also says that according to data re-analyzed over a couple of centuries, inflation caused by market manipulations have caused more and longer recessions, than any deflation events that have occurred, quite opposite of what current Keynsians and other experts say about deflation.

But deflation because gold itself loses value as it becomes more abundant seems to me to be a bad thing as well.

 

[camberiu]

Regulators to Classify Gold as Zero-Risk Asset

US banking regulators recently circulated a memorandum for comment, including proposed adjustments to current regulatory capital risk-weightings for various assets. For the first time, unencumbered gold bullion is to be classified as zero risk, in line with dollar cash, US Treasuries and other explicitly government-guaranteed assets.