Physical Gold Disconnecting From Fiat Currency (merged)

[Pops]

I don't know a lot about this but that's never stopped me before:

The value of any currency is relative.

There were "business cycle" booms and busts long before central banks. The value of gold isn't stable, it acts like a commodity and fluctuates relative to other commodities and unless the whole world were on a gold standard, or maybe even if they were, it would fluctuate against other currencies.

The only real "advantage" of a gold standard is it would limit the government's borrowing and prevents it from causing uncontrolled inflation. The US Gov can borrow as much as congress allows now because the "money" supply is virtually unlimited. In the case of a war or recession or a runaway, overheated economy that is a good thing because it allows some control. The gov even on a gold standard can still change the standard, which of course is the same as adjusting the money supply, just clumsier.

What happens in a limited money economy with a growing population is deflation, more people and "work" and "stuff" but the same amount of money. Lots of inflation is bad but any deflation is worse because people won't buy today what will be cheaper tomorrow. You have a "liquidity" crisis exactly like we just experienced (in that case because the banks overextended) except it is structural and permanent.

With a little inflation, current money is worth more than future money. Put it in the bank, who makes a loan with it, everyone gets a little benefit and you're even. With deflation, future money is worth more than current money so the cost of borrowing is high and the incentive is to sit on cash - exactly like businesses and banks are doing now.

It depends on your personality I think. If you still have the first penny you earned (or especially if you are living on the first penny your father earned) you probably think a gold standard is a good thing. If you have ever borrowed money to better your station in life you probably think a flexible currency is better.

[ralfy]

The problem with a gold standard is that you need more than enough gold and that money can be redeemed.

If there are only around 150,000 metric tons of gold, then given the current global population we end up with less than one troy oz per capita. Even if we double the supply, the amount is probably still smaller than what we want.

Inflate the price of gold to, say, half a million dollars per ounce, and one ends up with more than enough money, but it will be very difficult to redeem it because of the very small amounts in gold that one will get in exchange for such (e.g., redeeming only a thousand dollars).

And when more resources need to be obtained, more labor has to be paid, more credit increased through interest, etc., then more gold has to be found or the price of gold has to be inflated again.

And when resource availability starts to decline....

[Mesuge]

He who will usurp the power of signorage be it locally, per region or globally (not likely), sets the rules in the end. And the gold has been and still is the vehicle, they will just restart with new fiat standard floating against the gold in the vault. With more time down the Olduvai staircase it might be 'downgraded' as reversal to some form of 'primitive' less significant metal coinage again, which will allow TPTB again to inflate (dilute), cheat, steal and murder.

I'd not worry about it, rather show me some real progress or shift in human nature, only then we can talk about doing things differently afterall..

[vision-master]

I don't understand why gold standard is supposed to be better than fiat currency. Is there a difference between printing money vs digging out gold from your montain [sic]? In both cases you create money and both only have a value because people imply one.
Thank you.

Fiat money can be produced at any rate. Gold can not be produced at an arbitrary rate.

The total amount of fiat money is an unbounded quantity. The total amount of gold is a fixed amount.

Like diamonds?

[Revi]

I think most people are going to use silver, not gold as the store of wealth and a way to get what they need. Right now you can get well circulated half dollars for $13 at most coin stores. Check out the "culls". They are usually on the table, not in the cases. The price per ounce of silver seems to be going up steeply this morning. What is happening?
http://www.kitco.com/charts/livesilver.html

[Revi]

Never mind. It looks like Greece is still looming large on the horizon and may have some hard times ahead, particularly on March 20th, when they potentially default and send the world economy into another tailspin. This isn't good for the price of gold and silver, and coincindentally for everything else as well. If it does tank, that's a buying opportunity. I'm not going to do anything for a while and see how it sorts out. I think silver and gold are a good thing to have, but I'm liking cast iron pots more. If the world goes crackerdog we can always fry up a squirrel in one of them.

[careinke]

Fiat money allows the government to tax the poor, (through inflation), without actually admitting it. Even Bernanke admits inflation is a tax. It is the most regressive tax possible unduly hurting the poor. This tax is actually controlled by the federal reserve, who set the interest rate and control the amount of money, not the government. So we have very little control over it. The government then borrows this money from the Fed by selling bonds to the fed and agreeing to pay the money back with interest. It spends some of this money on the poor, in order to make them more dependent on the government. The government also provides schools with really awful math programs. Otherwise, we would be smart enough to figure out this scam.

By creating money through debt, the money supply is inflated, and just as pop said makes the money worth less. in 1962, an ounce of silver, (silver dollar), would buy you four gallons of gas, the same as a US dollar. Today an ounce of silver will buy you nine gallons of gas, a dollar will buy you a quart of gas.

[Pops]

First, speculation and the "business cycle" make basic commodities inflate and deflate regardless of the type of currency. In fact one of the main problems with a hard currency is it will stay steady while the price of wheat or oil or whatever bounces up and down with supply and demand. And, since there is no ability to cool booms and ease busts, poor people are forced to simply tough it out. Check out the list of recessions on Wiki, economies heat and cool regardles of currency or the fed and have forever.

Second, poor people don't have savings so inflation since '62 doesn't mean a thing to them.

Third, for people who do save, interest is a built in inflation adjustment,

[vision-master]

Rumor has it, the gold bubble is going to pop, also gold is not a rare metal anymore than are diamonds.

[careinke]

Third, for people who do save, interest is a built in inflation adjustment,

At a VERY generous 5% interest rate, that dollar would grow to less than eight dollars, two gallons of gas. A loss of 50%. Math does not lie.

[Pops]

At a VERY generous 5% interest rate, that dollar would grow to less than eight dollars, two gallons of gas. A loss of 50%. Math does not lie.

That's not math, you are conflating two different commodities and the dollar and interest and cherrypicking some dates to make a point that isn't there.

Forget about silver for a minute, forget about inflation and interest and Ron Paul too.

Now, if a person made $2/hr in '62 when gas was around $2.25 and through some miracle the entire world was on a fixed rate currency, today he would be paying almost twice as much for gas – but still earning $2/hr.

Exactly the same outcome as your math.





As shown above, there is something causing the price of gas to rise and it has nothing to do with inflation or silver or interest so gas is obviously not the best metric... unless you are running for a spot on the program at the Republican convention.

I'm sure you aren't arguing the price of gas is high because of inflation, so lets talk about buying silver in 1962 (instead of say 1980) as a good investment...

And as far as investments go there are all kinds. If you'd put $1 in the Dow in '62 you'd have $21 today (13,000/600) which works out to 3x inflation. Heck, if you bought $1 of Apple the day Jobs went back as CEO you'd have $6,754 today. But just because Apple stock rose in value relative to the dollar doesn't mean it should be the currency either.

Here is silver in constant dollars (I think this ends in 2000...)




Obviously silver is not a reliable store of value. The main reason of course is that the silver supply increases for no reason and the variation in demand is mainly because of speculation - between 1980 and 1990, the value of silver fell 600% because of speculation.

The dollar lost about 85% of it's value since 1962. But as the chart in my last post clearly shows, interest on a simple 6 month CD made up for that inflation almost every year – plus 2-3% to boot! At worst inflation cost 1-2% in the worst 4 or 5 years. If your money had been in a CD making 2-3% more than inflation all that time you'd have been "golden".

But hey, if speculating is your thing that's great, personally I'd rather get a CD at minimum interest to cover inflation and have the gov guarantee my deposit. I may lose a percent or 2 here and there but not as much as the guy who bought silver in 1980 and needed actual money it in '90.


But again, my point is there will always be cycles of inflation and dis-flation as investment and supply and consumption waxes and wanes. Governments can blow it, of course, like was recently proven by the Ryandian style deregulation of the market and maybe the QE at present and of course the big collapses of the past. But trying to hold currency at a constant value so everything costs the same as in the good old days, does nothing to halt the law of supply and demand or over-exuberance and crashes like the dot.com bubble or the Tulip Craze either. The price of goods and services will simply fluctuate to a greater degree instead.

Whereas a fixed currency does nothing to stop business cycles, enabling the value of currency to move relative to the business cycle can help to smooth those fluctuations.

In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." - Benjamin Franklin

The last part there about spending money into existence instead of borrowing it into existence is a whole 'nother deal where we probably agree more.

.

[ColossalContrarian]

Rumor has it, the gold bubble is going to pop, also gold is not a rare metal anymore than are diamonds.

There's more carbon in the universe than gold.

[prajeshbhat]

If people lose faith in fiat currency then it is only useful for wiping your ass.

Not really. Currency notes are too hard to fulfill that purpose. Plus the sharp edges could give you paper cuts.

[vision-master]

How does one value gold without currency?

[Pretorian]

How does one value gold without currency?

gosh. even your bloody pyramids you peddle everywhere were built without use of currency.

[Revi]

Gold has had value for over 10,000 years. All fiat currencies have crashed in the meantime. Why are we any different?

[vision-master]

Gold is a fear investment.

[careinke]

Gold is a fear investment.

And we all know there is nothing to fear.

[careinke]

Pops,

I chose 1962 (but should have used pre 1964), because that was basically the last time our currency was tied to metals. I am very aware about the Hunt brothers trying to corner the silver market, in the late seventies early eighties, with the subsequent crash. I am also aware they were unsuccessful because of free markets hence the collapse.

My point, (not very well stated), is since the replacement of silver certificates (dollars), with Federal Reserve Notes (Fiat money), Silver has appreciated over the last fifty years and Federal Reserve Notes have collapsed. Granted you can find investments that did better Walmart, Berkshire Hatheway, etc., but picking the right investment is the trick. Then you have to assume Joe Six Pac is smart enough to do it.

If you grabbed a silver dollar and a Federal Reserve Note at the same time, and stuck it under your mattress, at no time would the federal reserve note have been worth more than the Silver Dollar.

[Revi]

In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." - Benjamin Franklin

Those were called "colonials" and eventually were almost worthless. That's why they had the saying "not worth a colonial". The fledgling US government printed up a bunch of money not based on anything and it failed big time. Then they went to a system based on the dollar, which was Spanish silver to start and it stablilized for 150 years. The value of a dollar held up until 1964, when a dollar stopped being convertible to hard money. Here is a really interesting article about our experiment with fiat currency after the revolution and how badly it went. The value of a continental went from one for a Mexican milled dollar to 16 to one very quickly and it got worse from there.

http://www.history.org/Foundation/journ ... 03/pay.cfm