THE Precious Metals: Gold Thread pt 3 (merged)

[Locutionist]

Greetings all, I hope no one minds, I wanted to share this link here because I know some of you are interested in this sort of thing. I've worked out a blueprint for a totally gold-backed community currency.

The article is titled, "What good's a sustainably-grown, local tomato if it costs $170?"

link Lots of people here are way more knowledgeable than I am about gold, money, etc., so any comments, criticisms, etc., are most welcome.

[mattduke]

Why bother with paper at all? It leaves too much room for fraud. Just use various weights of precious-metal coins. There is no need for paper at all. That was Thomas Jefferson's opinion too.

[Aedo]

Why bother with paper at all? It leaves too much room for fraud. Just use various weights of precious-metal coins. There is no need for paper at all. That was Thomas Jefferson's opinion too.

Nice idea, but it is a bit difficult to carry small or large quantities - eg $1 = 62mg of gold which would be a coin 3.4mm in diameter and 0.34mm thick. On the other hand even a moderate sum of say $10,000 would be 20oz (622g or 1.37lb) which is non trivial.

Aside from the practicalities it is probably easier to maintain the security of paper type currency than of precious metal - can you visually tell the difference between 9 carat, 12 carat or 18 carat gold jewellery? 9 carat gold is only 37% gold (vs 50% and 75% for 12 and 18 carat).

[jaws]

A "gold-backed" local currency by definition cannot be a local currency, since your currency is gold, a global currency.

If you want to create a local currency it will have to be backed by a local commodity.

[joewp]

Seashells?

[RacerJace]

This may sound a bit Star Trekky, and I'm thinking about many years in the future, but how about energy as a form of currency? You could have various forms of rechargable batteries with a kwh meter on them (which would be verified at a currency exchange).

Of course this would necessitate much development in rechargable batteries. Ones that are compact and recharge or discharge within seconds.

The majority of energy would come from privatley owned distributed sources of renewable energy generators be it wind, solar, geothermal, wave, tidal or whatever is available. Of course this assumes the major public domain sources of power are no longer competitive. And it assume we still have time to develop the technology.

[Locutionist]

Greetings again, thanks for the replies.

Aedo is correct with regard to using gold directly. There are other problems as well, the main one being that using gold straight up would require a large investment right from the outset, which few people can afford to do. Additionally, the smallest certified ingot I am aware of is 1 gram, which right now is worth $16 or $17 or something like that. People routinely buy things that cost less than that, and how would you make change? The only way to make smaller ingots or coins is to mint them yourself, which is another massive infusion of money.

Jaws -- a gold-backed local currency is indeed local. Beyond a certain geographic range, using the notes is a hassle for merchants, because they have to travel back to the administrative office to trade them in for either gold or FRNs. Handy for the locals, not so much for out-of-towners. That is also part of the reason for the use of paper, to keep the money circulating locally. If someone else set up a similar currency in an adjacent county for example, that office might choose to honor the original currency, but so much the better for weaning the local economy off long-distance shipping.

RacerJace -- the UK is currently setting up an exchange market for carbon emissions credits. When I first read about that I wondered by bother with a market exchange, why not use them directly as currency? The fewer hydrocarbons you use, the richer you are. If I find a link for that I'll post it, I think I originally read about it at FTW.

[The_Virginian]

I disagree with ADEO.

First a Dollar is now at an arbitrary and fluctuating exchange rate with Gold.

So if you introduce NEW gold coinage, you exchage the OLD paper Dolls at a fixed price...no diffrent than any new curracy issue in the rest of the world.

The real problem would be Oil Purchases, made in electronic "dollars" coinage would suffice for everyday use, but Credit cards and such need "Virtual Gold."

Gold back Paper and Electronic Dollars would be a MUST in any modern Economy.


One serious problem with Gold Backing is that it would shrink the money supply and thus shrink "the economy" that runs off of debt and specualtion.

That is why it would never happen w/o a collapse in the FRN first.

[grabby]

This may sound a bit Star Trekky, and I'm thinking about many years in the future, but how about energy as a form of currency? :

We have it, it is called the DOLLAR

1 dollar equals 1 dollars worth of oil.(or gas)

soon two dollars will equal one dollars worth of gas,

so the best investment you can make is

BUY OIL!

MAKES TOTAL SENSE!

OIL WILL BE WORTH A LOT SOON.

Move to arizona, get a salt cave and start pouring oil into it for later use.
Japan is doing it.
plus if you run out of money you can drive your car.


also if you siphon 2-3 gallons into a nighbors car for ten dollars each when the lines are long youll make a killling


BUY OIL is the VERY BEST INVESTMENT IN THE WHOLE WORLD RIGHT NIOW

(Can I put a 10,000 gallon tank in my back yard?


BUY A FARM and you can get the diesel
TAX FREE in LARGE TANKS.
buy a diesel car and a lawnmower to take care of the alfalfa on the farm.


certainly we can work something out when you ned oil, Ill give you a gallon of gas for that chicken!

[jaws]

Jaws -- a gold-backed local currency is indeed local. Beyond a certain geographic range, using the notes is a hassle for merchants, because they have to travel back to the administrative office to trade them in for either gold or FRNs. Handy for the locals, not so much for out-of-towners. That is also part of the reason for the use of paper, to keep the money circulating locally. If someone else set up a similar currency in an adjacent county for example, that office might choose to honor the original currency, but so much the better for weaning the local economy off long-distance shipping.

That doesn't matter. The value of your currency is tied to gold, the value of which is set on global markets. Someone from outside the locality could redeem his notes for gold, then walk away with the gold. The money supply would shrink. To grow the money supply, the bank would have to buy gold on the global market. The notes would circulate locally, but the value of the notes would still be set on global markets.

[Locutionist]

That doesn't matter. The value of your currency is tied to gold, the value of which is set on global markets. Someone from outside the locality could redeem his notes for gold, then walk away with the gold. The money supply would shrink. To grow the money supply, the bank would have to buy gold on the global market. The notes would circulate locally, but the value of the notes would still be set on global markets.

Jaws -- you didn't read the linked article, did you?

[jaws]

Jaws -- you didn't read the linked article, did you?

I don't need to read through a stream of hippie ranting to know that gold is a global currency, not a local one. That's why the gold standard was the money of the global economy in the late 19th/early 20th century. It was a global money.

[grabby]

Isn't there a law that Gold is illegal for transaction and every Gold sale needs to be recorded by Federal government? Everytime I buy some gold, you have to sign a paper.

Its not a good idea to have a lot of it around they know where to come.

The reason for this, I heard, is so no underground economy can be started.

and who cares about platinum?

Oil is useful, Gold is not.


if you bought Gold in 1983 at 450 an ounce, your money will be worth around 10 percent more when the actual value of your investment dropped more than 60 percent
(Gas is 2.20 now and it used to be 79 cents.)

so Gold is a poor investment. It doesn't follow with inflation.

and when the economy crunches and everyone turns in their gold wedding rings and jewelry, the market will not keep up with value I think but I may be wrong.

Oil you can use to run your power tools.
Gas is like having 450 slaves per gallon sitting in your garage.

[lakeweb]

I don't need to read...

Best, Dan.

[Locutionist]

Okay, well that's too bad no one who posted to this thread actually read through the proposal. I was hoping for feedback regarding whether I had overlooked any details that might throw a wrench in the works, not silly name-calling and self-important breast-beating over semantics.

Good luck with your Peak Oil preparations, Jaws. You will almost certainly need it.

-Paula

[julianj]

I have read your proposal and thank you for posting it.

I agree with you that the effects of PO will be felt economically.

I can see one good thing about this proposal, that the ordinary person-in-the-street would, I expect be more amenable to a gold-based currency, than traditional local currencies, which have to be explained in a Litaer-like tome to make sense to "non-currency-gurus"

I can see a couple of problems:

I believe here in the UK it is illegal to use gold for "ordinary transactions" - correct me if I'm wrong.

There's the question of tax evasion - if you buy/sell things in the EU there's VAT and in the US Sales tax. If a gold-based local currency took off, I fear that the tax authorities would clamp down on it pretty fast.

[CARVER]

In your proposal, you mention that you don't see people hoarding (not hording) the gold-gram notes as a problem.

Some people in the locality served by the currency will likely horde gold-gram notes until the price rises. I don’t consider this to be either speculation or a problem—this is “savings,” and is what people should be doing anyway. Furthermore, hording gold-gram notes effectively decreases debt, as inflation drives down dollar-denominated debt.

I think this is a problem. I see this as people who stop spending and investing, and are going to wait and look at how things will depreciate while counting themselves rich because of what they could buy tomorrow. They don't buy today, because it will be cheaper tomorrow. But they live 'poorer' today for no good reason.

When the gold-gram notes are being hoarded they are not available for others who might need them to do trade. I think it should always be a good time to invest in the future, instead of just waiting till prices start rising again, (unless maybe when the investment consumes limited resources).

Have you considered making it a demurrage charged currency, to encourage people to keep it circulating instead of hoarding it. In that case I would also think it would be easier to use electronic money instead of paper notes, even with possible power grid failures (keep a backup power generator, or local solar, wind, etc and battery). You would also have more control over where the currency can flow, if it can flow out of the community (because for that the outsider would need an gold-gram account at your local cambist).

Have you also considered backing the currency with something else than gold. I think you want to use something that is of value in all situations, both good and bad times. Maybe something the community keeps in storage anyway, like wheat maybe. Or something else that you want to stock up in case of an emergency. Gold (almost) only has value in an emergency/crisis if someone else has something you need and he/she values gold (highly), but well that would be the case with any sort of backing. So if you can predict what you will be in need of in a possible crisis, you might want to store that and use it to back your currency if that is possible. (If you can't store it yourself you need something that is of value to those who can supply you with it. Something that can easily be liquidated)

Here are some papers that I think are of interest (you might have read them already) :
Complementary Community Currency Systems
The Terra TRC (pdf)
The Future of Payment Systems (pdf) (p. 20 - 29)

In the The Future of Money thread you can find some more links.

[Pete_Doyle]

I read the proposal.

What is missing for me in the structure is control of the notes. There is no structural control to ensure against fraud any more than there are structural controls in the current dollar system to prevent runaway money creation or outright creative theft. The only think that cant be forged in a backed up currency is the backup comodity itself, all else can be forged at will.

The failsafe mechanism in theory is that the goldnotes must be instantly remitable for the real thing at any time. But a run on the vault would be the first time a real tricky fraud would be discovered. Bye then too late.

Its a good idea but its restricted by its centralist nature. Why not distribute the share of security.

The proposal suggests the community submit their wealth (the gold) to a central repository. Question why. The most common answer is that notes have better practical transfer characteristics, division, handling etc and therefor liquidity. This is true. But liquidity for any trading period, day, month , year whatever doesnt need the communities entire wealth in vaults under central control. Normally in a percieved stable local economy the net transfer of liquidity between notes and gold in the vault would average to zero. The vault needs only be a small fractional buffer of the entire local communities wealth enough to satisfy the desired trading liquidity of the community. If this were the case and the majority of the wealth was stored locally by private citizens and sub groups taking full responsibility for storage and security a bank run would not be catastrophic it would be limited to the trading periods liquidity needs. Fraud would still be painfull but it couldnt bring the system down.

This way around the central note issuing authority is dependent on the peoples willingness to participate trading period to trading period. Keeps them on their toes. The central authority must ask its population if it believes it needs more liquidity for a trading period. Its the population that controls liquidity and money supply by continued voluntary participation.

Its all in the balance of power. Who controls the backup in the backed currency.

[grabby]

I read the proposal.

Problems.

I don't think there will be any power to prosecute currency copiers, and with technology now, you can copy about anything so the average guy wont know and if you are caught there is no jail time for copying no federal notes.
.

[oowolf]

I plan on using hazelnuts as currency. Nuts keep a long time and have the added advantage they can be eaten. In a crisis I'd take nuts over gold. I can GROW hazelnuts--In other words money can be grown on trees.