Peak Oil News and Message Boards

radon1 wrote:

AgentR11 wrote:The middle class guy with no significant real assets or liabilities, can get dinged pretty hard by inflation if his wage doesn't rise along with it; but if wages aren't rising, inflation won't hold.

Shall we tell this to Ukrainians?

Ukrainians honestly don't have inflation.

What they have is a termination of subsidies which presents the appearance of consumer inflation.

It is not inflation, it is simply a change of who is paying the market price.

PreMaidan
UA Bob went to the store, paid 5 copper for his bread, and behind the scenes the state forked in another 20 copper that went to energy, grain subsidies, fuel subsidies, corruption subsidies, oligarch subsidies, friend of oligarch subsidies, etc.

PostMaidan
Now UA Bob is paying most of the cost of that bread, but unfortunately his government is still forking out those corruption subsidies, destroying Ukraine's future in order to pad the checking accounts of a special few.

UA with a functioning Donbass, and capture of Crimea would have been worth this cost to the EU/NATO; heck, telling the French and English public they could freely sail in and out of Sevastopol in recreational/personal yachts; would have been enough to assure plenty of funds for Ukraine/Kiev and probably, eventually overwhelm that oligarch subsidy thing. Without those assets.. Kiev is a black hole of cheap labor and corruption, at a time Europe is absorbing millions of cheap, migrant labor from MENA.

Pops wrote:All true Agent. Bits are great as long as everything is hunky-dory.

My opinion is that if things are NOT hunky-dory, paper cash will be essentially useless. Localized badness, I can rely on the out of state account; generalized badness, time to get a shovel and figure out where I put those silver coins! Paper is only valuable if people believe the general system will come back online within a reasonable time. If a hurricane knocks out the localized system, people accept cash at their stores because they believe they will be able to deposit it in a reasonable time frame. No merchant wants to sit with a safe in his store holding several weeks of cash receipts, that'd get terrifying within a few days.

Of course my outlook is strictly within the context of the adequate pantry my grand parents taught me to always have. I can go a month or few without buying any food or turning on the water taps, and nothing TOO horrible would happen. Anything that would outlast that time frame, and the USD would pretty much cease to exist anyway. A month without electronic banking and this whole mess of bonds, derivatives, and hedges will unwind like a giant spring coil under tons of pressure. Nothing will financially survive it. I doubt even the modern definition of "currency" itself would survive it.

I do suspect that a month or two on rice plus essentials will result in some epic complaining. I live with a pair of overly civilized softies though... lol.

Pops wrote:There are 2 kinds of money, inside money is bank money,

G distinguishes between "financial" and "consumer" money. Financial money are mostly inter-bank mutual claims and alike "financial assets", while "consumer" money are those kept in the pocket to be used for consumption. They are no different for an outsider observer (dollars are dollars), therefore people ordinarily do not see difference between them (that's why so much hype and whine around "one-percenters" and "egregious debt in the system").

Apparently, Adam Smith argued somewhere in his writings that it was stupid to use gold for inland settlements - those could be settled in paper while the precious and scarce gold should be used for trade with offshore territories. This was one of the first examples where the paper would be used as "financial" money at the time when the gold was universally utilized as "consumer" money.

Operation of the "financial sector" with the "financial" money generates deflation (which may need a bit of consideration), while "consumer" money generate inflation (which is pretty much obvious).

QEs, for example, are injections of the "financial" money in the hope that they will trickle through to the "consumer" sector and will thus generate inflation and growth. Some do trickle through, but not much, because of the current lack of the profitable projects - which are the only prey for the "financial sector" in the real world. Most of those money, however, stay as the "financial" money - i.e. got invested in stocks, futures, RE etc, giving rise to the perception of "one percenters profiteering" and such, while the real world does not change that much.

In order to generate inflation in these circumstances, the state, being the main generator of the "consumer" money via government spending, has to spend.

Agent, I've always thought you'd have a hard time convincing Joe a dime is worth $10 if a $10 bill isn't worth anything.

Silver has no use to me, ditto gold. I'd think your rice would be worth more.

Only 5 or 7% of "money" is physical currency. Disparaged thought it is, especially by folks like us that dwell on such things, I'm pretty sure Joe would be happy to see a dollar when the thousands in his bank account are inaccessible. In my slight experience of temporary bad times in Northridge, Joplin, and the Great Ozark Ice Storm blackout of '04, I found plastic to be worthless and dollars to work fine. With 95% of "money" gone in a longer term situation I'm pretty sure currency would hold some value, it likely would appreciate greatly, if only temporarily.

I'm in the fortunate position of not having to worry much about preserving any real wealth.

;^)

AgentR11 wrote:
What they have is a termination of subsidies which presents the appearance of consumer inflation.

True. But in any event, if you are an economically minor country dependent on the imports for the most of your consumption, then stagnant wages have no impact on inflation or lack thereof.

Pops wrote:I found plastic to be worthless and dollars to work fine. With 95% of "money" gone in a longer term situation I'm pretty sure currency would hold some value, it likely would appreciate greatly, if only temporarily.

In each of those cases, (storms), there is 1st an assumption that deposit banking will return in a reasonable amount of time. When we were shutdown here for about a week or so, there were a few places that would sell you some cookies or chips for cash; but in general, anything substantial I'd buy simply wasn't available. My response to those situations, then, is that I just don't buy anything; and thus, have no need for cash or bits.

The more I thought about that experience, the more I came to the conclusion that for any significant use, if bits are not usable to purchase stuff, I simply don't have any interest in purchasing anything. (I do keep some cash, just cause I'm grey haired and still have some attachment to it; but I doubt it'll ever be used, and will eventually just end up back at the bank, or maybe in a kid's Christmas card... then again, even the kids have debit cards and would prefer you just transfer the money in. lol)

fwiw, the purpose of gold and silver is not to trade with Bob. I'll do that with skill or craft. Gold and silver are for a restart in the event the whole financial system goes belly up. Whatever comes after, gold will be some portable store of value, a store of value that you can't really break, if only because there are at least 3-4 billion people on this planet that will trade anything and everything for it, and whose lust for the stuff goes through the roof the worse things get.

If there is a financial collapse, even totally catastrophic, in the aftermath, gold will be perfectly able to buy you a bit of land, a shed, and a hammer, wherever it is that you might next want to setup shop. Never in the course of human history has that not been true.

Outside of financial collapse, its just pretty, small, and doesn't seem to lose much value over time as long as you don't buy on peaks...

AgentR11 wrote:if bits are not usable to purchase stuff, I simply don't have any interest in purchasing anything.

LoL

I admit to having acquired more than a little distaste for the act of buying things. It rarely creates value and mostly destroys value; the less of it one does, the less one destroys.

AgentR11 wrote:I do suspect that a month or two on rice plus essentials will result in some epic complaining. I live with a pair of overly civilized softies though... lol.

Why don't you store things your "civilized softies" like to eat?

careinke wrote:

AgentR11 wrote:I do suspect that a month or two on rice plus essentials will result in some epic complaining. I live with a pair of overly civilized softies though... lol.

Why don't you store things your "civilized softies" like to eat?

Because I'm mean! nah... Most of the stuff they like doesn't store well. eg... it needs to be fresh and recently walking, flying, or swimming. Vegetable is apparently a naughty word. Unless someone comes up with a vegetable that walks, then I might make the sale. lol.

Basically there are objects that are x "with rice". The nature of x determines whether you are Empress of all you survey, or a grubby, suncooked peasant. If its just pickles with rice (which I, much to their horror, think is awesome) ... well, that would be grubby, suncooked peasant with no hat.

This is very, very important.

Reminds me of that scene in McCarthy's book The Road where one of the protagonists finds gold coins and tosses them aside.

Pops wrote:Agent, I've always thought you'd have a hard time convincing Joe a dime is worth $10 if a $10 bill isn't worth anything.

The melt value of a "Mercury" dime is about $1.04

Gold would always have some value for its unique properties. Wouldn't it make fairly good solder? Great bullets? Excellent for filling teeth!

PrestonSturges wrote:Gold would always have some value for its unique properties. Wouldn't it make fairly good solder? Great bullets? Excellent for filling teeth!

The tooth thing is a VERY good point; you might be making it in jest, but with 24k gold, just about any moron can patch a cavity and not get that electrolytic effect. Very painful going back to 18th century dentistry, but its better than the alternative by far.

ralfy wrote:Reminds me of that scene in McCarthy's book The Road where one of the protagonists finds gold coins and tosses them aside.

I've argued this with my gold bug cousin as we sat around the local pub one Friday night. He really believes that in a SHTF mode of life he would always be able to buy what ever he likes with real gold. Unfortunately when asking the bartender that night if he could ever buy a round of beers for the house with a gold coin he was refused. If it's difficult to barter with now, how much more useless will it be in a future when real usable items will be worth so much more. Cat oil lip balm anybody?

Gold is not efficient to barter with, nor likely silver.

But, in any situation where an economy with external trade is restarting, gold becomes very efficient for fixed asset and real property sales. Which is the point. If it becomes possible to "start over" in a civilized way, then gold enables you to take advantage of that.

Its not a substitute for having a pantry, or some tools, or some bullets, or whatever.

I agree gold and silver are great hedges in a working market. Not so much in a long term dysfunctional or nonexistent economy.

Gold, silver, etc. are simply commodities. They have industrial uses which determine the actual value of these commodities. Gold-flashed connectors are the ultimate in reliability, all else being equal, and silver has applications in the highest quality mirrors, dental alloys, electrical solder, etc.

Frequent speculation has occurred over historical periods in the current and future values of these metals. However the lessons of history could not be clearer - as the metals appreciate in value rapidly due to panic and speculation over future pricing, more people have over time lost more money buying precious metals than any other commodities or investments.

You should consider these facts before buying these metals. That they are popular investments does not make them the best or even a good investment.

In actuality, ALL money is virtual. Those coins and colorful bits of high-quality rag paper are symbols of monetary value.