Deutsche Bank: GOLD IS MONEY
Matthew Boesler|Sep. 18, 2012, 5:53 PM
Business Insider (Video & images added by me)
Is gold money?
It's become a tireless debate: goldbugs seem to cling to the shiny yellow metal with a religious fervor not usually displayed by anyone toward other asset classes, and it's been known to frustrate some who don't share their views.
Gold often gets lumped in to investment forecasts with other "commodities" – real, consumable things like oil or food.
But Deutsche Bank analysts Daniel Brebner and Xiao Fu say gold is seriously misunderstood, and in a new report – wherein they update their gold target to $2000/oz sometime in the first half of 2013 – they explain that "gold is not really a commodity at all."
The undisputable evidence for the case that gold is money, according to the Deutsche Bank analysts:
While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publically used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves.
That's their take. But there's more – the analysts differentiate between "good money" (gold) and "bad money" (fiat paper currency):
We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies. In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.
What's interesting is that all of the arguments against gold propogated by the anti-goldbugs – that it's not really a consumption good, that it serves no industrial purpose, etc. – are all the exact reasons why Brebner and Xiao call gold "good money."
The analysts elaborate on this point in the report:
In our view the ideal medium of exchange must balance the paradox of representing value while having little intrinsic value itself. There are very few media which can do this. Fiat currencies physically have no use other than that which is prescribed to them by government and accepted by the public. That fiat currencies cost little to produce is of a secondary concern and we believe, quite irrelevant to the primary purpose.
Gold is neither production good nor consumption good. Jewellery we see as a form of storage or hoarding (the people of Portugal have all but exhausted their personal gold stores – hoarded in the form of jewellery – having converted them to survive the crisis). If gold did have a meaningful commercial use we believe that it would make the metal less attractive as a medium of exchange as the value of the metal in whatever market it was used in could periodically interfere with its medium-of-exchange role...
Other characteristics are important of course in fulfilling the requirements for ‘good’ money: indestructibility, divisibility, transportability and universal acceptability.
Hat tip:
Deutsche Bank boys been reading FOFOA? read.bi/Ua1J4y
— RonaldJamesPadavona (@RJPadavona) September 18, 2012
___________________
From Kicking the Hornets' Nest:
In Gresham's law there is good money and bad money. There are two moneys, not three. Good and bad, not good, so-so, and bad. The bad money drives the good money out of circulation. In other words, the bad money circulates (and becomes the medium of exchange) and the good money lies very still (becoming the store of value). Look at this latest Eurosystem quarterly report again:
And from The Return to Honest Money:
As I mentioned above, in the same way that a medium of exchange is to one extent or another also a store of value, stores of value are also to one extent or another media of exchange. The question is one of degree, and this is how, through market forces, we end up with "two monies." Being the focal store of value does not make something the best medium of exchange, and vice versa.
This might be a good time to take another look at the ECB quarterly statement. There it is, two monies. One on the left, one on the right. Separate roles.
[…]
This is how you have a true competing currency. Not two currencies competing for the medium of exchange crown. But a separate medium of savings competing against the medium of exchange for "pole position" on the 'Time=t' axis:
This is Freegold, and it is unfolding today. It requires no activism or political/legal changes at this point. It is, how do you say, baked into the cake already? And once again, these posts briefly explain how we aren't quite there yet, how Freegold is different from what he have today, even though it is "already in the pipeline."
Sincerely,
FOFOA
469 comments:
«Oldest ‹Older 401 – 469 of 469@enough
"CONFIRMED....
USPS WILL NO LONGER ACCEPT BULLION FOR INTERNATIONAL SHIPMENT- WEST COAST BULLON DEALER FRIEND OF MINE."
Ugh, that's not a "DOCUMENTED" source.
You questioned this 'new' regulation and I provided a source for it.
Bravo to you on your enterprise.
"Cleaned up version of reply"
Note 1: If English ain't your language, or you want to be sarcastic or demeaning, then don't respond to me. I hate stoopid and will ZH you as Biju was so quick to point out.
Because, as Jimmy Carr says,
Self censored... (out of respect for the intent of this site and FOFOA)
Note 2 (for the thin-skinned set): Not a ZH reply since I am merely utilizing the words of a genius comic to express the fate that could befall you should you cross the line of Note 1 (which would then be a ZH reply).
Art, you are a troll, and I will delete your comments on sight, just like I told you I would back in May of 2011. I won't even waste my time reading them. If you want Victor to get your message, go troll his blog. He keeps his comments on moderate, so you won't get much attention, but at least he'll see your reply which you've already posted here five times. I've still got all the hateful, nasty and insane comments you left last year, and boy, you earned this ban!
When you're banned, you're banned.
"Amidst all the talk about e-money, and technology, it might be surprising that growth in paper currency (currency in circulation outside of banks, Federal Reserve Notes, and specifically, $100 bills) has accelerated in recent years. The currency component of M1 has risen nearly 40% since mid-2008, reaching nearly $1.1 trillion. That’s about $150 for every wallet for every man, woman and child on the planet."
http://www.larsschall.com/2012/09/27/how-does-dirty-money-become-clean-money/
Does anyone here have "friends in high places" at USA GOLD????
I have heard nothing further about the disappearance of 15 years
of the archives since I first noticed it a few days ago. Is history
being erased? Bueller.......Bueller........
To Burning,
Cash will no doubt continue to have its place, but just for transacting, electronic currency has its advantages. In the Eurozone payment standards are being adopted, issues will be smoothed out over time. Even beyond the Eurozone, IBAN account numbers have become mandatory in United Arab Emirates already this year. And countries in Africa with their own challenges are developing the newest mobile payment technologies.
Further, the psychology of saving is changing alltogether. Many shrimp savers are not used to have savings in tangible form anymore. The sense of feeling something of value in your hand over time is starting to disappear. Instead the most appreciated tangibles around now like mobile phones are consumer goods that don't keep their value for many years. Will small savers be quick to recognize freegold? Will savers aspire to follow in the footsteps of giants? Gold can lay still for a long time, but I believe that savers' attitudes are changing quickly.
To focus on a currency crisis, or government deficit trouble, which could be anywhere, deposits in a bank could see withdrawal limits (taking longer to withdraw large amounts) or cash transaction limits (already in some Eurozone countries). And another measure that comes to mind is a wealth tax on all savings, including declared gold holdings, but only in the most desperate case.
The FDIC-like government intervention you mention, mainly serves to keep the banking system functioning and does not concern the currency. So an FDIC guarantee is just another measure that reassures savers to keep their savings in the banking system.
By taking avings from currency into something tangible of value, it's still difficult to answer how much one saver can do. Recently there have been some nice blog entries here arguing that saving in gold does not make you a jerk :-)
To Micheal H, thanks, some interesting points in your post.
lol...crack
Banned; On the Run
I just had an odd experience. I was reading a short piece by
Simon Johnson, who I like, and noticed what I felt was a
mistaken view on the subject of Volker/1980. I decided to
make a comment, and scrolled down through the previous
entries, all 54 of them. They were so generally poor, and
contained so much petty nastiness and backbiting, that I
decided "why bother". That's when it hit me: Gresham's Law
is valid for comments. Without some moderation, you get
what we may call the Zero Hedge effect, where the articles
are almost always better than the comments they elicit. Too
much "liking to hear yourself talk." (Guilty, you honor!)
Börjesson-
MF basically answered it for me. No, not a requisite but all the past cycles gave experience and inertia to develop a new way. Now that it is here at this time it provides an option. What a nice coincident that it developed at the same time a soft money system had reached it's end times.At the same time as ...(insert many things)
Michael H-
Sorry to disappoint. Maybe that is a cop out but I think the question is wrong.
Why?
I think the question would be better as: How were we not ready then? How are we ready now? WHy asks for motive, no?
To ask why, implies you can understand creation/SuperOrganism/GOD/the universe.
I don't think that's possible.
What's your answer to your question?
jojo,
Perhaps I misunderstood your earlier comment. I interpreted your earlier remark as 'we were not ready then, and now we are ready, end of discussion'. It is the 'end of discussion' portion that I meant to referr to as a cop-out.
I agree that the way the question was initially phrased, the answer was, as you said, 'we were not ready', but, to me at least, that immediately leads to the next question you posed, which is 'in what way were we not ready, and in what way are we ready now'.
Another source of confusion might be the English language. To me, the question 'why were we not ready back then' is basically the same as 'in what way were we not ready yet', and does not necessarily imply the need to understand the motive.
Hi Woland-
You said:
The following link if for those very few, like Victor, and perhaps Fofoa, who like to play treasure hunt now and then.
If you google - "Petroleum Club reaches Landmark, George Alcorn" - you'll get a picture of the circle of friends and business acquaintances in which FOA moved. this is the place where he played poker, when in Houston, and where you would not be able to have "a very private conversation" with him. Probably, when he walked in, a swarm of friends would descend upon someone everybody liked. That's just me, guessing.
So I have to ask, unless this information is somewhere in the Archives and I missed it, how do you know this about FOA?
--Aaron
The Financial Times with a first glimpse of the gold trail:
The Fed, quantitative easing and oil prices
By Javier Blas in London
[...] I recently sat down with a senior official from a medium-sized Opec country, with decades of experience in the oil market, who offered an interesting point of view about the role of the Fed in setting oil prices. He explained that his country already has significant foreign exchange reserves, mostly invested in low yielding US Treasuries, and current oil prices were high enough to both meet budgetary needs and further inflate the reserves.
“I know the US and the Europeans would like us to increase production,” he told me. “But what is the point? We would earn more money; money we do not need. And US interest rates are so low that we earn nothing from our extra production. It is better for us to keep production unchanged and keep the money underground.”
[...]
According to the US Treasury, crude oil exporters – a proxy for Opec countries – hold a record $268bn in the country’s bonds, up from roughly $100bn in 2007 and just below $50bn in 2000, before the spectacular rise in oil prices of the last decade started.
[...]
Patrick Artus, an economist at Natixis, recently argued in a paper that “the low return of foreign exchange reserves” for countries such as China, Japan or the members of the Opec oil cartel, should “encourage central banks to diversify the assets that make up their foreign exchange reserves into corporate securities and other currencies”.
United Arab Emirates, Qatar and Kuwait have partially resolved the problem recycling their extra holdings through sovereign wealth funds with wider investment mandates. But others, including Saudi Arabia and Algeria, still manage the bulk of their reserves through their central banks, largely investing in Treasuries.
Victor
Hi Aaron:
I must admit to an error, although in the end it doesn't matter
much. The place where FOA played poker was NOT the PCOH,
but, with a very high degree of probability, River Oaks Country
Club. If you read Alcorn's piece, you will see that there was, back
then, a very close, tightly knit group, with the top oil people both
living in River Oaks, and belonging to both ROCC and PCOH.
Fofoa's quotes, as well as Victors, which were all new to me
(thank you, Victor) come from the archives. Remember the
stuff about "married only once, for several decades, to the same
wonderful woman", "I am religious, understand the bible and do
physical deeds to convey that knowledge to others", "and too, I
bridge boundaries of thought, without judgement, in order to
promote a common good". All from the archives. FOA is steeped
in oil from personal experience, both on the drilling and banking
end. Thank goodness I printed out what I can no longer access
from USA GOLD. Cheers.
"How much IS 100 billion dollars per year? It can't be much, because we all know the Middle East is heavily in debt with struggling economies even now at the end of the 1990's. Right? Well, I invite you to follow along, and judge for yourself. Let's try to spend that $100 billion, and remember...it is 1974. And let's not waste time on small stuff, we'll go right for the big ticket toys.
How about some F-14's? Fully equipped (minus missiles because we are a peaceful bunch) they are ours for $9 million each. Grumman on Long Island assembles 80 each year. Hell, let's take 'em all for $720 million. How about some F-15's too? At $12 million each, we conclude our visit to McDonnell Douglas with 100 under our arm for a cool $1.2 billion. Let's take home the biggest brute the U.S. has to offer--a top of the line nuclear-powered aircraft carrier for $1.4 billion. Better yet, make that two carriers. Throw in some destroyers, some submarines...let's see... We've spent a total of $2 billion on a kicking air force and a little more than that on a fine little navy. How much money is left in round figures? About $100 billion. And this amount comes in not only this year, but the next, and the next, and the next... [a side thanks to Mr. Goodman for these historical prices.] $100 billion is a large annual paycheck, and we haven't even touched the $30 and $40 dollar prices brought about in the Second Oil Crisis. Now consider again that America has written future claims on $5.6 trillion dollars. Can you imagine how such a figure might be settled? Ouch.
Where did all of this money come from? It would seem that America found an efficient means to issue claims on the country in exchange for something that goes up in smoke. Would OPEC own America lock, stock, and barrel? What would OPEC do with all of that cash? And would there be any end to it? How are the poorer countries that must EARN their dollars, as General de Gaulle indicated, going to fund their own oil needs? Banks are the answer. Buy banks, fill banks, and recycle the petrodollars. Oh, and let's not forget Gold. Straight from two ministers of finance, "We would rather keep the oil than have the paper money." We thank you for that insight."
From Ari Hall of fame
Michael H-
Gotcha. I kinda figured our misunderstanding was along those lines.
So in answer to OUR questions :)- seems to me it's many things that led to us being ready at this time- technology obviously playing a big part. All the previous experience(s)...
Does freegold require a high tech civilization?
Is that a preface for becoming a species that travels fluently among the stars??
If there are "aliens" out there, and they are more developed than us, did their civilization evolve in similar fashion?
What kind of transaction system is required of a species that travels the universe or just the galaxy (and trades with other species)??
Now that's out there pretty far but these are things I wonder about. And that's the light I view our own super organism's development in.
Everything Art says will come to fruition under freegold. The bottom line is, as long as fiat is not used as a SOV, there is no possible way for the bankers and the politicians to steal purchasing power through inflation.
Just like there is no way for the Jamaican government to steal through inflation. Because nobody saves in Jamaican dollars. Yet the Jamaican dollar works fine as a MOE.
How Art can't see this I don't know...
M,
"Everything Art says will come to fruition under freegold."
Not exactly.
The net effect of freegold on fiat is that because savers are able to and likely to opt out of fiat in favor of gold; will create a natural pressure on currency managers to actually manage their currencies better. There will be no exorbitant privilege. Will there still be failing fiats currencies? Most likely. But the transparency of freegold will, I believe, ring-out any mismanagement very quickly, essentially putting pressure on CB's to play by the new rules.
Storing Wealth or Making Money?
In the olden days, there was a difference between what you collected as a store of wealth and what you traded or deployed into the marketplace to make money. Man has a basic need to collect and store wealth. This need derives from the awareness of his own mortality. Every man knows that someday he will grow old and die. And in those later years, he will need to draw from the wealth he has stored throughout his productive years.
Today's international financial and monetary system has evolved to where the demarcation line between the two, wealth-storage and trading-to-make-money, is hopelessly blurred. To see an example of this, look at the traders who play in the gold markets. Why are these traders drawn to the gold markets when there are many other markets with much higher leverage and profits? Perhaps it is because they have an innate understanding of the way things once were, yet they are hopelessly confused by today's international financial and monetary system.
The evolution of this system has bestowed upon the governments and bankers of the world a way to skim value from the wealth you store during your productive years. It is as if they are not only clipping the coins that pass through their possession, but they are also coming into your home and clipping the coins you have hidden for later use.
In order to achieve this magical feat, the system has grown excessively complex. And under the weight of its own complexity, it is now collapsing. Soon we will find ourselves back in the olden days, where there once was a difference between wealth preservation and "making money".
The evolution that brought us here took 100 years. The return trip will seem almost instantaneous when it is later recorded in the history books. And for a person to gain an understanding of what is changing, now, in the midst of the transition, will later be recorded as one of the most valuable "epiphanies" ever.
Mona Lisa or Ben Franklin
Whew,
I just caught up ..... sorta ;)
Michael dV said...
Wendy
I am slightly amused: in fofooa's quote above you are frustrated with a reader, yet I recall a few months ago you were defending a reader I had had it with....sorry I can remember which it was maybe AD,,,I guess our troll tolerance varies day to day...
Michael,
I think back in those days I read ALL the comments. At that time Rui had been around , although in and out like today, for quite some time and I had grown tired of the repetitive and circular conversations.
These days I don't read all the comments. I relay on a handful of individual commenter's to do the screening for me. If a comment that I scroll past has value, one of these individuals will quote and comment. My congratulations to FOFOA for the success of his blog, but I don't have the time to read everything.
I also know that too much time on the computer is not good for me, I have no interest in growing a phat ass from sitting on a computer hour after hour. I have reintroduced myself to Elli" the elliptical bitch trainer machine that is parked in my living room, and attend yoga claasses.... I'm considering Zumba next month :P
I'm even considering dating...no one in particular, just a thought. I became a grandmother and an empty-nester this summer and I love it.
Cracky-boy nice to see you back. I really have not seen such pathetic dancing as it did in your last link, but I guess that was the point?
Woland, did you lock JR in a closet?
Wendy,
Woland, did you lock JR in a closet?
Not necessary. The archive is down.
Victor
Yes Victor, I have heard of this, however I cannot imagine that jr has not saved these aarhives.
doesn't make sense!!!
I hope one way or Another they figure this out. MK must know something. Perhaps we will hear soon.
-Aaron
Nice to see you Wendy. I was worried you might have followed Tyrone into the abyss.
Hello Nickelsaver:
Thanks for that link to "Mona Lisa of Ben Franklin". As I
continued reading, I came to a paragraph which touched
on a subject I had wanted to comment on for a while:
collateral. From "The productivity of Debt" paragraph:
"The second requirement (of a loan) would be collateral.
Just in case your attempt at productivity failed, I would
want to receive something of equal value to my loan".
This sentence dovetails very nicely with one from FOA"
"When enough debt is borrowed so that all available assets
have been pledged as collateral, then (me: additional)
borrowing no longer expands the currency." (me: no longer
expands the currency's capacity to fund REAL growth, but only
its' capacity to fund NOMINAL asset price increases.
IMHO, today, and in fact for some time, we have passed the
point of what could be called "peak collateral", the stage at
which all real wealth has been pledged, and we must now rely
purely on "synthetic collateral", or items which only "refer" to
something real, but which are not real in and of themselves.
In some ways, the whole creation of CDO's, CDO squared's
and securities which referenced other securities was a last
ditch attempt to create synthetically the missing real collateral
which was demanded by both shadow banking and the counter-
parties to derivatives transactions.
Of course, these same folks thought of US treasuries as "real"
collateral!! Well, in fact they ONCE were, in the sense that
future real productivity growth COULD repay them, as in post
WW 2 much debt was payed down, if not eliminated. Today, that
same capacity no longer exists (politically). The efforts required
would quickly remove anyone advocating such a course from
power. So we must find some new "real collateral" to replace
all the old or fake collateral which has died. Oh Wait, I have an
idea.........................
@Woland
I remember many years ago, when I was a young man, reading a book that I believe was called Bankruptcy 1995. If I recall correctly, this was a forward looking book that was written sometime in the early 80s and was forecasting a looming debt crisis that would surely materialize in the mid-90s. I remember thinking it was just simple math and a crash was certainly coming.
Well the big 80s occurred and "growth" far outstripped the burden of accumulated debt. I don't think anybody back in the early 80s would have imagined the growth that occurred later that decade and through the 90s. It is no coincidence that derivatives came into their own and grew explosively during this period. They were the rocket fuel that was required to propel our Empire of Debt into a higher orbit.
I see an image in my mind as I consider the above. FOFOA's monetary plane as a 3 dimensional "net" encircling the earth (the real goods, services, and productivity plane). Decades ago we could see the earth clearly and make out topographic features as it slowly rotated beneath us. Now our orbit is extended so far out that we simply see a blue marble out there in the distance. We have to use our imagination now to "see" anything happening there in the realm of the real.
So can we literally leave our planet behind by creating another form of propulsion based on further and higher orders of derivation? I do not think there is anybody today that imagine such a thing, sort of like the early 80s again. The question keeps me thinking and asking questions to test my working thesis of Freegold.
So far I say yes, there is a largely unimagined solution that is staring at us. It is way back there on planet earth and we do not have to create some new super-fuel. We simply have to rediscover the realm of the real by coming back home.
Gravity still has a hold on us it seems, even so far out here in outer space.
As a technician and an unabashed chart junky, I find the following to be fascinating. So much occurred between these the two peaks and I can see it all perfectly from my vantage point.
Thank You FOFOA.
Inflation Adjusted Gold Price Monthly
@ matrixsentry
That was a long post, matrix. The fact you went the length to explain your points clearly alone deserves a thumb-up definitely.
That being said I have to say you seem to assume a lot things that are just ... not so.
Quote:"Hard money or a gold standard will not work for the same reasons it has never worked. ... ... As far as I can tell this has never been accomplished."
Hard money lasted 1000 years in the East Rome empire. Gold and silver coins had been used in transaction in old Persia for more than 1000 years. Several dynasties in east Asia were on some kinda hard standard with each lasting more than 200 years. Historically hard standard lasted much longer than the FIAT system whose average life-span is a little over 40 years.
Quote:"Government exists to serve the interests of the people ... ... Humans agree to sacrifice 100% self-autonomy and empower government ... ... Ideally they elect a government ... ... that can demonstrate there is a net benefit in being governed."
Here in North America we had such kinda system before, and it didn't work. When pilgrims first arrived they thought they were like brothers in a lonely, brutal new world so they ought to help each other. They formed a community and shared their products for the greater good. That sounded great ... on paper.
Soon some slackers realized they didn't have to work if there's always stuff to share. Once one guy slacked off other people followed. The lazy behavior became contagious and the overall output dropped. Eventually people had enough and announced new rules: Keep your products to yourself. No need to share any more. Oops, now the slackers had to get off to work b/c there would be no one to suck from this time. The community output returned to normal. Problems solved after common sense restored.
You talked about human factors a lot. Well here's one factor to consider: If people get sth too easy they will not work hard for it any more. That's how people behave. If we let people give up self-autonomy and rely on govt to provide things we would end up with lots of lazy people. A system encouraging laziness is not a sustainable system.
(To be continued ...)
@ matrixsentry
Quote:"Throughout history we humans have shown an insatiable demand for soft money."
This "insatiable demand" is, however, NOT UNIVERSAL. It's from the debtor camp, not the saver camp. Throughout history if one camp's demand comes in at the expense of another, there will be problems between them. If the first camp doesn't drop the demand, the second will react - a human factor you might have overlooked. Savers will have their income diluted and end up saving less when FIAT gets softened for debtors. Now we have a problem. The standard response from savers is rejecting the FIAT as a payment option eventually.
Don't take my words for it. Look at the Petro-Gold story Another posted: US - the insatiable debtor - wanted to buy Saudi's crude with soft FIAT. Saudi turned it down: "No. We don't like your depreciating Dollar. We demand gold as payment. You better put some gold on the table or there'll be no deal. It's our way or high way." What did US do? They brought some gold to the table.
That's how Saudi - the producer/saver - handles soft money. It's always the producers rather than the debtors decide what to use for payment. Producers have no interest in debtors' insatiable demand. If they don't like the FIAT they will opt out and leave it to the debtors, "You debtors can soften your own FIAT all you want, but from now on you will have to buy our products with OUR CHOSEN MONEY instead of yours," That's how it happened every time, and this time will not be different from every past time.
When it comes to economy, the driving force is always producers/savers rather than consumers/debtors. It's only fair that way b/c they are the ones providing goods for others to consume. A system making producers sacrifice to satisfy debtors' insatiable demand is neither morally right nor economically viable.
@ Dr. Octagon
You do have a legit business case. It'd be ideal if each sound business gets their desired funding. But there's always competition for loans, and sometimes someone else may beat you to it. It happens. I myself would love to get a loan of 10M dollars so that I could profit from the current gold surge. I understand that I cannot get it so I tune my expectation down, settling for trading with my own dry powder and lesser gain. That's life.
Creating FIAT outta thin air is a tremendous privileged and always gets abused in the hand of bankers and politicians (or just about anyone). If sth always gets abused then the cure is naturally "not using it any more", right? So that's why we need a hard money that has neither FRL nor fast & furious FIAT torrent. That way we have a pro-merit, more rational system that can grow steadily.
Rui,
If people get sth too easy they will not work hard for it any more.
I'm kinda interested. What do you think give fiat money its value?
If something is created out of thin air at too great pace, it will get lower value in the market, hence "the sth people get too easy" will be more and more worthless.
When all things else seemingly can be valued independently by the market (supply and demand), why not fiat money? Why do you want this one thing to be fixed in quantity to a (random) physical commodity?
Why don't we fix municipal or corporate bonds to bananas or selenium?
My conclusion is: People and institutions will create whatever promise or paper that they feel is in their interest. Fortunately it is up to us (producers) to give value (credit) to those promises. Just stop enabling them. I believe the market can value these promises just fine, if it gets the chance. We don't need your centrally planned fixes/solutions to do this!
/Burning
@ anand srivastava
Quote:"Once Fiat starts to increase in value people must charge less than what they were charging before. This will cause resentment in the people supplying the big stores."
Not really, look at Apple: Here in US a non-contract iPhone 3G used to be priced at 600$. Later on a better, more advanced non-contract iPhone 4 was at 450$. Apple showed no resentment supplying it. Once economy grows the older products become less popular. The producers adjust to it by both letting the price of older products deflate and supplying the market with new ones so they still have a business.
Quote:"The deflation will cause people to take the MoE out of circulation as SoV. This will reduce the amount of MoE on the market and will impede the support of productive ventures."
Suppose after the real estate bubble price of a house deflates from 400K to 300K, and I decide to buy it. I end up with 100K extra in my hand. Sure I could save it but I might turn around to buy a new car, a new set of furniture, a new HDTV or sth. I could remodel the house with the 100K. Bottomline, this 100k could flow from the housing sector into other sectors so it's their turn to grow, which is not bad.
Contrary to main-stream economic preaching, price deflation is forever good to the overall economy so we don't need CBs / Govt to come in with their inflated FIAT to prop the price up. Not necessary. Market could set the proper price on its own. We just need to let it work.
Quote:"Freegold sidesteps the problem, by letting them have control of the fiat system. WE don't give them the power to OUR money, we get it out of the system, as soon as possible. I don't really care what other people do."
If the bozos still control the FIAT system, they are still ruining the economy. Our gold wouldn't purchase much in an economy constantly devastated by these abusers. It's better to the keep abusers at bay than letting them run rampant while we dodge in a golden corner. We want a solution rather than just a gold hedge. That's why we need to take the ability to abuse away from them.
Raymond,
Thanks for your comment.
I think this "cashless" trend in theory plays along with Freegold: "Keep your currency in an easy to transact in electronic form". But as you say, in praxis the paradox is that before crisis, "cashless" makes small savers more estranged (matrixsentry: weightless?) to storing wealth in a tangible way...
Crisis, shock, austerity, step functions, black swans are now the keywords regarding the enlightenment of the masses of small savers willingly trapped in pension/banking system.
I hope more of us small savers will wake up before there is nothing left to save.
BTW, giant savers (e.g. people overseeing $60 billion) don't seem to put much more thought into the choices involved in saving than Joe Sixpack:
http://t.co/cHcB8wjb
There are people who have figured out that in view of the enormous amount of money printing which has taken place over the past three or four years, a price of $15,000 an ounce for gold would not be absurd.
I’m not sure they are right, because I have not studied how they came to that conclusion, but I think what is true is there has been gigantic money printing, which will of course help the price of gold.
I think this community does better at getting the underlying foundation and cause right with respect to our saving choices...
"This "insatiable demand" is, however, NOT UNIVERSAL. It's from the debtor camp, not the saver camp. Throughout history if one camp's demand comes in at the expense of another, there will be problems between them. If the first camp doesn't drop the demand, the second will react - a human factor you might have overlooked. Savers will have their savings diluted and end up saving less when FIAT gets softened for debtors. Now we have a problem. The standard response from savers is rejecting the FIAT as a savings option eventually.
FYP
If inflation runs in the low single digits per year, then the amount of purchasing power lost between the time income is received and the time it is spent (whether to consume or to convert the excess into a long-term savings medium) is negligible. This negligible loss is worth the tradeoff for the maximum convenience offered by digital currency.
Keep in mind that if there is consistent deflation, then nominal incomes will also fall commensurately.
@ victorthecleaner
Quote:"Under a gold standard, it nevertheless happens from time to time that there is an excessive amount of consumer loans ... ... the economic disaster was too bad to bear, and the gold standard was abolished."
In a real hard money system banks are not allowed to loan people's deposits out for own purpose. If they want to take risk they have to use own money. That way they'd be far more prudent knowing they could lose it should they get it wrong. It's therefore less likely to have excessive loans. Third party deposit would be safe w/ one caveat: people have to pay the banks a storage fee to use their deposit service.
That's actually how a stable banking system is supposed to be. Banks should be like grocery stores or barber shops. They should offer a service. We pay them a fee for our deposit. If we don't like the fee we can put the money in our mattress. Now the banks have colluded with the politicians and become our masters, and people are no longer aware of how banks are supposed to operate.
Quote:"With freegold, i.e. fiat money as medium of exchange and gold as a store of value, you have the same issue with excessive consumer loans, it is just that the system reacts differently."
FG offers a way to socialize the pain if bankers' FRL blows up. Hard money offers a way to ban FRL so bankers cannot blow economy up that easily. We like the hard money approach b/c it aims straight at the source of the problem: If banks clearly cannot handle FRL then why not stop them from doing it? It's like banning texting while driving, "Dude, you cannot handle this. You could hurt someone so let's stop it."
Quote:"This means the previous inflation (when consumer loans were made) will not be reversed ... ... There is no downward wage-price spiral that damages the real economy."
Reversing inflation and downward wage-price spiral are how market corrects the mal-investment. There's not much we could do. For every transaction there is a buyer and a seller. It'd be better letting market sort out the proper price than having govt give preference to one side at the expense of the other.
Don't take my words for it. Look at the Petro-Gold story Another posted: US - the insatiable debtor - wanted to buy Saudi's crude with soft FIAT. Saudi turned it down: "No. We don't like your depreciating Dollar. We demand gold as payment. You better put some gold on the table or there'll be no deal. It's our way or high way." What did US do? They brought some gold to the table.
That's how Saudi - the producer/saver - handles soft money. It's always the producers rather than the debtors decide what to use for payment. Producers have no interest in debtors' insatiable demand. If they don't like the FIAT they will opt out and leave it to the debtors, "You debtors can soften your own FIAT all you want, but from now on you will have to buy our products with OUR CHOSEN MONEY instead of yours," That's how it happened every time, and this time will not be different from every past time.
I don't think this is the correct interpretation of what Another was saying, between gold, oil, and the dollar. I think you are making the same mistake I made before FOFOA set me straight, and the same mistake Gary made.
Here is the super-short version:
- SA didn't care if they got gold as payment, they only cared that they could buy some amount of gold in exchange for pumping the oil, to 'replace the lost wealth'.
- The US wanted higher oil prices in USD to encourage exploration away from the Middle East, for strategic reasons.
- With higher USD oil prices, SA bid USD-gold prices higher as well.
- The only thing that brought the system back under control was that Europe and the ROW stepped in to support the dollar, by setting up the paper gold market so that SA could get gold without running the price.
- In this way, the ROW (non-US) traded gold for low-USD-priced oil.
- Right before the launch of the Euro, the ROW's ability to support the dollar by supplying gold was almost exhausted, and the European CB's had to step in to lease and even sell gold.
- Now the Euro is up and gold is not being supplied by the ROW, so the gold price (and oil price) is rising.
So SA was always perfectly happy to accept USD for oil, provided said USD could be used to purchase gold on the open market. The ROW supplied the gold, to keep oil within acceptable price range, since the ROW could only obtain USD by selling goods to the USA.
Rui
Your posts are boring. We've been over this argument so may times, from so many proponents that I no longer have the drive to respond to it at all.
I think it's time to trot out a old comment by Aristotle again.
"The insufferable bane of the internet near and wide -- infiltrating every arena of thought and discussion -- is an indomitable cadre of hapless pedants, each wielding a false notion.
__________ ______________ __________
Woe upon us that they, so ill-equiped, deign to commit themselves to our informational salvation. With thick and stubborn skull they hammer restlessly, yearning to replace the various masonry of solid foundations and structures with the particular cancerous notion occupying (singularly, with only personal reverence) the void between their own individual ears.
The sickening thuds of these thumping heads, wasting themselves against well-established bedrock, is an unsettling and unwelcome distraction from a forum of discussants intent upon an intelligent advance of inquiry, hypothesis, assessment, and a general improvement in understanding the ruling physics and working architectures of the real world.
___________ is Golden (for some much more than others.) Carl, get you some. --- Aristotle"
Just please...stop...telling us how great the gold standard is. We've heard it all before...so many times. It's still nonsense.
TF
Rui
I am sorry if I come across as rude.
It's just...so very difficult to learn anything when one is focusing on proving yourself right to others in argument.
My honest advice is to start reading the blog from the start, including comments, and open a document to list all your disagreements. You will find your list grow and also shrink, as understanding comes. If there is anything left on your list by the time you have worked through the blog, please, by all means, bring it up for discussion.
When reading with the intent to seek fault you will find that you will spend time on understanding what is being said, in order to disagree. It is hard to argue with commentary and old blog posts, as they are unresponsive. This then is the ideal way to learn as it moves the Ego out of the way.
Best of luck.
TF
@ burningfiat
Quote:"When all things else seemingly can be valued independently by the market (supply and demand), why not fiat money?
FIAT could definitely be valued but it's not suitable as money. One purpose of money is using it as a yard-stick to measure people's productive output. When we use a yard-stick we don't want its length to keep changing. We wouldn't get good measurement outta it that way. For the same reason when using sth as money we don't want its total amount to keep changing either. Since govt and bankers have a loose habit of creating FIAT at will, we don't want to use it as money.
"Will no one rid me of this meddlesome priest?" Oy vei is mir!
Henry! Henry! Where are ya when we need ya?
One purpose of money is using it as a yard-stick to measure people's productive output. When we use a yard-stick we don't want its length to keep changing. We wouldn't get good measurement outta it that way. For the same reason when using sth as money we don't want its purchasing power to keep changing either.
FYP
You cannot control both a money's purchasing power and its volume. You have to choose one or the other.
Unfortunately, the real world does not allow CBs to achieve level consumer prices, so 2% inflation will have to do. That is another topic, however.
@ rui
"Since govt and bankers have a loose habit of creating FIAT at will, we don't want to use it as money."
It was not all that long ago that I not only agreed with that statement, but I was, in fact using silver and (horrors) gold as a MOE.
The logic of the arguments here and the fact that governments have a history of abusing the gold standard, i.e. creating "money" at will, made me see the error of my ways. There is nothing that I want to entrust to government anymore, least of all my savings.
It was not long after I read this entry that I saw the error of my ways: “The Gold Standard appears virtuous until you understand Freegold. Fiat currency appears evil until you understand Freegold.” - Blondie in a comment, March 2011
I still do not understand Freegold well enough to explain it to a novice, but I understand it to the extent that I could leave my Gold Standard baggage on the side of the road and walk away.
Gold allows you to hold an asset that you own in your hand...it makes no sense to allow government to encumber that relationship.
Thanks Aaron ;) I haven't gone anywhere, just fund a chair in a quiet corner at the back of the room
Rui,
In a real hard money system banks are not allowed to loan people's deposits out for own purpose.
Under a gold standard, people are not supposed to hoard their physical gold at home, but rather to lend it to the bank for interest so that the bank can again lend it to businesses, consumers, governments... for a slightly higher interest. This holds true even without any fractional reserving.
What you call a "real hard money system" has never existed anywhere in this galaxy. In fact, when everyone hoards their surplus in the form of physical gold at home rather than lending it to anyone, your "gold standard" will fail in no time.
A "gold standard" needs the complacency of the savers - call it credibility inflation if you like. The gold standard relies on gullible savers who lend their gold rather than hoarding it.
Ancient Rome, Greece and Byzantium were not on a gold standard. Most of their money was not debt denominated in gold!
Yes, their people hoarded physical gold as wealth, but what they traded every day was debt: I help you with the harvest and you owe me a bag of flour and a couple of eggs every week during the winter. Their money was debt. One favour here, another favour there.
Some people call this barter, but this is misleading. It was barter only with a time lag, but in the meantime, one of them still owed the other one a favour. Barter needs a double coincidence of wants. But with the debt as the medium of exchange, they only needed double wants which didn't have to coincide. The money that facilitated every day business and trade was debt, not gold! The majority of their favour were denominated in every day favours and every day supplies, but not in gold.
Yes, indeed, the Romans and Greeks had a system not that different from freegold.
(It is true though that their administrators and their soldiers had their salaries denominated in gold, and that they used gold as a secondary medium of exchange in long-distance trade. But the local farm worker was not paid in gold, but rather worked for board and lodging, i.e. he had his salary denominated in debt, and this debt was not denominated in gold. What served as medium of exchange was largely debt denominated in labour or local produce.)
Reversing inflation and downward wage-price spiral are how market corrects the mal-investment.
Have you ever pondered how this compares with the real world? Take a look at Spain. About 5 years ago, more than 20% of their employed people worked in residential construction. By now, the construction sector is down some 80%, and they rather have 20%+ unemployed. Still, they never had any consumer price deflation.
How did they accomplish this, dude? To clear out the malinvestment and do this under a fiat money system with the soft-money ECB at the helm who already start printing money when consumer price inflation drops below 2%? So how come malinvestment can be cleared from the system if they don't allow price deflation?
Hint: There is a difference between debt deleveraging and consumer price deflation. Also note that in order to clear malinvestment
1) the debtor should be bankrupt (take a look at their home owners and their mortgages)
2) the lender should write off the loan (take a look at their banks and their subordinate creditors)
but it is not necessary that
3) innocent third parties lose their deposits.
Victor
http://www.nakedcapitalism.com/2012/09/modern-money-and-public-purpose-the-historical-evolution-of-money-and-debt.html
"With more printing money, without having a strategy, I believe the value of the money will go down very soon."
- Sheikh Hamad bin Jassim al-Thani, Qatar Investment Authority
http://www.reuters.com/article/2012/09/29/us-qatar-investment-idUSBRE88S0ED20120929
Rui,
I have to agree with Motley Fool, your posts are boring and say nothing new, not only from you but also from the HMS camp. I guess you have not realized yet that this blog is a different animal.
RTFB.
Clearly you haven't read the @#*%ing blog.
You are going nowhere here until you do and the regulars can't be fooled. We smell it on you like cheap cologne.
We welcome people here and want to explore the premise of the individuals for whom this blog is dedicated to. We ask that visitors leave their agendas and ideologies at the door and suspend automatic disbelief in order to consider the case for Freegold.
As has been pointed out already, you are entering as a debater who apparently wants to prove us wrong or convince us that you are right. Giving you the benefit of doubt, your position may be that we have to somehow prove your assertions incorrect in order to sway you to our side. Unfortunately that is not how this blog works. We will not walk the trail for you, we will walk with you. You must put in an effort to understand and to learn.
RTFB.
If we wanted to banter with people that hold your position we would venture forth to the plethora of blogs that espouse your particular flavor of hard money. What do you hope to achieve here? Do you really think you are going to save one of us from a miserable fate worse than death as a result of believing that gold is best utilized as an independent and free SoV?
Some have entered here as skeptics and left here certain that Freegold is bunk. Other skeptics have changed their perspectives and have adopted Freegold as the inevitable outcome. Not a single one of those who are still here and espousing Freegold were convinced by anyone on this blog. They convinced themselves by reading and convincing themselves.
I suggest you come clean and decide what it is you really want. Is Freegold interesting enough for you to assume it is correct and to go about proving to yourself that it is incorrect? Or are you certain it is incorrect and you want us to prove you wrong?
You will go nowhere if your position is the latter. You may go nowhere as well if you can prove the premises wrong in your own mind, well as far as walking the trail with the rest of us is concerned. Your time in that case will be better spent on someone elses blog that professes your philosophies. In that way you can offer your expertise, as we offer ours here, in assistance to the reader who is looking to establish a philosophy of his own. Feel safe and certain that in the event you leave here and find a different home, we will not be along to engage you there on the wisdom of Freegold and ask you to disprove us.
RTFB. Cite the material on this blog. Approach the material from a position of lack of understanding rather than disagreement. Engage with goal being to increase understanding. Suspend disbelief, be inquisitive, and assume that their is something to learn here. Do not ask us to carry the baggage you brought with you.
If you do this I am confident you will have a far more satisfying experience here and we will not end up labeling you as just another troll.
To the right on the blog, under Ron M's Air-Friendly PDFs, you will find yearly compendiums of all of the posts on the blog. These things have fully linked table of contents where your PDF reader will take you right to the article from the table of contents. No scrolling or searching the document. If you are reading while connected to the internet, all links within the articles are active and will take to the content just as if you are on the blog reading the article.
In your case, I would read these first:
Gold is Money I,II,III
Return of Honest Money
Moneyness
Life in the Ant Farm
Debtor and savers.
I say this because your baggage looks a lot like the baggage I carried once. The above posts really allowed me to put the burden down and see things from a different perspective.
Then I would start reading backwards from the latest post.
Good luck.
I agree with MatrixSentry. And I would add that I know I would personally be better off rereading the whole blog from the beginning, rather than frequenting the comments section as often as I do. Yet here I am, back again.
Most of FOFOA's work seems to be done. The premise has been out there for years. He has expanded on it a lot, but how much more can he develop it without simply rehashing everything that has already been said???
This article in Forbes on 9/24 references the Deutschebank piece on gold and also at least as interesting the piece by Jens Weidman, president of the Deutsche Bundesbank (German Federal Bank), where he calls gold money and fiat currency a Faustian bargain with the devil. Rather strong words for a central banker. ;-)
http://www.forbes.com/sites/ralphbenko/2012/09/24/signs-of-the-gold-standard-are-emerging-from-germany/
Weidman's article
http://www.bundesbank.de/Redaktion/EN/Reden/2012/2012_09_20_weidmann_money_creaktion_and_responsibility.html
Weidman evidences no confusion at all about what is money and what is currency. This is indeed a lone sign of hope in this time of global fiat death spiral.
One piece of evidence that does not fit with freegold thinking is the movement in the price of silver. It is true that central banks do not own it and I agree that it can't be used as a wide spread store of value but why the continued action in silver prices? Why, when gold takes a sudden drop at 8AM does silver drop too? It seems that the same parties interested in moving the POG also have an interest in moving the price of silver.
I suppose that it could be a parallel pump and dump. I wonder if there are not those who's job it is to keep the dollar looking good who believe that silver has the same impact on the public...ie if silver goes too high the dollar looks weak. Finally there may be a group of wealth folks who do believe that silver will be a store of value going forward.
Ironically I did very well in the silver boom of 2010-2011. I am out of silver since then but still follow the price movement. The price of the two metals does seem correlated.
Michael Dv
I think the answer lies in your last sentence, historical correlation.
The big boys who gamble the paper markets use models that trade based on correlation plays.
TF
In honor of my Namesake, brought to light by Dr. Wiedman:
Faust, part II - Pleasure Garden
Emperor: A deep relief your soul has breathed,
The furrowed face in smiles is wreathed,
And ardour brings you here with speed.
Treasurer: (joining the others)
Pray, ask report from from these who did the deed.
Faust: To give account befits the Chancellor's part.
Chancellor: Ay, with content that gladdens my old heart
Hear and behold this leaflet rich in fate,
That turns our woes to prosperous estate:
"To whom it may concern, this note of hand
Is worth a thousand Ducats on demand,
The pledge whereof and guarantee is found
In treasure buried in the Emperor's ground
These riches, raised, are earmarked to redeem
Full payment by authority supreme".
Emperor: I fear some outrage, fraudulent and obscure
Which of you forged the imperial signature?
Think you he goes unpunished for his crime?
Lord Treasurer:
Yourself, sire, signed,last night at masking time
Remember, Lord, you came as mighty Pan,
And there our Chancellor put to you the plan:
"Grant, Sire", said he, 'a festal consummation,
Your quill's few strokes will resurrect your nation.'
You signed: as if by sleight of hand, behold,
That night provided copies thousandfold
And so that all might have the boon to share,
We stamped the total series then and there.
Tens, Thirties, Fifties, Hundreds, all to date
You cannot think how people jubilate.
Your town, half dead of late and melancholic
See, teeming now with life and lusty frolic
Your name has blessed the world for years with graces
But never did it win such smiling faces
Emperor: And do my people value this as gold
Do court and army think these payments hold
However much amazed, my will submits.
Lord Seneschal:
None now has power to stay the flying chits,
They ran as quick as lightening on their way,
And money booths keep open night and day,
Where every single note is honored duly
With gold and silver, - though with discount, truly.
Azazello, Behemoth and Khoroviev join me in saying,
Greets!
Rui,
You wrote:
FG offers a way to socialize the pain if bankers' FRL blows up. Hard money offers a way to ban FRL so bankers cannot blow economy up that easily. We like the hard money approach b/c it aims straight at the source of the problem: If banks clearly cannot handle FRL then why not stop them from doing it? It's like banning texting while driving, "Dude, you cannot handle this. You could hurt someone so let's stop it."
Yet people still figure out a way to text while they drive. Just like they'll always figure out a way to fractionalize lending and return to soft money. Strange creatures, those humans, eh? Thanks for helping to prove our point.
See, learning can be fun when you get to talk to people whose concept of HUMAN ACTION has evolved past the thinking of the 19th century ;)
Rui, I commend your dedication and determination. I admire your work ethic. There's always something to be said for "the little engine that could"...... even when he can't. But no matter how much you want to return to a hard money standard, I'm afraid the desire of humans to follow the easiest route will be the the reason you won't get your wish.
"Everyone knows where we have been. Let's see where we are going!"
Wendy,
Please reconsider and sit in front of your computer more. I happen to love the "secretary spread". But FWIW, I think the most beautiful women are those who are built like they should be the subject of a Bouguereau :)
RJP
Michael dV, I think you see correlation with silver in part because of the historical association with gold, but also because of the algorithms that price derivatives designed to track the price of gold through correlated commodities. In that sense I do not think that there is a conscious decision that "the same parties interested in moving the POG also have an interest in moving the price of silver." I think it just happens that way based on how the models are set up.
Also, I expect to see silver outperform gold right up to the day that freegold emerges. In fact, I think it is likely that the silver paper market could collapse even before the gold market. Why? Because silver is a smaller market and central banks and governments do not have the stockpiles to deply to slow down or stop a run. If you are looking to make a trade pre-freegold, I think silver is a better bet than gold. But unless you have a crystal ball or an uncanny sense of timing, gold is safer as a store of value because you never know when that bank holiday will begin.
enough,
Two comments RE: USPS
1. APMEX ships internationally using FedEx.
2. How much money does the USPS pay out in insurance claims? Given that
a. The USPS is essentially bankrupt and
b. Mail delivery in non-first-world countries is often not as trustworthy as that in the US
Could it be that the USPS is simply trying to save money?
Fun stuff on money and currency
Date: Thu Oct 09 1997 19:00
ANOTHER ( THOUGHTS! ) ID#60253:
"Gold is the only money the world has ever known" Sounds like a simple thought but it isn't.
"Money is whatever people say it is" - Not true!
"Currency is whatever a government says it is" - True!
"The LBMA problem"
I can now make clear for all to see.
Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.
Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services. You have all read the articles about how paper receipts for "gold money" were later circulated and became paper currency receipts, then paper currency, then just currency.
The western world today, as we know it does not use money ! They use "paper currency". To fully understand what that really means you must come to terms with this fact. " When you use paper currency you are placing a value using another persons concept of value" You are using a thought as a means of value! When an investment in stocks, bonds, bank accounts, CASH, businesses etc. is priced in US$ currency you are really holding the "intentions of providing value" locked away in the thoughts of another mind.
This type of human interaction works well for a time, as the last 100 years or so proves. But, it is highly unstable to say the least. It has it's own self distruct code written inside each mind. One day ( it has already started ) a type of nuclear chain reaction will occur in the currency markets as people start "unvalueing" the thoughts of others. Little by little all debts owed will be marked down.
Now that we understand that concept let's move on:
[...]
http://www.usagold.com/goldtrail/archives/another1.html
I have followed the 'shipping gold' issue only with mild interest. I do not have an answer to the question of how a person can ship gold to another person but I do know how Tulving does it. They have an insurance policy with Lloyds of London. When you ship to them you simply use UPS with the info they supply and the package is insured. They limit the amount to a max of $75k per box. I assume they do the same when they ship to you but the max is $100k.
If one wants to ship bullion to another one way would be to buy from Tulving and let them ship. Minimum purchase if usually 10 OZ except for certain specials.
I have used them for buying and trades over 10 times in the past 2 years. I rate them as number one for price and high for integrity.
http://www.zerohedge.com/news/2012-10-01/guest-post-lacy-hunt-no-increase-standard-living-1997
Lacy Hunt says:
"Even though debt increased by more than 100% points after 1997, there was no increase in the standard of living...which means the debt that was accumulated in the last 15 years was not only excessive relative to GDP, but it reflected a significant deterioration in debt, the debt went for unproductive uses, and in recent years, counterproductive uses...Debt is only worthwhile if it generates an income stream to repay the debt."
http://sibileau.com/martin/2012/09/10/
this is an interesting article which was referenced by an article at ZH today.
It states that by backstopping sovereign bonds the ECB has created a floor interest rate in the EZ. In the process of sterilization the ECB would have to sell debt paying a higher rate for the EZ banks to hold. This would leave the ECB in a situation of having to sell more debt to pay the interest and in the final assessment it is on a perpetual course of increasing base money.
The fed would have to contend with the ECB by doing currency swaps (per the authors, I have yet to consider if this is correct but the rest of their contentions check out) and in the end another door to hyperinflation is opened.
http://www.zerohedge.com/news/2012-10-01/guest-post-risk-convergence-over-determined-systems-and-hyperinflation
this is the article referencing the above article on the ECB and hyperinflation
The guy gets "the front lawn dump" right! But he does not
get the difference between the ECB balance sheet (gold) and
the Fed balance sheet (electrons). Still, an interesting read.
I like those electrons
Don't get me wrong
But keep them in wires
that's where they belong
Did anybody read these two pieces in Forbes?
Signs Of The Gold Standard Are Emerging From Germany
Signs Of The Gold Standard Emerging In China?
Very interesting, I thought, even if I haven't had time to do more than skim them. (For some reason, they expect me to actually do some work here. Can't imagine why...) In the German one, I had seen some of Weidmann's Goethe quotes before, but it was good to see it in context. Plus the Forbes columnist namedrops a whole bunch of old monetary ideologists, not least Jacques Rueff who I understand to be something of an icon here. :)
Hello Borjesson: Both John Corbitt (first) and I have made
comments on this topic several spaces above this response.
As a figure of universal German reverence, Goethe is a big
weapon to put on the poker table. Cheers
Hello all,
Just wanted to say that my 2 lists are delayed again. Not because lack of inspiration but because of sign #13. Remember that one?:
13. You start to joke more and more with your boss. Because you know that after the paradigm shift, you may become her\his boss. Naturally the boss thinks you are an idiot because you save in physical gold.
A friendly advice: Don't #@¤§ with your boss or you'll get #@¤§ed. :-)
Lucky number 13... :-)
http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20roger%20bootle.pdf
From urbansurvival: "Who pulled Gold out of the Z.1 report and why? I refer to the Flow of Funds Accounts of the United States, which included multiple references to gold in (as one of many examples) this 1999 report, whereas the current Z.1 makes no reference to gold. I mean WTF? One Z.1 report (March of 2000) there are lots of reference to gold (see here) but the following report all references disappeared down a statistical dark alley. Go find the word “gold” for me in the June 2000 Flow of Funds here. I don’t mean to start off your morning on an overly conspiratorially-sounding bent, but we do notice gold (an asset) disappeared off the books and any [purported] audit of the Fed can’t touch the one thing they do that matters most: monetary policy."
@ Michael H
Quote: "I don't think this is the correct interpretation of what Another was saying, "
Saudi's goal was to get gold for their oil. It doesn't matter if it's via dollar first, then paper gold, later European CBs or sth. Gold was what they wanted. Some quick Another quotes here: "These people do not trust foolish thoughts of value from western minds. ... ... To many of these people, wealth is the surplus of life's work that you pass on after death ... ... Gold ( and silver ) is "on the list" ... ... most of the paper gold market will be honored. Why? Because oil will bid for gold if they do not!"
Quote: "Keep in mind that if there is consistent deflation, then nominal incomes will also fall commensurately. "
Let's say the price of materials deflates, which allows us to lower the cost of production. We can then deflate the price of our products, which makes them more affordable and therefore attracts more purchase and thus more profits. So contrary to what the main-stream econ-theory claims deflation could instead lead to more income.
Deflation is not necessarily scary. No need to be afraid of or thwart it.
@ Midnight Gardener
Quote: "There is nothing that I want to entrust to government anymore, least of all my savings."
Would bankers & govt leave savers alone in FG? Let's try a model. Say a village has three guys: A, B and C. They all produce and trade their goods with each other in gold. One day a banker comes along and convinces them to use his FIAT instead as it's easier. After switching to FIAT inflation becomes a problem so the villagers send A to talk to the banker.
A: It's not right that while we have to work to earn the FIAT you just print to buy our stuff. Your constant inflation dilutes everyone's FIAT.
Banker: If you worry about inflation then there's a solution: You guys still have gold, right? Next time you can buy B's gold with your FIAT. That way you get rid of it and worry no more of inflation.
A: What about B then? He has my FIAT now.
Banker: B can buy gold from C. So he saves in gold and gets rid of the FIAT as well.
A: What about C then? C has the FIAT now.
Banker: C can buy your gold. As long as you guys keep trading FIAT for gold you never have to worry about inflation.
A: Hmmm, I didn't realize that. Thank you.
Banker: You are welcome (laughing).
Now the banker can still inflate the FIAT to buy their stuff w/o having to work. Doesn't matter which villager is holding what at any moment. He can rob them as long as they transact in FIAT. Instead of having the working villagers decide where the economy goes, it's his FIAT injection steering the bus. B/c of his notorious short-sight the banker always steers it wrong. Nothing changes as long as the FIAT abusers are in control.
@ victorthecleaner
Quote: "Under a gold standard, people are not supposed to hoard their physical gold at home, but rather to lend it to the bank for interest so that the bank can again lend it to businesses, consumers, governments... for a slightly higher interest."
Banks can simply offer two segregated accounts, one for deposit where the savers are charged a storage fee and the other for investment where there's risk so people are rewarded with an interest. That way people could decide how much they put into either account.
Quote: "In fact, when everyone hoards their surplus in the form of physical gold at home rather than lending it to anyone, your "gold standard" will fail in no time."
Hoarding does not mean no lending / spending. Hoarding means delayed L/S. Big differences. Smart people delay their L/S b/c they want to get the timing and target right. Such delay is welcomed prudence. Prudent L/S leads to growth. Random L/S leads to waste or bubbles. We'd rather have people making prudent decisions on own money than lend it all to banks to take unchecked risks.
Quote: "Ancient Rome, Greece and Byzantium were not on a gold standard"
Just b/c gold was too big a unit for daily dealing does not mean they were not on a hard standard. They still had bronze coins and silver coins for that purpose as I explained before. Such multi-tier coinage system was widely used in Rome, Islam and Asia. You may even find some ancient coins on e-Bay.
Quote: "but it is not necessary that 3) innocent third parties lose their deposits."
That's where segregated accounts would help, right?
Also I'd prefer letting market force decide what the consumer price is to having bankers / govt fix it to a level. I would certainly not want such management from the current kinda politicians running EU that on record claimed "Have to lie when it becomes serious."
"Saudi's goal was to get gold for their oil. It doesn't matter if it's via dollar first, then paper gold, later European CBs or sth. Gold was what they wanted."
Yes, and as long as they were paid in dollars, the surplus of which could be used to purchase gold on the open market, they were happy. Which contradicts your earlier post:
"Don't take my words for it. Look at the Petro-Gold story Another posted: US - the insatiable debtor - wanted to buy Saudi's crude with soft FIAT. Saudi turned it down: "No. We don't like your depreciating Dollar. We demand gold as payment. You better put some gold on the table or there'll be no deal. It's our way or high way." What did US do? They brought some gold to the table."
See? They did not demand gold as payment. They demanded enough dollars in payment, that they would have surplus dollars that could be converted into gold. Very different!
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