Gold backed currency is overrated
If you disagree with me you can go and convert your savings into gold (but you are probably doing it already)
Remember, you still need US dollars to buy oil.
If you disagree with me you can go and convert your savings into gold (but you are probably doing it already)
Remember, you still need US dollars to buy oil.
Good thing, then, that gold is very easy to convert into US dollars.
"the fluctuating value of the dollar makes it very hard to gauge whether oil prices themselves are rising or falling… Oil today at 2 grams, is about the same as it was in the early 1950s; but if you measure the price in US dollars, you would get the impression that it is about 30 times more expensive today!"
In case you need it spelled out, there is, and has always been, a liquid market for the conversion of gold into US dollars. There isn't one for converting Big Macs into anything. They're worthless for trading the second they cross the counter at McDonald's.
For someone lashing out at "illiterate college students playing at economics", you're not exactly showing off your deep insight.
Saudi Arabia is an ally hence they trade in dollars; there was quite a stir the last time there was a rumor related to them dumping the dollar[2]. I don't think them switching to another currency is quite that easy.
[1] http://en.wikipedia.org/wiki/Petrodollar_warfare#Political_e...
[2] http://www.dailymail.co.uk/money/article-1218458/Dollar-rema...
You can be sure they're still happy, especially producers like Saudi Arabia and Kuwait (and Canada, of course)
Can they replace it? Sure, but there may be collateral effects, the harshest ones including 'Democracy delivery missiles' to said country.
"which Ben Bernanke is devalueing as fast as he can"
No problem! Barrel of oil yesterday was $X today it's $X+Y
Well, first of all, gold can be confiscated from you. It happened in the 30s, it can happen again.
Second, unless you are very well equipped and knowledgeable, it is not easy to buy gold - you may buy a bar, but it might be tungsten, with increasing probability as time passes (and I wouldn't be surprised if the probability is already non-negligible; most trade does not go to great length to verify real goldness).
And third - if you managed to hold on to real gold,, in 10 years, you would have gained a good percentage of US dollars when you convert it -- and the tax man will be waiting to take 35% (federal) + 13% (state, if you live in NYC) off your profit. (Capital gain taxes are very low at 15% - don't expect them to stay that way for commodities, perhaps not even for job-generating investments)
2) Coins from a reputable mint are pretty easy. The tungsten forgeries are only cost effective for the bigger bars
3) If you purchase coins then they can be redeemed for the currency of the day at under the radar levels. I don't see why I should pay tax when trying to preserve purchasing power of my savings.
I agree with that premise - unless hoarding gold becomes a little more popular. It is in e.g. India; It might come to the US as well, especially if Ben & friends keep devaluing the dollar.
I don't remember reading about anyone going to jail, but I do remember reading about federal agents forcibly opening bank safes and such to look for gold. If you have a nontrivial amount, home storage might be problematic.
> Coins from a reputable mint are pretty easy. The tungsten forgeries are only cost effective for the bigger bars.
For now, true, as far as I know.
> If you purchase coins then they can be redeemed for the currency of the day at under the radar levels. I don't see why I should pay tax when trying to preserve purchasing power of my savings.
Well, I was restricting the discussion to a law-abiding regime. If you are willing to break the law, I would expect that there are more lucrative ways to do that, with lesser eventual punishment if caught.
Note that I completely agree with you that this kind of tax is unfair and unethical. Unfortunately, that IS the law. And even more unfortunately, the vast majority of the population in the world does not understand that they pay income taxes of (however much, 20-60% in the western world depending on your income) - and and additional of 2%-5% of their savings every year in currency devaluation.
It's funny, but the government works like a hedge fund: 20% of profit, plus 3% of capital. Except there's no watermarks. And you can't really take your money someplace else that offers better terms (at least not when you area US tax payer, and increasingly in other countries as well)
As an aside I wonder what percentage of the population had boxes back then - compared to now. I mean no one I know has them now - almost everyone saves in currency/stocks etc.
Why so anti gold then if you are aware of the perils of saving in currency. Silverbug? :)
Agree on your criticism of my loose word of the term saves. I don't agree with your reasons on why people don't buy gold though - most would have no idea what spread is and how it works. From my experience of trying to convince my friends and family to save something in gold - they just find the idea totally foreign of buying a metal that doesn't earn income...even if said income is not keeping up with inflation.
Interesting perspective on the boxes. I only have one so don't know about increasing/decreasing availability - I know there is a waiting list for the ones at my bank in the city. I find the price very reasonable for the value I obtain from it (150/year).
So what are your thoughts on storing that apartment cash then? I am a goldbug but am interested in other thoughts on preservation of purchasing power.
The deeper the response is in the thread, the longer you have to wait from posting until you can reply.
> From my experience of trying to convince my friends and family to save something in gold - they just find the idea totally foreign of buying a metal that doesn't earn income
My grandma kept a stash of gold and jewelry, and she knew why - she had to run away on the eve of WWII, with a small suitcase. My mom knew that she needs to have such a stash, but gave up building it because it was becoming increasingly hard to do. I know I need one, but it's becoming impossible to do at the volume I need.
> So what are your thoughts on storing that apartment cash then?
I'm frustrated, but I have no acceptable solution so far. I'm diversified over foreign currencies and some non-bubblish commodity futures (that are likely to clear even if there's a run; the COMEX gold futures reflect more than the available gold, and if trading stopped tomorrow, it could not settle and there would be huge defaults). But it's still all backed by fiat and lies.
I don't like that; I don't have a solution.
Interesting. I've asked my grandma how she saved given she was in the USD=42oz period but her response was we never had enough to save (postwar period really). My mum would rather believe a nobel prize winner rather than me :) As with evertthing, views on these matters depend on ones life experience.
>> impossible to do at the volume I need
Ha! a good problem to have!
>>if trading stopped tomorrow, it could not settle and there would be huge defaults
Exactly right! but if you trade in comex futures then you are still trading in paper - albeit paper gold. When the musical chairs stop then those holding the real physical metal will be ok imho. I don't want to be a christian missionary trying to convert but you may find the concept of freegold and the fofoa blog worth a read. In a nutshell, freegold is about thinking through the transition when the USD/paper gold market collapses and looking at what the giant players (central banks) are doing. If you subscribe to that theory then there are some good arguments why there would be no tax on gold in the future (a black market would arise to ship the gold to any region where it is not taxed). YMMV.
Krugman said after the Internet Crash of 2000s: "To fight this recession the Fed needs . . . soaring household spending to offset moribund business investment . . . Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
Creating a new housing bubble was certainly GENIUS, and he got a Nobel prize in Economy in 2008 following what happened, while he was at the root of this model of thinking. Nobel Prize in Economy means nothing nowadays. My dog knows more than Krugman.
I'm not trading gold. I wrote "non bubble futures" (which includes gold - it's definitely not a bubble), but what I wanted to write was "non fictional futures" (gold and silver are fictional in the sense they cannot be settled). Many other commodities actually have a chance to settle most of the open interest should trading stop tomorrow.
Thanks, I was unaware.
> I mean no one I know has them now -
Banks have essentially stepped out of the safe business (virtual storage is easier and more lucrative). Those that still offer such services keep raising the prices in an attempt to drive customers away.
My business backups were stored in such a bank safety deposit box between 2002 and 2006, at which point they stopped offering the service.
> almost everyone saves in currency/stocks etc.
"saves" is not the word I would use in this case; I'd use "attempts to store value" for currency and "gambles recklessly" for stocks.
But even if we accept "save" - the reason is, of course, the government - think about how hard it has become to keep your gold: try taking delivery of bullion, then try selling it back; you'd probably take 10-20% spread hit if you succeed at all; now try with 10 bars, and you'll likely not succeed at all.
> Why so anti gold then if you are aware of the perils of saving in currency. Silverbug? :)
Oh, you've got me completely wrong. I'm not anti gold. I'm completely anti fiat money and QE. Its just that I've spent a considerable amount of time trying to figure out how to maintain the value of any assets I have, and am unconvinced that I can use gold for that purpose; not because it's not a good store of value (it is, as are silver, and potentially even platinum and rhodium), but because the logistics are such that I'm unlikely to be able to execute it.
Sure, a few coins here and there are easy to manage. But when I sell my apartment, and want that chunk of cash to maintain its purchasing power, a few coins won't cut it.
Some history for you: A USD until 1971 represented a thing. It was redeemable for a specific weight of gold. After Nixon shock it become a concept. It is now only backed by the 'idea' that someone will exchange their goods or services in the future for the paper you hold - or the full faith and credit of the USG if you prefer. The value of the USD is only in the prices placed on the goods. If someone refuses to trade an item with you for your USD then what value is the dollar? If you also read up on Triffin's Dilemma, you will understand why the US must run a perpetual trade deficit - to provide lubricating dollars for world trade. So there are many many many more dollars in circulation than can lay claim to physical goods in this world. Eventually all paper money returns to its intrinsic value (Voltaire!). When it happens to the USD, it's going to be a doozy!
The USD has lost on 1) after removing all equivalency to Gold, and we saw that 2) its value has been dropping versus a number of commodities and precious metals over the past 50 years.
I agree the 3) may be challenging if you carry only Gold, but the day the USD will crash, Gold will become a new currency of exchange again. Paper remains paper, and Gold remains gold. It has a value that paper will never have.