324 karma · joined September 3, 2010
At a national level, yes the Central Banks settled in gold, but that was after the micro transactions bubbled up to be settled from the commercial banks and then eventually cleared at the Central Bank level (Talking on the edges of my understanding here - just trying to see if the reality for an individual level was the currency was gold backed until 71).
USD collapse would certainly be a far reaching global event but that doesn't mean it will not happen. I'm sure all prior entities with reserve status also thought their position unasailable.
http://www.zerohedge.com/sites/default/files/images/user5/im...
Global support for it is waning. China is doing direct currency swap deals and is no longer supporting USD by stacking treasuries at the rate it was. Russia is dishoarding treasuries too. The current trade deficit is propped up by the Fed buying USG bonds and suppressing interest rates. USD is not long for this world in its current form.
Agree mortgages didn't pop due to being paid back.
IMHO the Real estate bubble was from the Fed bailing the prior tech bubble by suppressing interest rates - which encourages borrowing. When loans are paid back, the currency created by taking the loan is extinguished but they have been juicing the system by continually suppressing rates via QE/bond purchases and not letting the real market decide the risk (ie: price of bonds). Now that interest rates have hit the floor - the next bubble to pop is the USD itself.
Buying a few properties over your life at this point in time - presumably via credit is a risky proposition. People need roofs over their heads but they need food more. For an interesting perspective on property during a currency event - read Gonzalo Lira's description on Chile
http://gonzalolira.blogspot.com.au/2010/08/hyperinflation-pa...
In my comment history you will see a rather long entry I reposted from ZeroHedge. It's worth a read if you want to understand this argument some more.
Yes I meant the otherside of a currency failure. They are not as rare as you imply.
If the economy collapses completely then a lot of people will die...likely me included...as I am not a farmer. So I am assuming the economy will not collapse completely. Things will muddle through. Some will fair better than others depending on their understanding of the real nature of money, trade and its history.
We can't eat gold no...but I presume most of your assets are non edible too?
PS: It wasn't me that downvoted your last comment.
I'm not arguing fiat currency will disappear, it obviously won't. It's just not the correct vehicle for saving. You must not save in the same instrument of the debtors. It leads to you being wiped out when the debtors default as the credit system grows beyond the ability for it to be paid back (eg: see China's trillions of US Treasuries - those are claims that the US economy cannot and will not service).
re: Spain: It was silver that was debased not gold I think.
re: gold failed: Physical gold didn't fail. Gold backed currency failed. Governments always print more tickets to gold than they own. The last big paper gold failure was Nixon in 1974 after they overspent on the Vietnam war.
I wouldn't recommend getting into paper gold to escape a currency collapse. Physical, unambiguously owned metal is the insurance, the vehicle that will transition you through to the otherside.
Your pessimist view is at the extreme end of the spectrum. Individual fiat currencies have eventually failed ever since they were invented. Each time a currency dies there are winners and there are losers, but it doesn't go all Mad Max - a new transactional currency is used (Zimbabwe) or they lop a few zeros off and keep going.... Well maybe the dog food eating bit of Mad Max is true for the losers whose wealth was stored in the currency that failed.
There is only one asset you need though, and that is the same physical asset that Central banks hold that is not an IOU from another country. It is that asset only that will be able to be revalued and reflate the balance sheet when the currency 'assets' have burned to the ground.
True that gold has no intrisic value, it's value is derived from other people valuing it and willing to trade services for it - and they have done so for thousands of years, where as a typical fiat currency (USD) does not have such a timespan. "Paper money eventually returns to its intrinsic value – zero." (Voltaire, 1694-1778)
btw - as i understand it wasn't a 10% tax, it was a mandatory debt for equity trade- meaning the depositors now own some part of the bank.
Gold's value is it's uselessness! It's value is derived from the network effect of other producers willing to trade their services/goods in the future for the gold you have stored.
Currency is for earning and spending. there is no bound to how much currency can be conjured to claim on goods from the real world. When the currency system fails under the weight of debt incurred in that currency - then those holding physical tangible goods will do well against those whose wealth is denominated in an arrangement of 1's and 0's.
A lot of US treasuries held by Central Banks in reserve might suddenly go on sale and send interest rates sky high...destroying the USD.
They would want to think twice on that.
There are a number of people who would like to see the return of hard money, which is to say money "backed" by gold or another metal (read: directly and unequivocally exchangable for, at an officially set and guaranteed rate of exchange, eg. a gold standard). So what "backs" gold?
Gold is fairly useless, on this there seems little dispute. You can't eat it, it won't keep you warm or light the dark etc. So it has no inherent value.
It has no practical utility except that it is exchangable for things one does actually have utility for, such as food, clothing, energy etc.
So... it has no value, but we value it. People value gold. We give it value. Why? It's useless.
Gold is given value by people, so even if we have a currency "backed" by gold, the currency is still, via gold, backed by the willingness of others to accept gold, which is itself based upon the expectation that others will do likewise in the future.
So people value gold because people value gold. Must have been a funny experience being the very first person to value gold, when you had no precedent and thus nothing to give you confidence that someone else might give you value for it later. Unless you were so wealthy that you didn't necessarily expect to need that value again, so then who cares? If you had so much value that all your other possible needs were met, and still had a healthy regular income, what would you do with that extra income? You'd have to be super-productive, or own super-productive assets to earn like that. But you wouldn't want to buy stuff just because you could (would you?), not if you didn't actually have a use for it, and especially not if others did (like food or something, and you buy it just because you can; the price would go up and you might actually be preventing some people from eating). That'd be wasteful and mean. Come to think of it, if you were wealthy on that sort of scale and you started buying gold (and you were the first to do so) just for the hell of it, you'd be making a market for it, so then it would have value for others... by selling it to you. You're giving them value for it. No one needed it for anything else, so no one is disadvantaged. Hey, you're actually doing others a favour, giving them value for something useless. So others can use your extra productivity. That's pretty cool. That's really the opposite of hoarding, isn't it? You're making more than you need, and you're not wasting it.
I think the general population should look kindly upon people with gold in that case, because if you have gold (useless stuff) you must have produced value you didn't consume, and traded it for useless gold (unless you didn't pay for your gold). You valued gold, which was good for whoever sold it to you, and you didn't let any value go to waste by buying useful stuff you didn't actually need and depriving someone less wealthy of something useful. And then not even using it. Therefore some one with gold should have credibility in the eyes of others, all else being equal, because they exchanged a surplus of useful stuff for useless stuff.
But there must be other people out there producing too much for their own needs too. What do they do with their surplus value? Hey, if they wanted to buy gold too (probably for much the same reasons?) then you wouldn't be the only one making the market anymore! That means you could even sell some later, if you ever needed to too. But you might never need to. So if gold were to be bought for these reasons by the super-productive, a lot of it might never come back on the market, just because it doesn't need to. So it's not actually consumed as such (because it doesn't have a use, nor does it wither away), but it's not on the market either. Bought, but not sold as much. Wealthy people absorbing useless stuff in exchange for useful stuff. Who knew?
I suppose little guys could get in on this gold action too... if they were making a bit more value than they were using, they could buy gold (ok, probably just small amounts), but they could buy however much their excess value will fetch, and sell it into this market made by super-producers later. Because it's durable, eh? And small. And you don't need to do anything to it, you know, like maintainence, or learn how to use it (like if you bought an orchard or a tonne of iron ore or something, then you'd have to know (and want to know) or learn how to manage an orchard, or have room to store the iron (and how do you stop it going rusty?)). What if you wanted to go somewhere else? You could take your gold with you, but I don't know about the other stuff; that'd be a bit more involved. Gold doesn't seem to give you any hassles. Unless you lose it. So really, everyone who produced more than they consumed could save their value in gold, if they wanted to. Actually, that's a good thing too, because then people who might not otherwise bother could produce more value than they need, because they can save the excess and use it later by buying and later selling some gold. Good for people who don't want hassles, but would like to save. Most other assets are going to require management, or they'll crap out eventually. The economy would be a bit more productive than it otherwise would, wouldn't it?
So, in a nutshell (presuming the preceding logic is sound), people put value into gold because they have confidence other people will give them value for that gold later, should they want to use it (the value) to eat, or keep warm, or light the dark etc, or because they have too much value and they just don't want it wasted. Gold is storing value for people. It is making present surplus value both durable and fungible for future use. Saving it. Seems fair; there appear to be willing buyers and willing sellers, so both must be getting something out of the transaction.
So gold appears to be backed by people and their willingness to trade useful stuff for it. Seems like people who produce surplus are confident that others will continue to produce surplus in the future and thus create a continuous demand for gold; either that or they are happy to make their surplus available to others and buying gold is just fun. Seems kind of like when you buy gold you are putting your trust in the market as a whole. That seems a bit different than when you buy a bond for example, because then you're just trusting whoever issued the bond. So with gold the whole market is your counterparty, so to speak.
The fact that gold is useless appears to make it useful. ! Really useful in fact, because it's encouraging the economy to grow and make more useful stuff, and minimising waste. Wouldn't that actually make the useful stuff cheaper, if there were more of it than otherwise? And it's helping people kinda secure their future, by being able to save for it, that's gotta help them worry less right? Get sick, or old, and you can't provide for yourself or your family or whatever and you could sell some gold, eh? Yield: peace of mind. What's that worth?
So how much will gold be worth later, if you want to sell? Shouldn't be too hard to figure out; it's just supply and demand.
Supply: newly mined gold, and old stock being sold. The flow of newly mined gold seems pretty static. Apparently all the low hanging fruit is long gone, so these days they're mostly mining leaner deposits and it's pretty slow going. Old stock. Well about 170,000 tonnes have been mined altogether, so I guess all of that could potentially be flow if everyone wanted to sell all their gold at the same time. It wouldn't be worth much then.
Tired of rambling, might come back to this later.
To paraphrase Silvio Gesell, an economist in favor of symbolic currency almost a century ago, "All the physical assets of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money? Money was not made to be saved!"
ie: you don't need to buy whole companies outright to avoid saving in currency.
umm. no. central banks hold gold as a reserve asset. all other reserve assets are liabilities of foreign govt's. eg: USG. Central banks aren't about to replace the only unencumbered physical asset they have with a digital algorithm.
>> I see bitcoins as the storage of value, but not method of payment
I think you have it the wrong way around. Bitcoin could be a medium of exchange but not a store of value. It's too small isn't liquid enough to be credible as a SOV. If it got big enough to do so then govt would crush it.