Gold Standard--is it likely to reoccur in some form, and if so how?

[matt0611]

If I open up a new gold ETF index to GC, does that not "print" new gold? Or If I put an offer in on CME, didn't I just increase the supply of gold for Sept 21?

Value of a fiat is by definition derived extrinsically, that is not by the value of it's use, but by value of what other people will pay for it. Gold is a fiat, because bulk of the $1500/oz has nothing to do with jewelry or electronics.

Replace fiat with fiat. Brilliant.

Gold is not fiat.

Fiat money means that is ordered to have value by government or law.

Gold has value because of its properties to be used as jewelry, electronics, dentistry etc but most important its value is because people know other people will accept it as "money". Its a commodity money. Gold has value because the market says it does.

 

[halik]

Gold is not fiat.

Fiat money means that is ordered to have value by government or law.

Gold has value because of its properties to be used as jewelry, electronics, dentistry etc but most important its value is because people know other people will accept it as "money". Its a commodity money. Gold has value because the market says it does.

facepalm

Oh you mean kind of like the the green pieces of paper in my wallet have value because i can exchange them for other stuff or other pieces of paper at the market rate? Or the way non-smokers would value cigarettes in ww2 pow camps, because they could exchange them for other thigns?

I'm glad you made it through the first paragraph of "Fiat" on wikipedia. You're only missing the whole idea of representative/fiat money and intrinsic vs extrinsic value.
Good start:
http://economistsview.typepad.com/economistsview/2005/09/yapping_about_m.html

 

[matt0611]

facepalm

Oh you mean kind of like the the green pieces of paper in my wallet have value because i can exchange them for other stuff or other pieces of paper at the market rate?

I'm glad you made it through the first paragraph of "Fiat" on wikipedia. You're only missing the whole idea of representative/fiat money and intrinsic vs extrinsic value.
Good start:
http://economistsview.typepad.com/economistsview/2005/09/yapping_about_m.html

Yup, except those green pieces of paper are fiat money and gold is not.

The market has chosen gold and silver as money time and time again throughout history.

If all government paper money were to somehow go out of existence tomorrow and could not come back the market would almost surely go back to using gold and silver in place of it.

Its not me who is saying gold is money, history and the market have declared it has such for thousands of years.

No matter how many times you guys say gold is "fiat" does not make it so.

Gold is money because the market says it is. That's it.

 

[halik]

Yup, except those green pieces of paper are fiat money and gold is not.

Well then, you sir are immune to logic. I suggest you take an econ course at a local community college, might be a lifechanging experience.

 

[LegendKiller]

Gold is not fiat.

Fiat money means that is ordered to have value by government or law.

Gold has value because of its properties to be used as jewelry, electronics, dentistry etc but most important its value is because people know other people will accept it as "money". Its a commodity money. Gold has value because the market says it does.

One basic tenant of a fiat currency is that the currency itself has no intrinsic value. People claim that the dollar isn't worth the paper it is printed on because it has no actual value. However, measured by the same status, gold isn't worth much of anything. Once you remove 80% of its demand through jewelry or investing, it is worth far less than 20% considering the supply/demand curve would not be linear.

The dollar is a commodity money also, it has value because the market says it does. It's only value is what somebody else will pay for it. The same exact value as gold.

This is what is hilarious about gold bugs, they think that just because it is semi-rare that it is "worth" something. A Honus Wagner baseball card is extremely rare, people would pay hundreds of thousands, if not millions, for one, but what is it really "worth"? I can only burn it to start a fire, I can't derive any energy beyond that from it, I cannot derive any sustenance from it, I can't shoot it for hunting, I cannot use it to produce work. In fact, it has just as much value as gold or a dollar bill, nothing. It's value is derived from the fact that somebody else places value in it.

Gold falls, solidly, in the Greater Fool theory. Even worse, it has been utterly debautched by the fact that hundreds of billions in futures contracts were created out of "thin air" merely for speculation on gold. Even worse, those futures contracts require very small "principal" to actually create the investment, the margin requirements of 10% means that for every $1 invested, you created $10 in gold demand. Out of thin air. It's effectively a 10% down NINJA loan that creates demand out of thin air. Sure, somebody has taken the "short" side of the contract and that contract only settles higher once physical demand is met, but the problem with that thinking is that it only happens that way if the contract is not replaced on the market AND is not thought to be lower in value in the future (speculated), thus, you can keep the system going in a fiat fashion, forever, out of thin air.

It's not even that great as an inflation hedge but can be inflated to infinity.

Sure, I agree, gold has history working for it. Momentum. However, that history has fallen flat before. What about 1980? What if society just suddenly decides gold is a horrible store of value and a cup of potable water is better? Then what?

 

[matt0611]

Well then, you sir are immune to logic. I suggest you take an econ course at a local community college, might be a lifechanging experience.

I've taken econ 101 courses.

The difference between commodity and fiat money is a pretty basic topic.

If you can't see the difference between a piece of paper with symbols on it printed by a government and a metal that has a specific weight and purity to it...well then I don't know what else to say.

How can you be this obtuse?

 

[LegendKiller]

I've taken econ 101 courses.

The difference between commodity and fiat money is a pretty basic topic.

If you can't see the difference between a piece of paper with symbols on it printed by a government and a metal that has a specific weight and purity to it...well then I don't know what else to say.

How can you be this obtuse?

When you get down to it, the only thing supporting the USD or gold is psychology, that's it. It doesn't matter if you can weigh it or measure purity, it's just psychology. It's a transactional medium that has value based in psychology. That psychology can be changed via supply/demand and speculation. Supply/demand can be changed artificially, for example, through printing or through massive futures contract issuance. But, overall, both are controlled by psychology.

 

[halik]

I've taken econ 101 courses.

The difference between commodity and fiat money is a pretty basic topic.

If you can't see the difference between a piece of paper with symbols on it printed by a government and a metal that has a specific weight and purity to it...well then I don't know what else to say.

How can you be this obtuse?

You're obviously missing the concept of representative/fiat money. Government decree has very little to do with it (aside from legal backing), the common link is perceived value.

The dollars in my wallet have intrinstic value of whatever amount BTUs they make in fire (per LK), the intrinsic value of gold is probably $200/oz in filing, platen connectors and jewelry. The other $1200/oz is purely extrinsic.

Finally about your point on market choosing gold, the front month EURUSD contract on cme had about $80B volume today versus $16B in CME gold. And that's just one exchange rate for that piece of paper that market supposedly didn't pick.

 

[matt0611]

When you get down to it, the only thing supporting the USD or gold is psychology, that's it. It doesn't matter if you can weigh it or measure purity, it's just psychology. It's a transactional medium that has value based in psychology. That psychology can be changed via supply/demand and speculation. Supply/demand can be changed artificially, for example, through printing or through massive futures contract issuance. But, overall, both are controlled by psychology.

Sure, I'll grant you that, its all psychology. The economy is humans individually taking action and interacting with each other based on their own psychological desires.

 

[glenn1]

Gold is not fiat.

Fiat money means that is ordered to have value by government or law.

Gold has value because of its properties to be used as jewelry, electronics, dentistry etc but most important its value is because people know other people will accept it as "money". Its a commodity money. Gold has value because the market says it does.

So take the fiat Federal Reserve Notes whenever you get them and use them to purchase physical gold bullion. Voila, problem solved.

 

[matt0611]

So take the fiat Federal Reserve Notes whenever you get them and use them to purchase physical gold bullion. Voila, problem solved.

Right, it should work like this, except people have the pay state and federal capital gains tax on it, as well as sales tax in some situations. This severely limits gold and silver to be used as "money" in the conventional every day sense.

Some states are getting rid of this restriction, but it also needs to be done on the federal level as well.

Just FYI, I do indeed put my "money" where my mouth is so to speak and do own a decent amount of gold and silver bullion in my portfolio.

 

[Lemon law]

The problem with Gold as as a money standard is its so decidedly finite and is not being added to significantly in recent years. Surely we mine more and more gold, but we don't have much more gold than we had 200 years ago.

Yet at the same time, world wealth is increasing at an ever accelerating rate.

So dummy do the math, if we want to peg all wealth to gold, so gold must become ever more valuable. When at the same time gold has limited uses.

So I submit we need a negative money supply that is semi infinite to replace gold as a money standard.

And we have to look no further than the nuclear wastes we produce in our nuclear power plants. As it is where can we store it, as everyone says NIMBY.

Which is exactly why nuclear wastes are an ideal money supply. Instead of paying out taxes with money, we get to get store nuclear wastes on our own property. Be a rat fink like Bernie Madoff, we can stockpile those wastes around much higher and deeper.

As the wealthiest Men and Women become those with no stored nuclear waste.

 

[Darwin333]

They would control the reserve ratios throughout the entire country, which they already do. They could also issue more gold certificates than there is gold and those would all be legal tender, whereas with free banking, no one would have to accept bank notes they were suspicious of.

Wouldn't issuing more gold certificates than there is gold be basically a fiat currency?

As for the diamond market, I got back to you a while back on that. All it took was a quick google search to see that Da Beers is a government-backed cartel.

Yup and it completely controls the entire diamond market including massively manipulating prices. What makes you think the same can not be done, at least on a smaller scale, with gold? Why do you want countries and entities that might be hostile towards the US to be able to exert huge control over our currency? What in the world makes you think that is a good idea?

 

[Darwin333]

Right, it should work like this, except people have the pay state and federal capital gains tax on it, as well as sales tax in some situations. This severely limits gold and silver to be used as "money" in the conventional every day sense.

Some states are getting rid of this restriction, but it also needs to be done on the federal level as well.

Just FYI, I do indeed put my "money" where my mouth is so to speak and do own a decent amount of gold and silver bullion in my portfolio.

Well if you do actually make a profit off of investing in gold why should you not pay capital gains taxes on it? Can I get my favorite investment vehicle on the do not tax list?

 

[Darwin333]

Yup, except those green pieces of paper are fiat money and gold is not.

The market has chosen gold and silver as money time and time again throughout history.

If all government paper money were to somehow go out of existence tomorrow and could not come back the market would almost surely go back to using gold and silver in place of it.

Its not me who is saying gold is money, history and the market have declared it has such for thousands of years.

No matter how many times you guys say gold is "fiat" does not make it so.

Gold is money because the market says it is. That's it.

The market sets the value of fiat currency just the same as it does with gold. The US dollar has value for the same reason as gold does (at least in the terms of currency) and it also loses/gains values for much of the same reasons. Gold just happens to be far more prone to wild price fluctuations (inflation/deflation) than the US dollar, reason #1,599 that moving to a gold based currency would be a bad idea.

Imagine if you would have taken a loan out to purchase a house 10 years ago using gold as a currency. You would owe 4 or 5 times as much as you initially did due solely to the inflation in the value of gold.

 

[Darwin333]

This is not how it would work.

M0 should be covered by gold (aka, the actual currency bills in circulation).

If you do the math, with the gold in Fort Knox, it comes out to be around $5000 / oz of gold.

This would be the new gold price (and in fact dollars would be equivalent to gold, i.e. receipts for gold stored in the treasury vaults) and the treasury or the fed could simply start buying gold at this price until an equilibrium is met.

Its pretty simple. You're way over-complicating things.

So the Fed would be purchasing gold with "reciepts for gold stored in treasury vaults" but they wouldn't actually have the gold in the vaults to back up the newly purchased gold?

And anyone in the world who already owned gold would see an instant tripling of the value? No wonder you gold bugs keep trying to push this.