IS Gold Money?

Jason you are really splitting hairs on that. YOY the euro hasn't moved and YOY gold price is down 5.5%. So I think Cypriots would prefer having gold rather than in a bank in a country that is basically broke.

5.9% YOY. But 12.8% down from its October recent peak and down 17% from its 2011 peak.

They would have been better off having Euro deposits (or dollar deposits) in other EU countries or the US. Or Franc deposits in Switzerland. All would have been better than gold.

5 years ago Gold was at 700 per ounce and now it's 1560 per oz. I believe the people of Cyprus would rather own gold over the long term rather than a paper currency that governments are aggressively trying to depreciate.

5 years ago Priceline stock was was at $128.38 per share and now it's $733.99 per share. I believe the people of Cyprus would rather own Priceline stock over the long term rather than a metal -noncurrency that gold bugs are shamelessly trying to hype.

Priceline = Gold

Exactly, I thought you would compare the price of gold 5 years ago to the Swiss franc, euro, yen or the dollar where did Pricline stock come from?

"Exactly, I thought you would compare the price of gold 5 years ago to the Swiss franc, euro, yen or the dollar where did Pricline stock come from?"

Have you even been paying attention to this thread? TOP asked a rhetorical question. My answer (and other people too) was, is, and has been that NO its not a currency, its an asset one invests in. And the above counter-argument, like MOST on these boards has not been "look how it behaves the same way as a euro, yen, or dollar." No, its been "look how the price has run up since _____." That's the same sort of argument people on these boards make when they argue that INVESTING in a home is better than investing in the stock market.

>Have you even been paying attention to this thread?

It is important to pay attention to Streeteasy threads.

"MARC FABER: Sure Gold Is Down, But Apple Is Down By Twice As Much...

...Faber, author of the the Gloom Boom & Doom Report, was on Bloomberg TV with Trish Regan and Adam Johnson to talk about it...

...He also thinks we should think of gold relative to the other asset classes.

"I would just like to make one comment," he said. "At the moment, a lot of people are knocking gold down. But if we look at the records, we are now down 21% from the September 2011 high. Apple is down 39% from last year's high."..."

Read more: http://www.businessinsider.com/marc-faber-compares-gold-with-apple-2013-4#ixzz2QJV80fiV

Shut the f*$% about you don't understand why I mentioned Priceline. Goldbugs almost ALWAYS talk about Gold like an investment, not like a currency.

"Gold prices fall 6% to hit 2-year low"

http://www.usatoday.com/story/money/markets/2013/04/15/gold-prices-tumble/2083537/

"Why Wall Street Suddenly Hates Gold"

http://www.forbes.com/sites/greatspeculations/2013/04/15/why-wall-street-suddenly-hates-gold/

"Gold's Glory Days Come to an End"

http://online.wsj.com/article/SB10001424127887324345804578424683832134210.html?mod=djemHeardEUH

"COMMODITIES-Broad risk flight; gold eyes worst two days since 1983"

http://www.reuters.com/article/2013/04/15/markets-commodities-idUSL3N0D245V20130415?feedType=RSS&feedName=marketsNews&rpc=43

Apple is down about 21% ytd what's your point?

"Apple is down about 21% ytd what's your point?"

"renterjoey...

...Exactly, I thought you would compare the price of gold 5 years ago to the Swiss franc, euro, yen or the dollar where did Pricline stock come from?"

Joey, RS. RS, Joey.

My point is, gold is an investment class, not a currency. Oh and Goldenfreude.

http://www.businessinsider.com/goldenfreude-2013-4

>My point is, gold is an investment class, not a currency. Oh and Goldenfreude.

221 comments just for that?

"Gold Plunges Most in 33 Years in Record-High Trading"

http://www.bloomberg.com/news/2013-04-15/gold-extends-bear-market-losses-as-investors-reduce-etp-holdings.html

Safe haven!

Did gold evaporate, explode, or disappear?

No, it just declined in value by about 10%. In one day.

"My point is, gold is an investment class, not a currency" Jason, I didn't know that Gold pays a dividend for that matter neither does the dollar. Maybe we should treat the US dollar as an investment just like gold.

Looks like Goldman Sachs clients are doing the right thing by listening to their advice on selling all their gold holdings. Wonder if these are the same clients that took their advice and bought Goldman's sub-prime mortgages.

Why do I have a feeling Goldman is buying Gold these levels.

RS, two things: 1) Apple stock isn't supposed to be "money"; 2) it didn't fall 20% in 2 days.

Were we on the gold standard, you would have have had massive deflation. If you paid for your house in ounces of gold, and gold dropped from $1900 an ounce to $1300 an ounce is a year - as it did - your house would be worth 32% less than it was.

And so would everything else - except your debts and your income, which would still be denominated in ounces of gold. So if you earn 5 ounces of gold month and your income exactly equals your expenses, somehow you'd have to come up with 6.6 ounces of gold to pay for those same goods.

That's one more reason why the gold standard didn't work, and even Milton Freidman was against it.

>Were we on the gold standard, you would have have had massive deflation. If you paid for your house in ounces of gold, and gold dropped from $1900 an ounce to $1300 an ounce is a year - as it did - your house would be worth 32% less than it was.

If we were on the gold standard, why would hold make such price moves? It wouldn't.

And why do you need to mark to market your house?

>And so would everything else - except your debts and your income, which would still be denominated in ounces of gold. So if you earn 5 ounces of gold month and your income exactly equals your expenses, somehow you'd have to come up with 6.6 ounces of gold to pay for those same goods.

Someone whose income = expenses is not a good borrower under the gold standard or the pasta standard or on the planet Jupiter.

How's the subtropical lifestyle, stevejhx?

>If we were on the gold standard, why would GOLD make such price moves? It wouldn't.

Instead of the gold standard let's depend on the Fed to goose up the economy by printing more money. Let's artificially keep interest rates low so the government can borrow a lot more money. Let's artificially keep rates low so we can create inflate housing prices again.
Interesting to note that everyone was making fun of gold when it was at 200, 300,400,500,600,700,800,900.1000.1100,1200,1300.1400 and it was only when it reached 1500 did all the Johnny- come- lately from Wall and Main street start saying it's time to seriously look into buying gold and they all piled in at the 1600,1700,1800 and 1900 level. So when it corrected they're back to trashing it again.

Gold is still not a currency.

Plus gold is kind of tacky-looking, really.

FYI

Last Monday Arizona lawmakers passed a bill that makes precious metals legal tender. Arizona is the second state after Utah to allow gold coins created by the Fed and private mints to be used as currency. More than a dozen states have legislature underway to pass similar measures.

So, for some states, gold is treated like money.

Gold is as liquid as the US dollar and given the choice of the two currencies I'd rather have gold. Interesting to note that the bailout for Cyprus wasn't enough (no surprise there) so the only reserve they have of value is gold and soon they will be unloading that to countries like China.

BTW if Gold wasn't a currency other than the fact it can't be printed why are central banks buying it? I believe Central banks now own about 20% of their reserves in gold.

Gold was a good currency in the old days when society's GDP growth was slow. Remember, population growth was pretty much non existing until the last couple hundred of years. There is simply not enough gold for the world's population now to use it as currency.

"If we were on the gold standard, why would GOLD make such price moves?"

You're right, it wouldn't. The reason why it wouldn't is that - short of everyone using the same gold coins throughout the world - all exchange rates would be pegged to price of gold, which is what would be fixed. That is what we had before Bretton Woods fell apart in the '70s, when Charles DeGaulle threatened to demand that the US pay France in gold for all of the dollars it has on reserve, which of course we couldn't because we didn't have that much gold.

Fixed exchange rates don't work because they're too inflexible, which is one more reason that the gold standard falls apart: it doesn't allow for the value of currencies to change in relation to real interest rates. Under fixed interest rates devaluation is impossible, because currencies are fixed to the price of gold. If a country devalues, it is basically saying that it was never really worth that much in gold, anyway, and that the gold peg was fake.

Gold is no better than anything else as a currency. It doesn't prevent inflation, it doesn't prevent deflation, it doesn't allow the currency supply to change to offset changes in velocity, and there is NEVER enough gold to pay off everyone who in times of crisis would demand gold in exchange for their banknotes. Taken to its absurd limit it would prevent fractional reserve banking which would cause the world economy to collapse, because the only way to increase the money supply would be to dig up more gold.

Governments do hold gold. They also hold oil, wheat, real estate, and Japanese yen. They hold a lot of things. Holding gold is partly historical, but it's as good a thing as any to hold, because let's face it: other than jewelry and fancy fillings, it's not really good for anything but to look at, because it's inert.

Meaning it doesn't rust, which is what makes it so good for jewelry.

But as currency - not so much.

"Interesting to note that everyone was making fun of gold when it was at 200...."

Interesting to note that, adjusted for inflation, gold is not worth today what it was worth in 1975, and it didn't pay an interest in the interim.

"Last Monday Arizona lawmakers passed a bill that makes precious metals legal tender."

Yes, if you LITERALLY carry gold and silver coins in your pocket...but most businesses will not take it. THe price of gold (and silver) fluctuate way too wildly for your local movie theater or Appleby's to ever take it...not to mention the logistics of storing valuable coins (or verifying that they are pure...)

Its not going to be used by anyone to buy and sell things, even in AZ.

"interesting to note that, adjusted for inflation, gold is not worth today what it was worth in 1975, and it didn't pay an interest in the interim."--Stevejhx

In 1975 I believe gold was worth about $150 per ounce and today 38 years later it's valued about 1400 per ounce so what inflation rate are you using. Your right gold doesn't pay a dividend and neither does the dollar. Since we are comparing currencies how well did the dollar do over the past 38 years. If I bought an ounce of gold in 1975 with 150 dollars today I can buy 400 gallons of gasoline with that same ounce of gold. Today, however that same 150 dollars you had in your pocket since 1975 can only buy you about 42 gallons of gasoline. So tell me which currency fared better over the past 38 years gold or the dollar?

"Today, however that same 150 dollars you had in your pocket since 1975 can only buy you about 42 gallons of gasoline. So tell me which currency fared better over the past 38 years gold or the dollar?"

I think the guy who stored barrels of gasoline in his garage all this time comes out the biggest winner.

Jason, that's not the only reason why people don't use it: the only way for it to be used would be in coins (which are heavy) and from the beginning of time (or at least of gold coins) people were debasing the currency by adding non-precious metals to it.

If you get a gold coin, you can't tell if it's actually gold, or if it is how much of it is.

Renter, here is the inflation-adjusted price of gold:

http://dailybail.com/home/chart-inflation-adjusted-gold-price-1970-2011.html

The peak was in 1979 - we're nowhere near that now. We're probably about where we were in 1975.

Other than that, though, your analysis is all wrong, renter. First, gold is not a currency, and second, there is no answer to "how well did the dollar do over the past 38 years?" because prices are denominated in dollars, not in gold. If you could buy things in gold then the price of gold would behave differently than it has, so the question doesn't make sense: it would no longer behave like a commodity, but rather like a currency.

And as I said, in order for the gold system to work then currencies have to be pegged to it because there isn't enough gold to go around to create enough coins that people could buy stuff, so you need to issue legal tender that is theoretically worth some certain amount of gold. And because the US, UK, and France and everyone would have to fix their currency to a certain amount of gold, those exchange rates must be fixed to each other. And as soon as you establish fixed exchange rates you're setting yourself up for ultimate collapse, because they are inflexible - it's the same problem that Europe has today with the euro: poor Cyprus doesn't have its own currency it has euros, so in order to adjust its currency to its productivity it has to go through massively painful deflation, unemployment, and a depression.

So you can't extrapolate the price of gold as a commodity to what gold would be worth as a currency, because if gold were a currency it would not behave like a commodity: its price would necessarily be fixed and no one could buy it except in small quantities, because if they bought it it would potentially set a market price for gold that could be different than the fixed price for gold, and the fixed exchange system would fall apart again and you'd be left with exactly what we have today: floating exchange rates which, by definition, can't be pegged to the price of gold.

If you want to calculate inflation you can go here:

http://www.westegg.com/inflation/

Using the CPI (and there are other measures of inflation, $100 in 1975 would be worth ~$421 today. That is equal to about a 4% IRR, or 4% inflation per year. Most of that occurred in the 1970's; recently inflation has run around 2% per year, which is the Fed's target.

It's the Fed's target because if inflation is slower than that there runs the risk of deflation, which is far worse than deflation (as someday Europe will figure out as Japan finally has): in the case of deflation, your assets are worth less but your debts on those assets are worth the same. So you will have the same situation throughout the economy as exists now for many homeowners: they have mortgages far in excess of what their properties are currently worth.

So, gold is a commodity and not a currency so you can't extrapolate its behavior as a commodity to say that it has performed better as a currency than the dollar, because it's not a currency. If it were a currency you couldn't buy it - you could only exchange it for a different currency based on that currency's peg to gold. Today you can buy yen or euros with dollars but you can't buy dollars with dollars. In the case of the gold standard you couldn't really buy yen or euros because their price would just be an expression of their fixed - not set by the market - peg to gold, so as it's just an exchange. As soon as you let people buy gold for its "market" value it's no longer a currency, but a commodity.

Wherever countries set an artificial exchange rate - Venezuela, Argentina, for example - a black market almost always develops that sets the currency at its true economic value (plus a risk premium for breaking the law). The same thing happens with the gold standard, which is why it was illegal to own all but trace amounts of gold while it was in effect: if the price of gold floated against the exchange rate, there would be no purpose in having a gold standard, because if the French say 1 franc is worth 1 ounce of gold and we say 1 dollar is worth 1 ounce of gold then it would not be possible to allow a free market to develop in gold because very quickly economic forces would determine that the franc and the dollar are not really both worth the same in gold, and there goes the gold standard right out the window. Though arbitragers would love it: if the French say 1 franc is equal to 1 ounce of gold but the free market says 1 franc is equal to 1/2 an ounce of gold, guess how easy it would be to double your money instantaneously?

I hope that makes it a little easier to understand. The gold standard is does not work because it is artificial, and it ALWAYS falls apart in the medium-term.

Euro beware.

Steve, why do you hate gold?

greasydale, why do you hate?

C0lumbia C0unty, someone is looking through the window in your shower.

that's why?

So, gold is a commodity and not a currency so you can't extrapolate its behavior as a commodity to say that it has performed better as a currency than the dollar, because it's not a currency--stevejhx

No that's my point Gold is a currency and the Central banks have been buying gold at historic record levels. The more money they print the more gold they need to buy. Central banks have been snapping up gold over the last few years. Global central banks purchased a net of 589 tons of gold in 2012, up from 456 the previous year That’s the most in nearly 50 years, bringing central bank demand for gold to 12% of the global total, compared with 10% in 2011. Right now they are keeping gold at a 20% reserve to their paper currency. As they deflate the paper currency they need to back it up with a currency of value like Gold because they can't print it. Now they can try deflate the price of gold by selling paper gold futures thus causing a panic dip like what may of happened recently so they scoop up the physical at lower prices but once a paper currency crisis occurs I think you would rather have a currency of real value like gold. Look at poor Cyprus the only currency that they can count on is their gold. Those that kept their money in the bank have gotten some of it removed by their government and what's left will probably be taxed further to pay off the country's debt. Once they can't take anymore money out of the bank accounts and from the paychecks of their citizens they will need to resort to selling the only currency left worth any money and that's their remaining gold reserve. In Cyprus there was no warning that they were going to shut down the banks.

"Wherever countries set an artificial exchange rate - Venezuela, Argentina, for example - a black market almost always develops that sets the currency at its true economic value" SteveJHX

That's right Steve In Argentina the government has turned to the central bank to finance spending and meet foreign debt payments. Gee now that sound's awfully familiar.

In fact Argentina is printing money five times faster than the Federal Reserve, creating massive inflation. Good strategy inflating their way out of debt.

No, greensdale, I don't hate gold.

No, renterjoey, gold is not a currency, and that's not why central banks buy it.

No, renterjoey, you don't understand what money is. "As they deflate the paper currency they need to back it up with a currency of value like Gold because they can't print it."

That's not true, because as they "deflate" paper currency they would need more of it to buy gold, which is denominated in dollars.

No, renter joey, the Fed is not causing inflation; there is no inflation. You need to look up "liquidity trap" to see why what the Fed is doing is not causing inflation.

Cyprus can't "count" on their gold because they can't spend it.

I'm not arguing with you about it anymore, because you've obviously never taken an economics course in your life, and have learned your gold lessons from Larry Kudlow and Glenn Beck.

Joey, Steve just destroyed your argument in great detail, and you simply ignore everything he said. It is in fact true that owning gold, buying and selling it was - and HAD to be essentially illegal when it was the monetary standard. And its a fact that major world economies faced the same problems the Eurozone currently face because they all had a fixed currency. What's more, wild boom-bust cycles complete with severe depressions followed by runaway inflation were MORE common by far when we (and Europe) were on the gold standard.

Does Stevejhx need Jason to back him up, or is Steve able to articulate his own point of view effectively by himself?

Gold is not a good currency for this expanding world. The basic function of a good currency is to maintain continuity of values between work / services provided and services / goods to be received. Imagine the world is producing X units of products (services + goods) today. If gold is the currency, then each troy oz of gold would buy X / 5.5 billion of products. Let say, in a few years, the world's productivity increase to 1.2 times of X, but we still only have roughly 5.5 billion troy oz of gold. That means each oz of gold's buying power should increase by 20%. Everyone will forever hoarding that metal and artificially forcing deflation and killed economic expansion. That was why gold was fine with the old farming economy, because that didn't grow much anyway.

it's the only real money

last week wall street dump 300 tons of peper gold to supress the price, but it's still over $1300 now

paper gold

No, renter joey, the Fed is not causing inflation; there is no inflation. You need to look up "liquidity trap" to see why what the Fed is doing is not causing inflation.

hey stevjhx is marijuana legal in Florida? It must be real cool to get high watch cnbc and then go on streeteasy and write down what you think you just learned about the economy. Hey Jason pass Steve the bong.

vic you may want to read this article and then comment after reading it.

http://www.forbes.com/sites/charleskadlec/2011/08/15/nixons-colossal-monetary-error-the-verdict-40-years-later/2/

" since Nixon killed the gold standard, the world has suffered from 12 financial crises, beginning with the oil shock of 1973 and culminating in the financial crisis of 2008-09 and now the debt crisis in Europe, and the growing deficit crisis in the U.S. Conversely, between 1947 and 1967, there was only one currency crisis, involving the British pound, and no major bank failures or Wall Street and corporate bailouts in the U.S."

Nixon never claimed that our economy would be free of any trouble by exiting the gold standard. What we knew was that we could not afford to continue with the gold standard. What we have now are many more available tools to solve our economic problems when they arise.

Look at Japan. Their productivity were growing in the most part of the last two decades. Their citizens saw their currency perpetually appreciated against the US dollar. They started hoarding their money under their pillows / mattresses and not spend. Why should they if they have reasonable expectation that they will have more buying powers by saving their Yens. The Yen started to behave like gold. But if the Yen is really gold, there is nothing the Japanese government can do to stimulate its economy. There is only so much gold in this world. The deflation cycle will continue and eventually bring the country back to a farming community with no desire to grow. Well, that would be fine and eco-friendly if we all can abandon capitalism and start embracing living simple lives as in Buddhism.

Apple is now down to $407
Apple is not money

Nixon took us off the gold standard to pay for Vietnam. Politicians don't like Gold because it enforces a discipliine of sound money they'd prefer not to be encumbered with. We see today that politicians and economists at the Fed think they can expand the monetary based to infinity and somehow there is no cost to doing this.

Sticking to gold would choke innovation. Why would you want to innovate and expand when you need only to do one thing, hoard on gold as the simplest investment. Investing on anything else would be too risky.

but if the people of Japan started saving their Yen isn't that a good thing?

"Nixon took us off the gold standard to pay for Vietnam."

Um, no. Nixon "took us off the gold standards" because Bretton Woods fell apart when France demand that we pay it in gold for its US$ currency holdings. Check your facts, RS.

"Politicians don't like Gold because it enforces a discipliine of sound money they'd prefer not to be encumbered with"; "since Nixon killed the gold standard..."

Um, really? Then I guess the 19th century financial panics under the gold standard don't count? In fact, nothing about the gold standard prevented wild swings of inflation and deflation in the 19th century. Just Google "19th century financial panics" to see how effective it was. Countries ALWAYS dropped the gold standard in times of war and depression, because it doesn't work.

"between 1947 and 1967, there was only one currency crisis, involving the British pound, and no major bank failures or Wall Street and corporate bailouts in the U.S....."

That's pretty much proved to be related to the deregulation of financial services, not the gold standard. How Nixon dropping the gold standard could have anything to do with the 2008 financial crisis is beyond me, but if the the Great Depression is the parallel - which it is - then you will note that the US dropped the gold standard during it & recovered far, far better than the UK, which didn't.

"We see today that politicians and economists at the Fed think they can expand the monetary based to infinity and somehow there is no cost to doing this...."

What has the cost been so far, RS? Can you name it? All that rampant inflation that you've been crying like Chicken Little for years now hasn't happened.

The truth is that there would have been a massive cost to not expanding the monetary base - that is what happened during the Great Depression, and why Roosevelt dropped the gold standard.

No one ever said that you could expand the monetary base ALWAYS and INFINITELY without problems. However, when growth is below the growth rate required for full employment and real interest rates are at or near zero, expanding the monetary base has no inflationary effect. All it does is offset the decline in the velocity of money.

The gold standard is an illusion; it does not "impose discipline" because given the fractional reserve system - the only way to grow an economy - there is never enough gold to cover all outstanding currency. That is why governments always drop it when people would actually demand the gold, like during bank runs: because there isn't enough to go around, never was and never will be.

Money gains its value precisely because the government says it has value, just like it's now 12:14 PM here because the government says it is. Gold does not need to back up time for clocks to run, nor does a dollar have to be backed up with gold to be worth a dollar.

It is true that there are times when non-gold backed economies can experience inflation and deflation; it is just as true that gold-backed economies can experience inflation and deflation Just in the latter case, because of the gold standard, those swings are longer, wider, and more often, and history proves it.

Gold is just an illusion.

This idea that cash generates interest but gold does not is flawed. If I hold cash it earns no interests. I can exchange cash for a short term loan to a bank(liability)withe the promise if being paid back more dollars later, but one can also loan out gold and earn an interest on that as well.

"This idea that cash generates interest but gold does not is flawed. If I hold cash it earns no interests. I can exchange cash for a short term loan to a bank(liability)withe the promise if being paid back more dollars later, but one can also loan out gold and earn an interest on that as well."

Offset by the cost of physical storage. Its highly unlikely that you have learned some new fac that EVERY metals and mining analyst or economist on Wall Street does not know.

"but if the people of Japan started saving their Yen isn't that a good thing?

Wow, its too much saving and not enough spending that has been the problem in Japan for 20 years. You really don't read much economic news do you?

The Forbes article compares "financial crises" with "currency crisis". I really don't know what that's supposed to mean, but the all-knowing all-telling Wikipedia lists the following US recessions (albeit no Great Depressions) between 1948 and 1968:
1949, 1953, 1958, 1960-1961

But more to the point, stevejhx is absolutely right about the "panics" that repeatedly affected the US and sent a lasting chill down markets and the economy. One suspects that ultimately it hit the general population much harder than the more talked-about Wall St. types. Many of those people, at least, had subsistence farming at home or nearby. Today we rely on Piggly Wiggly for our food.

"This idea that cash generates interest but gold does not is flawed. If I hold cash it earns no interests. I can exchange cash for a short term loan to a bank(liability)withe the promise if being paid back more dollars later, but one can also loan out gold and earn an interest on that as well."

Bizarre, and full proof that RS does not understand money & needs to take Econ 103, Money and Banking.

RS, in order to earn interest on a loan in gold in the manner you cite, you would have to take the loan out in dollars, and be paid interest in dollars, and use gold as collateral. Just like you can use a house or a car or lots of other stuff as collateral. So therefore the loan is not in gold; it is in dollars, just as you cite in your example. The gold is merely the collateral, just like a house is collateral for a mortgage.

Gold can NEVER pay interest because the supply of gold is fixed. Because the supply is fixed, if we were on a TRUE gold standard, one without a fractional reserve system, where every dollar was directly exchangeable for some predefined amount of gold that never changes, the only way you could pay interest on gold - in gold - would be to take that gold paid in interest away from somebody else, because its supply is finite.

Precisely because its supply is finite, gold is a zero-sum game: the only way I can get more is if I take it away from somebody else. Therefore you can't pay interest on gold IN GOLD without taking that gold-interest away from someone else.

Unless you have a Star Trek replicator, the only way around that dilemma is to use a fractional-reserve system that pegs the value of the (non-gold) currency to gold, while promising to exchange that (non-gold) currency for gold on demand. But by its very definition a fractional-reserve systems allows (non-gold) money to be created out of thin air by banks - central banks and/or commercial banks - by banks lending out the (non-gold) money they take on deposit but only keeping a fraction of those (non-gold) deposits on hand.

But because by definition in a fractional reserve system there is more money in circulation than there is gold to back it up, there would NEVER be enough gold to exchange all currency in circulation for it. Which is why governments always suspend the gold standard when there are bank runs or difficult financial situations such as depressions: since there's not enough for to pay everybody who is going to demand it, they won't pay anybody at all.

And since the government really isn't going to give you all your money in gold anyway because there isn't enough of it, WHY BOTHER TO MAKE THE FALSE PROMISE?

There's no reason. Gold is an illusion.

"Wow, its too much saving and not enough spending that has been the problem in Japan for 20 years. You really don't read much economic news do you?"

Like I said Jason pass that bong over to steve... The fact is over the past 5 years in Japan, savings rates have declined sharply. They have fallen drastically from “11.4% of disposable income to just 2.2% in the decade ending December 2007”. Since 2007, disposable income in Japan has remained pretty stagnant, resulting in the decreased savings trend.

Right now, we do not need gold or any single material to back up our currency. We back up our currency by our ability to control inflation. It is better than anything else including gold.

Low saving rate and too much saving are two different things.
Saving rate is on current income. low saving rate does not mean increased spending. It is just not adding to existing saving at a high rate.

Offset by the cost of physical storage

Banks charge to have a checking account. Same difference. Right now banks don't pay interest and can charge you to maintain the account. The only difference between gold and paper currency is acceptance as legal tender when paying taxes and the cost of converting for day to day transactions(coffee, newspaper, etc)

Oh, renterjoey! Sorry I don't do drugs.

Japan has a lot of problems; one of them is an aging workforce, but economically their main problem has been to try maintain an inflation rate of 1%. The net effect of that has been deflation, not 1% inflation, because the 1% rate is too low to manage.

That is why the Fed tries to maintain a 2% interest rate; because if it misses that on the downside (as it currently is, at about 1.8%) it won't cause deflation, which is far more dangerous that inflation.

Something the Germans have got all wrong: the problem wasn't the rampant inflation of the Wiemar Republic, but rather the deflation that led to the rise of Hitler.

I am seeing two different definitions of interest here. RS is talking about loan interest by loaning gold away. Which can only be done and bonded by individual contracts in small scale. Since gold is a zero sum game, it is not sustainable on a large scale. Someone would be losing in order to support paying the loaner his interest. Not very good for the economy in today's standard. It happened a lot in the old days of course when peasants borrow from landlords. They were forever enslaved from their debts.

More modern concept of investment is different. Investment can provide benefit for everyone in a non gold standard economy, because the economy is allowed to grow. The investment is to increase productivity or the size of the pie.

"RS is talking about loan interest by loaning gold away."

No he's not. He's talking about using gold as collateral for a loan in a currency. No one in his right mind would pay you interest to be lent gold, because there's nothing you can do with it to cover the interest payments.

Basically RS's hopelessly flawed analysis would say: I lend you a pound of gold and after 1 year you return that pound of gold + one ounce of gold as interest.

First, where would you get that extra one ounce of gold, except from somebody else, unless you had a gold mine or a replicator?

Nowhere.

Second, why would you even make such a silly transaction when if you had that gold you couldn't do anything with it? Even if you used it to buy a machine, and that machine produced income, short of gold miners who can "create" gold in a way similar to how banks "create" money, that income would always come at someone else's expense.

Using a fractional reserve system you can make money and I can make money and when you make money it doesn't necessarily mean I lose money. Under a true gold standard, that is not true: if you make money, unless I'm a gold miner, I must lose money.

Steve,

History has told us that people in desperation would borrow under very unfavorable terms. Yes, someone would lose to pay for those interests. That was why there were so many revolutions from time to time to eradicate the poor's debts.

You can't pay interest on gold in gold, without taking it from somebody else.

You can pay interest on a currency in an currency, without taking it from somebody else.

Precisely because the fractional-reserve system allows banks - private and/or central - to "create" money out of "thin air" by lending money they take on deposit and only keeping a fraction of those deposits in reserve. But under a true gold standard, there can be no fractional reserves because the only currency is gold, and except for mines and replicators, the amount of gold is finite.

Only 171,300 tons of gold have ever been mined, or about 3 million ounces (converting troy to avoirdupois ounces). There are about 7 billion people on earth. That is somewhat more than 0.0004 ounces avoirdupois PER PERSON.

That is the limit of our wealth under the gold standard: 0.0004 ounces of gold per person. Imagine dividing that up into a unit of gold small enough to buy a quart of milk, never mind a stick of gum.

It is INSANE.

Steve,

You concept is right but the math or typing is not quite. There are just under 6 billion oz of gold floating around. So each human will get around .75 oz of gold if it is to be shared equally.

You might be right - I might have forgotten to multiply by 200.

In any case the amount is ridiculous; just not as ridiculous as I was hoping for. :)

Well, I'm going to chew my next stick of gum knowing it was made possible by fiat currency. Thanks Ben, this stick is juicy!

How come no answer from Riversider?

He's at the Fairway IPO party.

"The only difference between gold and paper currency is acceptance as legal tender when paying taxes and the cost of converting for day to day transactions(coffee, newspaper, etc)"

If we accept vic's amended version of my math (and we do!) all of the gold wealth in the world amounts to 3/4 of an ounce of gold, or slightly less than one kruggerand.

So RS, how big a flake of gold would you be willing to take out of your kruggerand - representing the sum total of all the wealth that you could possibly produce in your lifetime, if you are an average person - to buy that cup of coffee?

Poor Matson. I tried to warn ye...

Same with Riversider. Don't say I didn't try. http://finance.yahoo.com/q/bc?s=BRK-A&t=1y&l=on&z=l&q=l&c=Gld

Warren Buffett:

"Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?"

http://www.slate.com/blogs/weigel/2013/04/17/super_pac_finally_reminds_south_carolina_voters_that_mark_sanford_had_an.html

One of the many examples of inflation BECAUSE of the gold standard.

http://en.wikipedia.org/wiki/Price_revolution

"The Price Revolution in the 16th
Century: Empirical Results from a
Structural Vectorautoregression
Model"

http://wwz.unibas.ch/fileadmin/wwz/redaktion/makro/Papers/The_Price_Revolutiona.pdf

BTW, the Roman Conquest of Egypt and various more modern gold rushes were other examples of dramtic increases in the supply of gold causing inflation.

jason likes to watch The History Channel.

He doesn't read my comments since, well;
"I don't know why and I don't know when..." (Sade, "Been Around The World")

You don't just need to "find" gold to cause inflation under the gold standard. Since we've never had a "real" gold standard - that is, one without a fractional reserve system - the gold standard does virtually nothing to prevent economic disasters, but does a lot to prevent a cure. Credit bubbles are produced - see the 1920's - and everybody is happy and the world is hunky dory. Until that bubble bursts, and people start demanding their money in gold, and suddenly the gold peg limits the growth of the money supply precisely when it needs to be increased, because people are demanding their money in gold, and there isn't enough.

I erred above - it was France that stayed on the gold standard during the Great Depression, not Britain. Eventually, though, all countries dropped it eventually. That is when growth resumed - when the money supply was allowed to grow to offset the reduction in velocity.

All the gold in existence gives each of us an average wealth of 3/4 of a kruggerand - which of course is fixed as the supply of gold is relatively fixed. The world population is expected to double in the the next 50 years, so our average wealth in gold - barring replicators - will fall by 1/2, or the value of gold will double, meaning that that 3/4 of a kruggerand will have to be divided into smaller and smaller pieces to buy that cup of coffee.

It is true insanity. Gold is an illusion; it does not work. It does not prevent inflation or deflation because we don't really ever use a 100% "gold standard" since there isn't enough of the stuff to go around; it limits central banks' ability to act in economic downturns because that is precisely when everyone starts demanding their money in gold (and there isn't enough); and it leads to unsupportable fixed exchange rates that are not allowed to float in relation to the return on assets represented by interest rates: real interest rates plus risk premium.

It is an illusion, but nothing will ever convince Riversider; that is why he ceases to appear whenever rational arguments are made against his ridiculous Austrian economics.

Oh - the other way to induce inflation under a true gold standard is simply to mix gold with other metals - true currency debasement. Which would have to be done b/c the flake of gold Riversider would need to buy his USA Today would be too small to be practical to keep on hand.

"It is true insanity. Gold is an illusion; it does not work"

wrong again steve just like you've been wrong about Manhattan real estate market for the past several years.
When we were on the gold standard it actually did work, our national economy thrived, and eventually we became the richest nation on this planet. Now that the gold standard was abandoned in 1971, the US has become the world's largest debtor nation and is now getter closer and closer to the brink of a major financial downturn.

"same with Riversider. Don't say I didn't try. http://finance.yahoo.com/q/bc?s=BRK-A&t=1y&l=on&z=l&q=l&c=Gld" bseexposer

here you go bs here's a better chart
http://finance.yahoo.com/q/bc?s=BRK-A&t=my&l=on&z=l&q=l&c=Gld

I know that you don't like it when facts get in the way of what you think, but read this:

http://history1800s.about.com/b/2011/08/06/financial-panics-of-the-1800s-2.htm

during the gold standard.

"When we were on the gold standard it actually did work, our national economy thrived"

Hmm. 1929?

Get real, renter.

"Now that the gold standard was abandoned in 1971, the US has become the world's largest debtor nation"

NOTHING to do with gold, and everything to do with a) the Reagan tax cuts; b) the Bush tax cuts; c) the Bush unfunded wars; and d) the Bush economic collapse. See below:

http://www.google.com/imgres?imgurl=http://www.brillig.com/debt_clock/inflation.gif&imgrefurl=http://www.brillig.com/debt_clock/faq.html&h=407&w=474&sz=6&tbnid=yZqULcytMSqhMM:&tbnh=90&tbnw=105&zoom=1&usg=__2Hx539IeNOQ31S00dc_kWWkWhi4=&docid=p33EN20xmuOVmM&sa=X&ei=wwJwUYXyIZGc8gTek4GYDw&ved=0CDIQ9QEwAA&dur=2410

Note how the debt started with the Reagan tax cuts, leveled off and started to fall under Bill Clinton, then resumed its climb again after the Bush tax cuts, and escalated again after the 2008 economic collapse.

So, gold had nothing to do with it, & wouldn't have stopped it, as the gold standard is unrelated to tax cuts.

"When we were on the gold standard it actually did work, our national economy thrived, and eventually we became the richest nation on this planet. Now that the gold standard was abandoned in 1971, the US has become the world's largest debtor nation and is now getter closer and closer to the brink of a major financial downturn."

This sounds like an opinion only. How could you be sure that our nation would not get into worse trouble earlier if we kept the gold standard. Is it really that simple that whichever nation keeping the most amount of gold became the richest?

Imagine the US will need all the gold in the world to represent our economy and we get it. We are paying a hefty price to acquire them. No one else possesses gold and no one else use gold as their standard. You can tell yourself that you are the richest but everyone else would just laugh at you.

I thought this thread was merely a long running joke, like Jim Hores' "marriage" or Guywith"cat", but do we have actual people advocating a return to the gold standard?

I don't even now how the gold standard conversation even started. I believe stevejhx started out of nowhere rambling on about going back to the gold standard.

It's the title of the thread, renterjoey: "Is gold money?"

"I don't even now how the gold standard conversation even started."

Again, see the FIRST post in this thread. See the title of this thread. "Is gold money?" Hmmmm....

"When we were on the gold standard it actually did work, our national economy thrived, and eventually we became the richest nation on this planet. "

We effectively abandoned the Gold standard under Roosevelt. Nixon just made it official.

Glad we are all in agreement regarding Nixon.

"The Real Cost of Owning Gold"

http://www.bloomberg.com/consumer-spending/2013-04-17/the-real-cost-of-owning-gold.html#slide1

Pretty much disproves what RS said above.

Jason, you seem very focused on proving you are not retarded.

What's most telling is how RS disappears each and every time somebody posts a well-reasoned, fact-based rebuttal to his ridiculous gold arguments.

Nothing is wrong with gold, or owning gold, or trading gold - just don't ascribe to it characteristics that it doesn't have.

IBM, one of the most widely held, well-known long-term equities is down 6.5% today, more than Gold dropped on Monday.

Not that I'm for or against it but in my opinion we will have to return to the gold standard or some form of it in the not so distant future.

"A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression"

Interesting article that worth reading

http://www.telegraph.co.uk/finance/c...-unravels.html

IBM isn't money.

We will never return to the gold standard because it doesn't work. It never has and it never will, and its problems are no more evident than in Europe, where because individual countries like Cyprus don't have the ability to devalue their currency - because they don't have one - they have to adjust economically through deflation and depression.

That is what the gold standard does, by pegging every currency to a certain amount of gold, so there can be no devaluation.

And Bancor would suffer from those very same problems.

Is IBM Gold?

No.