Comments on: Gold and its Poorly Understood Historic Role in the Financial System

By: rick e

rick e — Wed, 16 Sep 2009 02:36:27 +0000

We tie the dollar to greed, then all will be equal isn’t that what we want ?

By: jack

jack — Wed, 16 Sep 2009 01:19:17 +0000

No way. I have standards. All I'm trying to say is that there needs to be flexibility but the flexibility shouldn't be abused, if this is at all possible.

By: Justin

Justin — Wed, 16 Sep 2009 00:52:17 +0000

Jack, Do you work for the Reserve Bank?

By: Jack

Jack — Tue, 15 Sep 2009 21:29:15 +0000

Whilst I agree with most the comments and the article here regarding Golds ability as a store of wealth long term, whilst the price of gold is still pinned against a fiat currency, surely it becomes just another commodity/market which is dependant on the USD.

With regards to the Gold standard, my understanding as to why the world moved away from this was because it was too fixed in value - during tough times liquidity couldn't be introduced to stimulate a recovery and economies were stuck between a rock and a hard place. Of course now we have the situation where the Fiat currencies' liquidity has been abused to the extent where is has been used to prop the lifestyle of one country in particular.

So my question is this. If there was a gold standard again (or any other system for that matter), how could it be tied to something of fixed value and the liquidity be provided when necessary whilst also ensuring the extra liquidity is properly drained -instead of being increased to "make the good times even better"? Who would be in a position to make this sort of call?

Jack

By: wasabu

wasabu — Tue, 15 Sep 2009 09:15:36 +0000

comment to John Smith: If you consider the fundmantal virtue of an honest money system, your first line could be rephrased as follows:

"Surely a corruptible system is better than an uncorruptible system?".

The point being is that humans have always and will for a long time trend toward hubris, greed, jealousy and war. If you will accept this basis, then you will agree that all systems that are placed in human hands will fail over time. T

Thecharm and deity of gold is that it cannot be corrupted, cannot be produced cheaply, etc.

For millenia the popular folly of alchemy has missed the point that scarcity is key to worth. Or more accurately, a short time after the successful alchemist begins plying his trade, the value of gold would drop to near zero since it can be produced en-mass and cheaply.

If you could print hamburgers without cost, hamburger price would drop to zero. And so it is with anything.

What we are whitnessing today is EXACTLY the philosophy and dream of the alchemist. The Central Banks hold the key to destroying that fiat promise. Their mates will benefit for a few years, just before the economy and currency collapse to zero.

By: Daniel Newhouse

Daniel Newhouse — Tue, 15 Sep 2009 09:03:43 +0000

John Smith, you have a point. If every central bank were run like the one in Australia or Germany the discussion would about how to optimize the financial system, rather than preventing catastrophe. The problem is that the U.S. has been running a scam on the world for 38 years in which they have solved their economic problems by creating money out of thin air at a faster and faster rate while the world pretends that it is actually worth something. America consumes goods and services for nothing.

By: wasabu

wasabu — Tue, 15 Sep 2009 09:02:36 +0000

Comment to Justin: Scarcity is a sliding scale and a relative measure. Gold is succiciently scarce as to make it a reliable store of value over time, and sufficiently abundant as to make it usable on the street.

Per capita (world), the amount of gold above ground is fascinatingly stable for thousands of years. You can stick it in the ground behind a tree, and likely it will not lose purchasing power, so history shows, if your grandson digs it up.

So why not another metal? Sure why not, see silver historically. However there are a number of unique virtues which makes gold particularly on-the-mark as a money:

* It is uniquely beautiful. Gold price drops due to oversupply, and people jump on it for romantic and auspicious reasons, bidding it up. Restoring stability.

* Indistructible. Chemically inert, untarnishable.

By: Richo (the Second)

Richo (the Second) — Tue, 15 Sep 2009 06:37:41 +0000

What I don't get is that if the $USD Index is close to bottoming out and then rebounding as deflation takes hold (as increasing unemployment means people won't have money to spend to drive up prices), won't gold go down in value against the $USD?

By: peterg

peterg — Tue, 15 Sep 2009 06:07:24 +0000

I take the points about the value of gold historically. but what if gold could be manufactured cheaply in the future (the alchemists dream)? .. much like diamonds can be artificially created now, but at vast expense.. the central banks can then "print" more gold... back to square one. in the long run I think it could all boil down to informational values (I am in Star Trek utopia here), where electronic credits are strictly limited and aligned with the real world. (actually i've read where Hitler did much the same thing, but that's another story, and no utopia). and as for the good advice at this site re: gold purchases, what if everyone did that? (an answer in Catch22 is "then I'd be a fool to do otherwise")

By: greg redden

greg redden — Tue, 15 Sep 2009 05:14:58 +0000

John Smith....All very well......but we have no precedent to assume any "entrenched laws/constitution" can hold out against governments seeking extra power only available from an "unchained" fiat currency. Government power is based on spending. The more debt/ money government creates and controls, the more power it exercises. It nurtures belief in a dichotomy between "our" money and "their" money, casting itself as an altruistic spender of "everybody's money" in the community interest. Politicians lust too hungrily for power to be legislatively or morally constrained from their bastardization of currency. Until we elect governments that don't seek power, gold remains "good value for the money"....