Look, the reason Susanann says that gold always retains it’s value, is that an ounce of gold in 1847 will remain an ounce of gold in 2153. If we define gold as the medium of exchange, of course gold will always remain the same while every other good and service fluctuates around gold.
Of course, this is a silly way of looking at things, because it’s just another way of saying that the value of gold will fluctuate against any given basket of goods and services. Choose that basket as your standard of value, and gold fluctuates, just like any other good or service or basket of goods and services.
The notion that gold never falls in value is just silly, and it’s even sillier to try to win the argument by defining “value” as “a certain weight of gold”.
As for the notion that “everyone will accept gold”, that’s simply false as well. Try paying your mortgage with gold bullion and see what happens. Of course, you can go down to the coin shop, exchange your gold for dollars, and pay your bank with the dollars. But that just means that there’s an active and liquid market for gold. And this isn’t always the case, as was seen from the 30s to the 70s, when the government equates gold with money the first thing they do is exert an iron fisted control over the gold market. It’s only when the government decides that gold isn’t defined as money and money isn’t defined as gold that they allow us to have a free market for gold.
My local grocer will accept gold bullion?
True story: my grandfather owned a mom-and-pop grocery in the 1930’s. Somebody once bought $1.90 dollars worth of food with two one-dollar gold coins. He gave the guy a dime in change, and later sold the coins for a lot more than a dollar. So I’d say that a coin is better than bullion.
(But Susanan sounds the kind of person who should be ignoring gold, anyway. It uses up valuable time that could be invested in stocking the bomb shelter with canned food and ammo .)
Too bad your grandfather sold those 2 dollar gold coins. I today, would readily give you $2.00 in crisp, brand new, today’s current Federal Reserve notes for the both of them… maybe even $3.00 if you want some profit for your trouble.
I don’t mind buying gold coins at face value. I will buy silver coins at face value also.
( I really miss the old days when I could go to any bank and exchange my paper federal reserve notes for U.S.
gold coin…or silver coin… .dollar for dollar. In the 1960’s I also used to get rolls and rolls and rolls of Morgan silver dollars at our local banks )
.
Well, actually, pretty much any bank pre 1964 would give you silver change for your dollars, and there have been Federal Reserve notes since 1913. Silver Certificates were printed up thru 1957 or so, and in general circ until 1964.
But Gold? She can’t be old enough to remember getting gold coins for her paper money. She’d have to be around 80 yo for that.
Well, here we are one year later. How have the various investment vehicles fared?
11/3/2010 prices
Gold: $1,356
S&P 500: 1,193
Dow: 11,189
11/3/2011 prices
Gold: $1,763
S&P 500: 1,261
Dow: 12,044
% increase
2% added to stocks to allow for dividend yield.
Gold: 30%
S&P 500: 7.7%
Dow: 9.6%
Bonds: 5.1% (Vanguard Total Bond Market Index Fund)
Inflation: 3.9% (CPI-U to September as October figures not yet released)
So gold has it so far. See you in a year.
No, if you own your house and car and household goods when you get laid off, it costs minimal to sustain not being homeless. It is much easier for example for someone to get the $3000 per year to pay the property tax, the $145 per year tax on my car, the $80 car registration, the $1200 auto insurance than it would be to get $12000 mortgage, $3000 property tax, $4800 car payment, $145 auto tax, $80 auto registration and pay the averaged $90 per month for electricity, $55 per month cell phone, $100 per month fuel for car and $200 per month for food and household supplies while trying to scrounge for another job while on unemployment.
See, not everybody lost their farms and houses back in the depression. Those who owned property outright and were modest in their expenses kept their property. People who speculated on stocks, played in ponzu schemes and mortgaged their properties for money to play the stock market or get that big huge new modern convenience known as a combine harvester [oh god, the earworm:smack:] tended to lose their property.
Go ahead, carry debt, feel perfectly free. Don’t ask me to give a care when you get bounced after you lose your job/business and can’t make the payments for everything.
Why yes, I am cheesed off that jackasses who overbought huge mcmansions can get all sorts of concessions from banks, or walk away and they just get commiserated with because ‘they were taken in by those mean nasty greedy bankers’ and can’t actually sell their mcmansions for the huge profits they were expecting. We paid our bills on time, and bought a property that was well within our actual income range. Yes I am pissed off at the financial institutions getting bailed out, with bonuses and golden parachutes going to the jackasses that got us into the mess to begin with, and Yes I am especially pissed off at people who don’t understand basic economics. If you don’t have the fucking money, don’t fucking spend it.
The OP’s condition was not that he would be unemployed, it was that there is high inflation.
Inflation includes by necessity, a decrease in the value of money relative to goods. If you pay off all your debts before the high inflation, you’ve paid your creditors with good money that could have been exchanged for a relatively large number of goods. If you pay your debts during the high inflation, you still have the goods, but you’re paying with money that is not valuable due to the rising prices.
Inflation is in general, good for debtors and bad for creditors.
If a person owes $10,000 in debt in normal times, and lets imagine their productivity is linked to the price of bread (maybe they’re a baker.) They can produce, say 200 loaves of bread a day for $2, you need to expend 25 days’ worth of productivity in order to pay off the debt.
Then in a time of rising inflation, the price of bread rises to $10 - and, this is the important part related to your response to my post the debt was denominated before the inflation and so is still $10,000. Now the debt can be paid off using 10 days of productivity.
This is why inflation is generally (but of course, not always) good for debtors and bad for creditors.
It’s a little unclear whether the “you” in your post is supposed to mean me personally. In which case I should let you know that (1) I am not the OP and (2) I put a lot more credence in the Federal Reserve’s inflation expectations over the OP’s:
And the winner was … GOLD, yet again. (Start a BBQ Pit to decide whether to blame the Socio-Islamic Kenyan who hates Amerika, or to credit the super-Patriots who “want to see Obama fail.”)
But resurrecting this thread gives me the opportunity to correct a year-old error:
When buying stock, one is often presented with two alternatives:
[ul][li] Reinvest dividends.[/li][li] Receive dividends as cash.[/li][/ul]
For you to get your figures, Susanann, you apparently choose a third option:
[ul][li] Discard dividends to the trash.[/li][/ul]
Hope this helps.
<You is a generic, not specific [it can be hard to tell who is an OP and who is commenting, so I tend to default to a generic you/us type commentary.>
And again, if one is debt free other than the typical recurring debts of utilities, food, insurance, taxes and the like, one may survive better than if one has to service a debt as well. If your money is going out to service a mortgage, then one has less money to support ones recurring debts. In other words, maintaining a property is better than servicing a lenders finances.
As an aside, anybody else find it nuts that economists are apparently pushing people to NOT pay off mortgages? Is getting saddled with serious debts good in a bad economy? That is what I am getting from reading the above post … maybe I am stupid for preferring to remain free of debts. <shrug>
There’s also plenty of physically backed ETFs where you buy a share of a pile of gold, silver, what have you in a vault somewhere. For about $100 these days you can buy a share of GLTR and own some small amount of gold, silver, platinum, and palladium. For about $170 you can buy GLD which owns just gold.
The down side of buying Gold coins, gold bars, or shares in physically backed ETFs is that in the U.S. your capital gain when you sell them is taxed at the 28% rate for collectibles instead of the normal 15% you’d pay for long term capital gains on stocks. In a couple years that will go up by another 4% to pay for the new health care law. Since you’ll be paying over 30% tax on your gains it makes it hard to use this as an inflation hedge.
Thing is, during the Depression we had deflation, not inflation. Which is why so many people lost their homes. If you have a mortgage during a deflation you have to pay off the loan in more expensive dollars, which means that anybody who is in debt is doubly screwed because they’re likely to have lost their income as well.
Inflation will help debtors and hurt creditors, deflation will hurt debtors and help creditors. So the spectacle of the greedy banker throwing poor old Granny out on the street happens during deflation, during inflation you have greedy old Granny throwing the poor banker out on the street.
This is one reason why the housing bust is still a problem. We haven’t had significant inflation since the bust, and so people have to pay off their horrible mortgages in dollars that are worth about the same as before the crash. If we had double digit inflation then those mortgages would be easier to pay off. Of course, then the lenders would take a haircut, now they only take a haircut when they have to foreclose.
I was very debt-averse until this latest recession. Now, with interest rates low and the possibility of inflation looming in the future, I’ve loaded up as much debt and assets as I can. (Counterbalancing that somewhat, I also made a short-term loan of my own.)
If inflation comes - as many people predict will happen in order to cope with the national debt - I would expect my SS and company DB retirement benefits to be impacted. That would be offset by the value of my stocks and real estate increasing substantially.
Life is full of gambles. (Doing nothing is also a gamble.) Who knows what will happen in the end.
That’s not the point of my post. The point is that debt service becomes incredibly cheap during high inflation periods.
Your advice about remaining debt-free, or as close to it as is practical, is good under normal economic conditions. However, under conditions of high inflation it is better to have exchanged the cash (which is about to lose value under high inflation) for goods or services which will depreciate at the same rate they do anyways regardless of inflation/deflation.
If you think about loans, they’re usually structured such that you have the same payment every month – say $300. Under inflationary conditions, the value of that fixed amount of money goes down, due to the rising prices. Pre-inflation that $300 maybe bought 150 loaves of bread. After inflation the price of bread rises such that the $300 loan payment buys 30 loaves of bread. The debt service becomes much easier.
There are some things that complicate this, which is that wages tend to rise more slowly than inflation when inflation is high (i.e. wages are ‘sticky’ prices.) But servicing debt becomes easy so long as the debt payments remain attached to a fixed rate of interest. If one has agreed to pay a debt at a rate of interest that will rise with inflation, then that’s a different problem.
Bad economy ≠ high inflation. Right now, for example, the economy is pretty bad (unemployment around 9%) but inflation is not high.
It also ignores the value of dividends, which would be worth more than 10 times the stock value alone.
Remember, those stock values Susanna is quoting exclude dividends. And the value of dividends since 1929 is enormous. Stocks were routinely paying 12% dividends each year until recently. She knows this, because I’ve told her so. Repeatedly.
Ignoring it at this point is dishonest at best, and she can only be ignoring it because it completely obliterates her point.
