It most absolutely does. Even using metallic coinage one needs a reserve. There is a perfectly excellent review of the history (most unencouraging reality) of gold as money found in Bernstein’s classic “The Power of Gold” - contrary to the mythology not terribly value-stable relative to baskets of actual consumption. Unsurprisingly, a physical commodity and fixed resource was unable to respond to rapidly changing economic conditions, sending prices up / down for reasons unrelated to product production, only to the chance of gold discoveries.
Further, the bimetallic standard of Gold Silver has always been inherently unstable as those two commodities vary in price between each other (but that doesn’t work well for use as a stable money).
You don’t need a bloody stronger currency mate, you need a weaker one. Exports.
This is sheer silliness and a classic example of Money Illusion; other than the convenience of zeros or whatnot, it doesn’t bloody matter if your salary is 100k or 1k USD, what matters is the relative buying power. Chopping up that buying power into dollars or pennies or whatnot really is besides the point. As someone else said, the Yen is 80 to USD, but that doesn’t make a Yen salary weaker, you just end up with a different set of zeros. Japanese buying power is not weaker for it (it is weaker in some areas due to crazy Japanese domestic market regulation that pushes up retail prices for no proper reason at all, but nothing to do with currency).
I suppose a fine enough statement of why people continue to be attracted to the barbarous and primitive metallic currency idea.
Right. The problem with a bimetallic standard is that the government has to fix the ratio of the value of gold:silver, and whenever gold increases in value has to take gold in exchange for silver, and whenever silver increases in value has to take silver in exchange for gold. Either that or constantly change the ratio.
Thing is, in our current monetary system you can trade dollars for gold or silver any time you like. It’s just that no one will guarantee that you’ll get a particular weight of gold or silver for your dollar.
Or take a look at the current gold bubble. The price of gold is at an all-time high. What would that mean if we were on a gold standard? Everyone would be taking their paper money to the bank and getting gold for it. And that means money disappears from circulation, which means massive deflation as the value of every other good falls relative to gold. And then when the gold bubble crashes, we suddenly have massive inflation as everyone dumps gold and tries to exchange it for other goods and services.
It’s simply a myth that a gold standard, or gold bullion coinage, prevents inflation and deflation. Gold varies in price due to supply and demand just like any other good. If we were using cowrie shells or cacao beans for money, it’s easy to see that the supply can fluctuate, just go down to the beach and harvest cowrie, or plant cacao trees, or there’s a water temperature change and suddenly the cowries die or a blight and the cacao crop is ruined. Well, gold is a mineral dug up out of the ground. It’s not money, although it can be used as money, any more than a cacao bean is money. Gold makes better money than a cacao bean for all sorts of reasons, but so what?
The Gold Bubble is a little harder to pop than some other recent bubbles. Unless an abundant new source of gold is found, there’s no risk of gold becoming valueless. Nor is there any reason to think that gold won’t steadily increase in value over time. So a drop in price is less likely to start a panic. I don’t know how many people have borrowed money to buy gold, but if you’re not paying interest on it, like real estate, you wouldn’t have to rush to sell it. An improving economy will lower the demand for gold (as an investment), but in an improving economy there are fewer cases where people are forced to sell their assets. So economic improvement could start a slow decline, but not a pop.
It’s an economic collapse that would cause the bubble to burst. A lack of money to purchase gold with, and the need to sell it.
If your earlier post about the gold bubble being harder to burst (which somewhat implies that it’s not quite a bubble per se), then most of these people aren’t stupidly buying, they’re broken-clock buying. Fine distinction, but unless they are paying exorbitant prices (e.g., Franklin Mint Civil War Chess Set Coin Collection) or fees, they are ending up with a reasonable long-term investment irrespective of their initial motivation to put their savings into gold. Or did I misunderstand your post(s)?
Ok, I guess you call it a beach ball instead of a bubble. A pin prick would cause a slower deflation than a burst. I’m basing that on what I think the second have of your response is saying, that gold is not a wasted investment, even if it’s a poor one. Stocks can become worthless. The housing bubble was really a mortgage bubble, and a lending market based on inflated collateral can collapse rapidly (as we’ve recently seen). I just think gold would drop in price slowly without catastrophic conditions. A good economy will lower the price of gold as other investments look better. But people won’t rush to sell their gold off at a loss. And with the price of gold dropping there will be fewer buyers until a bottom to the drop is perceived.
The part about stupidity refers to the people buying gold recently at very high prices, whatever happens, because I think prices will fall before too long. Probably under $1000 as** samclem **foretells. So the people who have paid $1500 an ounce are going to lose a third of their investment when that point is reached.
As for the bad economy part, it would have to get bad enough to cut the demand for gold because people can’t afford it. And correspondingly, the supply will increase as people are forced to sell their gold. I think that lack of demand will drop the price rapidly, as in the bubble bursting.
That’s what I think about the subject. I don’t have the telepathic powers that samclem does, so my thoughts on the subject aren’t based on an actual look at the future, nor to my knowledge, do they affect the future.
Interesting question. Do you (or anyone else) think there is enough investment in gold that a dramatic fall in price would cause significant deflation?
7 factors will almost certainly pop the gold bubble.
Gold will “Crash”, i.e. decline substantially in its price, if,and only if, (1)Congress balances the budget and continually runs surpluses both in federal spending AND (2)continual annual surpluses in our balance of trade, AND (3)paying off the federal debt of $14 trillion dollars, AND (4)abolishing the Federal Reserve, AND (5)a stable Middle East with no wars or disruption of oil producing nations AND (6) the United States staying out of/avoiding foreign wars, AND (7)prolonged and continued deflation.
As soon as we see those 7 conditions, the price of gold is going to go into a decline, and when I am convinced that these 7 conditions are all here to stay then I am going to cash in my gold, and I will advise you also to do the same.
However, until we see those 7 changes, all 7 changes, then aside from the usual and normal day to day market fluctuations, gold will continue a long term trend to go up, and not only will gold go up, but gold will go up substantially from today’s price.
Virtually** all **!!!of the rise in the price of gold and oil, is a result of the fall in the value of the US dollar. The price of gold reflects inflation, along with the anticipation of inflation.
A dollar used to actually be worth 1/20th of an ounce of gold for a very long time, from the creation of the US dollar until 1933, but today, a dollar is now worth 1/1500 ounce of gold. Another example is silver. You could have bought a gallon of gas for a quarter back in 1962, and today, 50 years later, gasoline has not went up in price, you STILL can buy a gallon of gasoline for a quarter…if you use a 1962 silver quarter.
Today a US dollar is only worth 1/1500 of an ounce of gold, and if you continue to inflate by printing trillions and trillions and trillions more and more paper dollars, then the dollar of course will continue to be worth less and less and less, and the price of gold will continue to go up and up and up.
With unlimited inflation, there really is no limit to how devalued the US dollar will continue to go, how worthless the US dollar will be, or how high the price of gold can go.
I started buying gold when bush was going to be elected and bought more when obama looked like he would win, knowing that they would run trillion dollar deficits that would force the price of gold and silver to increase. So far, I am right. But you didnt have to be smart to buy gold at $300 an ounce, anyone could see that if bush and obama are going to run trillion dollar deficits then the currency will deflate and gold will go up - it was, and is, inevitable.
I can tell you right now, that if obama stays in office and increases the federal debt by ANOTHER 12 trillion dollars, that the printing an additional 12 trillion dollars from today will further devalue the US dollar and further increase the price of gold, and oil, and gasoline, and food, etc.
Continuing the inflating of our currency by ANOTHER 12 trillion dollars will most** certainly** do this ( not if, not maybe).