Hypothetical question: If the US Treasury/ Federal Reserve were to make an announcement saying that the US will never be returning to the gold standard (and fiat currency were permanent), and the Fed would no longer hold gold in its vaults, what would be the impact? What would be the attractiveness of gold if there were a "guarantee" that it is not going to be used as a medium of exchange?
In What Has Government Done to Our Money, Rothbard explains that the free market has historically identified gold as having two primary uses - 1) medium of exchange, 2) jewlery/iconic uses.
I can appreciate the attractiveness of investing in gold when the free market is allowed to use it as a medium of exchange, and I can appreciate its attractiveness as jewlery/iconic uses. But what about when it is not used as a medium of exchange?
And I can also understand the attractiveness of gold if one believes that it will one day become a medium of exchang again. But that's why I propose the question assuming that the Fed states we will never return to a gold standard. What is the attractiveness of gold beyond its jewlery/iconic attractiveness if it cannot be used as a medium of exchange?
My thought is that the current demand for gold comes from 1) its use as jewlery, 2) the fact that the Fed holds it in its vaults and is a large buyer/seller, 3) the thought from some that gold will one day become the world's medium of exchange again, 4) investment based on speculation/confidence that the price will rise (I consider #4 to be somewhat separate because someone would only engage in #4 if he believes there will be increased demand from #1-3 or other aspects of demand that I failed to list).
Are these the reasons why people currently demand gold? Am i missing something/ a lot of things?
I believe it is because of the fact that gold is a good store of value today for the same reason that it was a good medium of exchange. People often invest in gold for this reason and thusly it attains value.
IMHO, many people see gold as money no matter what the Fed says or does, even if it is not now and possibly never will be legal tender.
If and when the dollar loses all value, like in Zimbabwe etc, people will use gold and silver, just as they have always done.
[Plus, we know what liars they are.]
And let's not forget, India and China are hoarding gold like there is no tomorrow. So internationally it will still have value.
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It's easy to refute an argument if you first misrepresent it. William Keizer
1971. The value of gold has nothing to do with the Federal Reserve. That's why the Elites hate it so much.
You guys saw the John Elway narrated domestic terrorist PSA from the Colorada DHS station, right?
Selling silver for cash or trading it for goods is a terrorist activity to be looked at with suspicion by others.
1971. The value of gold has nothing to do with the Federal Reserve. That's why the Elites hate it so much. Clayton, could you elaborate on this? I'm trying to understand if/why the value of gold has nothing to do with the Federal Reserve. Because gold's primary use has historically been as a medium of exchange, wouldn't its value be severely impacted by the Fed/Treasury who issue paper notes as a medium of exchange? When American citizens want to buy something, they withdraw/acquire paper dollars, not gold. What do you reference in 1971? | Post Points: 20
Clayton, could you elaborate on this? I'm trying to understand if/why the value of gold has nothing to do with the Federal Reserve. Because gold's primary use has historically been as a medium of exchange, wouldn't its value be severely impacted by the Fed/Treasury who issue paper notes as a medium of exchange? When American citizens want to buy something, they withdraw/acquire paper dollars, not gold.
What do you reference in 1971?
1971. Economists at the time predicted that the price of gold would collapse as it would no longer be "useful" since it could not be "converted" into dollars.
Here's what actually happened:
The price of gold would go down a little (at least for a while) if the Fed were foolhardy enough to sell its holdings, but it wouldn't collapse the gold market any more than closing the gold window did. The Fed just puts on an act of not caring about the price of gold. The fact is the Fed cares more about the price of gold than anybody else in the world. If they're so indifferent to gold, why do they still store it here?
Clayton -
Interesting.
Does this mean that if the US somehow transitioned back to a gold standard, the value of gold would not significantly increase? I'm thinking of it in terms of... If gold is worth $1,700/ounce today, and $1700 today can buy, for example: a mac laptop, a really old used car, pay one month's rent in New York City... Would we expect an ounce of gold to be able to hold the same buying power if the US somehow transitioned back to a gold standard, and when people wanted to make trades, they needed to acquire gold and not paper dollars?
To be honest, I can't think of why an ounce of gold would be able to buy any more or less. So are we saying that the convertibility of US dollars to gold and the fact that the government does not use it as legal tender have no impact on the buying power of gold?
Clayton:1971. Economists at the time predicted that the price of gold would collapse as it would no longer be "useful" since it could not be "converted" into dollars.
Perfect. I wanted to ask that question anyway. Do you also know which economists predicted that? I read in a comment at a blog that Milton Friedman was among of them. That right? Are there any links or/and arcticles available about this?
"Somehow transition to a gold standard", Rothbard, Mises, and several others have written books on ideas of how to do this. But is, on mises.org, you simply take the amount of M!, M2, or M3, and divide it by the amount of gold the US owns, the number is above 5000, 10,000, and up, accourdingly. So no, the gold standard in the US would not have the same price. You can do the same calculation with the world currencies total in $ divided the world amt. of gold.
The price of gold today has nothing to do with the Fed. or the US. Gov't (except for their efforts to hold it down, which have been pretty successful). The Fed. and Gov't are not buying gold. Other, more realistic countries, are.
Real money must be a commodity. Gold has been found historically to be the commodity best suited for money (it doesn't get stale, rot, decay, or tarnish). Real money is something of real value that you would be willing to trade real goods for. When you no longer think that a paper $ is very real, what are you willing to trade for.
Gold has been found, for 6000 years, to be a 'store of wealth', to hold its value over time.
Since 1913, 1933, and 1971, the US has been prevented from using gold as money by our Gov't. They initally promised that all $'s were 100% backed by gold. Since '71 they completely ended that promise. Using gold as money prevents politicians from creating new additional $'s out of thin air. (And forcing taxpayers to pay it back.). So when people and countries finally give up on $'s, where will they go to save what they already have?
Try youtube and mises.org. It's not gold that is collapsing but $'s. Look up the dollar index, usdx, to see a chart of this drop in value. Then compare that against a chart of gold prices. They are almost exactly opposite.
cryptocode: So no, the gold standard in the US would not have the same price.
So no, the gold standard in the US would not have the same price.
I didn't quite follow you. Am i correctly intrepreting you as saying that the one ounce of gold would not be able to buy the (in my example) mac laptop, old used car, one month rent in NYC? If so, would you expect it to be able to buy more or less? And why?
Gold is not a hand-to-hand money so it has no "buying power." Gold is currently acting as an ultimate hedge money. It's protection against what Mr. Bernanke euphemistically calls "tail risk" of "really, really bad outcomes" aka monetary collapse.
My opinion is that, in the event of monetary collapse, gold could not become hand-to-hand money. It is too scarce and people are not used to using it. Even after the collapse of the Barre regime, Somalians continued using Somali shillings which were rampantly counterfeited and had been hyper-inflated to oblivion. This shows just how difficult it is to arbitrarily define money. Precious metal coinage could certainly re-emerge as money in the wake of an end to national monetary monopolies. Of course, this is a highly unlikely event. Just talk to the average retiree to understand whether the public is widely disposed to "End the Fed" and end the Fed's monetary monopoly. But even given a monetary collapse, I believe it would take some time for the transition to happen. In the meantime, other highly liquid commodities such as cigarettes, hard alcohol, cell phone cards - even drugs - would function as temporary exchange media for transactions larger than buying a loaf of bread which could not be conducted in the now worthless national money. You would not see precious metal coinage until the economy rebuilt itself from the ashes and copper or silver would likely come into use before gold.
But you can rest assured that, as maniacal as the central bankers are, they really, really don't want this to happen. What they're essentially doing is playing chicken with the private sector. The private sector is trying to escape the paper money by flooding into commodities. This is driving Marc Faber's "bubble in everything." But, at the same time, if they don't collapse the system, everyone who's been fleeing into commodities will get murdered if the economy returns to normal and the commodity bubble collapses. Basically, the central bankers are trying to scare people into not fleeing paper. Dollars are dangerous but so is everything else.
The endgame is nationalization of retirement assets. I think this all started in 2001 with a goal of establishing a global taxing authority, world central bank and - ultimately - a global, cashless monetary system. I think those plans have fallen through. They got shot down in December 2009 when the CRU emails were leaked just before the Copenhagen Summit. But they still have a major mess on their hands in the form of Social Security/Medicare, etc. So, the endgame has changed and the new goal is to gracefully exit the SS/Medicare stranglehold on the Federal budget by simply nationalizing retirement funds and healthcare. In the meantime, they need people to keep their assets parked in 401(k)s and IRAs where they can be folded into some future, not-as-yet-revealed plan to nationalize retirement and combine the 401(k)/IRA and SS system into one national system. This is not significantly different than the systems in some European countries. Step 1 was Obamacare. Step 2 hasn't happened yet.
The breakdown of the globalists' plans is why Osama bin Laden was "killed." They're aborting mission, cutting losses and taking profits. This is why I don't believe the gold price is going to plateau. For now, they're just going to keep scaring the hell out of the private sector while shorting commodities. When the time is right, they're going to start calling their shorts, central banks will start announcing they're selling gold and ending QE and bailout measures, fiscal austerity in Greece, etc. will have been imposed and a collapse in commodities will ensue while equities will again hit all-time highs. A year later, the NBER will reveal that we've been out of recession for the last two years.
True inflation is high - much higher than the official lies indicate - but nowhere near hyper-inflationary. The gold price is way outpacing true inflation. It is not merely correctional, it actually indicates a speculative belief that the gold price will continue to rise for a long time. I'm double-contrarian right now... not only is the mainstream, as always, wrong ("everything's fine!") but so are the perma-bears ("gold will go up forever!"). We're not fine but I don't think the present brinkmanship is going to continue indefinitely. The globalists know they've lost this round so now they just have to content themselves with profit-taking. Sooner or later, gold/silver are going to have to correct. I don't want to be in the situation where the central bankers get to decide when my assets are going to crash in value. Of course, it's tough to find safety in this ultra-bubbly environment.
double post...