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Guest Post: Gold As a Hedge: A Back-of-the-Envelope Calculation

Tyler Durden's picture





 

Submitted by Charles Hugh Smith from Of Two Minds

Gold As a Hedge: A Back-of-the-Envelope Calculation

How much gold would an individual investor need as a hedge against the total depreciation of fiat currencies? Here is a back-of-the-envelope calculation.

My view that gold is a prudent hedge is well-established in my archives. For example, from 2006: Gifts and Gold (December 9, 2006) (promoting the idea of giving gold as a gift):

Recently, another friend asked if I was a "gold bug." I said, no, I wasn't. But I did say I thought it prudent to own some actual physical gold and some mining stocks or a gold ETF, and maybe some silver if you follow that metal or consider gold and silver roughly equivalent. As shown here this week, all currencies are declining against gold. Nuff said.

Beneath the Surface, Part III: The Dow and Gold (November 29, 2006)

From approximately 1980 through 2002, the ratio of the Dow and gold moved in sync (i.e. was in correlation) with the Dow Jones Industrials. But since the market low in 2002, the two have radically diverged.

Now it is always possible that a historic correlation has been broken. But it behooves those of us trying not to lose whatever capital we might have in this world to consider an alternative: that the divergence will return to convergence.

(Discussion of how this could be achieved: either the dollar strengthens or gold rises.) The likelier possibility is a collapse in the dollar and a doubling of the price of gold.

At the time that was written, the gold/Dow ratio was 20--now it is 8.3 (Dow 12,500, gold $1,500). In other words, the divergence has only widened.

This raises an interesting question: how much gold would be needed as a prudent hedge against the total depreciation of fiat currencies? I recently conducted a back-of-the-envelope thought experiment on this topic in the Weekly Musings (for subscribers/major contributors).

Here is an outline of the thought experiment and calculations. Please note this is NOT A RECOMMENDATION TO BUY OR SELL ANYTHING, it is a thought experiment presented as "food for thought." Please read the HUGE GIANT BIG FAT DISCLAIMER below.

Starting point assumption: There is some probability (low or high is a matter of judgment) that as a result of the fundamental imbalances in the current global financial system, all fiat currencies will depreciate to near-zero. This is also referred to as hyperinflation or loss of faith in paper money.

A persuasive case can be made that this is not a probability but the inevitable end-game of the Status Quo: Deflation or Hyperinflation (FOFOA).

A 27-page analysis Apropos of Everything, Parts II & III reaches the same conclusion, while also making a strong case that the only functional, practical choice as a replacement for debased paper currencies is a gold-backed currency.

I have been persuaded of this since reading Gold: The Once and Future Money by Nathan Lewis, who has kindly corresponded with me on a variety of topics.

This book is an extremely readable history of money, gold and the politics of monetary policy as well as a carefully reasoned explanation of why gold-backed currencies provide stability. (Some argue that the 19th century booms and busts prove this wrong, but those booms and busts were credit-based. But I digress.)

I have also speculated here on the possibility that the private sector would lead the way to gold-backed currencies by establishing a non-State gold-backed "note."

Some readers have said that gold itself is money, but this isn't the point: the point is that trade over great distances requires a trusted medium of exchange, be it "commercial paper" or some other promissory note that can be exchanged to buy and sell real goods. This has been true since the rise of modern capitalism in the 1500s. (For more on this topic, please read this wonderful three-volume history of early Capitalism: The Structures of Everyday Life (Volume 1)
The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)

The point here is that there is a possibility that all fiat currencies will experience a loss of faith/rapid depreciation as the Status Quo devolves. Please read the above article links for more.

You don't have to judge this as likely to consider a hedge, you simply have to assess it as possible.

So how much gold would a household need to hedge their paper wealth against depreciation? In Apropos of Everything, Parts II & III Paul Brodsky reckoned that gold at $10,000 an ounce would enable the U.S. to back its current money supply with the 256 million ounces of gold it holds in reserve.

That is one rough approximation of how much gold one would need to hold to hedge paper financial assets. If gold were to rise 6.6-fold from $1,500 to $10,000, then $10,000 of gold at today's price (6.6 ounces in US dollars) would hedge $66,000 in paper financial capital.

In other words, after the dollar (and other paper currencies) fell into the black hole and disappeared over the event horizon, then the 6.6 ounces would be equal in purchasing power to the $66,000 in paper assets that just vanished.

I know there are many other complicating factors, but this is a rough calculation.

I reached a different conclusion by following the idea presented by Brodsky that gold-backed money would have to equal all the current paper money.

First, let's take all current financial net worth (assets minus liabilities) in the U.S. which according to the Fed Flow of Funds is about $35 trillion. (Net fixed assets such as real estate are about $10 trillion.)

Total financial assets are $47 trillion, but these include corporate equities and non-corporate business assets which include factories, production facilities, etc. owned by the corporate and non-corporate enterprises. These tangible assets would still retain their utility value after the "event horizon" depreciation, so I don't think they should be included in purely paper financial assets such as stocks based on "blue sky," bonds based on future promises of payment, etc.

If you disagree, then take the $47 trillion number as a starting point. Or if you reckon corporate profits are an income stream that will retain value after a fiat currency depreciation, then feel free to adjust the financial assets down to whatever number you think approximates the financial wealth that would be lost in a stick/slip "black hole" currency depreciation.

The U.S. has about 25% of the world's wealth, so let's multiply the $35 trillion in purely financial capital by four: thus the global economy has about $140 trillion in purely financial wealth (pension funds' holdings of blue-sky stocks, bonds, etc.)

Once again, this is all back-of-the-envelope.

There are about 5.3 billion ounces of gold "above ground," roughly 160,000 tons. At the current price of $1,500 an ounce, all the available gold is worth about $8 trillion. About half is in jewelry, 10% in industrial uses and 40% as central bank reserves and investment.

If gold took the place of fiat currencies as "money," the available gold would have rise to about $140 trillion in value. In today's dollars, that's about 18 times its current price. So $1,500 X 18 = $27,000 an ounce.

Let's round that off to $25,000 an ounce. (Feel free to round it up to $30,000 if you prefer.) If you prefer to subtract industrial gold or other uses from the calculation, then the number will be much higher. I am presenting the idea as simply as possible.

To hedge $250,000 in paper financial wealth (recall that productive real estate, windmills, factories, etc. would still retain their productive utility value after currency depreciation), you would need 10 ounces of gold, or $15,000 worth at today's prices.

Though we cannot be sure of much in the world, we can be fairly certain that gold will not go to zero value. Thus owning gold is not like owning a futures contract which expires.

Let's say total fiat currency depreciation never occurs, and instead gold falls 50% in dollar-denominated value to $750/ounce. Many consider this very unlikely, just as others think a loss of faith in the dollar is a near-impossibility. Both are possibilities, regardless of the odds anyone places on them at any one moment in time.

Then the hedge against complete destruction of paper money would have cost $7,500, in "opportunity cost" if nothing else. That's a relatively modest price for $250,000 of "portfolio insurance" via a hedge that doesn't expire.

To complete the thought experiment: it doesn't really matter if the "new dollar" or quatloo are whatever is backed by gold or not; it might be a "hard currency" based on limited circulation, or some other scheme. The point is that if the present currencies suffer significant depreciation, then gold will reflect that.

In other words, if one "new dollar" replaces 20 devalued dollars, then gold will be worth 20 X $1,500 or $30,000 an ounce when the "new dollar" is imposed. Gold needn't be the "official money" at all to act as money.

Is now a good time to establish a gold hedge? I have no idea. I have no idea what will happen, tomorrow or next year or five years from now-- to the price of gold in dollars, to the value of dollars in other currencies, or anything else for that matter. Me only pawn in game of life. The thought experiment is an exploration of hedging, it is not a speculation on the future price of anything.

Please note this is NOT A RECOMMENDATION TO BUY OR SELL ANYTHING, it is a thought experiment presented as "food for thought." Please read the HUGE GIANT BIG FAT DISCLAIMER below.

HUGE GIANT BIG FAT DISCLAIMER: Nothing on this site should be construed as investment advice or guidance. It is not intended as investment advice or guidance, nor is it offered as such. It is solely the opinion of the writer, who is NOT an investment counselor/professional. All the content of this website is solely an expression of his personal interests and is posted as free-of-charge opinion and commentary. If you seek investment advice, consult a registered, qualified investment counselor (As with any other professional service, confirm their track record and referrals).

 


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Tue, 04/26/2011 - 11:25 | Link to Comment Magnix
Magnix's picture

Well, Ill keep buying gold nuggets (and silver) to reach a ounce and because they're affordable!

Tue, 04/26/2011 - 11:26 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

GOLD IS IN A BUBBLE!!!!! /sarc

Tue, 04/26/2011 - 12:11 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

C H Smith and Rick Ackerman have moved closer to FOFOA's view.  Smith referenced FOFOA's latest article above.  The article is long and dense, but stuffed with mind-blowing observations...

In the comments section of FOFOA's article, you will note both Smith and Ackerman commenting positively on FOFOA.  They have become converts...

IMO FOFOA is right.  If you do not have any, get some physical gold.  If you plan your affairs right, it will carry your wealth through the coming hyperiflation or whatever.

fofoa.blogspot.com

Tue, 04/26/2011 - 13:30 | Link to Comment Shell Game
Shell Game's picture

Smith referenced FOFOA's latest article above.  The article is long and dense, but stuffed with mind-blowing observations...

Couldn't agree more, Sr. Bearing.  FOFOA's latest essay held many epiphanies.  Sad that most humans on this earth have had little to no schooling in money, and far too few have searched out these lessons on their own.  FOFOA is one of the finest sites for understanding money that I've found.

 

Tue, 04/26/2011 - 14:29 | Link to Comment Ignatius
Ignatius's picture

"The road will seem so straight and fair to travel, you will kick yourself for stumbling through the brambles for so long, and wonder at your neighbors who still can't see the path, though it is truly a freeway." (Aristotle, courtesy of FOFOA)

 

FOFOA has few peers on the subject of money and gold.

Tue, 04/26/2011 - 14:40 | Link to Comment malek
malek's picture

Yep, and even Mish and Karl Denninger have stopped declaring gold buyers/owners to be completely nuts. While they're not yet promoting gold ownership, it is a big step, and in the right direction in my opinion.

Tue, 04/26/2011 - 11:26 | Link to Comment Whizbang
Whizbang's picture

If there is a full devaluation of fiat currencies down to 0, your gold will be less valuable than lead, which actually has uses in the real world. Get real you clowns

Tue, 04/26/2011 - 11:36 | Link to Comment SheepDog-One
SheepDog-One's picture

I agree, this theory that the present valuation of world fiat currencies $140 trillion will be made whole by a rise in gold to $30,000 an ounce is totaly ridiculous.

Upon fiat USD world reserve currency replacement, gold will be valuable only to melt down and cast bullets.

Tue, 04/26/2011 - 13:36 | Link to Comment chumbawamba
chumbawamba's picture

Yours and Whizbang's are rather narrow, shallow, uninformed and unedcuated views of gold.  You know not of what you speak.

I am Chumbawamba.

Tue, 04/26/2011 - 14:06 | Link to Comment FeralSerf
FeralSerf's picture

Gold is a better material for bullets than lead due to its greater density.  Tungsten is good too.

He who has the best bullets (and delivery mechanisms thereof) wins.

Tue, 04/26/2011 - 17:23 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Deplete Uranium is the best.

Tue, 04/26/2011 - 23:16 | Link to Comment bonin006
bonin006's picture

Tungsten is hard, much better for armor penetration than lead or gold, but will wear out your barrel. A thin lead (or gold) plating on the tungsten will fix this. 

Tue, 04/26/2011 - 11:34 | Link to Comment dbach
dbach's picture

Are you suggesting that without a fiat currency we will revert to bartering? That there will be no medium of exchange?

Tue, 04/26/2011 - 11:43 | Link to Comment SheepDog-One
SheepDog-One's picture

Its amusing to me how people have no placated themselves into believing a USD world reserve currency default is nothing, and we'll just get some equally valued 'gold backed' paper exchange at 1:1 face value some morning and we all just go on like nothing at all happened. Truely a sick, braindead, stupid nation.

Tue, 04/26/2011 - 11:37 | Link to Comment Re-Discovery
Re-Discovery's picture

We get it.  'Gold is useless'.  'Silver is a joke'.  We are just idiots who never learn.  It's to the point where you guys should stick to your theses, and we will with ours.  I NNNEEEEDDD people like you.

Tue, 04/26/2011 - 11:55 | Link to Comment SheepDog-One
SheepDog-One's picture

I never said gold wouldnt rise, it probably will quite a lot. But $30,000 an oz? Thats to match up with the present or perceived 'value' of all this paper floating around...theres never going to be $30,000 oz coins upon a USD default. And well before a dollar default PM's will be declared illegal and confiscated anyway and to all those who say that wont be 'complied' with ust look how panicky everyone got over a few % drop in PM's.

Tue, 04/26/2011 - 13:39 | Link to Comment chumbawamba
chumbawamba's picture

Again, your views are ignorant and uneducated.  Perhaps you should read some history (there's 5000 years of it for your perusal) before you make such comments.  I'd explain where you're wrong but you wouldn't understand anyway.

I am Chumbawamba.

Tue, 04/26/2011 - 15:31 | Link to Comment FEDbuster
FEDbuster's picture

Right now an oz of gold will buy 1 AK47 ($400), 1000 rounds of 7.62x39 ($225), a good Katadyn water filter ($175), years worth of inexpensive storage food staples ($600.) and you can put together an ok first aid kit for $100.  If the S really HTF, those items won't be available for any price, let alone an oz of gold.  Gold requires some level of rule of law, a supply chain of goods and an easy way to determine it's value.  Investing in gold is a "systems up" investment.  I am not an anti gold guy (I own some), but in a complete economic crash I would rather have the five items listed above than an oz of gold.

Another way to think about it is if I unable to procure food and water any more, would I trade my limited food and water for your gold?  Hell no.  With no means of finding out what "spot" is for gold, would I trade anything of practical value for gold?  No.  If you haven't read the book "The Road", you really should.  It takes you to the place where gold has no value, but a good pair of boots are priceless.

Tue, 04/26/2011 - 15:49 | Link to Comment chumbawamba
chumbawamba's picture

Right, because the world is always either black or white.  When it's not white, it's black.  And when it's not black, it's white.

I know these things, okay?  That's why along with my gold and silver I also have an armory, ample ammunition to supply the various weapons within, stores of seeds and a greenhouse to grow food year round, etc.

Unless you plan on living in Bartertown forever, things do eventually reorganize, and there will ALWAYS be a place where your gold has monetary value.

If you want to sit here and argue pedantics then count me out.  I have more prepping to do.  I need to go stockpile history books to hand out to all the doe-eyed Mad Max's that will be passing by my farm on their way to Morrow Morrow Land with a flock of mostly prepubescent children, bookmarked to the chapter after the great cataclysm where things get rebuilt.

I am Chumbawamba.

Tue, 04/26/2011 - 16:19 | Link to Comment tmosley
tmosley's picture

Yup, it's called "utility".  Having one AK47 is as good as having a hundred, if it's just you doing the shooting.  However, there is no loss in utility from having more gold or silver.  

Other things SHOULD be bought first, but they only need to be bought once.  Gold and silver can always be accumulated.

And yes, anyone calling for an end to trade (the only situation where gold would have no value) is a moron.  As long as there are more than two people in the world, there will be trade.  As long as there are more than a few thousand people in the world, they will use gold as currency (if they aren't fools).

Tue, 04/26/2011 - 18:08 | Link to Comment goldenrod
goldenrod's picture

Why does it have to be one extreme or the other? Either we all drive SUVs to Starbucks for a latte or it is Mad Max.  I think it is going to be something in between.  Excessive debt, peak oil and a declining currency will reduce the standard of living of more and more people.  Gold protects your assets from currency debasement.  That is all.

 

Tue, 04/26/2011 - 11:52 | Link to Comment writingsonthewall
writingsonthewall's picture

Try trading your lead for a boat trip out of the country fool. I'll get passage with my gold while you're still trying to sell your ass for a space in the hold.

 

Captialists know the price of everything and the value of nothing....the problem is the 'price' is in 'toilet paper' - which their linear brains cannot handle!

Tue, 04/26/2011 - 14:12 | Link to Comment tmosley
tmosley's picture

Again, here is your problem--you can't tell the difference between capitalism, which is what you are practicing (since gold is capital), and socialism, which you accuse the other of practicing (ie extracting a boat ride at gunpoint).

Your little head is all twisted up.  But at least your actions are correct.

Tue, 04/26/2011 - 11:59 | Link to Comment trav7777
trav7777's picture

If there is a full devaluation of fiat currencies down to 0, your gold will be less valuable than lead, which actually has uses in the real world.

This is just idiotic nonsense...the largest economy south of the border and 5th most populous country on the planet, has seen COMPLETE devaluation of more than one currency just in the past couple of decades.  There has been no time at which fucking bullets and the use thereof are a substitute for anything.

Tue, 04/26/2011 - 20:14 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

There has been no time at which fucking bullets and the use thereof are a substitute for anything.

How about civility, honesty, integrity, responsibility. 

Tue, 04/26/2011 - 13:34 | Link to Comment Nate Taggart
Nate Taggart's picture

OK, then buy silver, unless you think the entire electronics industry (and most other industries) is going to find a replacement.  

Tue, 04/26/2011 - 22:26 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

@ Whizbang,

I don't think that there will be a cataclysmic full devaluation either (A-la Zimbabwe) but you can't deny a possibility.

The game play is to rely on the delivery success of the adage (a belief that a statement must be true because of the duration of its use): Paper currencies carry enduring intrinsic value. 

A cursory investigation of the performance of ANY paper currency, proves the adage to be thoroughly unsubstantiated. A telling and enduring negative performance indicator is the demand interest rate that is tied to paper currencies. It is a risk demand variable, calculated in the pursuit of returns that eliminate purchasing power loss over time, when saving or extending credit. Par value risk, Option Theory 101.

The current volatile erosion of purchasing power (see USDX) is a measure of over-supply, instilling a valid a loss by credit holders, in the "Good Faith and Credit" of the issuers.

Central currency issuers realize that through their oversupply, if there is a complete loss of trust, creditors will demand tangibles as settlement for their credit notes.In other words, they demand immediate and full settlement, not payment.

In order for the issuers to maintain the illusion of value (as delivered to the masses) and to satisfy creditors, the issuers won't default completely. They will promise to pay more via higher interest payments or cash payments, (creditors taken care of) and revalue their reserves (numeraire) which just happens to be the gold.

Gold is the foundation that supports the bridge, interest rates are the keystone that completes it. Gold has to and is being revalued, so that reserve ratios allow credit to be extended (a balanced system). That's what is happening, steadily, inexorably, drip by drip until it is worth the risk to carry credit on the books, against income. Smart creditors purchase gold in anticipation of its revaluation. When risk ratios are thought to be fairly balanced, gold will be exchanged for paper.

You seem to be convinced that these issuers are delivering reasonable returns on their notes. I see over-issuance, ergo a loss of my faith in their good credit. Honesty is a hallmark and measure of good faith. After the GFC, I don't see anyone in chains, other than a couple of bit players. I'm asking for a return to honesty in dealings with these issuers and am abandoning them until I see the evidence to the contrary.

Your opinionated statements, supported by ad hominem attacks, make for shallow or thin deliberations. Show some substance.

Tue, 04/26/2011 - 11:26 | Link to Comment mule65
mule65's picture

Avoid Stocks.


- Tyler Durden

Tue, 04/26/2011 - 11:30 | Link to Comment Tyler Durden
Tyler Durden's picture

"Forget
the circularity of CDS shorting... this one should make your head
explode... This has long been perceived as the FED's very last
recourse. Maybe one should really start buying stocks ahead of the
uber-hyperinflation that will imminently ensue. We recommend wheelbarrow
stocks.This is textbook back against the wall. But at least the stock
market takes another crutch up." March 18, 2009 - Tyler Durden, on the start of QE1, and since which precious metals have outperformed stocks by about 2.5 to 1
Tue, 04/26/2011 - 14:46 | Link to Comment Ignatius
Ignatius's picture

Tyler

 

In light of Ackerman's and Smith's recent bow to FOFOA on the issue of hyperinflation, do you think you might consider adding FOFOA's blog to your links? His most recent post (4/23) on the Hyperinflation/Deflation debate is a gem.

Tue, 04/26/2011 - 11:34 | Link to Comment SheepDog-One
SheepDog-One's picture

OH snap, mule ass-rammed.

Tue, 04/26/2011 - 11:28 | Link to Comment writingsonthewall
writingsonthewall's picture

"HUGE GIANT BIG FAT DISCLAIMER: Nothing on this site should be construed as investment advice or guidance. It is not intended as investment advice or guidance"

 

Too late - I just bought all the gold in Fort Knox...

 

....which is nothing, just an empty warehouse.

 

Here is some investment advice you should all heed.

"FIAT currencies always fail"

Here's the historical evidence.

http://dailyreckoning.com/fiat-currency/

 

Past perfromance DOES lead to future failure.

Tue, 04/26/2011 - 11:33 | Link to Comment SheepDog-One
SheepDog-One's picture

You bought the WHOLE 5 oz of gold plating in Ft Knox?

Tue, 04/26/2011 - 11:40 | Link to Comment Hephasteus
Hephasteus's picture

Well you can sell it 20,000 times and get the money each time and then charge people storage fees. It's a fraud that has been going on since the 1600's. It just changed from run out of town to kill everybody.

Tue, 04/26/2011 - 11:42 | Link to Comment luk427
luk427's picture

+ Tungsten

Tue, 04/26/2011 - 11:43 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Why would anyone buy Gold plated Tungsten?

Tue, 04/26/2011 - 13:40 | Link to Comment Sudden Debt
Sudden Debt's picture

As a paperweight it does look cool :)

I have one on my desk.

Tue, 04/26/2011 - 14:12 | Link to Comment FeralSerf
FeralSerf's picture

I have a tungsten plated gold paperweight on my desk to discourage thieves and other gov't agents.

Tue, 04/26/2011 - 11:29 | Link to Comment SheepDog-One
SheepDog-One's picture

Assumes that the PRESENT 'value' of fiat currencies will be matched by a rise in gold to match it? Nonsense, gold may become a backing of a world currency, but the value of currency in the world will be far smaller than it is today. This article jumps off on the wrong foot. Gold will rise to match $140 trillion in value to replace present fiat currency, or $30,000 an ounce? Gold will rise, but thats just retarded.

Tue, 04/26/2011 - 11:45 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Please Google "Zimbabwe Inflation" and tell us again how $30,000 an ounce Gold is retarded.

Tue, 04/26/2011 - 11:51 | Link to Comment DiverCity
DiverCity's picture

Folk like SheepDog, even though I well agree with him that we face a looming financial collapse (or indeed have already functionally collapsed), have a mental block because their reference point is USD.  Hence, $30K/oz. of gold to them looks like an outlandish figure.  But that's what's really retarded -- the notion that $30K will buy a whole hell of a lot after revaluation.  Free your minds, grasshoppers.

Tue, 04/26/2011 - 12:02 | Link to Comment SheepDog-One
SheepDog-One's picture

Well thats what Im saying, in effect. Its not ME who doesnt see the currency issue for what it is, its after the USD is replaced by whatever, we have nothing. Not $140 trillion in newly valued gold, just a banana republic without even bananas to sell.

Guys, youre never going to be trading coins at the store for $30,000, upon a USD default, people will be using coins as slingshot ammo or melting them down to cast bullets. This 'pain free world reserve currency default' scenario is for the birds.

Tue, 04/26/2011 - 12:18 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

SheepDog, I normally agree with almost everything you write.

But, not on this.  If/when gold has its big move (when paper gold dies), I may buy the two gas stations in the town I live in with my $55,000 gold...  Or the maybe nearby toll bridge...

If I do not BUY anything big, then my gold will go to my child (or grandchildren in the future?).

I certainly will not be taking my gold coins to the coin shop for fiat.

Tue, 04/26/2011 - 14:12 | Link to Comment FeralSerf
FeralSerf's picture

It's too bad that the gas stations will be out of gas by then.

Tue, 04/26/2011 - 14:20 | Link to Comment dussasr
dussasr's picture

I'm long term bullish on PMs and bearish on the dollar, but I am with Sheepdog on this one.  The PMs will only go up for so long until they are confiscated by the govt or some firebrand politician starts WWIII or maybe both.  The desirability of holding gold reaches its zenith at precisely the same moment that holding it becomes illegal.

You can't just change from one economic paradigm to a completely different one without the high likelyhood of violence.  There will be too many unemployed/hungry people looking for vengance and someone to blame for their condition.  Who will they target?  Well the "evil" people with the gold of course!

Tue, 04/26/2011 - 14:35 | Link to Comment trav7777
trav7777's picture

can you point me to where the fuck else gold has ever been illegal?

I mean I look through a ton of hyperinflations and I don't see it...

Tue, 04/26/2011 - 16:24 | Link to Comment dussasr
dussasr's picture

As soon as people begin to loose confidence in fiat they try to dump it for gold.  In a futile attempt to prevent that the government outlaws gold.  They follow the same play book every time.  Argentina, Mexico, and the US have all done it.  I don't have the exact number but gold ownership is still illegal in some 40 or 50 countries today.

Wed, 04/27/2011 - 08:08 | Link to Comment trav7777
trav7777's picture

huh???  When the fuck did this ever happen in Argentina or Mexico?

Name the 40 or 50 countries.

Tue, 04/26/2011 - 15:47 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Here is how every post currency collapse economy operates.

 

Merchants pop up and setup general stores.

They set up a TAB system where you bring in goods where-by your TAB is credited.

As you buy goods your TAB is taken down.

Merchants like Gold and Silver because they can pay to have large amounts of goods shipped in.

Services will be included in this system. Say you are a mechanic and repair all sorts of stuff that can't be replaced now. The Merchant backs up your labor charging the customers TAB while adding to the mechanics TAB. In effect the merchant is a bank as well but is using goods and services instead of the failed currency.

Tue, 04/26/2011 - 12:04 | Link to Comment LRC Fan
LRC Fan's picture

Sorry but this sort of logic doesn't work on idiots.  How many Germans do you think would have agreed if you warned of $1 trillion marks for an oz of gold?  They would have laughed you out of the room.  It's the same thing now.  I try telling friends/family silver and gold will go absolutely to the moon in terms of dollars, and eventually won't be available for dollars and they laugh right in my face.  They actually think higher prices are good, because it's all proportional and our wages/stock market "winnings" go up too, so inflation doesn't matter.  We'll see, when gas hits $5 then $6 and then $50 in short order, who is right.

Also everyone laughs if you mention Zimbabwe, saying "that's a 3rd world country" or something stupid.  When I bring up the fact that it makes our situation of trillion dollar debts and deficits that much worse, since it will bring down everyone else, their eyes glaze over.  Just keep buying silver and gold while you still can score them with dollars.  Eventually everyone will be forced to wake up, and then gold and silver will go "offerless" as Tyler mentioned yesterday, at least in terms of US dollars. 

Tue, 04/26/2011 - 12:06 | Link to Comment SheepDog-One
SheepDog-One's picture

We're just a 3rd world country right now, a banana republic without even any bananas to sell...just that we have a federal reserve and a world reserve currency for a short time longer that can print and paper over collapse for a bit longer.

Also, does anyone ever consider theres no way this govt/banking system will allow gold in your hands when this all goes down, much less allow buying and selling of it or with it? What will people do then, when gold posession is declared a felony punishable by death? People say this all can never happen here, well it will.

Tue, 04/26/2011 - 12:17 | Link to Comment LRC Fan
LRC Fan's picture

How will the economy function without money or some store of value?  Are you saying the government will force you to sell things to them and accept fiat money even after it collapses to 0? 

Tue, 04/26/2011 - 12:22 | Link to Comment SheepDog-One
SheepDog-One's picture

How will what economy function? All we do now is borrow to consume imports. We have no real economy at all, other than printing money.

Tue, 04/26/2011 - 19:30 | Link to Comment Ahmeexnal
Ahmeexnal's picture

Are you implying that when a monetary collapse takes place, the masses will continue to obey the looters??

Why would they? For the "common good"???

If they declare human thought to be illegal, will you keep obeying??

Tue, 04/26/2011 - 13:45 | Link to Comment Shell Game
Shell Game's picture

Hmm, disagree.  Our beloved .GOV will not go after personal gold. They may indeed attempt to tax any 'official' selling of it, but the logistics of confiscation make it a non issue.  I wouldn't put it past them to launch a voluntary liquidation program (food for gold, or, 'save the country - sell your gold!').

But....they WILL screw the gold miners, royally.  All that gold under ground is much easier to control.  The miners will be given a government-determined 'fair' price, for they will be sitting on money (read: national security).

Tue, 04/26/2011 - 14:27 | Link to Comment dussasr
dussasr's picture

Why do you think it would be so hard to confiscate gold when so many countries - including the United States - have done exactly that in the past?

Wed, 04/27/2011 - 08:11 | Link to Comment trav7777
trav7777's picture

"so many countries"??  Name them.  Need cites.

Tue, 04/26/2011 - 14:36 | Link to Comment trav7777
trav7777's picture

oh, jesus the fk christ, all this gov't will declare it a felony...dude, the government will fucking COLLAPSE just like USSR's did.

Drugs are already illegal and they have 60-year federal trafficking sentences on some of these things.  Get your head out of your ass.  The reach of the gov't to impose itself into your life and dictate wtf you do will vanish in the event of systemic default because NOBODY WILL BE TAKING THEIR IOUs!

Tue, 04/26/2011 - 15:49 | Link to Comment dussasr
dussasr's picture

Just because the government is broke doesn't mean it can't impose its will upon you.  Look at North Korea, Venezuela, etc.

Tue, 04/26/2011 - 17:32 | Link to Comment StychoKiller
StychoKiller's picture

Those countries also have no Bill of Rights either.

Tue, 04/26/2011 - 16:14 | Link to Comment FeralSerf
FeralSerf's picture

The proles will have no choice but to take their IOUs, just like the USSR.  Anyone with PMs had better keep them hidden if they don't want to be killed and/or have them confiscated.  Government agents won't be the only ones to fear.

"We think they pay us and they think we work."

Tue, 04/26/2011 - 19:02 | Link to Comment prole
prole's picture

I think that was the Soviet/Cuban model: kill the kulaks. I am open to correction but weren't the kulaks and the Cubans poorly armed?

And I believe the actual motto was "They pretend to pay us, and we pretend to work."

Wed, 04/27/2011 - 08:16 | Link to Comment trav7777
trav7777's picture

dude; the USSR COLLAPSED.

We are talking about COLLAPSE.

AFTER COLLAPSE, nobody took the USSR's ruble anymore.

Tue, 04/26/2011 - 19:57 | Link to Comment Triggernometry
Triggernometry's picture

I've got a one hundred trillion dollar note in my wallet. I pull it out regularly when people doubt the dollar's demise.

Tue, 04/26/2011 - 11:49 | Link to Comment MrSteve
MrSteve's picture

It is far more useful to look at revaluing fiat currenciesby cutting off three or more zeroes and then rebooting to a gold standard.

Imagine revaluing gold at $15 per ounce instead of $1500, a two-zero haircut. Gold at $15 an ounce means a twenty dollar gold piece with one ounce of gold will work out fine for money as the coin is worth more than the metal in it, the formerly historical norm.

Dividing every paper currency unit ever printed into gold is nonsense; you might as well use raindrops as a measure of fiat or some other meaningless infinity. Compare baskets of grain and barrels of oil or kilowatts of electricity costs to the costs of mining gold and things start to get real. A good mens wool suit for an ounce of gold has been a standard for a long, long time. Same for a pound of copper and a solid loaf of wheat bread.

Weimar - Zimbabwe bucks may go to the moon but the rest of the world is more tightly fixed to real value than that.

 

Tue, 04/26/2011 - 19:13 | Link to Comment prole
prole's picture

Hmm.. revalue gold to $15  per ounce. I am all for it. This feels like what's happening to silver right now. It was "revalued" to $45, and all the sudden nobody has any silver to sell at that price. Is the official price of silver about to separate from the actual price of silver? Is the London price just a virtual price? If they 'revalued' gold at $15 per ounce, just tell me who, what country, what mint, what individual would sell gold at that price? Would you? (the answer is that $15 per ounce gold only works when one of the parties to the sale has a gun pointed at the head of the other party. Thus the 'sale'.)

Tue, 04/26/2011 - 11:50 | Link to Comment MrSteve
MrSteve's picture

503 server error double post

Tue, 04/26/2011 - 11:52 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

One should grasp that "today, your wealth, is not what your currency say it is"! In this world, paper currency is for trade, only! It is for the buying, selling, earning and paying, not for knowing the value of your family holdings! Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"! Again, I ask, how can we know a true value for our assets, when they are known only in currency that finds its worth, as in the exchange rate for another currency?
ANOTHER

Tue, 04/26/2011 - 12:23 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ $55,000 to a guy who gets it.

Tue, 04/26/2011 - 14:07 | Link to Comment Dollar Damocles
Dollar Damocles's picture

Yes, + 55k.  Love FOFOA readers.

Tue, 04/26/2011 - 11:33 | Link to Comment Attitude_Check
Attitude_Check's picture

Reference Point Gold...

Tue, 04/26/2011 - 12:01 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

Yes.

Hear me now, what the wealthy and powerful know: "real value does not have to always be stated or converted thruout time. It need only be priced once during the experience of life, that will be much more than enough!" ANOTHER

Tue, 04/26/2011 - 12:22 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

@ Attitude,

+ $55,000 to another guy who gets it.

Tue, 04/26/2011 - 12:41 | Link to Comment Badabing
Badabing's picture

RPG/freegold the only way out

Fiat flexibility with sound savings

 

Tue, 04/26/2011 - 11:35 | Link to Comment RobotTrader
RobotTrader's picture

Right now, the best hedges against inflation are retail stocks and REITs.

JCP, JWN at new highs, IYR continues its amazing run.

Note how none of these stocks can be shaken by currency turmoil, bombing runs against PM holders, QE or no QE discussions, etc.

Tue, 04/26/2011 - 11:34 | Link to Comment SheepDog-One
SheepDog-One's picture

AHH HA HA HA HAAAA HA HAAAAA!!

Tue, 04/26/2011 - 13:39 | Link to Comment espirit
espirit's picture

+55,000 Ah Ha Ha's

Tue, 04/26/2011 - 16:35 | Link to Comment akak
akak's picture

"In Lulelemon We Trust"

Tue, 04/26/2011 - 14:41 | Link to Comment trav7777
trav7777's picture

he's right tho...fuck silver; who isn't kicking themselves for not having way OTM leaps on WYNN or GGP?

You could be retired right now with all the Eagles your heart desired, too many to carry, if you had put one decent sized levered bet onto either of these issues at the depths of the Mar 09 darkness.

Even those of us who made out apeshit shorting in 08 could have put the egg onto KMP and watched 3x capgains PLUS a 15% dividend from an issue that just pays on the pure movement of NG through pipelines.

Tue, 04/26/2011 - 20:20 | Link to Comment Richard Head
Richard Head's picture

Woulda, coulda, shoulda -- all things that lobotomized-trader specializes in.

Tue, 04/26/2011 - 11:39 | Link to Comment chaunceyG
chaunceyG's picture

all monetary systems are fiat or by decree, people can choose whatever they want as medium of exchange for real goods and services.  What matters is Who decrees not the what or the how. Gold was orginally monetized by the people who held the gold.  ie if you pray at my temple for more rain for your crops i will only accept gold for that service.  if you dont have any no problem i will lend you some in exchange for a percentage of your future productivity.  Because people are so suckered into speculation by those who run the show, sites like this have debates about what is a good hedge.  A hedge against what? the preservation of a system of mass financial servitude???  It's time for people to wake up, educate themselves, and organize around our own collective and infinite ability to create a better world for ourselves and those that come after us.

Tue, 04/26/2011 - 11:47 | Link to Comment SheepDog-One
SheepDog-One's picture

I agree, this present state of hypnosis people have talked themselves into that when the world reserve fiat USD defaults, we'll just have it replaced with something 1:1 is sick. We've seen the system fail, now theyre trying to paper over the collapse with more paper, but bad times will never come as the valuation of all this fiat currency will just be replaced by $30,000/oz gold? Ive never read anything more pie in the sky ever.

Tue, 04/26/2011 - 11:50 | Link to Comment fuu
fuu's picture

Amen. I wonder aloud quite often with my prepper buddies why they are so keen to reproduce the system that sucks the life out of them. Just putting yourself at the top of pyramid and running the program again is not progress.

Tue, 04/26/2011 - 11:57 | Link to Comment SheepDog-One
SheepDog-One's picture

Exactly! All the 'revolutionaries' I run across are really just sheeple with a firearm and some canned food, who in reality just want the same control structure that we have now, just with THEIR guys running it!

Tue, 04/26/2011 - 20:38 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

And so?

The game has many players.

The game requires a system.

What are the rules?

How big of a player you want to be is in locked in our DNA.

Tue, 04/26/2011 - 12:07 | Link to Comment chaunceyG
chaunceyG's picture

amen right back.  the one thing they (ie whoever the hell is at the top, certaintly not me) are affraid of/can't control is the human spirit.  people make such a big deal about the founding fathers of this country. but few realize they were fighting the same fricking fight against monetary control.  Why do you think BOE/king banned colonial script as medium of international trade! tea party should do some homework and see that this was the real cause of the Revolution, not some stupid tax on Tea!!! from Wikipedia: The Stamp Act of 1765 (short title Duties in American Colonies Act 1765; 5 George III, c. 12) was a direct tax imposed by theBritish Parliament specifically on the colonies of British America. The act required that many printed materials in the colonies be produced on stamped paper produced in London and carrying an embossed revenue stamp.[1][2] These printed materials were legal documents, magazines, newspapers and many other types of paper used throughout the colonies. Like previous taxes, the stamp tax had to be paid in valid British currency, not in colonial paper money.

Tue, 04/26/2011 - 11:41 | Link to Comment Astute Investor
Astute Investor's picture

To hedge $250,000 in paper financial wealth (recall that productive real estate, windmills, factories, etc. would still retain their productive utility value after currency depreciation), you would need 10 ounces of gold, or $15,000 worth at today's prices.

Implies 5.6% of your total wealth (ex other productive assets) in physical gold as a hedge ($15,000 / $265,000).  Seems too low.  Faber target of 20-30% seems more prudent.

 

Tue, 04/26/2011 - 11:52 | Link to Comment topcallingtroll
topcallingtroll's picture

That is not insurance. Faber is making a unidirectional bet. If collapse doesnt happen then it is an inefficient portfolio.

Tue, 04/26/2011 - 12:00 | Link to Comment SheepDog-One
SheepDog-One's picture

The collapse already did happen. This is all just life support on a vegetable.

Tue, 04/26/2011 - 12:17 | Link to Comment topcallingtroll
topcallingtroll's picture

I meant zombie land, total fiat repudiation collapse, not this girlyman collapse we have now.

Tue, 04/26/2011 - 12:28 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

"girlyman collapse"

Your in top form today top!

Tue, 04/26/2011 - 12:54 | Link to Comment Astute Investor
Astute Investor's picture

Harry Browne would disagree with that premise.

Tue, 04/26/2011 - 19:47 | Link to Comment technovelist
technovelist's picture

Yes, his 25% in each of four investments (gold, cash, T-bonds and stocks) is a lot better than what most people have.

But as big a fan of his as I am, I can't bring myself to have any significant amount of my assets in stocks or t-bonds, or US$ cash, for that matter. I think they are too risky.

I sleep very well with my extremely conservative portfolio.

Tue, 04/26/2011 - 20:26 | Link to Comment DosZap
DosZap's picture

tct,

Faber is right.

30%+ right now is a conservative hold.

The system will not default, but you can bet your arse it's devaluing, even now.

So the SHTF does not occur, but Gold/Slvr just increae in relation to the deval...............your staying even with what you had to start with.

And in the end, is that not why all of us are holding PM's?.

Loss of purchasing power.

Tue, 04/26/2011 - 15:37 | Link to Comment malek
malek's picture

Yes, it's way too low. And the calculations CH Smith does are an exercise in futility.

The more important questions to an individual are: what is my net worth? How much of it is in paper assets? How much am I willing to lose in a total SHTF scenario? How much am I willing to miss in investment opportunities if no SHTF happens within the next 3 years?

Depending on your personal probability estimation for a SHTF case, you would want to put between 10% and 50% of your paper net worth into PMs instead now. Why not higher than 50%? You never put all your eggs in one basket.

I am at 35% now, right on my target. Rest is mostly in non-US-Dollar denominated dividend paying stocks - in the resource, energy, and agricultural sectors with a few tech sprinkled in.

Tue, 04/26/2011 - 11:48 | Link to Comment topcallingtroll
topcallingtroll's picture

.

Tue, 04/26/2011 - 11:46 | Link to Comment orca
orca's picture

"40% as central bank reserves and investment"
Here it gets fuzzy. I am certain that central banks do not have the stated gold reserves. The Dutch central bank for example has 90% of its holdings in the USA, and we all know where that went. And don't get me started on the USA reserve (Federal or FED), it's just not there. So yes, that 40% is with "central banks and investment", but most of it with the 2nd category. Therefore this exercize is useful but understates the amount a prudent investor should hold as a hedge against fiatponzi. To be on the safe side better hold 15 oz per $250k.

Tue, 04/26/2011 - 12:01 | Link to Comment Thadeous
Thadeous's picture

Looks like I'm set. I about double that ratio right now.

Tue, 04/26/2011 - 12:29 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Thadeous, that is fantastic, you are all set as long as you have your other affairs in order

The Bearing is sitting at about 12% of his wealth in PMs, mostly in gold.

+ $55,000 to you as well.

Tue, 04/26/2011 - 13:17 | Link to Comment Thadeous
Thadeous's picture

Mine was 90% in silver up until about 3 or 4 weeks ago when I swapped out some silver for gold. Now I'm at about 80% gold. I feel more comfortable in the long term this way now. Good thing I got into silver with a 65/1 ratio and switched at 35/1.

Tue, 04/26/2011 - 11:44 | Link to Comment topcallingtroll
topcallingtroll's picture

Nice little exercise.

A little insurance never hurt anyone. Evaluate your situation and buy the minimal coverage that works for you. Pray that you never need it.

Tue, 04/26/2011 - 11:49 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

If you want to calculate a price don't use the stock; use the flow.

http://fofoa.blogspot.com/2010/06/how-can-we-possibly-calculate-future.html

Tue, 04/26/2011 - 11:51 | Link to Comment Ethics Gradient
Ethics Gradient's picture

Hedges? Hedges? We don't need no stinking hedges!

Tue, 04/26/2011 - 11:59 | Link to Comment LRC Fan
LRC Fan's picture

CNBC asked if copper was the new gold.  I lol'ed.

 

 

Tue, 04/26/2011 - 12:04 | Link to Comment trav7777
trav7777's picture

Moronic article.

The gold/oil ratio tells you all you need to know about the "price" of gold.  All that matters is the rate of gold oz per any other real thing or service.

If gold goes to $15000/oz, oil will be at $1120/bbl

Tue, 04/26/2011 - 12:09 | Link to Comment Ethics Gradient
Ethics Gradient's picture

1) Harsh

2) True

3) I'll have a dollar with you that your prediction wont be the case. You need to consider the causes and timelines.

Tue, 04/26/2011 - 12:35 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Ethics is right re prices of oil and gold IMO.  Gold is underpriced vs. oil.

But, it looks like many of these disputes will be settled soon, when the dollar sinks into the ocean.

Prepare.

Tue, 04/26/2011 - 14:56 | Link to Comment trav7777
trav7777's picture

I cannot concur, as oil's supply decline will be steeper than gold's and gold still exists.

Tue, 04/26/2011 - 16:48 | Link to Comment Ethics Gradient
Ethics Gradient's picture

Hence why a straightish 10x multiplier doesn't work.

Wed, 04/27/2011 - 08:19 | Link to Comment trav7777
trav7777's picture

yes, oil should be higher in that scenario

Tue, 04/26/2011 - 12:14 | Link to Comment ApplesConspiracy
ApplesConspiracy's picture

You have to wonder how serious commenters are about the old "invest in lead" nonsense parroted around this place.

 

Do these people really have the training, experience, equipment, relationships, etc. to actually follow through on their internet macho? 

 

I would submit that the point where "invest in lead" is a prudent strategy, the world is so fucked up that your puny bullets won't make a difference.  It won't save you if government troops confront you in mass, it won't save you from armed gangs with better numbers, and it won't save you when food, water, sanitation, and basic services shut off.  It might save you from one crazy but not a whole world of them.

It all strikes me as a bunch of brave talk by keyboard commandos without the true wherewithall to follow through on their words.

Tue, 04/26/2011 - 12:15 | Link to Comment SheepDog-One
SheepDog-One's picture

Most people dont even have the guts to hold silver thru a coordinated manipulation 24 hour stomping. 

Well Im not sure really what point youre making, youre angry that theres no chance as you perceive? Well, as Achiles told his equipment boy upon describing the fearsome and unbeatable nature of his opponent, 'Thats why no one will ever remember your name'.

Tue, 04/26/2011 - 12:36 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+++

Tue, 04/26/2011 - 13:21 | Link to Comment Thadeous
Thadeous's picture

+1

Tue, 04/26/2011 - 14:54 | Link to Comment trav7777
trav7777's picture

Life ain't Call of Duty, son...you get shot in life, it's for real.

In madmax, that pretty much means dead.  You will leave a nice stockpile of bullets for your killers to trade, so take solace...

As Sheriff Bell in No Country for Old Men said, "even in the contest between man and steer, the issue is not certain."

Tue, 04/26/2011 - 15:31 | Link to Comment Thadeous
Thadeous's picture

If it comes down to a fight or run, I would like an option. 

signed, combat vet.

Tue, 04/26/2011 - 19:25 | Link to Comment prole
prole's picture

Unfortunately AppleConspiracy has a point.
The Rhodesian and SA (let's just say "farmers") were well armed but they got rolled over easy. Now they are dead and/or driven off their farms. Likewise the Serb farmers, all well armed but didn't have a chance once Uncle Allah started bombing them. (In both examples note the victims were betrayed by the whole world)

Tue, 04/26/2011 - 12:10 | Link to Comment Crabshack
Crabshack's picture

How is gold used "after" the crap hits the fan.  This site deals mostly on hoarding it.  I am sold on it; just want to understand the mechanical steps to deal with 3 situations;

1) Currency collapse 

2) Hyperinflation

3) Mad Max situation of your choosing

Do you ever see your self giving someone PMs directly or will it always be converted to a new currency that will pop up.  Mad Max is probably the only one that wouldn't use a conversion but actually trade pieces.  Will it always be valued daily and against what?

 

Tue, 04/26/2011 - 12:18 | Link to Comment SheepDog-One
SheepDog-One's picture

People believe that when the USD world reserve currency finaly defaults, we'll be OK it will just be replaced 1:1 with some other piece of paper now gold backed at $30,000 and we'll just go about our business as usual, free-lunch borrowing to infinity, everyone rich. 

Frankly even I didnt believe the american people, even the smart ones, were this stupid.

Tue, 04/26/2011 - 15:36 | Link to Comment malek
malek's picture

Read FOFOA: "gold is the very best way to shuttle your wealth THROUGH a crisis to the other side"

Within the crisis it is of limited help.

Tue, 04/26/2011 - 12:10 | Link to Comment onlooker
onlooker's picture

No need to create assumptive analysis. Just do a correlation of gold in post WW1 Germany with currency collapse. Then you have historic validation. I am sure someone has done it. Anyone know?

Tue, 04/26/2011 - 12:16 | Link to Comment SheepDog-One
SheepDog-One's picture

Im sure I lost a lot of friends around here today, but this is just ridiculous and people really need to wake up.

Tue, 04/26/2011 - 13:44 | Link to Comment Bubbles the cat (not verified)
Tue, 04/26/2011 - 13:10 | Link to Comment gmak
gmak's picture

I think that if one were to assign a "true" value to gold, whatever that it, one would have to include all assets owned by the USA.

 

Since debt is money for the time being, then the currency has to be defined in terms of ALL of the assets, not just Gold. 

If I own a few Trillion of tbills, I can exchange them indirectly for gold; or companies; or real estate; or congresscritters - pick the asset of your choice. Gold is just one choice among many, no?

Tue, 04/26/2011 - 14:08 | Link to Comment Zymurguy
Zymurguy's picture

I dunno... I think what Sheepdog-One is sayin' is that the only precious metals you should be investing in is Brass, Lead and Blued Steel.

Tue, 04/26/2011 - 14:44 | Link to Comment trav7777
trav7777's picture

if he's saying that, then he's a fuckin idiot

Tue, 04/26/2011 - 14:08 | Link to Comment humblepie
humblepie's picture

Unless all the central bankers are out of business, gold will never be allowed to go to $30,000/oz. We can't even put bankers in jail, gold at $30,000? I fear not. Nice pipe dream though, if you own nuggets.

Tue, 04/26/2011 - 14:09 | Link to Comment zurakowg
zurakowg's picture

 

IMHO, any US gold-backed currency would require gold valuations at least sufficient to cover the national debt divided by the supposed 265 million ounces that the US holds. This gives us $55,000 an ounce. This still does not include unfunded liabilities, currency in circulation or other monetary aggregates. Any lesser price for gold could/would result in a quick drain of all American gold resrves in exchange for the gold-backed $US currency. Now, if the US were to first default entirely on its international debt in $US, then we could either end up with a new US dollar or or other new US currency which could be gold backed solely on the basis of some type of monetary aggregates without worrying about bondholders cashing in and demanding gold in return for their currency. Of course, the damage done by such a default would probably be unspeakable. Thus I still think that $US 55,000 is the absolute minimum gold-backed valuation for the US$ if the concept were to have any chance of flying!

Tue, 04/26/2011 - 14:09 | Link to Comment Hugh_Jorgan
Hugh_Jorgan's picture

This is all pie in the sky thinking, and there are 10s of factors that could alter a value in a "gold as money" scenario. Though it is possible I don't think that our generation will ever see that day, so I think speculating on a price is kind of silly. There are too many evil, ignorant monsters lined up saying they know how to to drive this ship. None of them will ever consider doing something for any reason except political gain for them and their benefactors/facilitators. A gold-based currency would do none of them any good, especially compared to the risk-free, crony-kleptocracy they now enjoy.

Gold prices will continue to rise as long as people fear for the safety of their fiat-based wealth, period. I would not be surprised to see prices higher than $25K/oz in an economic collapse, which is not off the table in my book. Panic is a powerful force, especially when it comes to wealth.

Tue, 04/26/2011 - 14:16 | Link to Comment bluedobie
bluedobie's picture

"In other words, if one "new dollar" replaces 20 devalued dollars, then gold will be worth 20 X $1,500 or $30,000 an ounce when the "new dollar" is imposed. Gold needn't be the "official money" at all to act as money"

 

The value of an ounce of gold in "new dollars" would be $1500/20 or $75 per ounce. 

Wed, 04/27/2011 - 01:54 | Link to Comment bingocat
bingocat's picture

You're missing the point...  That other guy's point is not that the dollar would be devalued so much as gold would be suddenly revalued, by fiat. And the mechanism to allow that would be to give everyone New Dollars which were suddenly worth 20 Old Dollars. Somewhere in there is some implied magic (which is conveniently avoided on the FOFOA blog as well), that everyone who compensates everyone for anything (salary, purchases, etc) would suddenly pay everyone exactly the same number of Dollars but they would be NewDols rather than OldDols. The only thing which would NOT change is that people would be able to pay off their debts in OldDols, or by paying 5% of their OldDols notional debt using NewDols and walking away...

Makes sense.... No? Yeah... I don't think so either... 

There is a fundamental misunderstanding of how the world works to think that gold will go to $30k an ounce just because the dollar is going to be worth 1/20th of what it is, AND everyone will get paid more dollars because the price of all commodities (i.e. life costs) will go up in similar fashion, and the only people who will get hurt will be the shareholders of good quality banks (because as a creditor, they will get paid back, but the NPV of the Net Interest Margin will go down in real terms).

The interesting thing is that most people think that the rich are trying to engineer this in order to hurt the poor. Actually, if you look at whose 'net equity' is most highly levered, it is the poor. The super-rich actually lead extremely low-leverage lives, but their assets are not their home, their insurance policy and their measly 401k, but significant ownership in companies which should be able to earn nominal profits (i.e. inflation-protected profits).

Tue, 04/26/2011 - 14:20 | Link to Comment nontaxpayer
nontaxpayer's picture

It's not like pouring with a beaker, matching assets into another, ie gold's value has to match existing wealth. It will be more spectacular than that.

Tue, 04/26/2011 - 19:44 | Link to Comment prole
prole's picture

I shall share my manifesto here only once, for ye are all too dim to appreciate it lol.
We are already on an international gold standard. There doesn't have to be any new dollars or blue dollars or 30,000 gold. *to the amount that people demand gold*, the US$ is 'backed' by gold at $1500/ounce. Gold is worth what people are willing to sell what they have/amount of gold. What is your thing? How much gold would you demand to part with your: House/produce/car/horse/favors/fancy little paper portraits whatever? That is what gold is worth, probably on a stable ratio for last 100 years. (Hint-one of these things is not like the other.)

 

Tue, 04/26/2011 - 21:53 | Link to Comment bingocat
bingocat's picture

+100.

No... +100 x the price of gold in dollars.

Wed, 04/27/2011 - 00:00 | Link to Comment honestann
honestann's picture

I can answer the question posed by the title of the article in one sentence.

The appropriate percentage of your assets to hold in gold [and silver] to hedge fiat currencies is... 98% to 100% (depending on how much you need to spend in stores next month).

That's my simple answer to the simple question.  I've been 98% to 100% in gold and silver for years, and as everyone should now know, that was prudent and appropriate.  That shall continue until the fiat totally collapses, which it will, as it always has throughout history.

And if they create a new currency and monetary system... still keep your assets in gold [and silver] or other real physical goods or actively productive equipment and supplies.  Any and every "system" that includes "fractional reserve practices" is fraud, and should be avoided like the plague.

Wed, 04/27/2011 - 01:03 | Link to Comment bingocat
bingocat's picture

How do you, as an individual in a growing population, keep from having your labor devalued as labor supply increases relative to the supply of money? In a gold currency paradigm...

1) Every year you get paid less and less (in gold) as long as global population grows faster than gold supply.

2) #1 is OK because "stuff" of all kinds is cheaper by more than your labor, every year, as long as productivity is positive in real terms. This means that although your income goes down, your cost of living goes down even more (in terms of gold) every year.

3) #1 and #2 work as long as everyone is fine to have an ever decreasing income in nominal terms (which is OK because under full reserve banking, basically noone has any debt, because they cannot afford it, and whatever assets they had before the move from fractional to full reserve banking

My question is.... under full reserve banking systems where someone (not the government, because under Rothbardian or Libertarian full-reserve banking, the government is effectively an afterthought) "owns" the right to dig for gold (i.e. create money - i.e. spend X grams of gold to obtain work in order to mine/smelt/produce X+Y grams of gold), who gets that right and how are they chosen?

If someone has that right, am I allowed to take it away by force? Under full reserve banking, the right to create currency should not exist.

I guess the other question is whether Rothbard's "free reserve banking" that he proposed as an alternative to free reserve banking (while calling fractional reserve banking "fraud") is an appropriate alternative. And if so, in what way is it not more explicit fraud than fractional reserve banking?

 

Wed, 04/27/2011 - 02:25 | Link to Comment honestann
honestann's picture

#0:  The population grows.  The quantity of goods grows slightly faster than population (as standard of living rises in poor but productive countries).  The quantity of gold grows slightly as more is mined and processed.  Also, more efficient productive processes are gradually invented and implemented, which lowers the cost of the manufacturing portion of production (though against this, some materials like oil and metals might become harder to locate in large quantities).  Therefore, the quantity of gold we need to exchange for any given real, physical good very, very slowly falls.  Therefore, overall, the natural state of affairs is for us to "get more for our gold money" as time passes).

#1:  Sometimes true, sometimes false.  The statistics appear to show that population will rise slowly until 2040~2050, and then slowly start to fall.  If governments didn't keep screwing humans over in spades, humans would gain higher standards of living, and population growth drops or reverses in countries with higher standards of living.  However, the above doesn't matter very much, because the exchange rate of gold versus products will fall at about the same rate as gold versus labor.

#2:  Yes, that would be okay too, in that scenario.

#3:  Yes, that would be okay too, in that scenario.

I would say that some very modest quantity of debt would still exist.  But likely it would only be granted to people who already have a profitable business, and can invest the loaned gold-money to expand their production and easily pay back the loan.  Otherwise people would be utterly insane to lend their gold.  Which says something, doesn't it?  This observation alone demonstrates the massive corruption and inefficiency and unworkability of any "fractional reserve system".

#4: Well, nobody can mine already "owned" land.  Now, I say this even though I personally disagree with the modern notion of "land ownership".  As far as I'm concerned, nobody can own anything except what they produced, what they traded their production for, or what they were freely given.  Obviously land is not produced... all land on earth was already there.

However, I accept as "reasonable" the less modern notion that "land ownership" actually means "land stewardship".  From what I've read about how this worked, anyone could "claim stewardship" over any [reasonable size] section of land that was not already under the stewardship of anyone else.  However, they had to make that land productive.  They could fence it and raise cattle.  They could grow food crops.  They could create a lake, stock it with fish and start a fish farm.  They could mine gold, silver, copper, oil, natural gas, or any other material.  But they had to produce something on that land, and only that land that was utilized in some way as part of the production would remain under their "land stewardship" (or call it "land ownership" if you want, though that's technically incorrect).  I suppose it is reasonable to even let someone claim "land stewardship" of some small section of land (perhaps up to 40 ~ 640 acres depending on current population density) if they were simply living on that land and only growing food and raising animals for their own family, or equivalent.  Maybe they don't even need to produce anything at all... but perhaps that might to be limited to 4 ~ 64 acres.

The way it used to work is this.  If someone stopped producing on "their" land for more than 1 year, anyone could claim stewardship of that land and replace the previous steward.

Now, obviously "marginal cases" need to be worked out.  I mean, growing one tomato plant on 640 acres is not enough to claim stewardship on the whole 640 acres, right?  Right.  I'm sure I or other honest, ethical, rational people could come up with some reasonable criteria or standards to deal with marginal cases.

To answer one of your questions:  NO... you do not have any right to set up a gold mine on property already being mined by the steward of that property.  You are free to do so immediately adjacent to his property though.  And if he shuts down his operation for 366 days, you can take stewardship of that land, and keep whatever equipment the moron left on that land (though perhaps an attempt to contact him first would be appropriate... at least I think so... to comply with the spirit of the system not simply the letter).

I strongly disagree with some people who agree with this much, but also claim the steward can leave the land totally trashed.  That is simply not ethical.  While the steward is operating his mine, he damn well better not let any of his nasty gold leaching chemicals get into the water table.  While the owner can do ANYTHING that is completely constrained to the boundaries of his property (even set off nuclear bombs, if he has a working StarTrek type shield that is "nuke proof"), he must not let any damage occur outside his stewardship.

Furthermore, he must not leave the land in worse shape than he found it.  Now, honest and reasonable people are required here, though if the rules are well understood in advance, I don't think too many conflicts would arise... and I do not want to create any freaking federal beauracracies to make ever-changing arbitrary rules about what constitutes "damage to the property".  To be sure, things like "formerly clean lakes now full of pollution" are not acceptable, even those constrained to the property.  This is probably the most difficult part to resolve "cleanly", but I'm sure this can be done.  After all, the only land people can claim stewardship over is land that nobody has much use for currently.

Oh, the whole notion of "currency" must be abolished.  What people do is "exchange real, physical goods for other goods".  There is no "money" or "currency" in the literal sense.  What there is... is a "common practice" or "convention" of usually exchanging gold for goods, but exchanging any real physical good for any other good is also perfectly acceptable.

So, why choose gold?  I don't want to repeat all the reason that others have.  The primary ones are: total quantity is very stable (cannot be "printed"), very durable and inert, and not a major industrial component (which keeps quantity stable in both booms and busts because not much gold ends up in goods due to its limited quantity and therefore high value).

To finish answering the "why choose gold" to exchange for other goods, here is the final reason.  Because the legitimate reason the "gold standard" is a "standard" is... because it is made "the standard of exchange rates".  What do I mean?  Rather than have exchange rates between "eggs and lumber" and every other of the billions of possible combinations of goods, we choose gold as the "standard" and create one single list of the exchange rate between "gold and xxx" where xxx is every other good.

Now we can very easily compute the appropriate exchange rate between any of the millions of goods in the modern world.  We simply look up the exchange rate between "eggs and gold", the exchange rate between "lumber and gold" and divide (or any other pair of goods we wish to exchange).  After the division we have the exchange rate between any two arbitrary goods.

It is now very simple to exchange anything for anything!

To make this even one step simpler, we can eliminate that horrible "divide" operation.  How?  Simple.  We exchange the goods we produce for gold, and carry that gold around in our pocket.  When we want or need some goods, we simply exchange some of the gold in our pocket for those goods.

And this is all it means to say gold is money.

The only meaning of "money" in this sense is... it is what people usually (but not always, and not mandated to) carry around in their pockets to exchange for other goods!  But all they are doing is what humans have done for thousands of years... they are exchanging real, physical, valuable goods... for other real, physical, valuable goods.

The point (and value) of this should be obvious today.  There is no point in this savings or exchange "phenomenon" where any party does not have real, physical goods equal to the value of the goods he produced.  Thus nobody at GoldmanShafts or the FederalReserve or some predators DBA government can steal part or all of his goods and value from him.

I have no idea what "free reserve banking" is.  However, anything that is NOT the above system is designed expressly for the class of predators who has been stealing human beings blind... and enslaving them... and sending them to endless stupid wars... for hundreds of years.

The only honest (and efficient, and secure, and reliable) system is to exchange goods for real physical gold, and real physical gold for goods.  Period.  Everything else is a massive scam and only serves the predators-that-be and predator-class.

Wed, 04/27/2011 - 02:44 | Link to Comment akak
akak's picture

The only honest (and efficient, and secure, and reliable) system is to exchange goods for real physical gold, and real physical gold for goods.  Period.  Everything else is a massive scam and only serves the predators-that-be and predator-class.

I have always felt that, almost instinctively in my bones, that ONLY physical gold (and silver, and maybe platinum or other suitable and mutually agreed-upon commodities) constitute, and CAN constitute, real and honest money --- everything else, as you say, is just a scam, or a proto-scam.  I always damn the lazy bastards in our past who started accepting paper coupons in lieu of real gold and silver, and began the corruption of our monetary system. 

Really, now, would it be SO damned hard to carry a small pocketful of coins in order to conduct almost all transactions?   I mean, we already do it today, except that now they are monetarily insignificant --- but they are still there.  And to anticipate and head-off the typical strawman argument I always here in this context, no, this would NOT mean having to "burden our pockets" with heavy coins.  The fact is, our money has become so debased and perverted that people have even forgotten for the most part how to even USE coins, letting them build up in their pockets and on their dressers, before taking a shitload of them to the bank to be redeemed.  All one would have to do with REAL coins is use them as you receive them, just as people use paper currency today.  I mean, nobody ever complains about having dollar bills "build up" in their wallets to burdensome levels, because they spend them as they receive them, in contrast to how most people deal with our low-value coins today.  It need be no different with gold and silver coins.For very large transactions, such as buying a house, then checks would be appropriate, but for 99% of all financial transactions, honest coins can and should be the sole money in use.  But I am afraid that the mass of people are too stupid, too brainwashed, and too lazy for this scenario to ever be realized.

Wed, 04/27/2011 - 08:26 | Link to Comment trav7777
trav7777's picture

you're a retard.

I don't even carry paper anymore...I have plastic.

Gold is poor for trading, so are coins. 

There is nothing whatsoever dishonest about the FRN; everyone here knows what it is.

Wed, 04/27/2011 - 14:19 | Link to Comment akak
akak's picture

I don't even carry paper anymore...I have plastic.

Congratulations on having just identified youself as one of "the mass of people (who) are too stupid, too brainwashed, and too lazy for this scenario to ever be realized."

Trav: "Here, government, track my EVERY financial transaction, PLEASE!"

Wed, 04/27/2011 - 15:10 | Link to Comment honestann
honestann's picture

Gee.  After falling into your trap yesterday, now I wonder whether every message posted is sarcastic.  Maybe his was?

Wed, 04/27/2011 - 15:40 | Link to Comment akak
akak's picture

With Trav, one can never be sure, bless his contrarian heart!

Wed, 04/27/2011 - 15:10 | Link to Comment honestann
honestann's picture

Are you serious?

This is a joke, right?

Almost everyone here knows FRNs are pure, criminal, malicious evil incarnate.

Wed, 04/27/2011 - 15:03 | Link to Comment honestann
honestann's picture

Though obviously it carries some risk, nothing would stop people from signing agreements with warehouses to hold their excess gold.  And nothing would stop those companies from offering something that looked and worked exactly like "checks" or "debit cards" either.  Of course the agreements would require those companies to hold 100% as much physical gold as their clients had in storage.  And no "leasing" or "renting" or "shorting" would by the warehouse/bank can be permitted.

What cannot work is any equivalent scheme that involves government or central bank (like silver certificates and gold certificates).  That always leads to dilution of the money supply by over-issue of paper certificates.

BTW, if gold was money, we could carry enough gold in an briefcase to buy the house.  So really, the need for any other scheme but physical is very minor, and is probably mostly limited to corporations.

Wed, 04/27/2011 - 21:03 | Link to Comment bingocat
bingocat's picture

My point about population direction was to show that in a fixed money regime (i.e. quantity of money is ever-constant), the movements of population determine whether economies are inflationary or deflationary. Just because the supply of money is fixed means nothing.

If the whole world (not just your society) moves to gold standard, you run into the idea that different societies may decide that 'national wealth' is more important than 'mean personal wealth' for a couple of generations, and they will 'print wealth' by making babies, raising the national production, and effectively devaluing other countries' labor (increased labor supply equals lower value of labor vs fixed money supply).

Most 'the only appropriate currency is gold' advocates ignore the aspect of crime (someone steals from you to get your coins) and counterfeiting (by the time you figure out you have been passed a bad gold coin, it is too late and you don't know which person gave you the coin in your pocket).  As to the concept that you will carry gold coins in your pocket, that is preposterous. In the new world where one ounce of gold is worth $30k, one 24k gold coin the weight of a penny will be worth $6000. At today's price, that would be $300 (strictly speaking, it would be a bit more - a penny is 3.11g which happens to be exactly one-tenth of a troy ounce; gold has 2.15x the weight per volume so there are about 4.65 penny-sized gold coins per troy ounce). How would anyone pay for something small?

As to gold mines and appropriation... My point was whether you thought it was legal for a private enterprise to 'manufacture' gold. Is it appropriate for "new supply" of a fixed currency to be controlled by private parties? What happens if someone discovers a new pocket of gold. Do they get to keep it? Under the model of a non-physical currency, gold is just a good that one can mine, like one can sell wood from one's forest. Under the philosophical concept where gold IS the money and the only reference money, then

As to your idea of stewardship vs ownership, that is nice, but it is meant for philosophy class, not the real world. In order to make it work, you have to have most of the world agree with you. If not, your concept will lose. You can maintain an air of righteous indignation, but it will mean that efficiencies will grow elsewhere, not in your regime. Those efficiencies will further devalue your labor, and lead you to be poorer in purchasing capacity.

Free Reserve Banking?  Most people who rail against fractional reserve banking at least know what the alternatives are. Anyone who says that "Anything other than what I say is right is designed expressly for the class of predators who has been stealing human beings blind" shows a lack of intellectual humility, more than a little paranoia, and/or a complete lack of imagination. I may not agree that ALL possible universes are good, but I will accept that if there is at least one acceptable paradigm, there may be another.

Finally, I have yet to find a single person who believes in full reserve banking who can find an appropriate mechanism, or even an inappropriate mechanism, for dealing with the erasure of debt it entails. Moving from a fractional reserve system to a full reserve system requires that all debt be recalibrated in a giant debt vs asset netting-out process (which means that the debtholders have to agree to take the assets you provide to cancel out the debt. For the vast majority of people, it means they lose their debt and they give up ownership rights of their assets - basically personal bankruptcy. The people who make out very well in a situation like this are the people with the wealth. They will net out just fine. They will own the means of production, which means that for most people who start with nothing, in order to get something, they will have to work for someone else (and receive a salary of gold or food). The only way this does NOT work is if there is a confiscatory tax implemented by the government on all "excess wealth", then there is a netting, then there is a handout. However, most advocates of full-reserve banking are adamantly against the concept of government confiscation to even the playing field, so that is unlikely to be one of the proposals.

Your comment about the importance of exchanging real for real suggests Rothbardian influences, but I have never met a Rothbardian who was not a farmer or already wealthy (i.e. a predator) who could explain how they were going to live a full month. They assumed that the fire trucks would come to put out their burning house, and the hospital would fix their broken arm, and the school would teach their kids, and the police would catch the nasty man who tried to steal his gold. Doesn't work that way. Everything works on moral suasion, which is an absolute load of horse patookey because the whole point of going to gold is because you don't trust society to act for the benefit of its members to start with (now) so why would you believe that would change because of a change created precisely because you don't trust them?

Your last paragraph shows a complete lack of understanding of real life. The reason why you won't lend your gold (or think it unlikely) is because you do not trust others with your gold. Therefore, gold is not a system which encourages honesty, it just makes it more difficult to be dishonest. By definition, that is not "efficient." I can promise you that the temptations to cheat will be so enormous in a starved society where credit is not possible that almost nothing will be reliable (thereby lowering efficiency vs what you might expect from a physical barter system).

In any democratic system, if the predators are outnumbered by the enslaved/oppressed, the easy way to change things is to vote. The few who are rich are not numerous enough to defeat in a one-person-one-vote model, so... vote your system into existence.

Why do I always get the feeling I am just feeding the trolls?

Thu, 04/28/2011 - 01:18 | Link to Comment honestann
honestann's picture

My point about population direction was to show that in a fixed money regime (i.e. quantity of money is ever-constant), the movements of population determine whether economies are inflationary or deflationary. Just because the supply of money is fixed means nothing.

If the whole world (not just your society) moves to gold standard, you run into the idea that different societies may decide that 'national wealth' is more important than 'mean personal wealth' for a couple of generations, and they will 'print wealth' by making babies, raising the national production, and effectively devaluing other countries' labor (increased labor supply equals lower value of labor vs fixed money supply).

Unless I'm completely blind to some point you're making or trying to make, I don't understand this.  If the people in some country produce more, they have more.  That's called "ethics" and "justice".

It should be obvious that "making babies" does not create "excess wealth".  For every extra baby you create, you create another body to house, another mouth to feed, another brain to educate, another car on the road, and so forth... all of which are extra expenses that offset the extra population.  Therefore no individual or country can devalue labor elsewhere by spewing babies.  They can "devalue" labor elsewhere by developing more efficient production techniques and selling their goods cheaper.  They do gain a short-term advantage that way, but in short order others figure out their technique and lower the cost of production everywhere.  Note that a "higher efficiency technique" tends to increase the value of labor, since each individual now produces more than before, not less.

Note that this utterly good, natural and appropriate phenomenon is called "deflation".  Now people get more for each hour they work and more for each gram of gold they trade.  This is good, and the normal state of affairs absent predators like those in "central banks" and "government" (and fictions like "fiat money").

Any notion that all people should have the same quantity of any or all goods as others is a completely corrupt ethics.  It also encourages everyone to lie around and do nothing, because everyone knows "they'll get their 'fair share' whether they produce anything or not".  So it is not only "theoretically unethical", it is completely impractical, and destructive of individuals (and so-called "society").

At this point I need to make a couple points to provide context for how to understand these and other issues you raise.

#1:  In a real gold standard, nobody is forced to "save" (accumulate wealth) in the form of gold.  They can accumulate any real, physical, durable good.  And, in fact, if someone has boatloads of wealth, they are well advised to consider which real, physical goods are most likely to appreciate relative to other goods, and accumulate [some of] those goods instead of [only] gold.

#2:  The easiest way to consider the impact of most "problems" you identify is on an individual basis... or at most, on the basis of a few people in a community.  When we think in terms of "countries" or "the whole world" we can accidentally start assigning attributes erroneously.  For example, only real, living, breathing human beings produce goods, and therefore only they can own goods.

-----

Most 'the only appropriate currency is gold' advocates ignore the aspect of crime (someone steals from you to get your coins) and counterfeiting (by the time you figure out you have been passed a bad gold coin, it is too late and you don't know which person gave you the coin in your pocket).  As to the concept that you will carry gold coins in your pocket, that is preposterous. In the new world where one ounce of gold is worth $30k, one 24k gold coin the weight of a penny will be worth $6000. At today's price, that would be $300 (strictly speaking, it would be a bit more - a penny is 3.11g which happens to be exactly one-tenth of a troy ounce; gold has 2.15x the weight per volume so there are about 4.65 penny-sized gold coins per troy ounce). How would anyone pay for something small?

Have you ever heard of acrylic plastic?  Just mold a tiny disc of gold inside a small coin-shaped piece of acrylic plastic.  Or if that offends you, simply make "gold leaf" and seal that between two thin pieces of super-strong plastic like mylar as part of a "paper money".  Of course the value of this "paper money" is the "gold metal", but it will indeed look like paper money, even though it isn't.  The gold can, if you wish, have all sorts of holographic and electronic anti-fraud features pressed into it so electronic devices can tell the difference between "real and memorex".  These are just two ways that come to mind to trade gold for inexpensive items.  I'm sure others are more creative than my 10 seconds of thought.

-----

As to gold mines and appropriation... My point was whether you thought it was legal for a private enterprise to 'manufacture' gold. Is it appropriate for "new supply" of a fixed currency to be controlled by private parties? What happens if someone discovers a new pocket of gold. Do they get to keep it? Under the model of a non-physical currency, gold is just a good that one can mine, like one can sell wood from one's forest. Under the philosophical concept where gold IS the money and the only reference money, then...

Can a private individual (or individuals DBA some corporate name) mine and manufacture gold?  Of course!  How else would it come into existence?  The tooth fairy?

Remember, there must be NO government approved money or anything like that.  The ONLY legitimate form of gold (which is just a real, physical good... remember that) meant for exchange is one that is "denominated" in grams.  It must never, ever, ever be "denominated" in "dollars" or "pesos" or "lira" or "yen" or any other bogus piece of government scam-works... precisely because the relationship between gold and any "fictitious-money-name" can be arbitrarily changed "by fiat" like the USSA did in the 1930s.

You really CANNOT think about these issues sensibly unless you remember:

 - gold is simply one of many real, physical goods.
 - you can save any real, physical good as wealth.
 - you can exchange any real, physical good for any other goods.

To be sure, it is convenient to save and exchange gold, but nobody is required to do so.  This makes the kinds of problems you worry about above infintesimal and inherently self-correcting.

Remember, the phrase "gold is money" is not some philosophical or governmental or legal statement.  It simply points to the standard convention of keeping exchange rates for all goods versus gold... instead of all goods versus all goods (which would be impossibly difficult).  As a result, the facts are the opposite of what you say.  I mean "gold is money" (in this sense) is physical-money.  But also, every real, physical good that has value is [effectively] money.

The only reason we single out gold is... because we only keep that one list of exchange rates.  That is the only reason.  That people tend to save gold is just "common", but not necessary.  That people tend to exchange gold for goods and goods for gold is also just "common", but all forms are barter are equally legitimate.  Get it?  Just like all good ideas, some people "don't get it" and foul up the "information space" with bogus claims.  In this case, the situation is simple.  The "exchange rates" list is standardized in terms of gold, and nobody accepts anything but real, physical goods in any exchanges or transactions (to prevent the predators from taking over the country or world as they always do with fiat).

-----

As to your idea of stewardship vs ownership, that is nice, but it is meant for philosophy class, not the real world. In order to make it work, you have to have most of the world agree with you. If not, your concept will lose. You can maintain an air of righteous indignation, but it will mean that efficiencies will grow elsewhere, not in your regime. Those efficiencies will further devalue your labor, and lead you to be poorer in purchasing capacity.

-----

I was just answering your question.  Do you understand that the "stewardship" approach was standard practice in the USA within the lifetime of people still living?  Do you realize it is still standard practice in some parts of the world?  Why do people always assume it is possible to switch from natural, rational, liberty-oriented standard practices to predator-controlled standard practices... but never the other way around.

Besides, I was just trying to answer one of your questions, and that was part of the answer.

-----

Free Reserve Banking?  Most people who rail against fractional reserve banking at least know what the alternatives are. Anyone who says that "Anything other than what I say is right is designed expressly for the class of predators who has been stealing human beings blind" shows a lack of intellectual humility, more than a little paranoia, and/or a complete lack of imagination. I may not agree that ALL possible universes are good, but I will accept that if there is at least one acceptable paradigm, there may be another.

I do.  You simply don't recognize it for some reason.  I said "nobody needs to save in terms of gold, they can save any real, physical goods to accumulate wealth".  I also said "nobody needs to exchange gold or money for goods, they can exchange any goods for other goods".

You see, you apparently do not notice that I set very expanded boundaries of what is ethical... but you pretend I say like a nazi storm trooper, "ach tung, this is the way it is, and this is the way it shall be, and you will be gunned down at the first peep of objection to my dictates".  Frankly, the truth is the opposite.  I let people adopt anything they want as savings, and anything they want as mediums of exhange.  How freaking much more do I need to expand my limts before you realize it is no limit on anyone at all?  In fact, when you think through this, you'll realize that ALL I am saying is "we must not have some scum-sucking predators criminals FORCING us to accept worthless pieces of shitware paper".  I don't even say you may not accept worthless pieces of shitware paper IF YOU WISH.  Go right ahead, if you're a complete fool.

But really.  You should look closely at this, because apparently you looked at the most flexible scheme possible... and somehow saw that as some very narrow, super-limited, arbitrary dictate.  You should ask yourself, "how did my brain do that?".

I do not "lack intellectual humility".  I let everyone do whatever the frack they want... except force their worthless paper shitware down our throats.  How the frack can you call that "lacking intellectual humility"?  Think about that for a while, and you'll understand the difference between individuals who believe in honesty, ethics, liberty, individuality, productivity... versus every other viewpoint you've ever seen.  We say only "leave us alone".  The "gold standard" I described is merely a "standard convention" because it is natural and efficient... and so many people will adopt it.  You go right ahead and try to figure out how many of the toothpicks you manufacture is appropriate to trade for a 2012 mini-cooper (or choose your own products) without our free, no cost, no obligation standard list of exchange rates.  Go right ahead.  Try it.

Wake up and smell the liberty.

-----

Finally, I have yet to find a single person who believes in full reserve banking who can find an appropriate mechanism, or even an inappropriate mechanism, for dealing with the erasure of debt it entails. Moving from a fractional reserve system to a full reserve system requires that all debt be recalibrated in a giant debt vs asset netting-out process (which means that the debtholders have to agree to take the assets you provide to cancel out the debt. For the vast majority of people, it means they lose their debt and they give up ownership rights of their assets - basically personal bankruptcy. The people who make out very well in a situation like this are the people with the wealth. They will net out just fine. They will own the means of production, which means that for most people who start with nothing, in order to get something, they will have to work for someone else (and receive a salary of gold or food). The only way this does NOT work is if there is a confiscatory tax implemented by the government on all "excess wealth", then there is a netting, then there is a handout. However, most advocates of full-reserve banking are adamantly against the concept of government confiscation to even the playing field, so that is unlikely to be one of the proposals.

I guess the most obvious method, which is just off the top of my head and therefore probably imperfect, is to divide the total quantity of "dollars" in the world by the total quantity of government and central bank owned gold.

Also, in this calculation, "dollars" actually means the sum of the value of all fiat currencies when coverted to "dollars" via the normal exchange rates in effect at the time.

This creates a momentary non-arbitrary exchange rate between fiat and real physical gold.  All this government and central-bank gold is then melted down into 1g, 10g, 100g, 1000g, 10000g "coins" and/or "bars" (and some 0.1g, 0.01g and 0.001g acrylic-gold-discs or gold-foil-paper if you wish), then exchanged for ALL fiat on earth.

At that moment, all debts convert from fiat debt to gold debt at the momentary exchange rate, after which all fiat because HISTORY... instantly.

Now, I believe the "interest rates" on all "consumer" debts must be substantially reduced at this time for obvious reasons (before the swap the world was in an insane explosion of fiat which promoted absurd interest rates).  Plus, anyone would be allowed to pay off any debt at any rate (no time lock-ins), so if they could find someone to lend them gold at a lower rate, they could pay off their old loan and substitute the new loan.

That seems fair... but given it is just an extemporaneous idea, it probably needs some tweaking.

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Your comment about the importance of exchanging real for real suggests Rothbardian influences, but I have never met a Rothbardian who was not a farmer or already wealthy (i.e. a predator) who could explain how they were going to live a full month. They assumed that the fire trucks would come to put out their burning house, and the hospital would fix their broken arm, and the school would teach their kids, and the police would catch the nasty man who tried to steal his gold. Doesn't work that way. Everything works on moral suasion, which is an absolute load of horse patookey because the whole point of going to gold is because you don't trust society to act for the benefit of its members to start with (now) so why would you believe that would change because of a change created precisely because you don't trust them?

I don't know who Rothbard is, but my ideas on this matter (as all matters) derive purely from first-hand observation and first-principles.  If they agree with others to some degree, that makes sense, but they are not the source.

I am not a farmer.  I am certainly not wealthy.  I left home after high-school with $2000 that I saved doing odd jobs since I was 8 years old.  I never took a loan, but I did drive out into the desert and sleep in my sleeping bag for 6 months once (on purpose) to avoid spending savings.

How "did I live a single month" without debt?  Hmmm.  How did I live my entire life without debt?  I worked odd jobs and I was frugal.  I did not feel I suffered, though I sure didn't feel any luxury in my life for 2 or 3 decades after high-school, and I'm sure some people would classify my lifestyle as "suffering".  To them I remind that until the past couple hundred years people made their way in the forest with a few tools, zero electricity, zero motors, zero telephones, zero internet, zero cars or airplanes, etc.  So I reject the common BULLSHIT that modern man requires things like welfare and unemployment and other scams in the world of today, when they have all the inventions of the past 200 years that make them massively more productive IF THEY OPERATE THEIR BRAINS AND WORK A LITTLE.

After a few years of part-time jobs (while I was designing products on my own time, full time) I had successful products on the market, had won an Industrial Design of the Year Award, and still had little money, but a first rate computer and electronics development laboratory, a pretty good machine shop, and other productive equipment.

Was it easy?  No.  Did I choose one of the most difficult possible routes to get ahead.  Yes... yet it was still possible.  So "what's your point"?  Why should I prefer FIAT because I started out with nothing and got somewhere via hard work?

I never expected or wanted a fire truck to come to my house if it caught on fire.  I prevented it from catching on fire.  If I didn't, that's my problem.  Also, I don't want ANY cops anywhere near where I live.  When I'm dealing with at least a modestly rational human being, I will be happy to agree upon and pay an independent arbitrator to settle legitimate conflicts... if we can't work them out ourselves, which hopefully is rare.  When dealing with predators, I'll deal with that situation myself, either directly (with weapons) or indirectly (with hit men).  That is, by the way, the conventional and appropriate way to deal with predators.  Fortunately I have not needed to resort to either arbitration or physical conflict... but I know it is always possible.  I will defend myself, which is really a non-issue, since cops only arrive after you've been killed, harmed or robbed anyway.  I personally found two thieves who stole stuff from me... after the cops did not.  You think I need or want to pay cops?  You're insane.  They are FAR more dangerous to me and other honest, ethical folks than criminals.

I got to enjoy skiiing after 20 years working 18 hours per day and 7 days per week.  On one of my solo trips to Telluride, Colorado I broken my leg near the top of the run.  It wasn't easy, but I managed to get to the bottom without help.  In fact, I asked people who stopped and asked not to go get the rescue team.  It took me a long time to get to the bottom and get to my car, especially since I was going down the backside of the mountain (damn! murphy's law yet again).

It hurt like hell.  Even the most infintesimal move of my leg hurt like freaking crazy.  However, I could put weight on the leg... very very carefully... and that did not hurt so much.  So I inferred "it is seriously broke, but it is not out of alignment".  I managed to drive 600 miles back home, which was a real bitch because I had a 5 speed manual transmission car.  I did NOT go to a doctor either.  I called and said "I need an xray" and they said "only if the doctor says, and you need to pay him $xxx before he will say".  I said "bullshit" and refused to pay... or go.  My leg healed just fine.

I've had a few other medical problems, and I've paid them ALL "cash in advance".  I refuse to buy any medical insurance, except perhaps "catastropic medical care"... maybe.  I am happy to suffer whatever bad consequences arise from my decisions.  However, I insist on enjoying whatever good consequences arise from my decisions too.  What a alien concept, huh?  It is called "liberty" and "individualism" and "making my own decisions, taking my own actions, and suffering/baring/enjoying the consequences".  I am way ahead of anyone else (that I know) who started anywhere near my level and "followed any conventional path".  That does not surprise me.  It makes perfect sense.

And yet... I am not a farmer or rich... and yet I advocate the gold standard... which is NOT really a "gold standard" as much as a "reality standard" and fundamental ethics.

I'm not sure what you mean by "suasion".  But I will say this.  There is no such thing as "society".  That's just a bunch of bullshit coined by predators to justify the theft, abuse and enslavement they practice.  100% of my dealings are with individual human beings, though you would certainly be correct that "predators DBA corporations" and "predators DBA government" are organized to make it difficult to identify and confront the individual predators responsible for screwing us over.

And I want to deal with gold not fiat SPECIFICALLY to deal with this problem.  When I exchange my real, physical gold (or goods) with some individual for whatever he has that I want... I know exactly who I'm dealing with.  In contrast, if I leave my "wealth" in the bank, and I deal with banksters and checks and credit cards and debit cards and loans and mortgages and... even just "cash"... I AM 100% guaranteed to be ripped off by predators that I cannot easily prevent from harming me, or defend myself against.  For example, every time they STEAL some of my wealth by printing endless fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note dollars, exactly how to I get compensation?  Yeah, right... attack the federal reserve building in washington with an uzi or something.  Ha.  They would love that!  Free target practice --- for them.  So this is yet another important reason to exchange gold for goods and goods for gold... we know and have more control over who we are dealing with.  And fewer people "behind the curtain" can shaft us in invisible ways.

So hey.  My way is honest, ethical, practical, and does not feed the predators and beasts.  Which makes it a whole lot better than the current predator free-for-all feeding-frenzy we live in today.

So-called "society" cannot and does-not protect us or take care of us.  What you call "society" does one and only one thing.  It provides cover for predators who are vastly more effective at feeding off us than the could every imagine being if they had to face us personally and physically.  This is so utterly obvious today that I shake my head in amazement that anyone has any doubts.

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Your last paragraph shows a complete lack of understanding of real life. The reason why you won't lend your gold (or think it unlikely) is because you do not trust others with your gold. Therefore, gold is not a system which encourages honesty, it just makes it more difficult to be dishonest. By definition, that is not "efficient." I can promise you that the temptations to cheat will be so enormous in a starved society where credit is not possible that almost nothing will be reliable (thereby lowering efficiency vs what you might expect from a physical barter system).

Your paragraph is so self-contradictory that it blows my mind that you think it is an attack on my view of reality!  Hahahahahahahahaha!

It is precisely because I don't trust "authority" or "society" or any of these crazy fictions you love to discuss that would require me to personally evaluate anyone who wanted to borrow gold from me before I would lend it.  I mean... DUH.  What?  You propose we lend without standards?  You propose we let utterly non-productive criminal scumbags "create fiat out of thin air" and decide who to lend it to?  There is ZERO skin off their butt if they lend $50,000,000,000 to their irresponsible brother in law!  Why?  Because the worst that can happen is... their bank goes out of business.  Freaking hell... that is your idea of a smart, secure, honest system?  And my notion of lending only to someone I have reason to trust is imprudent, unworkable, impractical?  You must freaking be kidding me!

I will say, I do NOT think it is wise to lend money to anyone except to expand an already profitable business that appears to have a high chance of being more profitable given the loan.  To lend for people to consume goodies is insanity of the first magnitude... though you are completely free to do so with your own gold, sucker!

Understand this:  CREDIT IS A DISEASE.  It massively lowers the efficiency of life.  Further, it encourages the transfer of wealth from poor to rich.  I hate that!  Why encourage poor people to buy stuff they have not yet earned?  That is pure insanity.  My life is proof of that.  I never bought anything I did not have savings to pay for... NEVER.  I never took a loan... EVER.  And guess what?  Though I've lived a frugal but mostly comfortable life, everyone I know is DEEP, DEEP in debt... and I have hundreds of ounces of gold and zero debt.

Now you try to tell me with a straight face that my way doesn't work, and theirs does!  Go ahead.  I dare you!  Hahahahahahahahahaha.  And if you actually believe so, you really do need to seriously investigate and understand LIFE WITHOUT DEBT.

Now, understand this too.  The price of EVERYTHING is massively higher than it would be in a world without "consumer debt".  The price of EVERYTHING has been thrown through the roof.  I've done careful research about this phenomenon, and here is a quick summary.  A home would cost 8x to 12x less in a world without consumer debt (including mortgages).  Everything else would cost 2x to 5x less.

Why does this matter?  Well, what happens if you QUADRUPLE the purchasing power of "poor folks"?  OOPS!  Most of them aren't poor any more!  Freaking hell.  Now how do they justify the totalitarian dictatorship welfare/warfare state?  Answer: they can't.

Life would be MASSIVELY better if there was zero or minimalist government and only real, physical wealth (gold as "money" for exchanging goods).  Some of us would be living tens to hundreds of millions miles from earth today --- on other planets, in asteroids, in space habitats --- if not for the fraudulant scams perpetrated by predators DBA government and predators DBA central banks.  They have DESTROYED the modern era.

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In any democratic system, if the predators are outnumbered by the enslaved/oppressed, the easy way to change things is to vote. The few who are rich are not numerous enough to defeat in a one-person-one-vote model, so... vote your system into existence.

Do people every think about their ideas before they propose them?  Vote?  Are you kidding me?  The whole "vote" soundbite is nothing more than a way to confuse producers and especially to permanently secure the positions of predators over all mankind.  I'm not kidding, and this is trivial to illustrate by reference to the current state of affairs in the USSA.  The predators are greatly outnumbered today.  However, the predators and parasites have a very sick kind of "synergy" going.  The predators bleed us dry to enrich and empower themselves beyond belief... then throw some scraps at the parasites to buy their votes for another 2, 4, 6 years.  How many "voters" are willing to throw out the predators if they will lose "welfare checks, food stamps, unemployment, social security, medicare, medicade, and so forth"?  You got it.  NONE.

Understand: democracy is a form of slavery.  That is literally and precisely true.  And it is WORSE BY FAR to be a slave of a supposed "collective" ("society" or "majority") than one single slave master.  It is relatively EASY to identify, and eventually get the drop on one single individual who attempts to enslave you for life.  It is relatively IMPOSSIBLE to figure out how to disband an entire hyper-mafia like the federal and state governments... who claim you are subject to whatever abuse they choose to deliver because "they were elected by millions of parasite morons".

There is ZERO legitimate reason to support democracy.  In fact, advocating democracy is treason and an egregious crime against humanity.  And that's a literal fact.  Just think what you're advocating.  Nobody has ANY rights whatsoever.  Period.  What scumbag would advocate that?  Answer: billions of parasites and morons.

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Why do I always get the feeling I am just feeding the trolls?

Because you consciously advocate a large set of very popular but utterly insane, delusional, viscious, predatory schemes.  You will not make many friends or win intellectual debates with honest, ethical producers that way.  Otherwise, not much.

Thu, 04/28/2011 - 01:45 | Link to Comment akak
akak's picture

Hot fucking damn.

I don't think I have EVER seen ANYONE, ever, in any forum, devote as much thought and energy, and intelligence, to a post as you did in this one.  I am stunned, and beyond impressed.

Wed, 04/27/2011 - 00:01 | Link to Comment Fake Jim Quinn
Fake Jim Quinn's picture

Don't need convertability. All you need is to have, by law, fiat tagged to some benchmark and the money supply held to it. For example, if Ben decided $1300 per ounce of gold was a target, we would withdraw money supply to hit $1300. We would have one employee in all of the Fed after that. This person would watch a screen, and when gold went to $1301, he would withdraw money. If it went to $1299, he'd inject some money.

This is the practical way of achieving a gold standard. Not as good as "sound" money, where it literally converts, but the next best thing

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