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Guest Post: Money Is Not A Tangible “Thing”, It Is A Concept
Submitted by FOFOFOA
Money is not a tangible “thing”, it is a concept
These three monetary functions:
1. store of value
2. medium of exchange
3. unit of account
collectively form the abstract concept we refer to as "money".
All three functions are separate mental processes to which we ascribe different mediums, depending upon circumstance. Money is not one or another of these things, nor anything else. Money is the sum total of these three functions.
--------------------------------------
A monetary system which allows borrowing sees the quantity of the medium of exchange increase when borrowing occurs. This is inflationary. The real value (buying power) of that medium is reduced. And when the same thing is used for the medium of exchange and the store of value simultaneously, the real value (buying power) of savings is constantly reduced as well.
Historically, this pressure, and the imbalance it caused in terms of real monetary value, was periodically relieved by losses of confidence in the system, causing panics and bank runs. This is deflationary, and helps return the monetary system, a system of three interdependent mental functions shared by everyone, to an equilibrium:
The chart above shows clearly that the market has not corrected this loss of real monetary value for the last 80 years. Another way to visualize what this chart is demonstrating is to see that the medium of exchange is regularly required to deflate against the store of value, to bring real monetary value back into balance. In the chart this was the destruction of excess claims (gold-backed dollars) on the physical gold. Medium of exchange deflates against store of value.
Note when the rebalancing on the chart stopped... when the medium of exchange and the store of value stopped being asset-based and became debt-based.
Today, with both functions being filled by debt-backed fiat currency, this deflationary return to equilibrium is unable to occur. Why? When debt is destroyed in this way, it compromises the balance sheets of those holding debt as an asset (remember it is being used as the store of wealth too), resulting in further debt destruction, as debt enters a negative feedback loop.
Deflation of the medium of exchange against the store of value is impossible when they are both the same thing because... it results in systemic collapse.
This collapse can be postponed, and it continually has been, with the continual blowing of asset bubbles, which are fueled with new debt issuance. But the collapse cannot be cancelled, because eventually there is no remaining appetite for more debt.
This is where we are today. Look around you. Do the people you know want to borrow more, or are they seeking to reduce their debts? The mood has changed since the collapse of the housing bubble, the biggest and the last of these debt fueled asset bubbles. In aggregate, debt is being unwound.
There are two options before us: allow the collapse to happen, or the Fed, as the sole issuer of the debt instrument which underpins the entire world debt load, will buy all the debt at face value, before it defaults. This requires the printing of dollars on a continuing and accelerating basis, which inflates away the real monetary value of both the medium of exchange and the store of value. Hyperinflation. The collapse still occurs, it is just delayed a little longer.
Circumstances dictate a fundamental change in the arrangement that is causing the problem: a different medium must be assigned the store of value function, to give the dollar something to deflate against.
Voila! A third option, one which does not result in collapse.
The only feasible store of value the market can select is the same one the market had always used, because it is the only medium meeting all the criteria that the store of value requires, the one which does not share the two major defects of debt because it has no counterparty, and we are unable to create more at will.
Physical Gold.
Holders of physical gold can be spared loss when this change is made: they will be automatically recapitalized when the exchange rate between gold as the monetary store of value and paper currency as the monetary medium of exchange is left free to float. Central Banks will still hold valuable reserves, for the real value lost from their foreign currency (FX) holdings would be offset by the real value gained by their gold.
Another conceptual example:
It is the self interest of all of us which will force the change of monetary function, as the only viable option. The very biggest and most influential market participants already hold gold reserves for just this eventuality, for their own recapitalization in this event. Some of the Central Banks, such as the ECB, India and Russia, already mark their gold reserves to market. For them, this recapitalizing is already underway, as the value of their gold reserves grow in response to the diminishing value of their FX reserves.
While paper currencies may have turned in a miserable performance as a store of value, they have excelled in their role as medium of exchange, in more ways than one. In digital format it has introduced new efficiency to international trade, and to its usage and management daily by billions of people. While its quantity is easily adjusted by its issuer, indiscriminate issuance of paper can be kept in check by a rising price of gold in said currency, through an international floating exchange rate with physical gold.
This new arrangement leaves us with a self-regulating monetary value equilibrium: physical gold becomes the perfect hedge against inflation. Capital now has a safe harbour, where it can be stored without loss of value while awaiting a sound investment opportunity, not being rushed into misallocation in an attempt to outperform inflation.
What of the monetary unit of account function? Which medium will it utilize?
Both. Whether one uses gold or paper currency in this role will depend entirely upon what one's intentions are for the real monetary value in your possession. If this value is to be used for current expenses, paper currency will be most adequate. On the other hand, if this value is surplus and to be “saved” then gold would be the best vehicle.
There is only one option we will take, because it is the only option that will not result in collapse, and the only one that will recapitalize the system. Physical gold as the floating store of value, a monetary system in which the monetary value equilibrium is self-regulating.
Gold is not money. Gold is the master proxy of value.
Money is the means by which we collectively manage value.
All three of the monetary functions that constitute money are purely mental, and a change of medium in any of them is a collective mental decision. This is a decision our elected leaders are wise to let us make for ourselves.
"There is nothing more powerful than an idea whose time has come."
- Victor Hugo
If you are still with me, you are now part of The Butterfly Effect.
FOFOFOA
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HI tyler EST
ALL HAIL FOFOA! KING OF GOLD BLOGS!
+1411,05!
These three monetary functions:
1. store of value
2. medium of exchange
3. unit of account
collectively form the abstract concept we refer to as "money".
Dear me, this is so ridiculously behind the times that you may as well be saying that reality is made of fire, water, air and earth. I mean, what kind of goombah are you? Are you sure you're not Bill Clinton? And I love this:
Gold is the master proxy of value.
Money is the means by which we collectively manage value.
Oogachucka oogachuka.
Soon you will get the awakening that you are seeking.
"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)
Indeed. You just have to know the truth once, and there is no looking back. Thank you to FOFOFOA and FOFOA!
Maybe I'd better register the name fofofofofofoa.blogspot.com before it gets taken...
I'd etch this on the stock of my gun if it wasn't such a long quote. And I first read it on FOFOA's blog. I was so pleased to see FOFOA on ZH. Strange it isn't on the "ZH Reads" tab on the side. GET ON IT TYLER!
You'd be surprised at how many people do not know these simple economic concepts.
Or, perhaps you do. At any rate, it looks as if you should have moved on to another article rather than waste your time (and ours) here.
It would be useful to point out the corrosive effect of interest bearing debt instruments to money as a store of value.
Well then, maybe you should be teaching this class. Oh wait, that's right you can't...
Wait till the fed decides that it MUST have a gold standard backing the dollar, values gold at $100 USD per ounce, and really steals gads of money from everyone who bought gold at $1400 per ounce.
Think it can't happen? Think again. Who's going to stop them?
If U.S. gold were sold at $100/oz then it's entire inventory would be bought up in a day or two. There's no way for the fed to forcibly lower the value of gold without flooding the market with underpriced bullion. And since we can't make gold out of nothing that will never happen.
Go check on the price of gold in 1935 and then again in 1969. Then, get back to me.
In order for the dollar to have gold backing the gold window has to be open. If the treasury had the gold window open and priced its gold at $100/oz it would be bought up that hour.
As I said, "Think it can't happen? Think again."
Maybe you can take your gold to another country. I'd opt out of the new naked body screeners tho, they can prolly detect those coins and bars strapped to your mid-section. Might not make it through the pat down either. I know, ship via fedex to your Swiss bank account. That's right they cracked down on the evil swiss jooo bankers. Soon starting to tighten security on cargo shipping. Hope they don't mistake your bullion for a toner cartridge bomb. Then, there's always the theft thinggy you have to avoid. Always a problem with untraceable wealth.
You think too small, try creating options instead of excuses.
What excuses? I'm simply trying to inject a healthy dose of reality into a situation.
I really chuckle some days when I read the posts on zh. Every 5th post is about how the evil international banking cabal is set on destroying the American middle class. Every 7th post is a prescription for how buying gold will save you from the impending doom. Question: If you honestly believe that the banking cabal has the power to destroy the USD, how can you be so deluded into thinking that they haven't already thought out how prevent you from profiting from precious metal ownership. After all, they've been working on their plan for 100 years. How long did it take you to come up with the idea of buying and hoarding precious metals?
Either they can control it, or they can't. Either way, there are no other good options on the table to preserve wealth. So if they can collapse gold, then whatever, no one is any better off than anyone else, except the oligarchy, who will come out on top regardless.
As it is. As it has been. As it will be.
Though I do think the market will ultimately prevail, and historically, the market likes gold better than paper. Paper covers rock until scissors cut paper.
Except during French Revolutions, or so I'm told.
Guillotine cuts neck.
TPTB have been trying to make smuggling illegal for a very long time with minimal success. Adding precious metals to the long list of contraband to be deemed illicit will only increase demand. There are close to 5000 miles of land border in the USA, and somewhat more coastline. Do you really think that .gov will be able to interdict all of it?
btw as a store of value, gold is a gigantic fail. The inflation adjusted price of gold from it's previous high in the 80's is around $2500 per oz. What is it now? 14? Not bad only lost 40% of your net worth.
How about 1970 as a base when the price was around $40/oz.? It compounds out above 9 %. Besides, the price has been constantly and consistently "managed". Let's see what a "physical-only" market price yields, shall we?
GOLD has NO PRICE. (You will understand that after you understand FOFOA)
I know that. I was answering in terms he would understand, but thanks for your clarity and concern.
LOL! He's back. I was wondering when Bates/Bravo would wander in under a new name. Same comments. Same writing style.
Do CIA interns get paid with Gold...or is the check in the mail?
I have been buying gold since the 1980s, and I can assure you that my physical gold holdings are worth far more now than what I have paid through the decades. And 85% of that gold was at record or near record prices each time!
TwelfthV, I think (but of course do not know) that you will soon see an epic price rise in real, physical gold.
Be smart, and look into gold more. Gold is a huge and incredible topic.
Congratulations! As a long time gold buyer I'm sure that you have by now noticed that normally the price of gold moves with the price of bonds and both are inversely related to the price of equities. The price of bonds/gold represent fear, the price of equities greed, as it were. Have you recently noticed that they ALL move together. Everything everywhere now moves together. Markets up=bonds up=pm up.
I say that the price discovery mechanism is broken. That being said, don't be surprised if when the crash comes, it takes everything with it. There will be no where to hide.
Also, does the gold euphoria resemble the real estate euphoria of a couple years ago to you? Everyone assumes that the price can only go in one direction, up.
Twelfth, I think many posters at ZH do not understand the difference between investing in a modern market in comparison to a society that is breaking down. In the modern market place, PM have been a poor investment over the last few decades. When the massive deleveraging comes in the future focing a mass sell off, PMs will be an outstanding investment. This is not to say that the price of gold will not decrease before then though.
Agreed. I also don't think many posters at ZH understand that when gold hits $50,000 an ounce, how completely and utterly FUBAR things on the ground will be. How worthless that ounce of gold will ultimately prove to be. Where's that guy around here who's buying cases of Jack Daniels at $140 per and stockpiling them in his basement? When gold hits 50k/oz, I want to live next door to that man for he will be the one-eyed king in the land of the blind.
Who's "everyone"? How many of your friends, family, neighbours "assume" or "HAVE"?
No PMs do not at all resemble the real estate euphoria. RE was accepting debt. PMs are stepping outside of the debt system (once physical is owned). People that buy PMs hold them they don't flip them. There are no assumptions in PMs it is clear as day that fiat is revaluing to real "value" as it were - gold. The more fiat that is created the higher the price of PMs go.
I understand this completely. What I don't understand is the jump from gold being a reliable measure of the value of fiat currencies to:
Why the rather odd jump in the article to sullying its monetary perfection by getting banks involved with it?
And why base a currency on gold? Is not gold going to be the value against which any fiat may be measured?
Isn't there active investigations about PM market meddling that have been going on? Why would anyone in their right mind want these criminal elements involved in gold?
LOL it would be like the government trying to confiscate guns. I know, I know, "you think it can't happen?" I KNOW IT COULD HAPPEN, but watch them try...good luck with that!
That's what they said at Ruby Ridge and Waco.
If the US gov wants to reopen the gold window at buy/sell price of $100 per oz the entire US gov store of gold (making the assumption that they have any gold) would be bought up in a few hours...or less time. Hell, the reason Nixon closed the gold window is because too many dollars were being redeemed for gold and the US supply was dwindling.
An analogy: Would anyone enter a $500,000 horse in a claiming stakes race of $5,000? Horse wins race and is sold instantly.
is this before or after they default???
Themselves. You might get your history lessons from John Stewart, but I suspect that the eggheads at the Fed actually read books. It has been tried before. In early US, silver pesetas were used as currency. Many colonies began using notes pegged to gold and silver pesetas for currency. The colonies would inflate the paper currency for a while, but once it was discovered, people would go to the bank and exchange their notes for gold and pesetas causing runs on the banks and the collapse of the paper currency. At times it got so bad, that the colonies would impose export controls trying to prevent gold and silver from leaving the colony. Merchants from other colonies had to sign an affidavit as to the ownership of the note they tried to exchange for gold or silver before they could exchange it. For every note. Eventually cross border merchants would stop accepting the notes and would demand payment in gold or silver. Customers would exchange their notes at the state bank for PMs in order to pay for cross border purchases. This resulted in gold and silver leaving the colony and further devaluing the state notes until they collapsed.
During the war of Independence, the British printed colonial paper dollars and flooded the markets with them. This was intended to drain all the gold and silver for the colonies treasuries and banks.
During Herbert Hoover's administration, foreigners, specially British citizens, would exchange pounds for dollars, exchange them for gold at the FRNY and return to England with their gold. Its fair I guess, since we had done the same to then in 1926 when the BOE re established the gold to pound peg at pre war values even though the paper currency was massively inflated. US citizens would go to England with trunks full of dollars, buy paper pounds, exchange them for gold at face value at the BoE and then return to the US and deposit the gold at the FRNY for a massive profit.
More recently, during Nixon's administration, France sent a war ship to the port of NY and exchanged the treasury bills they were holding for tons of gold. Kind of the reason why Nixon defaulted on the US debt by violating Brenton Woods and decoupling foreign held dollars from gold.
So if the fed wants to do that I welcome it. I would buy every ounce they can sell me at $100 an ounce. I would sell everything that is not nailed down and get a paper route (at my age, that would be funny) to make more money and exchange it for gold. Eventually, the fed would run out and have to decouple again. Instant millionaire.
Don't know who John Stewart is, lots of history, yet, you conveniently overlook the most relevant historical point: April 5, 1933 Roosevelt by Executive Order 6102 confiscates all privately held gold.
So, go ahead, get your paper route, but so sorry, you will not be buying any gold. Not only that but, the gold that you currently own, will be taken from you and you will be given one Benjamin Franklin in exchange for each ounce. (Sorry, my dear friend, Walter_Sobchak).
Look, I'm not saying it WILL happen. I never did. I do say, however, and I maintain:
Think it can't happen? Think again. Who is going to stop them?
Even then they could only confiscate that gold which they could find in safety deposit boxes. The rest was brought in willfully by obediant citizens. Sounds like you're the one missing the point. You think you're blowing anybody's mind with this? There's lots of people here stocking up on guns and ammo specifically to shoot at anybody that tries to take their gold or food supplies.
Oh, I do understand and I applaud your second amendment right, however, I ask you to think about this. Have you been buying gold without leaving a clear paper trail? Certainly not if you've bought through a broker, or online. Soon, thanks to the Health Care Reform act, you won't be able to pay cash at the local coin dealer without making a report either.
As for stocking up on guns and ammo, for the sake of yourself and your loved ones, I hope it's only Poindexter who comes knocking asking for your precious gold stash, but chances are it will be a SWAT team wearing body armour with fully automatic weapons. After you hold them off, when it begins to escalate, expect a helicopter or two to provide aerial surveillance, maybe an APC, a tank, who knows. My bet is that it doesn't end well.
Caesar has crossed the Rubicon.
TV- I know about Executive Order 1062, but what precentage of privately owned gold actually was turned in? A lot people kept their gold at least the government didn't get it.
TV- I know about Executive Order 1062, but what precentage of privately owned gold actually was turned in? A lot people kept their gold at least the government didn't get it.
This one is really behind the times.
Store of value requires conditions that are less and less met.
money is a claim on work. Thats why we're all going to be cotton pickers very soon!
and with peak oil, that happened July 2008, you can't do the work because you won't have enough oil.
That oil peaked will be reason for production decline and a greater potential for a hyperinflationary bust.
You do realize that it is production decline which defines peak oil.
Just checking since you seem to get the causality backwards.
Actually you seem to get a lot of things backwards, if production of goods and services decrease that is inflationary, just like price controls, like you suggested that the US do by making gold 100 dollars an ounce. If you set the price for something you either destroy demand or you destroy inventory depending on if you set it too high or too low.
Actually two separate issues.
1) Peak oil. Read Hubert. Peak oil has nothing to do with price. Peak oil is a theory regarding oil field production. Obviously, declining production levels will lead to an increase in price. But, it is DECLINING PRODUCTION LEVELS which drive the price. Price does not drive the production levels.
2) Gold. USD. Federal Reserve. If you do not believe that the US government in concert with the Federal Reserve does not possess the power to set the price of gold in US dollars, I submit that you have very little familiarity with US history. Recent US history. And you know the saying, "those who ignore history are destined to repeat history." If my detractors on this thread are any indication, I'm afraid we may see $30 per ounce gold long before most on zh believe possible.
A non-goldbug on ZH? Its a cold day in Hell
I really don't think you understand. I am not saying that the US government can't set the price of gold, what I am saying is that they can not set the DEMAND for gold. Just because the US government determines that Gold is $30 dollars an ounce does not mean that anyone holding it would be selling it at that price, but if it would mean that the US government would be selling it at that price then the US would sell all of its reserves within a day at that price. Setting the price means nothing, the market is more powerful than the US government.
The US gov + fed can set gold at any price successfully, if at the same time they control who is allowed to buy it.
If the price is set to $30 / oz and nobody can buy it, it works. Probably with a soaring black market operating in parallel.
"...If the price is set to $30 / oz and nobody can buy it"
Who exactly is NOBODY? Couple billion Chinese, Indians and the like?
Hundreds of millions prospering Europeans (OK, OK - ex PIIGS) maybe?
Think again and don`t be so f@&§ing selfcentered. US has long lost their midas touch.
Me for instance will buy up every ounce I can get my hands on at 100 bucks a shot. In Denmark. Or any other place
in this wide and wonderful world. Don`t let it do to you, guys!
The scenario would be that gold available for physical delivery dries up and the price is continued to be set by trading in paper gold, like the gld etf. This would be a nice strategy before going to an 'official' gold is money market. It would enable liquidating the paper gold market cheap.
My point is, in the long run gold / dollar will go to infinety, but in between funny stuf will happen for sure.
Please say peak CHEAP oil. Between 50-70% of oil in known reservoirs is not recovered, I have personal experience with technology that can produce this oil. Obviously it cost more, but as the price rises and stabilizes technologies like this will come on line.
Again don't take my word for it. Go check Hubert. Price does not drive peak oil. Declining production drives price.
I think what Rag is saying is that once the price of oil, due to lower production, reaches a certain price it makes other forms of oil discovery cost effective.
No disagreement.
At a certain price it also becomes economical to pump salt water into the resevoir in order to extract marginal barrels of oil in a given field.
I think TwelfthV has got you there Ragnarok. It is a Production Peak that is/will be seen, and then oil will (likely) go into permanent decline. Unless there are HUGE (really huge) undiscovered oilfields out there, oil production will start to decline soon (0 - 10 years are the best forecasts I have seen).
I too have oilpatch experience. Hubbert's (Twilight in the Desert, I believe?) book is fantastic, anyone who can handle some oilfield engineering will find much value.
...
This is a perfect example of why we need Gold Bears at ZH. Keep us on our toes. TwelfthV may be completely mistaken about where gold is likely to go, but he is correct as far as I can see re Peak Oil.
Thank you, but feel free to junk away.
Your remark is stupid. Oil extracting flow peaks. It does not matter that if it is only 10 pc of the whole or 90 pc of the whole.
Cheap oil only refers to easy to access oil or even recoverable oil.
Peak happens whether 90 pc or 10 pc can be recovered.
Working "for food" provides a poor store of value for over and under achievers.
Gold is soon becoming unaffordable for any physical applications such as jewelry, electronic PCBs. Will the Fed's hysteria play a dominant role in gold prices or will softening physical demand tilt the balance the other way ?
"Gold is soon becoming unaffordable for any physical applications such as jewelry"
Depends on your income stream. There is certainly no evidence of softening demand now. Soverigns, soverign wealth funds, and central banks are buying up supply as fast as it becomes available.
The world is a very big place. Because the average American is priced out of the gold market does not mean the price of gold will suddenly stop rising in dollars.
they're buying up the supply long before it is available
I'm glad my donation today to FOFOFOA was put to good use.
Kept my word and donated to FOFOA today Rocky.
just curious, but what is the dif between FOA, FOFOA, and FOFOFOA, besides the extra F's and O's?
A = Another, from long ago (1998 or so) gold forums. Rumored to be a European that was closely involved in determining the structure of the Euro.
FOA = Friend Of Another, who I suppose was a friend of Another who continued the gold series of posts. Rumored to be an American.
FOFOA is perhaps the most interesting gold blogger on the planet, his moniker would hint that he is/was a friend of FOA. I do not know. But, his website really is mandatory reading for those who have passed Gold 101.
FOFOFOA, I cannot say, other than his blog seems to be oriented to exploring all those thoughts of A, FOA and FOFOA.
Perhaps FOFOA or FOFOFOA would be kind enough to give us the Official Party Line?
Thx dude
There is no official line. Go to FOFOA, Robert, and you'll see.
FOA= Friend of Another (Firrsr USAgold trail some 10 years ago, a great Thinker)
FOFOA= writer of s very educational blog, translates the other two initiators from USAgold
FOFOFOA = a NEW ONE! Not exactly a plagiator of FOFOA, but ... You can call it how you want! Not a very good inspiration, something like zero-1hedge!
I think there's a danger of conflating the pre-2008 Fed critics with the opportunistic QE2 Fed critics.
I believe the ULTRA-RICH have turned against the FED over QE2. While you can argue that the FED is corrupt (it is) and caused the 08 crisis due to deliberate lack of regulating fraud, leverage, derivatives, et al, in banks....that doesn't mean QE2 hurts the middle class and helps the rich. Could be the opposite. It depreciates the value of the dollar. Who has most dollars? Not people living paycheck to paycheck. The wealthy do. If they've been investing in labor overseas (they have), this works against them. It arguably supports the American laborer, a depreciating dollar.
Why are the wealthy and even nondollar-hawks suddenly attacking the FED after getting what they wanted in 2008?
Who does best in deflation? The rich, those who hold the most dollars. Cash is king in deflation. Buyers market, call roll up a nation's assets.
Why aren't the same recent FED critics arguing against the FED's new and enhanced regulatory power? They're calling for policy action by Congress, but why not Congress' power to regulate banks for fraud? If lack of bank regulation, fraud and easy money CAUSED the crisis, why aren't these recent voices calling for renewed bank regulation by the federal government (and states) instead of themselves? They are giving us fiscal policy advice lately.
Bottom-line: I'm not buying the post-2010 FED critics who weren't FED critics prior to 2008 or prior to QE2. I don't trust the recent shift. Strange bedfellows are coming out of the woodwork.
Learn about Tally sticks
http://www.bus.lsu.edu/accounting/faculty/lcrumbley/Tally%20Stick%20Article.pdf
1100 AD - King Henry I, son of William the Conqueror, assumed the throne of England in 1100 AD, and in an effort to enhance his power, invented a unique money system called the tally stick system. Because so few people could read and write, tallies provided the earliest form of bookkeeping for recording both physical quantities and money. By the medieval period, tallies had really come into their own as the English equivalent of today's credit card and as an instrument of internal control. King Henry I, son of William the Conqueror, assumed the throne of England in 1100 AD, and in an effort to enhance his power, invented a unique money system called the tally stick ...
now if the same fate could happen with Ben's stack of useless cash and his congress..
The Bank of England, being a sensible
and conservative institution naturally
suspicious of new technologies, continued
to use wooden tally sticks until
1826: some 500 years after the invention
of double-entry bookkeeping and
400 years after Johann Gutenburg’s
invention of printing. The tally sticks
were then taken out of circulation and
stored in the Houses of Parliament until
1834, when the authorities decided
that the tallies were no longer required
and that they should be burned. As it
happened, they were burned rather
too enthusiastically and in the resulting
conflagration the Houses of Parliament
were razed to the ground
That does it, I'm gonna take out all my 401K savings and invest in those Yapese stone money-wheels.
Yeah but, you can exchange money for tangible "things" at an ever decreasing proportional rate ad infinium.
http://www.youtube.com/watch?v=LetJHQ_V05o&feature=related
Suggest you read Ralph T. Foster's Fiat Paper Money. Excellent recounting of about, oh, 600 or so instances of fiat money being tried, used, abused, and then biting the dust. Then follow that up with Rothbard's What Has Government Done With Our Money? Money isn't a concept, it is a tool for convenience, and like any tool it can serve well or be abused.
Very short summary of lessons present for the reader:
1) Anything (within reason) will do for money, even paper, if the ability to create new money isn't abused. <- So far, humans are batting 600 for 600 in the abuse of this privilege statistic.
2) Gold/Silver/durable_&_divisible_commodity suggest themselves as money because they provide a check on money creation that doesn't rely upon human restraint. At present, we can't print gold/silver/etc (please forgive me for belaboring the obvious). Historically, monarchs with the itch to spend way more than they can collect have hated and loathed this restriction imposed upon them by commodity currencies. Historically, they borrow from lenders, sell government assets, confiscate from everyone they can, and generally crash the ship of state anyway. A commodity currency is a start, but without the innovation of a government that can live within its means, the little peoples can count on long cycle crash/resets.
3) A gold and/or silver based currency won't fix anything, unless there are procedures in place to verify that no "cheating" is taking place. Gold standards have been abused many times in the past, by the same set of elites everyone loathes today. So no gold/silver certificates, or if so, then we'd need to schedule annual Bank-Run days, where everyone redeems *all* proxies for physical, and by doing so by-God verifies first hand that there really are n & m ounces of gold/silver backing up each and every paper equivalent. String up the cheats. Yes, this is Very Awkward, but a great excuse for a month long national/world holiday.
4) Rothbard pretty clearly shows that you can have a multi-commodity currency (i.e. gold & silver & copper all at once). The trick is to not peg them at some fixed ratio to each other; just let them float and do the conversions for retail as needed. Your local 7-11 may chose to price everything in oz of Silver, but will take gold or copper if you wish. The auto dealer across the street may prefer gold, but can also handle large quantities of others. (This is just what it is like when a US tourist spends US bucks in a resturant in Bali where the prices are all in rupiah). If one of them becomes more scarce, then that metal will rise in relative value. Again, forgive me for belaboring the concept of an exchange rate.
5) In a world where some nations are using sound currencies, while others choose fiat, the solution for international trade is to insist (politely) that the fiat holders first exchange for some commodity before doing the exchange. Again, a bit awkward, but it is what keeps Zimbabwe from buying up all of the gold in country X with massive amounts of ink-still-wet fiat. Without these types of controls, the printing bastards win out over the noble types, due to the sheer lag in recognition of the true value of the fiat.
Nice post, thanks. And to Ricardo, you want to give us your breakdown dude? Douche-a-fied commentary is fun for you but boring as fuck for the rest of us.
Power of the Purse Volume 1 - Chapter 1: Introduction
http://www.youtube.com/watch?v=aeUoYKM4zTk
I think now that the Fed has become primary owner of debt, it can easily forgive that debt in order to preserve itself. Remember, hyperinflation would cause violence. Plus, where would the money come from to create hyperinflation? Like this author notes, most of it doesn't actually exist when it would come to being used in the world - it is sitting on a bank's balance sheet until everyone shows up to claim the same $10K, and then they say "no." Depressions cause dependence on the system. Which is better for the survival of a central banker?
http://www.thelastcanary.blogspot.com
Remember, hyperinflation is a confidence issue, not a quantity issue. The loss of faith in the currency can happen at home, or abroad, and is usually violently swift. History shows that emotions, not quantity of money, are the trigger.
In your solution of Fed forgives debt ---> pisses off people who still have debts which must be honored ---> raises the question "Just how the frick can I count on borrowing/lending/storing wealth ever again in the future when the Fed can alter reality at will? ---> I want to get *out* of this money ---> buying panic spiral ---> violence.
More to the point, the current Fed activity of QE has the same consequence. Fed buys commercial bonds ---> sellers of bonds now have hot cash burning a hole in their pockets, look around for investing opportunities and ---> end up flooding small Emerging Markets with lots o' US Bucks in an attempt to score big in a high growth environment ---> leads directly to high inflation overseas ---> leads to countries around the world being really ticked off about US monetary policy ---> capital controls ---> currency wars ----> violence.
Yes, confidence and velocity. Point taken on other routes.
However, do you really think Americans will awake from their slumber to lose faith abruptly? Moreover, where will they get the money that they will need to part with in the event of lost confidence? They don't have it unless its on a credit card - turn those off, bam - cash is scarce again. Still could create violence though.
"the Fed has become primary owner of debt"
You're kidding, right? The Fed's balance sheet is less than $2.5 trillion. Do you know the size of the international bond markets? How about the structured debt markets?
If the Fed wrote off the Treasury debt it held, the Treasury would simply have to issue it again to finance the current deficits and to roll over maturing debt. Don't forget that only $300 billion of QE1 was Treasury issue. The rest was agency-guaranteed mortgage debt.
unless the issuing of SNAP cards goes faster than the out tide of credit... then as the middle class get poorer, then they too get SNAP cards... while the FED just prints and prints putting everyone into a hazey slumber
no one fights back since the ones who still have wealth feel richer for a short time while the broke have no will... slowly and slowly Ben's web will capture all their wealth..
The chain of events is cogent but this:leads to countries around the world being really ticked off about US monetary policy
What do you think of US military network around the world? Of its use?
Main use is to squash, suppress velleities in countries that support the painful sides of the US monetary expansion policy.
It has been a long time now and their pleas have never been received by the US. Wont start now. The only fear in current days is that a potential big player like China offers a kind of protection to those countries, removing the humus from the US scheme.
So you have to rework your chain of events. Because who cares about these countries? They only exist to sacrifice themselves so the US citizens can enjoy their standard of life.
A lot of words to say precisely nothing. Money is what extinguishes debt, therefore it cannot be a concept, like say...a paper debt, but rather must be a 'tangible thing', like say...a piece of gold.
This guy has it completely backwards, no wonder it's usually incomprehensible.
Which is exactly why I KNOW nuclear physics is complete bullshit. Screw those people who pretend you can blow stuff up using the atom. If it could be done, I would instinctively know how to do it.
The physics behind nuclear weapons is pushing 70 years old, not very intricate a theory compared to today's phD theses. The weapon dropped on Hiroshima was so well understood its design did not require testing.
There have been fewer catastrophic nuclear incidents than economic crises since we've learned to crack the atom. I'm not saying physics is easier than economics, but rather that nuclear technology has benefited from sufficient regulation.
I'm all for a free market, but there needs to be sufficient checks placed on human greed, and our propensity to defraud each other.
Nuclear physics is easier to understand than the baloney this FOFOFOA puts out.
Perhaps you missed this; "Holders of physical gold can be spared loss when this change is made: they will be automatically recapitalized when the exchange rate between gold as the monetary store of value and paper currency as the monetary medium of exchange is left free to float. Central Banks will still hold valuable reserves, for the real value lost from their foreign currency (FX) holdings would be offset by the real value gained by their gold."
The Euro currency/gold reserves are designed to function exactly this way. The ECB and other Euro banks revalue their gold each quarter. Euro gold holdings are a hedge against FX losses. It is a brilliant design...the more the Fed prints, the more the Euro dollar holdings drop in purchasing power, the more Euro gold holdings increase in dollars. I don't think this concept is too difficult to grasp. I also believe that a portion of the rise in the Euro vs Dollar can be attributed to the design of the Euro/gold system.
If the Asians were not in the game the ECB would probably be selling gold and printing Euros now. Think about it.
Are you a trader?
Pumping gold to the moon IS the answer.
+ $1405
Let the Fed or Treasury pick a big number ($5000 / oz, say), and tell one and all they will pay $5000 for each ounce delivered. Do that for a week or two, and then just let gold "go" to its real price, unbound, unhindered and unmanipulated. After a short time, gold might reach FOFOA's $55,000. That's physical gold, not 100x paper gold.
fofoa.blogspot.com
"Gold is not money"
wrong! do not put the analytical cart before the historical horse.....i will not elaborate on the comment but it refutes the assertion.
THE "END GAME" IS AND ALWAYS HAS BEEN TO CALL A DO-OVER, DUDES. WHY IS EVERYONE TAKING THIS WHOLE THING SO SERIOUSLY? REMEMBER IN THE SCHOOL YARD WHEN YOU JUST ABOUT HAD THE GAME WON AND SOME BULLY CALLED DO-OVER? WELL, LIFE ISN'T FAIR AND WE JUST NEED TO HIT THE RE-SET BUTTON. ONLY A MATTER OF TIME.
Thats it. We need a do-over before we're done for !
Gold is a risk asset not money. Not a medium of exchange since nobody will take the chance to circulate it. It's too valuable to trade and therefor isn't.
Gold is a bubble right now, hope you can unwind your gold trades!
"it's too valuable to trade therefore it isn't"
Thanks for the laugh. About $4 Trillion per day is traded on the commodity exchanges!
Unwind gold trades? Easy...but the trend is my friend. How are your dollars doing?
You can say anything you want.. does not make it true. Why do CB's hold all that, "risk asset" as a counterbalance to their, "money" then? You are a douch-o-matic troll Steve. The only people who will be unhappy unwinding their "Gold" trades will be the GLD crowd... someday.
A realistic assessment that wont sell well here.
What is the French word for Money? What is the French word for Silver?
One and the mofo same, for some reason!?!
The Dollar is the bubble....hope you can unwind your dollar holdings! HAHAHA!
Now why would they continue to issue debt denominated in dollars if said dollars was feet up on his death bed ?
India banks are selling the most dollar-denominated debt in at least a decade, taking advantage of near-zero U.S. benchmark rates after Reserve Bank of India Governor Duvvuri Subarrao raised borrowing costs six times. Mumbai-based ICICI Bank Ltd., the nation’s second-largest lender by assets, sold $1 billion of 5.75 percent, 10-year bonds yesterday that yield 325 basis points more than similar-maturity Treasuries, data compiled by Bloomberg show. The spread on its 2016 debt, sold in July, was 320 basis points. The new offering adds to $6.6 billion raised overseas in 2010 by the nation’s banks, topping the $4.6 billion issued by Chinese lenders. http://www.bloomberg.com/news/2010-11-08/icici-taps-bernanke-s-rates-as-...Stupid. The entire point of "money == gold" is to assure that money IS a tangible thing. This is of the most fundamental and urgent necessity. This is what prevents predators-that-be from stealing from everyone. This is what prevents freeloaders from stealing from everyone. This is what prevents central banksters from stealing from everyone, and creating inherently fraudulant schemes such as "fraction reserve banking".
Modern humans seem to have some overwhelming "need" to make real things artificial, and make simple things complex. Of course this is precisely how predators can defraud entire nations and planets of untold wealth, and enslave millions and billions of individuals.
Questions to FoFoFoa:
This is a fascinating idea and I think you are on to something, but could you fill in some details..?
First, the judicial framework. Your proposal wouldn't work unless, e.g., nations were required to settle their trade differences in fysical gold. Could you provide a more thorough analysis of what would be required for your system to work?
Secondly, there's a huge variation in national gold reserves and present reserves do not reflect the positions of the various nations in global trade. Isn't that a large obstacle - how are these nations going to obtain sufficient gold before the system takes off? It would supposedly greatly increase the demand for gold and cause the price to skyrocket. Also, how about nations that do have inordinate amounts of gold - they'd benefit unduely from this price increase. Wouldn't a global redistribution of sovereign gold be required to provide a fair and level playing field?
Thirdly, why is it relevant that some nations are already marking their gold reserves to market, when they have no obligation to sell anyway? The ECB, etc, do have gold reserves, but those are not a formal backing of their currency. At this stage, it's not the valuation but the quantity of gold that matters. In a way, the ECB is actually at a disadvantage versus the US Treasury in that the ECB has already monetized its gold whereas the US can still do that with its 8,000 tonnes.
I hope that you'll catch this and that you'll find time to address these points.
As the author of this post, I would like to state that I am not FOFOA. I will no longer use the name FOFOFOA/Friend Of FOFOA, to avoid confusion. I have moved my blog to here: The Flow Of Value.
My apologies to anyone I may have confused in this regard.