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What is Money?
Precious metals investors (and even precious metals commentators) have a tendency to put the cart before the horse. We familiarize ourselves with the dramatic economic fundamentals which have an enormous impact on the value of precious metals (and the prices for all hard assets). We study the parameters of supply and demand for gold and silver. But we frequently omit learning about the intrinsic properties of these amazing metals.
With gold and silver, we are dealing with two metals which have an unparalleled combination of beauty and utility. As the principal metals used in our jewelry for thousands of years; we understand the aesthetic appeal of these metals before we even finish our childhood. However; it is when we consider gold and silver as tools rather than decorations that these two metals really begin to shine.
To begin with; both gold and silver possess a plethora of superb metallurgical properties. This makes them superior to all other metals in a host of industrial applications, across the entire spectrum of industry. We are generally more familiar with the industrial uses of silver than gold, and proportionately we use a far greater proportion of our silver in industrial applications than gold.
Why is this? Simply, we have deemed most of all the gold ever mined in our history as being “too valuable” to use industrially, and even too valuable to use as jewelry. What greater utility is there for gold which surpasses its value in industrial applications and jewelry? When we utilize it as the tool known as “money.”
To understand why this is so; we must first ask ourselves an even more fundamental question. What is “money”? This is a question where most members of our population would stumble badly in attempting an answer. They erroneously believe that what they carry around in their purses and wallets is “money”, when (in fact) it is mere currency.
True money possesses four necessary qualities:
- It must be “a store of value”.
- It must be rare or precious.
- It must be uniform.
- It must be easily and evenly divisible.
Readers who have researched this topic previously will have undoubtedly seen different versions of this definition. However, studied closely, such differences are revealed as just semantics. This definition (and other, parallel definitions) provides us with all of the necessary and important characteristics of one the most important of all human tools.
At the top of the list; money must be a store of value. Indeed, it is this quality which is the primary distinction between real money and mere currency. True “money” must preserve the wealth of the holder.
It is common knowledge that in the 100-year history during which the Federal Reserve has had the statutory responsibility of preserving the value of the U.S. dollar that it has lost more than 98% of its purchasing power. This tells us two things. The Federal Reserve has been an utter failure in discharging its primary responsibility; and the U.S. dollar is not money.
Conversely; since literally the days of Rome, an ounce of gold has been sufficient to fully clothe a man in the fine attire of his era. Two thousand years ago; that ounce of gold would have purchased a quality toga, sandals, and belt. In more recent centuries; it has been sufficient to buy a finely-tailored suit. Gold is money; the wealth of the holder is preserved.
Why does gold pass the test as a store of value, while the U.S. dollar (reserve currency of the world) fails miserably? We find the answer to that in looking at the other three properties of money.
Money must also be rare or precious. This characteristic is the primary reason why some items do store value and others do not. Gold and silver preserve/protect our wealth (superbly) because these metals are rare and precious.
Their rarity is a simple function of the relative scarcity of these metals in relation to other metals. The “precious” quality of gold and silver is two-fold. Both of these metals possess undeniable aesthetic appeal, and both possess tremendous versatility as metals. They are beautiful and useful (i.e. valuable).
Conversely, the U.S. dollar and all of our other paper currencies are neither rare nor precious. With near-infinite money-printing today; these scraps of paper have never been more abundant. And the paper they are printed on is so worthless we throw it away as garbage.
The final two characteristics on our list provide us with the means of separating merely adequate money from good money. Good money must be uniform, meaning that every unit of currency must be identical to every other unit. This is why (for example) gemstones could never be “good money”. The value of every unit of that currency would differ slightly, making commerce totally impractical.
Similarly; the final attribute of money is also a test of practicality: it must be easily and evenly divisible. Historically, metals have been our first/best choice as monies because once refined they can be easily divided into physically identical units, which are also durable.
Why have gold and silver (alone among all substances) retained their status as “money” for thousands of years? Because these metals are more than “good money”; they are perfect money.
The Metal of the Sun is the perfect money of governments (and the wealthy). It is abundant enough to provide adequate, physical supply for such purposes, but too rare for most of our routine, daily commerce. Conversely, the Metal of the Moon is the perfect money of the people. It is rare/precious enough to still preserve their wealth, while existing in sufficient abundance to function as our principal tool of daily commerce.
The original gold/silver price ratio (roughly 5,000 years ago) was 13:1, commemorating the fact that there are thirteen cycles of the Moon for every cycle of the Sun (one year). Incredibly; the natural occurrence of these metals in the Earth’s crust is at a ratio of roughly 17:1. Perfect money.
It is once we understand the intrinsic properties of money that we realize our primary imperative in swapping the worthless scraps of paper in our wallets for valuable, eternal gold and silver. These two metals provide perfect vessels for storing (and protecting) our wealth, while the bankers’ paper currencies are merely (and deliberately) ‘leaky buckets’.
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Money is very easy to understand: it is whatever the politicians want it to be, enforced by the apparatus of government, including militarized order-following ruthless brutal police. Money MUST be fiat so that the politicians can create as much as they want so they can spend as much as they want so they can buy the votes to get re-elected and stay in power, fight ideological wars, etc.
Gold & silver are very easy to understand: they cannot be created by mere keystrokes and threaten fiat currencies, therefore they are like Kryptonite to politicians, and therefore the politicians will utilize the apparatus of government to manipulate and suppress the fiat currency exchange rates for gold & silver, and just confiscate the gold & silver if necessary, AS THEY HAVE DONE BEFORE.
The "endgame" is very easy to understand: The financial, economic, social & political systems will continue to decline, decay and rot until the people are pushed to intolerable levels of anger and revolt. USA is generations away from that point, if ever.
It's important to remember that the core function of money is that it is a medium of exchange. I don't Think anyone would argue that gold preserves value...but in a world where exchange function is electronic (credit cards, debit cards, pay pal, etc) gold fails miserably. If you can't use an item in everyday commerce...it's not really money...a good investment perhaps... But not money.
It's important to remember that the core function of money is that it is a medium of exchange. I don't Think anyone would argue that gold preserves value...but in a world where exchange function is electronic (credit cards, debit cards, pay pal, etc) gold fails miserably. If you can't use an item in everyday commerce...it's not really money...a good investment perhaps... But not money.
Money is those things that the settlers gave to the indians to buy NYC.
From an interview with Kazin, advisor to Putin - a discussion of Bretton Woods (the global dollar's changing position).
It is clear by now to anyone, even to a not most outstanding
intellectual as Prime Minister of Great Britain Cameron
that world crisis is increasing.
He said that the next big crisis awaits us.
There is an increasing hysteria from various Western leaders.
When, immediately after the summit in Brisbane, Frau Merkel started
on about boosting a free trade zone between the EU and the US,
which would result in the de-industrialization of the Western Europe
similar to what was done to Bulgaria and the Baltic States,
it became clear that only large-scale events could force these people
to commit to such a dangerous course, which they otherwise would have never dared.
It's too strong a blow to their status and position.
In other words, they don’t anticipate the long-term consequences,
because certain future events will negate them.
What are these events?
We have to understand current events from economic perspective
whose current model is the Bretton Woods financial and economic system.
Many mistakenly believe that this system died after the
August 15, 1971, when the United States declared their 2nd default
in the 20th century by refusing to exchange dollars for gold.
But this is not quite true.
The Bretton Woods system is a mechanism to expand the dollar zone,
which created its own special institutions:
the IMF, the World Bank, and the HCT (Harmonized customs tariff)
agreement on tariffs and trade, which is today called the WTO.
All are still here.
They define the Bretton Woods system by which all assets
are linked to the dollar.
The model of the modern economy works in the following way:
The model of the modern economy works in the following way, as a
mechanism for income redistribution, which is formed when the Federal
Reserve prints dollars to purchase new assets that are part of the dollar system.
In the beginning, it was the countries of the Western Europe,
then Japan, Taiwan, Singapore, then Korea, China,
and later the countries of the socialist Commonwealth.
Today, this model has come to a natural end.
All world assets, including Russia’s oil,
are already denominated in dollars.
That is they are part of the dollar capitalization share
of those companies, which own these fields.
The world has no more dollar assets left.
It means that it’s impossible to continue ‘printing’ dollars
- there are no assets.
An attempt has been made to create fictitious assets,
the so-called derivatives.
However, it turned out that this too no longer works,
because there are too many of them.
There are no more profits to extract from the global economy.
Some participants in this process, including Russia and China, say:
"Guys, where is our share? We didn't agree to that."
In fact, in the past profits from the issuance was shared among all.
Of course, the United States got the biggest share,
but the rest were getting their piece of the pie too.
In particular, Russia was getting its share through high energy prices.
Then national elites could decide whether to steal it entirely,
as is happening in Nigeria, or to share it with their people.
The situation when participants get nothing does not suit anyone.
Furthermore, in order to protect their economy the United States
began to use Bretton Woods, firstly its financial system—not to give but to take.
One significance of the US election results was as an election
between the two concepts.
The first one was to save the global financial system at the expense
of US resources, in other words, everybody gets something;
the second was to save the American economy at the expense of everybody
else, in other words, snatching away from everybody to favor of the United States.
The second concept, which the American voters associate
with the Republican Party, won.
Now we have a world in which 3rd world countries no longer have
dollar investments, but rather have their capital flow back
into the United States.
In this situation, which is satisfactory to no one,
it will be impossible to expect stability.
Most likely, everybody will start to rock the boat and the US attempt only token responses.
Obama, as we know, was a supporter of the alternative approach.
He believed that it is better to save the whole world
rather than just the US, but he lost.
Therefore, I am inclined to expect that an explosion that will tear
apart what remains of the Bretton Woods system will happen very soon.
Possibly, within the next twelve to eighteen months.
An internal conflict in Russia today will likely manifest itself
in the President’s Address.
There are persistent rumors of an on-going battle between the two forces
and the two versions of the economic part of the message being prepared.
The situation is this: there is a liberal group who supports
the Bretton Woods model - the IMF.
They work exclusively from the IMF’s scripts. Therefore, it is impossible
to expect from the likes of Nabiullina, Ulyukaev, Shuvalov, or Dvorkovich
some revelation in favour of supporting the Russian economy.
They receive instructions that they dutifully and faithfully execute.
Their logic in doing so is very simple. They say: "We get our piece
of pie so why should we destroy this model?"
They cannot accept the fact that they will not be getting their piece
of pie anymore, because it is no longer exists. They can't agree to that.
Their only competitive advantage over other people is their
opportunity to negotiate with the IMF.
Thus, if the IMF within the framework of the Bretton Woods system
has nothing more to give, then no one has any need for these people.
For this reason, they are trying to preserve the remnants
of this system at any cost.
I don't know if they understand or not, but as a result our capital
is being alienated and this damages our condition.
Maybe they understand it, but can't accept it, because then they
have to flee together with their capital.
But what awaits them in the Land of the Free, lousy associate
professors in hick American universities?
That hurts. In Russia they mighty tough are Vice-Ministers,
Central Bank governors and so on.
But over there? To actually live on earned income?
Imagine a thoroughly modern Russian Minister having
to live on a salary and pay taxes!
To their understanding it is simply outrageous cynicism.
Another concept, on the contrary,
says we should build our own regional financial system.
If we no longer have access to the dollar investment mechanism,
then we must build our own regional issue center and an investment mechanism.
I talked about this the day before yesterday in Astana at a large
conference dedicated to the beginning of the second five-year
industrialization plan.
Kazakhstan, unlike Russia,
has been working on import substitution for 5 years.
Although starting conditions in Kazakhstan are worse than in Russia,
because of its smaller economy, it is growing at 4-5%
while we have fallen in the past two years.
This is the result of industrialization.
We discussed this issue with the President of Kazakhstan at the round
table, which was initially planned for 30-40 min but lasted 2 hours.
It was a real discussion, because Nazarbayev was asking questions
about what can be achieved realistically.
I said we need a private investment resource, because we no longer
have it within the framework of the Bretton Woods system.
The on-going contest is all about what strategy to choose,
and there can be no compromise.
Hence the rumors that the Presidential Address is being prepared
by the administration only and the government are not involved.
The government, together with its School of Economics, is writing
its own liberal theses that there is no God but the IMF
with the prophets being Lagarde or Janet Yellen.
I don't know how it will end, but it is absolutely clear to me that
Putin’s earlier departure from Brisbane was not because he was offended.
Forgive me, but the person who by education is an intelligence officer,
was trained from ‘childhood’ not to react to this sort of thing.
He left not because he was offended, but because he realized
that talking to these people is pointless.
They do not and cannot discuss critical situations,
because they are just part of a show.
If they behave because they are puppets we need to address
their puppeteers;
if they just don't understand it, well, that is another matter.
I am inclined to believe they are puppets, but not within the puppeteers’
policy, but rather within the framework of certain rules of the game -
of such a liberal political correctness that is so well entrenched
in their consciousness, that they can no longer escape it.
They keep on running in a hamster wheel going nowhere.
Talking with them is pointless so we need to create alternative models.
In general, we have to forget about the European Union
and the United States for some time.
The EU isn't a viable entity; how it will fall apart is a separate issue.
They may try to save it by making a two-tier body: some parts
of the old Western Europe will become the European Union of the 1st grade,
and Eastern Europe – the 2th grade.
Overall, I think this topic can be closed.
By saying that it is necessary to force the free trade zone
with the US, Frau Merkel actually put an end to the EU.
You can forget about it now.
The sharp conflict between the pro-Western and Eurasian forces,
which started in Russia in the early 90s, today has reached a level
when anti-IMF forces, if not finally caught up with liberals,
have at least their voices heard.
We shall see if the liberal forces are able to present
at least some argument to the society.
So far all their arguments were from the position of power.
They’ve been saying, “Chaps, we schmooze with the IMF,
so you need us."
It is clear today that the IMF will give us nothing;
therefore they need to present a different approach.
But what can they offer? Destruction of the education,
medicine, and pension system? The banking system?
In fact, everything the liberals touch turns into dust.
If the President of the Russian Federation chooses the liberal
options in his address, I fear his power will turn into dust.
http://vineyardsaker.blogspot.com/2014/12/khazin-to-putins-address.html
I understand that ZH posters are often PM buyers....and yes I think PM has a place in everyone's portfolio.....but this article is neither informative nor helpful. I tend to rage about "shills" on ZH, so to remain consistent I have to complain about this article as well. This article is nothing more than a 'place holder' so Sprott Money can keep their name (and sales pitch) out in front of prospective buyers.
.....argh!!! it is too early on Monday for me to be reading this stuff)
Money is what the government demands for payment of taxes.
For some reason the English Crown (before the Bank of England came to be) insisted on the use of Talley Sticks rather than bullion. I wonder why.
Could be interesting thread :)
Money is simply what you can squeeze out of a severely obese and sick African-American gentleman by applying a choke-hold until he expires. Nickel and dimed to death. For real.
You better pay those taxes...or else. What do you think those MRAP´s are for? They are not for collecting your guns. They are for collecting your funds.