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Guest Post: The True Intrinsic Value of Euro 'Money'

Tyler Durden's picture




 

Submitted by The Prudent Investor

The True Intrinsic Value of Euro 'Money'

Ever wondered about the true intrinsic value of Euro banknotes?

Prudent Investor blog reader Kurt Lindlgruber from Austria sent me this pragmatic approach, pulling up the calorific value of such notes once they have lost their purchasing power as did all fiat currencies in history.

Lindlgruber's calculations contradict French philosopher Voltaire's famous quote that

'Paper money will always return to its intrinsic value. Nothing.'

It is not all that bad. Your soon-to-be worthless Euros will at least keep you warm for a few minutes.

Here is his calculation:

The minimum value of paper money after the Euro crash corresponds with its calorific value.

A €5 banknote weighs 0.6 grams. The calorific value of one kilogram European fiat money (= 1,667 €5 notes) is 5 kilowatt hours (kWh).

You can fare much better with gold:

Based on Monday's Euro gold price of €1,260/oz one ounce will buy you 21 metric tons of wastepaper (current price €60/ton) which has a calorific value of 105,000 kilowatt hours.

The average heat energy consumption of a single family detached house is around 5 kWh. So 21 tons will heat a house for 21,000 hours or 2.4 years.

If you hold on to your Euros instead of gold, 252 €5 notes (=€1,260), they will deliver a calorific value of 0.76 kWh

(252 x 0.6 x 5 / 1000 = 0.76 kWh) 

will keep you warm for a mere 9 minutes instead of 2.4 years.

This is the calculation for 'paupers' who hold such small denominations.

If you happen to be a wealthy money bag, drug dealer or tax evader, who all tend to stash the handy €500 notes, you will likely be much worse off despite their higher weight of 1.1 grams per banknote.

Rounding up the Euro gold price to €1,500 (I expect to see this price within a few weeks) your wealth will make you long for a thick blanket much sooner. Here is the calculation based on €500 notes:

3 x 1.1 x 5 / 1000 = 0,016 kWh

that will keep your house inhabitable for only 10.8 seconds.

To sum it up, here are your choices after the Euro crash:

Hold the monetary equivalent of one ounce gold

  • in €500 notes and you can heat your house 10.8 seconds,
  • in €5 notes and you can heat your house for 9 minutes,
  • in 21 tons wastepaper and stay warm for 2.4 years,
  • but 1 ounce gold based on James Turk's price expectation of €11,000/oz will keep your house heated for 23 years. 

I haven't come across a more specious argument pro gold for the coming hard times in Europe.

 

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Tue, 11/08/2011 - 09:53 | 1856057 Quinvarius
Quinvarius's picture

The Dollar is right there too.

Tue, 11/08/2011 - 09:57 | 1856067 Pladizow
Pladizow's picture

For this recently passed Guy Faux Night I constucted an Uncle Sam Dummy filled with US$ - It burt quite well!

Tue, 11/08/2011 - 10:48 | 1856258 Theosebes Goodfellow
Theosebes Goodfellow's picture

My dear Pladizow, I fear you may have jumped the shark. You should wait until after the USD loses all of its intrinsic value. Better yet, exchange them before that happens. I do believe that was the intent of the post in the first place.

Tue, 11/08/2011 - 10:56 | 1856292 Pladizow
Pladizow's picture

I dont know if something can lose its intrinsic value, but rather be reduced to it?

In my attempt to be a savy investor I was mearly looking forward 12-18 months.

Tue, 11/08/2011 - 12:36 | 1856757 dlmaniac
dlmaniac's picture

"If US Dollar is I_Owe_U_Nothing then Euro is Who_Owes_U_Nothing. " / Doug Casey

Tue, 11/08/2011 - 11:16 | 1856364 trav7777
trav7777's picture

I haven't come across a more specious argument either.

Like the EUR POG will rise to 11k but the price of wastepaper won't?

Tue, 11/08/2011 - 09:57 | 1856068 Oh regional Indian
Oh regional Indian's picture

Well, poor poor singapore then huh? I'm sure their plastic money will not burn too well.

ORI

Tue, 11/08/2011 - 11:59 | 1856591 mraptor
mraptor's picture

My point exactly. Many people complain on this site Euro this, Euro that.... but the rate euro/usd is not even 1:1, but 1:1.37 after all the debacles in Europe !! go figure..

From 0.8 to 1.37 ... ~70%++  increase from its creation.

If I had to decide what is the rate by the number of the articles here, I would expect it to be at least 1:1 ;)

I'm not saying both are not toast, just seem a little bit biased, don't you think ?

My oppinion have been that Euro at the end will be always the stronger currency, unless it breaks apart before that of course.

Tue, 11/08/2011 - 12:29 | 1856733 Long-John-Silver
Long-John-Silver's picture

Now I understand why they want a US Dollar coin and eliminate the paper $1 Bill.

Tue, 11/08/2011 - 13:26 | 1856937 Sudden Debt
Sudden Debt's picture

I don't think this calculation can be right. I just know that metal wire in the bills is also worth something, and that metal price isn't used in the calculations.

Tue, 11/08/2011 - 09:55 | 1856062 TuesdayBen
TuesdayBen's picture

Fiat makes an adequate replacement for lost Monopoly notes.

Tue, 11/08/2011 - 09:57 | 1856065 ToNYC
ToNYC's picture

All the analysis will not prevent Germany from economic and productive success. The rest of You rope can look and learn.

Tue, 11/08/2011 - 09:57 | 1856066 WALLST8MY8BALL
WALLST8MY8BALL's picture

Couldnt you weave the notes into a nice comfortor or a Snugi?

 

 

Tue, 11/08/2011 - 09:59 | 1856073 Oh regional Indian
Oh regional Indian's picture

Calhorrific value FTW!

For the Winter that is.

ORI

http://aadivaahan.wordpress.com/2011/03/09/axis-of-evil-doing/

Tue, 11/08/2011 - 10:10 | 1856074 SheepDog-One
SheepDog-One's picture

So then when do the wheels fly off the collapsed fiats? Not today at least, as usual. Its all screwed, but for today we dine on pumped futures.

A sign OF the fiats collapsing, but whatever, as we'll have the DOW at record highs and gas $7.50. CNBC will be pumped into FEMA camps to show us how 'all is well'.

Tue, 11/08/2011 - 10:18 | 1856129 Snidley Whipsnae
Snidley Whipsnae's picture

"CNBC will be pumped into FEMA camps to show us how 'all is well'."

Only the unfortunate will alight in FEMA camps. The lucky will be shot because their morale hasn't improved.

Tue, 11/08/2011 - 09:59 | 1856075 ziggy59
Tue, 11/08/2011 - 10:20 | 1856134 SilverRhino
SilverRhino's picture

Clawbacks anyone?  

Tue, 11/08/2011 - 10:00 | 1856078 midtowng
midtowng's picture

Gold doesn't burn! And you can't eat it!

What more do you need to know?

Tue, 11/08/2011 - 10:50 | 1856262 ChanceIs
ChanceIs's picture

Yes, but you can take gold anywhere and turn it into iPads, which have been show to be not only filling but very nutrious.

Tue, 11/08/2011 - 10:53 | 1856279 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"Gold doesn't burn! And you can't eat it!"~

But woodcutters will work for it. Especially when the time comes that they won't work for Euros.

Tue, 11/08/2011 - 10:02 | 1856082 Shizzmoney
Shizzmoney's picture

€500 notes and you can heat your house 10.8 seconds

And wipe your ass for a good month.

Tue, 11/08/2011 - 10:04 | 1856085 Captain Benny
Captain Benny's picture

Everyone else compares how much bread a dollar will buy versus an ounce of gold during inflation or deflation.  Makes me wonder if during "biflation" we should just buy the loaves and hoard them in our safes....

In all seriousness, its a great set of calculations -- However heat/energy is not the only measure of fiat money.  One mustn't forget that the comparisons above have the ounce of gold BUYING paper versus the fiat currency BEING the paper.  Its like comparing apples to oranges.

Tue, 11/08/2011 - 10:22 | 1856147 Snidley Whipsnae
Snidley Whipsnae's picture

Learning the art of baking bread ... and storing flower in vacuum sealed containers ...might work out well.

I think of fiat just as I think of monopoly money... helps keep all in perspective.

Tue, 11/08/2011 - 10:06 | 1856088 SheepDog-One
SheepDog-One's picture

Whats the calorific value of one of these fatass bankers or Eurozone leaders? Burn one of those and heat your house for a good couple days I bet.

Tue, 11/08/2011 - 10:45 | 1856243 LongBallsShortBrains
LongBallsShortBrains's picture

You would pay a lot more to get the smell out of the sheepdog house, but you could sell tickets to watch. Maybe even get one of those cable cooking shows to .....ah never mind... Wishful thinking.

Tue, 11/08/2011 - 10:50 | 1856263 Believable-Hypocrite
Believable-Hypocrite's picture

I'm sure the caloric value is high with all the fat, however the the smoke from a burning pig is horrific and it isn't very eco friendly.

Tue, 11/08/2011 - 10:57 | 1856297 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"What's the calorific value of one of these fatass bankers or Eurozone leaders?"~

Are there enough to go around? I'll take one. Make mine plumpish, please!

Tue, 11/08/2011 - 10:09 | 1856096 Shylockracy
Shylockracy's picture

Just yesterday i noticed that among a number of Euro bills, nearly all €500er had the initial serial number X (printed in Germany), whereas almos all €100ers sported the dreadful S (printed in Italy). This was the last time I accepted Euro notes not branded X.

Tue, 11/08/2011 - 10:10 | 1856098 nontaxpayer
nontaxpayer's picture

"but 1 ounce gold based on James Turk's price expectation of €11,000/oz will keep your house heated for 23 years. "

 

Sure is cheap electricity in Austria.

Tue, 11/08/2011 - 10:12 | 1856109 apberusdisvet
apberusdisvet's picture

 

Better to bake bread with 1 oz of gold inside and stick it in your freezer.  My grandmother did that with Morgan Silver Dollars because she felt that the bread would last longer.  She was way ahead of her time on silver's antibacterial properties.

Tue, 11/08/2011 - 10:23 | 1856151 blindman
blindman's picture

macro-bunga update.
BOB MARLEY,WHO THE CAP FIT.
http://www.youtube.com/watch?v=uC6UIW1F5Vc
.
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Topless in Vatican: FEMEN strip against ‘Catholic witch-hunt’
http://maxkeiser.com/2011/11/07/topless-in-vatican-femen-strip-against-c...
.
Wall Street v. Greece: G20 Opens as Greek PM Pushes For Referendum on EU Bailout Plan
http://www.youtube.com/watch?v=7t1WmqOb6u4&feature=player_embedded
.
"Such is the irresistible nature of truth that all it asks, and all it wants, is the liberty of appearing." - Thomas Paine
===
Number Of Iraqis Slaughtered In US War And Occupation Of Iraq "1,455,590"
Number of U.S. Military Personnel Sacrificed (Officially acknowledged) In America's War On Iraq: 4,801
www.icasualties.org/oif/

Number Of International Occupation Force Troops Slaughtered In Afghanistan : 2,793
=
Cost of War in Iraq & Afghanistan
Total Cost of Wars Since 2001
$1,273,642,760,121
http://www.costofwar.com/
.
[KR207] Keiser Report – The Fed, The Treasury & The Holy Troika
Posted on November 8, 2011 by stacyherbert|
http://maxkeiser.com/2011/11/08/kr207-keiser-report-the-fed-the-treasury...
.
The Lightbulb Conspiracy (Full Length - English Subtitles)
http://www.youtube.com/watch?v=Y1xt4nEvipg&feature=player_embedded

Tue, 11/08/2011 - 10:30 | 1856187 OutLookingIn
OutLookingIn's picture

Itrinsic value?

How about just plain old purchasing power?

Voltaire was absolutely right. The final value of fiat is zero, or it's "intrinsic" value of starting a campfire, or as ass-wipe! Now holding physical gold and silver is another story, altogether different. Got gold? got silver?

Tue, 11/08/2011 - 10:35 | 1856208 FederalReserveB...
FederalReserveBankofTerror's picture

WILL SOME COUNTRY FUCKING DEFAULT ALREADY?!!! AND I AM TALKING BIG!!! LOOK OUT BELOW!!! GET THE FUCK OUT OF THE WAY!!! LIKE A FUCKING ASTEROID WENT OFF COURSE AND HIT AT 72,000 MILES PER HOUR.

Tue, 11/08/2011 - 10:36 | 1856213 Bahamas
Bahamas's picture

Where I live, I do not need heating. The sun provides for it all year round free of charge.

Tue, 11/08/2011 - 10:43 | 1856240 Nothing To See Here
Nothing To See Here's picture

Can't you also sell useless paper to recycling factories? Wonder what you can get for a load of euro notes.

Tue, 11/08/2011 - 10:47 | 1856255 AE911Truth
AE911Truth's picture

The ECB lists Gold on it's balance sheet at a price that is marked to market four times each year. As the price of Gold rises, the Euro is more fully valued, backed by Gold. Check it out. http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

 

Tue, 11/08/2011 - 10:56 | 1856291 prizza
prizza's picture

wiki answers says the dollar is made of cotton and linen. dollar bill blankets and robes!

Tue, 11/08/2011 - 10:59 | 1856304 AE911Truth
AE911Truth's picture

clear example can be found on the Eurosystem's Consolidated Financial Statement. The primary medium of exchange is on the right-hand side, and the secondary medium of exchange is on the left. Look at how Line #1 has grown in proportion to the whole of the reserves (secondary media of exchange) from 30% to more than 65% in a decade.

http://www.ecb.int/press/pr/wfs/2011/html/fs110406.en.html

Gold is listed as line item number one.

Tue, 11/08/2011 - 11:03 | 1856324 Internet Tough Guy
Internet Tough Guy's picture

Correct, and euros will buy gold from system banks. I doubt europeans will choose to eat their paper given this use; perhaps the author of this foolish article should eat his words.

Tue, 11/08/2011 - 11:02 | 1856319 AE911Truth
AE911Truth's picture

If the USG did this, they would welcome a higher price of gold.
Unfortunately, the USG spends billions suppressing the gold price.
Huge waste of money.

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