WatchLots of arguments, charts showing that gold could already be in a bubble.
Now, I know for sure that we're not there yet, its a long way to go before we reach the bubble state in gold and it will be turbulent way, rest assured.
I thought I'd post two links to show why gold has a lot of potential upside.
What we have today is a debt-based monetary system. How money gets created in such a system will really surprise a lot of people.
Death by debt: http://www.chrismartenson.com/blog/death-debt/58941
Why gold has a lot of upside (directly ties in with how the system is impacted by debt): http://dailycapitalist.com/2011/06/07/why-gold-above-15000-per-ounce-by-2020-is-realistic-without-hyperinflation/
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austrian_man says
No-that's not what I'm saying. You said gold goes up no matter which currency is debased. My point was that it only goes up in that currency. I'm making no prediction about whether or not the US will print more money.
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austrian_man says
Sure--people will use all sorts of goods in barter. Certainly gold is one of them. That doesn't make gold money.
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When gold crashes. It crashes fast and hard. The adept folks who made 3X recently: will you sell if it drops 50% or just hold on and hope it goes back up? All about timing methinks and that's a tough psychological barrier to traverse.
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tatupu70 says
OK. Answer this then: who will fund US deficit spending if all other countries holding US debt are reducing their holdings (China, Russia being the larger ones)?
What if the economy continues to stagnate like how its doing and unemployment gets worse?
There's only one trick in Fed's books...that is to print money...they cannot give it to the Government...it has to go through private banks. tell me why QE3 will not happen.
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austrian_man says
I'm not sure your assumptions are valid. But the short answer is I don't know. QE3 may happen. I'm just not making a prediction either way.
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tatupu70 says
Let gold continue to be not money in your mind. It doesn't really matter whether you think it is money or not. Most of the people continue to think gold is money, which is the very reason it is increasing in fiat price.
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No signs of flagging gold demand anywhere to be seen.
India Gold and Silver imports up 500%
http://online.wsj.com/community/groups/financial-markets-459/topics/gold-silver-imports-rose-500
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tatupu70 says
Let's see what are my assumptions in what I posted above.
FACT: China wants to cap its forex reserves and use their remaining reserves strategically. LINK
FACT: Russia wants to lower US debt holdings and diversify. LINK
FACT: The largest Japanese fund wants to sell its own bonds in the market, so it is not a player in the US bond market either, given Japan's demographic and the need for fixed short-term income instruments. LINK
FACT: Our Treasury Secretary Timmy wants to borrow more so that we don't enter a double-dip recession. As if we aren't in one already. I suppose his buddies aren't yet in a recession. LINK
Three of the largest buyers in the Treasury market want to ..or already turning net sellers. Who's going to buy the new debt?. My question is based on inference built on solid facts .
This actually addresses iwog's wonderful plan of advocating FDR. FDR could do what he did then, because US was on a gold standard and its Treasury bonds were as good as gold. As there was a sovereign debt crisis world-wide then and US was one of the 'safer' places, capital came here and US could borrow. Moreover, US never borrowed beyond its means back then. GDP covered the debt more than enough.
What is the case now? As iwog is advocating FDR and may be few others such as tatapu70 may be with him, I ask: who will buy the bonds issued?
There in lies the problem. Extend and pretend is going to work for sometime, as Euro is also in deep shit right now. But how long can this ponzi show go on?
I know the answer to my question....do you? if you do, then you can make a solid prediction on whether there will be more dollar printing :)
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austrian_man says
Seriously?? Have you even read anything I've written?? Of course it's going to be paid for by dollar printing! That was the solution in 1933 when the dollar was devalued and that is the solution today.
The budget can't be balanced, and the government is not simply going to turn off $1.5 trillion in entitlement programs. Therefore this only ends one way.
The odd thing is that you're not really advocating it ending a different way. You want to cut $1.5 trillion out of SSI and Medicare? You want to gut 10% of our entire GDP and see what happens to tax revenues?
Returning to the gold standard isn't a solution, it's a nightmare.
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iwog says
Mr. tatapu70 is reluctant in making a prediction whether there will be more dollar printing. Thanks iwog for clarification. tatapu70 - do you see it now? do you understand why gold will continue to go higher....much higher?
iwog says
Well, I want a balanced budget for these welfare benefits (meaning there will be cuts here too, no way can an insolvent government pay full welfare benefits) and I want to slash military spending or even completely eliminate it. Defend the US borders, why should we be the world's policeman? Good luck getting that passed.
iwog says
Real GDP should be actual productivity, not money printed bloated numbers. So we accept here implicitly that even our GDP numbers are fudged.
iwog says
The US may be past the point where it is an option that US can choose to do. It may be forced upon us in an exogenous fashion.
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austrian_man says
I want a balanced budget for entitlements also, however before we start cutting income from people who actually spend it, we need to:
1. reinstate the estate tax to 50% with a $2.5 million maximum exemption
2. raise taxes on the biggest wage earners to what they were during the Clinton administration AND introduce at least one new wage bracket at a 50% tax rate. I vote for $1 million and up.
3. fix our economic borders and force corporations who earn here to pay taxes here.
4. reinstate the tariffs Reagan destroyed for nations that have no business whatsoever having favorite nation trading status. China and India are top of that list.
5. return capital gains taxes to 28% like they were for decades.
After revenues are returned back to historical norms, THEN we can talk about how to balance benefit cuts with the damage they will do to the economy. I can get behind drastic cuts to the military, but I will not support cutting other entitlements until rich people start paying their fair share.
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iwog says
agree with all your points iwog. As I said before, in a fiat currency regime - socialist policies work, when the nation is not deeply corrupted.
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austrian_man says
Nope.
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tatupu70 says
You must seriously be intellectually brain-dead then. I don't know what else will convince you.
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austrian_man says
Not brain dead. Just with a different perspective than you. And I'm obviously not alone--elsewise the price of gold would already reflect the price that it is "certain" to reach.
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tatupu70 says
Don't focus on short term noise. Focus on the long term picture, with the fundamental macro-economics guiding you. How can gold price in what I'm saying already? What I'm saying is the long term future prospect of this highly indebted nation. The masses have to wake up to this reality yet. Which is why gold price hasn't shot to the moon yet.
Then, there's also active gold price manipulation by central banks. (see www.gata.org for more info).
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austrian_man says
If everyone agreed that the long term trend for gold was up, up, up then they would be buying it NOW. And if everyone was buying now, the price of gold would go up. That's how the future expectations are already priced in.
Just because people disagree with you doesn't mean they are brain-dead or asleep.
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tatupu70 says
lol people think its way too expensive. they don't understand dollar has been devalued steadily as well...its all smoke and mirrors, what happens to the dollar and no one seems to notice...no one seems to care.
tatupu70 says
confidence is a big thing for the fiat currency. confidence is still lingering, but waning big time.
tatupu70 says
lol am not saying that. but everyone should at least be looking to BTFD.
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Wow....someone asked why gold is valuable as money and NO ONE brought up its physical properties?
Gold has these wonderful physical properties that make it a great fit for money:
* Rare enough that having some is meaningful. You can't just "grow more on trees" or print some or play games like that. Nor can you go to the beach and get bucketsful, like you can with sand. Even aluminum ore would be a little too easy. You have to go mine HARD for it. All the gold ever mined could be formed into a 19-meter cube, a cube that increases in size only 1-2% each year (and probably even less in coming years).
* Identifiable and workable, even with primitive tools. Its boiling point is low enough that you don't need space-age blast furnaces to work it; it's soft and malleable and can be made into easily-stamped coins of known weight or jewelry. It's a bright yellow color that is easily identified and not like most other metals. That means you don't have to have sophisticated metallurgical studies in your culture to know you've got gold, which isn't really the case for, say, titanium.
* It really does not tarnish, corrode, or otherwise degrade over time. We still find ancient gold coins from time to time that are more or less intact. You can pass it down, you can leave it out in the rain, a house fire probably won't destroy it, and so on. Oh, and it's not a radioactive metal, so it won't give cancer to your great-grandchildren either!
* Since we're talking about uniform elemental material that is solid (uncompressable) at room temperature, divisibility and fungibility are clearly also in the bag as well. Not so with, say, gems, right? They can vary in quality for the same karat weight because of uncontrollable impurities or flaws or whatnot...or imagine using carbon dioxide gas as money...a balloon of it would literally inflate or deflate with the seasons! Incidentally, this uniformity and the above chemical stability make it a great "medium of exchange" too because it wears well and is the same everywhere.
To some extent, silver shares gold's properties. HOWEVER, it tarnishes over time. BUT it still works well enough that it is a common secondary metal. Also as with copper. Most other metals just don't work as well, or for thousands of years did not. Things like rhodium have far too high a melting point and is far too rare; I believe also it's more recently discovered. Platinum is too rare to be practical compared to gold. Anything that's too rare is not typically available everywhere on the earth.
Other non-metallic compounds with the same rarity and chemical stability tend not to have metal's nice working properties...malleability, low melting point for re-forming, etc.
You could argue that, in a digital age, money properties like "unit of account" are better handled by technology. However, the "store of value" aspect continues to shine for gold; paper currency loses value, digital currency loses value AND requires electricity and technology to maintain it, at significant, if not huge, cost. If you want to GUARANTEE buying power in 100 years, the best you can do is gold. If gold is not accepted as payment in 100 years, it will be because *money* per se no longer carries the same conceptual weight and we will have reverted to valuing only direct labor, water, food, shelter, clothing, and services. NONE of those things can be saved indefinitely, it should be noted...what an advanced society indeed, that would have abolished stored wealth. Or, perhaps, what an impoverished one, that could not afford it.
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tomoeDave says
it has already been brought up in other threads. But forget about it. tatapu70 loves the fiat, centrally planned currency too much that nothing you say will be convincing enough..lol
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austrian_man says
It has nothing to do with me loving fiat currency although I do think it is a much better solution than a gold standard.
My question is, and always has been, why is there such demand for gold. Because value is a combination of supply and demand. Being rare does not automatically make something valuable. And the answer isn't because of its chemical or physical properties. The answer is always--because people have always believed it to be valuable. Well, that's fine. It's just not something I would ever want to invest in.
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tatupu70 says
Slow down there, cowboy. If you take a moment and think about it, you answered your own question. The value comes purely from the utility inherent in the physical properties.
Plus you are confusing *price* and *value*. *Price* is a combination of supply and demand. *Value* is the force that drives demand. But you knew that, right?
Gold's value is that it has great utility as money. Just ask yourself the same question about fiat money. What gives fiat money its value? It's just paper or digital bits...why would you keep any value in it? It's useful as money, yes? It's just a question of how MUCH money utility it has. Right now fiat currency is more accepted for all the money properties except perhaps "store of value", but even then not so much. But the tide is changing.
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The only reason that gold is so high right now is because all these "Gold will replace US dollar as world currency" talk.
However Gold will never become "money", because the money supply has to increase with the population growth.
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xenogear3 says
More shallow fallacies. Why should the money supply increase with population? If money stock remained the same and productivity increased and more efficient goods/services are produced, then prices are in a continuous decline. Gold becomes that much more valuable when exchanged for goods.
Here's Murray Rothbard:
But money differs from other commodities in one essential fact. And grasping this difference furnishes a key to understanding monetary matters. When the supply of any other good increases, this increase
confers a social benefit; it is a matter for general rejoicing.
More consumer goods mean a higher standard of living for
the public; more capital goods mean sustained and
increased living standards in the future. The discovery of
new, fertile land or natural resources also promises to add to
living standards, present and future. But what about
money? Does an addition to the money supply also benefit
the public at large?
Multiplying coin will not whisk these resources into being. We
may feel twice as rich for the moment, but clearly all we are
doing is diluting the money supply. As the public rushes out
to spend its new-found wealth, prices will, very roughly,
double—or at least rise until the demand is satisfied, and
money no longer bids against itself for the existing goods.
Thus, we see that while an increase in the money supply, like an increase in the supply of any good, lowers its
price, the change does not—unlike other goods—confer a
social benefit. The public at large is not made richer.
Whereas new consumer or capital goods add to standards of
living, new money only raises prices—i.e., dilutes its own
purchasing power. The reason for this puzzle is that money
is only useful for its exchange value .
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tomoeDave says
I was sloppy in my last post--thank you for pointing that out.
tomoeDave says
And your point is? How does that relate to the value of gold? And how is the tide changing?
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austrian_man says
In other words, deflation. Why do people spend if deflation is coming? People will stop spending and wait for better price.
This will cause recession.
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wk's website
There are very few items in our lives that ever experience deflation.
Remember, people can't really delay entirely spending on Food, Healthcare, heating, cooling, until prices come down. Yes, they do cut back and doctors offices have seen a drop off as a result of the economic contraction. But, I've yet seen a drop in prices and most people I know get hungry regularly. Besides the Governments never pause their spending to wait for lower prices and Government employees get pay raises/bonuses even when times are bad.
I think a bigger challenge is that the Money required to maintain Government is always increasing......can the Government afford to have prices drop or be flat. Does this mean that Taxes will be lower in the future?
Taxation generally has been going up for ever - and Taxes are not just Income taxes. Think of how much the average American pays in property taxes, telecommunications taxes,gas taxes, car registration taxes, toll road fees.
When there is a whiff of Deflation you generally get massive Government intervention to get us back to Prosperity as Ben Bernanke defines it = Inflation for example 2009 and 2001.
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"Gold as money" is good in theory, but will never work because the whole government spending thing is based on the ponzi scheme.
The government spends first (currently at 70% GDP). Hopefully population and economy grow fast enough to "cover" it later.
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xenogear3 says
This much is true. 100%.
xenogear3 says
lol, population growth will only make it worse not better...as soon as the human comes in, he/she can't enter the labor force..it takes 20 years before they do. economy growing will cover it, but only as long as energy is cheap. energy is so closely interconnected to the global economy than most people realize.
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xenogear3 says
Until the price decline actually reflects true market value. Then they buy. This causes recovery. Trying to fight a price decline via inflationary policies will only cause market distortions (and sometimes bubbles). In fact, those distortions, once they unravel, result in a larger fall out down the road. Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting. Meanwhile, the one that took the longest to correct was the one that they tried to fight the most.
The housing market took its turn around 2007. We are about 4 years into this mess with no recovery in sight. History will eventually look back on these policies and actions and write them as a catastrophic failure, despite the fact that the media and hollywood are doing their best to try to paint the Fed as the institution that saved the economy.
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theoakman says
How was the Great Depression "self-correcting"? Please elaborate.
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tatupu70 says
see world war 2 ;)
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theoakman says
oakman, brilliantly said.
As David Stockman says in the video LINK: It was the 'Blackberry Panic of 2008'.
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PersainCAT says
Good point. If he includes revolt, revolution, and wars as part of the self correcting mechanism, then it might make sense.
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tatupu70 says
It is simply this: all value is psychological. Even food and shelter have a value - and price - that is determined by psychology. And, as a concept, money has a high value to people right now. You keep thinking "But where is the hard, important, inelastic demand, usefulness, etc.?" but such value does not exist except in the minds of people exchanging things.
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tatupu70 says
it wasn't. That's why I said "the one they tried to fight".
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theoakman says
All evidence to the contrary, of course.
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tatupu70 says
Contrary to what?
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theoakman says
Contrary to the story that you are trying to sell.
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tatupu70 says
Oh really? The great depression didn't last longer than every other recession as a result of a deflationary episode? There is a reason they referred to it as the "great" depression. Would you like me to draw a picture to help you understand?