patrick.net

I think about the theory of money or theory of currency. The medium has to be easily transported, transferred, and well-recognized. Gold fits. Very well. cars don't. Eggs don't very well although people did use to wax them so they'd keep.

Now, cash dollars fit. So do virtual dollars and fiat dollars for now. The theory goes the money doesn't represent value intrinsically but represents the work for which it was created. As governments have resorted to printing fiat money (database entries of wealth) with no actual real backing from work or product then, in theory at least, they are no longer creating money. They are now creating worthless false scrip.

Gold is a sure bet. One knows it is worth what it took to mine it at least.

Well, People used to be paid in Salt. "worth their salt" and "salt-pay = salary". So, you might think of other valuables. My grandmother told me the fridge was the most life-changing invention of the 20th century. So, salt lost its value. But other things are essential today. One could probably argue steel and plastics are the new gold. Or motors, engines, and equipment. Guns and butter. Computers and cell phones. Can you make any of these?

When your AC goes out and you don't have the money to pay for a repair then how will you pay your neighbor to fix it? With gold. He'd take that I'm sure. With food. That too if he's broke. With a lawnmower. Maybe not. A gun. Maybe but that's a legal issue now.

My hunch is one can think of gold as a EOTWAWKI hedge but a much better one is a value-producing business. E.g. goats or auto repair. As the world rushes to safety (US Treasuries), then the US government will continue to print trillions of dollars. The wealth will flow towards the party providing the least worth for the trade. That is, the US Government might sell you $10,000 in Treasuries. It then spends your money. Well, any fool knows 50%+ of government spending is waste; so, you gave them money with value and they wasted it. Now you have something of value. The problem arises in the inflation imposed on your wealth due to the way money is created in the USA. While you got $10,000 in Treasuries the competitors such as a central bank get a $10,000 print-money-at-will token. They and their henchmen can now loan out $100,000 or $1,000,000 or even much more if you consider leverage and re-leverage. So, your "value" drops fast when the amount of money being created is increasing geometrically. Some argure for deflation. This is because they do not understand the difference between productivity and GDP. They do not understand the value of money is dropping very fast when money is defined as representing real work or product.

Another way of looking at it is one hedge fund manager earned $4B last year. That's enough to pay 80,000 teachers. He only pays 15% tax. You probably pay 35%. Well, he uses his money up by purchasing a business or an island or something. This is two distinct cases. In the island case, no money disappears per se. In the business case he may spend $100M making a product nobody wants. At the end of the year, the product is canned, paychecks bought food which was eaten and bills paid and the money has gone. Nothing of value was created. $100M disappeared. Obviously, one might think the hedge fund pay (or even his $1B in tax shelter versus a doctor) would be more profitably spent paying for education. Which is more likely to create value to society? Your government (technically the Senate) thinks the hedge fund manager provides more value to society than 20,000 teachers would. The vanity of humans means almost all billionaires are wasteful.

Similarly, by investing in gold you are saying you cannot figure out where to put your money and society is hoping the person selling you gold can do it better. You are making a very negative statement about the economy. Rather than build a ghost town in a desert or an island in the ocean, you have put your money in long term storage. You are not worse than the wasteful billionaires.

The gold arguement is inflation versus deflation. We are clearly in a high inflation environment when dollars are adjusted for real work output. The USA is living on borrowed time. Over 40M are on food stamps, the government buys indirectly almost all mortgages each month, employment is collapsing ex-government jobs, et cetera. We have lots to look up to and much we can improve however! But the American people are dominated by those who allow their greed to blind them to the future of America. They are greed-bent on destroying America. No middle class. No freedom. No American Way.

Surely physical gold is a fine investment in this trend. More surely one might invest in learning to garden. 40% of the nations vegetables were produced in gardens in the 1940's. This is why there are bill riders to outlaw vegetable gardens at homes (or make them prohibitively expensive to license).

Again, gold is a fine investment when gardens are outlawed. See, gold will simply be outlawed too just like in the past. This time the rulers can go through database records and determine who has gold. In fact, as things collapse, one might argue holding gold is a fine way to get yourself on the bad list. The modern Mccarthy list or whatever it is now.

I know one guys who doubled his fortune over the last few years buying gold. Very smart dude. Fortunately or unfortunately, I don't have enough money to worry about this and am more inclined to buy a work truck, tractor, or farm plot (farming is illegal by deed restriction on one plot I looked at!).

TimJowers

BTW, John Williams still tracks M3. Anyone considering GOLD must read his inflation projection. I would love to know other TRUTHFUL FACTS macro-economics sites but haven't found much other than some Feds' sites.

http://www.shadowstats.com/article/hyperinflation

maxweber1 says

We are clearly in a high inflation environment when dollars are adjusted for real work output. The USA is living on borrowed time. Over 40M are on food stamps, the government buys indirectly almost all mortgages each month, employment is collapsing ex-government jobs, et cetera.

This is all deflationary.

This is why there are bill riders to outlaw vegetable gardens at homes

This is more right-wing bull--- hysteria that is circulating 24/7.

(farming is illegal by deed restriction on one plot I looked at!)

Sellers, AFAIK, can put anything in the title's CC&R, and it runs with the land for all perpetuity. One of the more bizarre elements in our land tenure system.

maxweber1 says

Anyone considering GOLD must read his inflation projection

Show me the (W-2) money. No wage growth, no inflation, just reallocation.

Japan 1990-2003 was one demonstration of this dynamic.

turtledove says

MarkInSF says

MarkInSF says

Actually, come to think of it, this means a dollar bill does in fact have some intrinsic value. It’s backed by mortgages, which are backed by houses, which have intrinsic value.

So, could one go further to say that since the dollar has some intrisic value, by virtue of being backed by mortgages, which are backed by houses, that the dollar could be worth more than gold — if the world decided that gold has no value other than sparkliness. (though my six-year-old might disagree, as she loves her sparkly princess crowns).

Indeed. That is the next logical step in the argument. Which has more intrinsic value, a home or gold?

I'd like to see gold bugs answer that one!

Troy says

The dollars were CREATED via mortgage lending and the Fed buying treasuries, but I find the idea that they are “backed” by the same to be a bit odd.

No it's not odd. Yes, the money was created when the debt was taken on. If I own a home, then I write a legal binding note that says something to the effect "The bearer of this note has claim to $1000 worth of my home", that note is now newly created money, backed by my property. A bank simply makes the note fungible and moneylike by assuming the risk, accepting the note and in return giving a generic "bank deposit". The bank deposit was created in the loan process, and the bank deposit is also backed by property. There is no inconsistency, just two ways of saying the same thing.

Troy says

maxweber1 says

We are clearly in a high inflation environment when dollars are adjusted for real work output. The USA is living on borrowed time. Over 40M are on food stamps, the government buys indirectly almost all mortgages each month, employment is collapsing ex-government jobs, et cetera.

This is all deflationary.

Hmmm, prices I see are inflating. Pay is not. At least from my middle class position I see zero signs of inflation. When I factor in the exploding national, state, and municipal debt holes then I must admist inflation is very high.
This is why there are bill riders to outlaw vegetable gardens at homes

This is more right-wing bull— hysteria that is circulating 24/7.

Got me. I think the rider was you can garden but cannot sell produce. My friend quoted some bills to me a while back. Same dude who told me pharmas were using virus DNA in meds and when I questioned him he brought me links and texts from existing patents by pharmas showing the same. here are two links he sent on the garden and nutrition-starvation:
www.HealthFreedomUSA.org ; www.GlobalHealthFreedom.org

(farming is illegal by deed restriction on one plot I looked at!)
Sellers, AFAIK, can put anything in the title’s CC&R, and it runs with the land for all perpetuity. One of the more bizarre elements in our land tenure system.

Yeah, its nuts. Like the gardening laws, probably much is not enforceable.

maxweber1 says

BTW, John Williams still tracks M3. Anyone considering GOLD must read his inflation projection. I would love to know other TRUTHFUL FACTS macro-economics sites but haven’t found much other than some Feds’ sites.
http://www.shadowstats.com/article/hyperinflation

Oh, dear, another inflationista Shadowstats follower. I've already ripped that guy to shreds.

/?p=28444#comment-667147

BTW, here is a headline from yesterday:

Inflation Rose in April at Lowest Rate Since the ’60s

http://www.nytimes.com/2010/05/20/business/economy/20econ.html?src=me&ref=business

maxweber1 says

prices I see are inflating. Pay is not. At least from my middle class position I see zero signs of inflation. When I factor in the exploding national, state, and municipal debt holes then I must admist inflation is very high.

There are two dynamics. Monetary inflation and "inflation expectations".

Monetary inflation is growth of the supply of money and velocity of money. This is like the yeast that rises the cake. Times are good, everyone can find a good-paying job, and the prices of goods and services that are in limited supply rise in response to the increased buying power.

When the Fed talks about "inflation expectations" what they are referring to is the wage-price spiral, like what we saw in the Bay Area 1995-2000.

Home prices were going up, software people were in demand, so they were able to bargain for higher wages, which made home prices go up, and this cycle repeated several times.

When I factor in the exploding national, state, and municipal debt holes then I must admist inflation is very high.

Contary to appearance, privately-held government debt is NOT the creation of money. This debt is a simple money transfer from debt holder to the debtor and is NOT INFLATION, though it is inflationary for the local authority acquiring the money as it is increasing the local money supply without a concomitant increase in actual wealth. Debt, normally, is simply deferred taxation, and when taxation is increased to pay the debt we will see deflation.

Now, if the Fed starts printing money to satisfy debt holders, THAT is monetary inflation. But again, debt holders are not W-2 earners, and the core problem with an economy in the liquidity trap is getting money to J6P's W-2 income.

There's plenty of money around now, enough for everyone. Problem is the wealthy have nearly all of it. We're in the end-stages of a Monopoly game, basically, with most of the players with their properties turned over for cash and basically out of the game.

Troy says

There’s plenty of money around now, enough for everyone. Problem is the wealthy have nearly all of it. We’re in the end-stages of a Monopoly game, basically, with most of the players with their properties turned over for cash and basically out of the game

Exactly. The reason the huge money supply (m3, mzm, etc that inflationist like to point to) is not inflationary is because the people that hold most of that money have no interest in spending it, just keeping if there aren't good ways to make it grow. It's got no velocity.

The bank deposit was created in the loan process, and the bank deposit is also backed by property. There is no inconsistency, just two ways of saying the same thing.

the problem is the intrinsic value of the house is the sticks and bricks. The land value component of the home mortgage is untethered to physical reality, as Japan's declining market made pretty clear. I guess the the "real" intrinsic value is essentially its rental value, which is dependent on area wages etc.

Plus a lot of new suburbia of the last decade was built in very uneconomic locations should gas go to $10/gallon. Houses are pretty non-mobile and it's tough recycling them, so all this suburban investment may very well be malinvestment late this century if not decade, should it cost $30/day to commute door-to-door.

MarkInSF says

Troy says

There’s plenty of money around now, enough for everyone. Problem is the wealthy have nearly all of it. We’re in the end-stages of a Monopoly game, basically, with most of the players with their properties turned over for cash and basically out of the game

Exactly. The reason the huge money supply (m3, mzm, etc that inflationist like to point to) is not inflationary is because the people that hold most of that money have no interest in spending it, just keeping if there aren’t good ways to make it grow. It’s got no velocity.

BTW, this is why I think the idea of a consumption tax is completely backward. If deflation kicks in, we should be encouraging holders of money to consume, not hoard their money. We should be granting a tax DEDUCTION for consumption. That essentially ends up propping up prices in the face of price deflation. This also allows the money to flow into the hands of debtors, who can then pay off their debts. It's a way to embrace credit deflation w/o destroying aggregate demand. I know it sounds kooky, and it would be very unpopular to give cash rebates to the rich for spending their money, but it's actually win/win.

maxweber1 says

Gold is a sure bet. One knows it is worth what it took to mine it at least.

Why? If I spend 3 days mining sand does that make it worth something?

Troy says

the problem is the intrinsic value of the house is the sticks and bricks. The land value component of the home mortgage is untethered to physical reality

Well, there is that. I suppose you could make an argument that the property backing the currency is not of sufficient value. I think I see what you're getting at. A central reason the property has so much dollar value is that that somebody was willing (even if not really able) to take on that amount debt. Still, it is interesting to note that our currency arguably is more backed by things with intrinsic worth (land, and shelter) that ever in it's history, including under the gold standard.

MarkInSF says

I know it sounds kooky, and it would be very unpopular to give cash rebates to the rich for spending their money, but it’s actually win/win.

more wealth-preserving to just *take* their money. The Bush tax cut sunset is one step in the right direction. We need to make about three-dozen more, alas.

The wealthy "fostering jobs" with their discretionary spending is something of a broken-window fallacy. The goods and services they acquire -- ie the labor they command -- with their spending accretes only to their well-being and is generally an over-investment by the labor pool in rich-person-only luxury stuff.

Toyota's going to sell 500 Lexus LF-A @ $400K apiece. At the end of the day the economy would be better off with 6000 workaday cars @ $30K apiece instead (assuming there is consumer need for new cars right now, which there really isn't).

This is just my inner Marxist talking and I haven't really developed this line of thinking that well, LOL.

thank you for all your interesting thoughts on all this. I look forward to reading them more carefully tomorrow morning and writing worthy replies. (yes, it's bed time on this side of the pond.)

I leave you with these final questions:

Is gold currently in a bubble?... based on the fact that has always been the traditional default currentcy and therefore people hold it in perhaps unwarranted esteem...

Do you believe that the bubble will pop (maybe any ventures to guessing when)? What would be the consequences of that? How big of an industry are we talking about?

Night, night, my good friends from the other side of the pond.

I don't think gold is the same as fiat currency because you cannot print gold, though some seem to be claiming that "paper gold" is being minted for trading purposes.

Is gold in a bubble?

It depends on what you call a bubble. Is the nominal price rise in the decade from $300 to more than $750 a bubble? I doubt it.

The recent runup well north of $1K a bubble? Probably.

turtledove says

Is gold currently in a bubble?

Likely so. I think there were perfectly valid reasons for gold be much more dear from it's late 90's low, but more and more buying seems to be based just on gold being the "hot thing". If it is in a bubble, it's likely to continue it's rise. Bubbles tend to go on for a lot longer than bubble callers think.

Land, Scarlet. Land is the only thing that matters because its the only thing that lasts!

Everything is in a bubble. The comment about water vs Coca Cola is right on.

turtledove says

MarkInSF says

MarkInSF says
Actually, come to think of it, this means a dollar bill does in fact have some intrinsic value. It’s backed by mortgages, which are backed by houses, which have intrinsic value.

So, could one go further to say that since the dollar has some intrisic value, by virtue of being backed by mortgages, which are backed by houses, that the dollar could be worth more than gold — if the world decided that gold has no value other than sparkliness. (though my six-year-old might disagree, as she loves her sparkly princess crowns).

This is a fun thought experiment, but IMO not accurate. A mortgage is secured by a property but it is not backed by a property. The mortagage may only be exchanged for a home if the debtor defaults. Therefore the dollar is backed by Fannie bonds, which are backed by mortgages, which are backed by future streams of dollars.

I agree with Troy's description of the value of a dollar.

Troy says

The dollars were CREATED via mortgage lending and the Fed buying treasuries, but I find the idea that they are “backed” by the same to be a bit odd.
A dollar’s value AFAICT is the goods and services it can acquire as it pings through the USD bloc.

If our economy goes Mad Max on us, I would accept dollars as tinder to light my fires, and gold to throw at the angry mob that wants my fire. All the while yelling, "I'm rich, biatch!! Go make your own fire, jerks!"

All real wealth comes from the earth. Even things like art and leisure are only given value after food and shelter are abundant.

So I'm revisiting some of the old threads I posted on.

To respond to TurtleDove:

larrypatrickmaloney says

If you have to ask, you will never know.

So this is inherent knowledge that you’re born with (or not, as the case may be)?

Why don’t you humour me with an actual answer, anyway? Afterwards we can decide if I have the mental horsepower to comprehend what I “will never know.”

============
So, this common expression means that if you have to have everything explained to you, then you lack the personal power to learn on your own. Get it?

For you liberaltards out there, I took the liberty of posting a chart of Gold for you, since the last time we wrote on this topic. Gold is up 40% since then.

I'm glad progressives don't buy PM's.

turtledove says

thank you for all your interesting thoughts on all this. I look forward to reading them more carefully tomorrow morning and writing worthy replies. (yes, it’s bed time on this side of the pond.)
I leave you with these final questions:
Is gold currently in a bubble?… based on the fact that has always been the traditional default currentcy and therefore people hold it in perhaps unwarranted esteem…
Do you believe that the bubble will pop (maybe any ventures to guessing when)? What would be the consequences of that? How big of an industry are we talking about?
Night, night, my good friends from the other side of the pond.

I think this is the key point - gold is at all time highs. Is it a bubble? I don't know really, but I'll put it this way: I was buying at one time, I sold out and am not buying now. I think it has little upside and lots of down. But then I am not a 'gold bug' who thinks it's going to $2000+/oz.

I think Nomo made some of the most cogent statements - wealth really comes from the means of production i.e. arable land, ability to provide services, etc. I wouldn't recommend investing in California real estate (the money was made already) but I would take riparian rights to fresh water on a good piece of arable land over gold any day, in terms of a safety net in a gloom and doom scenario.