Magpie

Does seem pretty shabby for those who are having to phone some line to claim their stuff back, and presumably being treated like criminals while they're about it.

That's an interesting distinction. I'm not convinced that a system of equity shares would have been sufficient to create the industrial revolution and the modern age, or that a fixed money supply is the solution to all financial folly, but I do agree there are slightly different moral aspects to the two forms of lending, and that usury demands an extra level of concern and attention. I'd just see that as an argument for regulating banks strongly in their capital requirements. If you have stringent capital requirements, and don't allow any off-balance sheet malarkey, then you have the advantages of a flexible money supply, but far less incentive for insane short-termism on the banks part. The central bank's role as lender of last resort only makes sense if the central bank/government also makes it clear that this only applies to banks who comply with strict rules of behaviour. What we have seen in the last decade is an abdication of this responsibility by government, who fell for the ludicrous theory that only bankers know how they should be regulated.

There's an imbalance of power in most, probably all human systems. Before you had fiat currency, you had governments, self-declared aristocracies, and other states with armies and taxmen. Governments (and kings) were fond of grabbing some more money/gold from other states or from their citizens - indeed when gold ran short this was often their best option. Meanwhile there wasn't an effective system for financing capital projects. Which is why usury and the issuing of shares became more prevalent after the middle ages. There's a degree to which these were the financial factors behind the industrial revolution, all that 'token money' which helped to build the railways, canals etc. I think it's easy to be too utopian about an the imagined virtues of alternative systems. Personally I think the more pressing issue is to argue for better regulation of the current system to create better checks and balances on those who tend to abuse their power within it.

Not sure about that. Surely it's the lending of money at interest that is really at the heart of a lot of these issues. Usury in other words. Which is why fractional reserve banking works (from a bankers point of view). I'm not as bothered by fractional reserves and fiat as some people here. I think all monetary systems have flaws, and need wise and careful regulation. Which is what we have lacked in recent decades.

Very true - I suppose my key point was just that in judging stores of wealth, you need to compare the performance of gold against invested cash, not against cash itself. But I know many here see gold as an insurance rather than an investment, which is fair enough. And if the bull market continues then we may be in a period when gold does well as a store also.

Yeah, it's been OK, but there have been plenty of other strategies that would have done far better over the last century. Just seems worth pointing that out when people make a comparison with fiat - the point being that no-one who is serious about preserving wealth puts a shoebox of currency under the bed, they do something with the money, even if it's only to put it in a bank. The next few years will be interesting, of course, and might be the moment when gold as insurance policy comes into its own.

But if you had chosen cash you would presumably have had the sense to put it in an interest account. Inflation over the last hundred years has devalued currency by a factor of about 80-100. Gold has only increased in value by about a factor of 45. Possibly an argument that it's undervalued now, but not a great store of value over that period. You could match the increase in gold's value so long as you had your cash in an account paying 4% pa (and so long as the bank didn't go under or currency collapse, of course). You could have matched inflation, and outperformed gold by a factor of 2, with an account paying 5% pa. Or with any other investment strategy that paid a steady 5% return. I think the argument for gold as insurance looks better than the argument for gold as a store of wealth, to be honest.

If it does hit $650, even I might be opening a BV account.

Here's someone who sees a head and shoulders in gold indicating a fall to the $650 region: http://www.marketoracle.co.uk/Article4872.html I'm not a chartist, so I'm merely passing it along...

Doesn't entirely make sense. Oil supply is entirely dependent on new production. Gold supply is only dependent in a small way on new production. A lot of gold that is sold (or not sold) has been in existence for a long time. I accept there might be some relation, as choking off new mining will have an impact on the supply of new gold, but it wouldn't suggest the ratio needs to be relatively stable, merely that there is some causality between the two.

Sorry, my cultural references are getting dated, such a sign of ageing...

Wouldn't the theory be that any gold or silver coin (or in any other form) would be something that could be used as payment given the Mad Max scenario where currencies and economies collapse? A fiat coin gets its value from the fact that we trust it will be accepted, from a social convention. But a silver or gold coin gets its value from the metal content, which is a rather different thing. I always mention the fact that in those situations, you'd only really be protected if you also had guns, bullets, petrol, water, tin cans or whatever as well as gold/silver. But the gold/silver might come in handy so long as you could protect it...

As it happens, there's an interesting quote in the Ben Steil transcript on this subject, which emphasizes that fluctuations in the gold supply were indeed a problem when it was the international currency: "The basket idea has a lot of attractions in the abstract, because I have to emphasize gold is not, in any sense, a nirvana currency. We certainly did see periods in the 19th century, for example, where the supply of gold went way up, and therefore prices went up, and then it came down, and prices went way down. Over the longer term, it certainly led to a price stability we've not seen under fiat currency, but a basket of commodities would have all the benefits of diversification that all of us as investors like." I like him because he is realistic about the problems of alternative systems, including gold, but still very good at identifying the risks and problems of the current one.

I just read the transcript. Extremely interesting, especially in the analysis of how the US dollars role as international currency may change. Thanks for the link.

No ,to be fair, I was attacking the source rather than the use you made of it. But I think it's a dubious fact, gold supply has gone in surges and plateaus and gold has changed value plenty even if it has ended up in more or less the same area. Yes, and I think some goldbugs have worked back from the desired conclusion, that gold's value is unchanging, to the supposed fact, that gold has increased at the rate that would make that true. Even if it is true, which I doubt, it's a highly conditional fact, liable to change in future.

My mum won't drive a little car since she crashed her 2CV into a big Rangerover. The other car was hardly dented, hers was a write-off.

Nah, I wouldn't hang around here if I disliked you lot. I'm just fond of an argument, and I don't have much patience for bad logic. No offence either way. I think that question is worth asking now, no matter how far away we think it might be. Even if we don't get to the point where it's not needed for insurance, we might get to a point where a spike gets out of control and then runs into a crash - worth thinking about that now with a clear head, as the spike might cloud judgment, just as the housing boom clouded so many people's judgment. OK I'll try, but not at work, no speakers. Maybe at home later.

Agreed - the money is already there if people decide to put it into gold. Some money and credit getting destroyed now won't affect the money that is likely to go into gold. I think there is something technically correct in the deflation argument, in that a lot of money will be destroyed, money supply may even fall temporarily on some measures. But I think the result on prices will be a mixture - deflation in certain areas (housing being an obvious example) and inflation in others (cost of living, wages to a lesser degree).

My gut feeling on this - there might technically be a deflation as a lot of apparent wealth and money will continue to be destroyed. This will affect some commodity and asset prices quite badly. But the public will perceive the problem as being inflation as food, energy and goods prices rise. I don't think wage inflation will rocket, but I think there will be a lot of pressure on wage demands and some sectors will achieve more wage inflation, while others fall behind in real terms. In that environment I can certainly see the idea of gold as insurance or wealth protection gaining more adherents, and I'd suggest that the profile of individual gold buyers (most of whom have some wealth or savings to protect) means that wage inflation isn't the most direct driver of their buying decision. It's more about whether or not they transfer money from savings and investments to gold.

I get a bit sneering sometimes and sorry that can be annoying. I think your last line there is very telling though. If you regard someone as honourable you tend to accept their statements as being sincere and probably truthful. The point I'm trying to make is that this can lead to taking on board dubious facts and theories, simply because they come from someone you trust. That's why I started poking at the 'gold has always expanded with population' theory. Others will disagree, but the whole Liberty Dollar thing seemed to me an obvious moneymaking scam. Maybe I'm wrong, but what was interesting to me about it was the fact that a lot of gold believers accepted the whole thing at face value simply because Mr Nothaus 'spoke their language'. Now I'm not trying to imply that all goldbugs are con artists. Most of them are indeed decent and honourable, and concerned about real issues. But I think they sometimes pass on a bundle of received ideas, some of which seem flawed or false to me. To question those ideas doesn't mean that I am questioning the integrity of anyone who repeats them, only suggesting that they apply a critical eye even to opinions from people they trust as well as to opinions from those they don't trust.

You might be right. It's just that I read this thread out of personal interest, and then this is where I find comments that I find questionable. So it feels more natural to respond to them here. Right now the argument tends to be about whether gold is 'real money' and only obstructed from that by coercive government measures (as for instance in GF's posts above). In past decades the debate was more often about the merits of a return to gold as money, and I think this particular historical fact smacks of coming from someone trying to justify gold as a monetary system that could cope with population growth. As I said before somewhere, when you see an obviously dubious fact it often makes sense to think of why someone would have wanted to make that statement in the first place.

1) Disagree for metaphysical reasons - money is a convention, not a natural quality - but we know we disagree on that one... 2) Half agree - we could be on a gold standard, but I think it would simply substitute a different set of problems, including more deflationary periods. I don't think we are only on fiat because of the American Empire and War Machine, but I do think they have taken advantage of fiat's weaknesses, and have been the biggest abuser and underminer of fiat. 3) Disagree. It spent a long time as currency, which means it simply held its value, more or less (given fluctuations in relative values of other goods). Since the 1970s it has a patchy record at best as an inflation hedge. Sometimes good, sometimes bad. Useless for this purpose in the 1980s and most of the 1990s, for one example. 4) Agree - it's a sensible option given the banking crisis and the danger of it getting worse. Someone here described it as "insurance" - I think that's a very sensible way of seeing it in the current instability.

They tax you on all sorts of things, including stuff like buying and selling fine wine and art. I don't really agree that taxing gold is a specific attempt to discourage gold, I'd suggest that argument only makes sense to someone coming at the question from a goldbug point of view. I can understand why it irritates you, but I don't think I agree with the government coercion part of the argument.

Fair enough I might duck out soon. Though I believe you can put me on ignore if I irritate you. Either way I would defend that post . I'm not confusing population growth with economic growth at all. A common argument against the gold standard as a perfect system of money is the fact that it can become deflationary when population grows. You need monetary growth in that situation to avoid problematic deflations. (And in reverse, a rigid money supply combined with falling population can cause inflation as happened with the Black Death I believe). So I'm presented with a historically very dubious statement that gold supply has always grown in line with population growth. I would analyse that as an argument that has been put forward by a goldbug to counter the very obvious point that a rigid money supply is a problem when combined with a growing population. Would you defend it as a good piece of historical analysis? Or claim that a rigid money supply is never problematic? Not fair, I think. I don't hate gold or goldbugs in general and often agree with some of the points made. I think there are excellent reasons for buying gold now. I also agree with a fair bit of the goldbug analysis of what is wrong with the way that central banks are currently behaving. But I do think some utter nonsense is spouted in defence of gold and I think it is intellectually flabby to just claim I must hate gold if I point out weak arguments.

Edit, double post