One always needs to look at one's ideas from different perspectives, especially when one feels surest about them and certainly when developments call them into question. So, I know a guy who does branding and I thought about it from his perspective.
I went through the asset classes, thinking in terms of a simple phrase that might characterize people's opinion of them:
Commodities: See "deflation" above.
Real estate/REITs: Are you kidding?
Mortgage-Backed Securities: Full of Lemon Loans, the whole problem. Next.
Corporate Bonds: Spreads too high, too much risk.
Municipal Bonds: No bond insurance, hurt by falling tax revenues.
Treasury Bonds: Yields INCREDIBLY low.
Foreign bonds: Nobody even knows how to buy them.
American Stocks: Cramer says "1987".
Emerging market stocks: 1987 or 1929, take your pick.
Even Money Market accounts are in trouble as the Reserve Fund "broke the buck".
That doesn't leave much. I come up with MAYBE European/Japanese stocks...and gold.
Gold is the only asset with - if you'll allow me - an untarnished brand.
Therefore, tragically, gold will go up and fast as people lose faith in other assets. It will also go up on the false, chimerical belief that somehow gold is money.
Here's how wrong is the idea that gold is money: Islamic law more-or-less mandates that gold be used as money and yet Islamic states issue fiat currency.
In the modern world, gold operates as a vehicle for currency arbitrage - a place to temporarily park your assets until you decide what currency you want them in. But it is a creature OF the currency system, not a backing for it and certainly not a substitute. For this reason the dollar index - despite unprecedented turmoil and low short-term rates - does little:
Once people decide they need that currency - to buy things - they sell their gold. And that's what people will do - en masse - when they start to need the money they have "saved" by buying gold.
In the meantime, goldbugs, have fun and, as ever...
May you live in interesting times
13 comments:
with all due respect, you are an idiot. what is it that makes money money? what characteristics describe money? is debt money?
Just because govt's have written laws that force people to accept fiat currency as money does not make it so. Fiat currency is a promise from the govt that it will pay i.e. debt. When did debt become money? You sir are either an idiot or have an agenda to misinform others
To answer your last question first, debt became money in about the 1300's, with the development of fractional reserve banking, mainly in gold-backed overdraft credit.
Debt became money when people in the same system of payment intermediation (using the same money-changer/bankers) accepted book entry debits and credits in lieu of coin.
Then, instead of specie coin, people began to accept paper money.
Indeed, "just because" citizens decide on a universal legal tender does, indeed, make that legal tender money. My proof? The fact of tens of trillions of dollars' fiat currency that everyone accepts every day.
If you think gold is money, go down to the local supermarket and try to buy something with it.
"Indeed, "just because" citizens decide on a universal legal tender does, indeed, make that legal tender money."
Try that with someone less informed than myself. The citizens decided nothing. This was forced on them illegally through laws passed.
And no, debt is not money. Debt is debt and just because most people are not aware that fiat currency represents a promise by the govt to pay and have been conned to believe that it is indeed money does not make it so.
"The fact of tens of trillions of dollars' fiat currency that everyone accepts every day."
Go tell that to the zimbabweans and see their response. They have now learned, the hard way that fiat currency is not money.
"If you think gold is money, go down to the local supermarket and try to buy something with it."
Like I said, try that on someone less informed than myself. Illegal laws have been written that prevent me and others from doing that. It is not because the supermarkets do not believe gold is money. The law forbids them to accept gold as legal tender. Remember the liberty dollar
Ron Paul Liberty dollars
Anonymous and I had this merry exchange:
Me: "Indeed, "just because" citizens decide on a universal legal tender does, indeed, make that legal tender money."
A: "Try that with someone less informed than myself. The citizens decided nothing. This was forced on them illegally through laws passed."
Well, first of all, a child should be able to see the silliness of the phrase "illegally through laws passed." If the laws passed, they can't have been illegal, can they. I believe a Mr. Ron Paul has been elected several times and he has tried to do this and that about hte banking system and been outvoted. So the "force" seems to be the force of democracy.
And again, debt has been money every since the 1300s when people began to accept bank drafts and other book entry forms of payment. So it's been real enough for folks to do business for about 700 years.
As for the Zimbabwe example, it is of course true that not all fiat money is equally valuable and there's no reason it should be. Many people don't understand this. U.S. dollars are a much "harder" currency than any other in the world, because people will accept them almost everywhere on earth.
The greater the acceptance of a currency, the more valuable or "harder" it is. Many centuries ago, gold was universally accepted and was the "hardest" currency. Now it isn't.
Things change.
And you are completely wrong, of course, about the law forbiding anyone's accepting gold in trade. Barter goes on all the time. There are even barter credit cards. But the ultimate measure of value people use is fiat currency.
Possibly you're a devout Muslim or something and believe that Allah has declared through his Prophet (PBUH) that trade must be "wheat for wheat, gold for gold" but unfortunately, as I wrote, even Islamic states issue fiat money. But Shariah-compliant banking is growing and maybe that's something you should look into.
What would prove to you that laws do NOT dictate what currencies people can accept would be a quick trip to Canada. In many Canadian stores, you can use U.S. dollars or Canadian dollars to pay for your purchases. In New York city, I understand merchants are starting to accept euros for payment.
And of course major credit cards are an almost-universal form of payment in any big city across the world, no matter what currency the account is in. So if the gold you have is a gold card, you're in luck.
Money is a human creation. We can call anything we want money. What's important is whether people will use it in trade for goods and services. Money is just an accounting unit.
I have indulged thus far for the sake of others who may read you blog and be misinformed. Where do I start.
Well, first of all, a child should be able to see the silliness of the phrase "illegally through laws passed."
I can understand your confusion. This space is not enough for me to adequately address that but I will give it shot. There are universal immutable laws. Like all men are created equal. Yet laws have been passed that legalize slavery. Those are illegal laws.
Democracy, what democracy? voting for someone who never represents the people who voted for them is not democracy. It is more akin to limited dictatorship. Chose your dictator for the next 4 years. Enough said on that.
Gold as money has been around for more than 5000 years, and absolutely nothing has changed more than 5000 years later. Tell me why does the US store GOLD at fort Knox? Why did FDR confiscate it in the 30's? why are Ron Paul Liberty GOLD dollars illegal? For something so worthless since its not really an industrial metal, it sure faces a lot of govt restrictions. And oh by the way how come not one single fiat currency that was in use in those 1300s is in use today. All fiat currency reverts back to its real value which is near zero. Everyone of them. Just because the Dollar is widely used now does not guarantee (actually it will not be a currency in the future.)its use in the future. But Gold my friend will be 1,000 years from now.
And because I disagree with you, I must be a muslim. Straw man.
Money is a human creation. We can call anything we want money.
How so true. But fiat currency is not money but a representation of money or value. Let me allow Sam Mathid to say something "It is only when people arrive at the breathtakingly silly belief that the pieces of paper themselves have value, as opposed to merely the representations of value, that problems occur.
And I almost forgot.
And of course major credit cards are an almost-universal form of payment in any big city across the world, no matter what currency the account is in. So if the gold you have is a gold card, you're in luck.
So, a Gold card can be money but not the Gold that card is supposed to represent. Since you wrote
Here's how wrong is the idea that gold is money
mmmmmm Very interesting your thinking is. Intriguing indeed. I have now reached my conclusion about you. You are here to intentionally misinform others.
As for the Zimbabwe example, it is of course true that not all fiat money is equally valuable and there's no reason it should be. Many people don't understand this. U.S. dollars are a much "harder" currency than any other in the world, because people will accept them almost everywhere on earth.
Like I said where to start. Please enlighten us why zimbabwe dollars are different from US dollars. What backed zimbabwe dollars is exactly what backs US dollars; i.e. citizens labour. So, granted, the US is a way bigger economy than Zimbabwe but both are backed by the citizens labour or if you like taxation and inflation.
The US dollar will die/default because the US owes more than it can ever repay. Why will it be unable to repay? because its fiat currency is not money but a promise that the US govt will make good it's promise. What happens when the debt is so big that it cannot be repaid? (read US citizens labor is inadequate). I will tell you. It will be defaulted upon either through inflation or outright default. Which by the way happened when Nixon took the dollar from Gold.
Anonymous,
When you talk about "immutable laws" and gold, you clearly share the belief of Islamists who believe that banking is sinful and illusory and it should all be done - as the Koran and Hadith dictate - "wheat for wheat, gold for gold". Again, I point you Shariah-compliant finance and the many websites which promore Islamic Banking. I myself do not share these beliefs.
The statement "absolutely nothing has changed 5000 years later" is obviously ridiculous and it should make you realize that you simply don't understand banking and finance and are simply trying to reject what you don't understand. It's a common reaction.
The essential differences between the Zimbabwean currency and the American currency are obviously two:
First, the laws and governmental system of Zimbabwe is not trustable, and therefore the currency that the organization issues is not trusted - just like the so-called "Liberty Dollar".
Second, the Zimbabwean currency is not desired or accepted outside Zimbabwe and even in Zimbabwe other currencies are preferred, such as the South African rand. By contrast, business is done in American dollars everywhere in the world and the present financial crisis finds investors fleeing to American Treasury bonds in such numbers that the three-month bill is actually yielding almost zero interest.
Gold is going up sharply, no question, but the dollar is NOT going down sharply, as your theory would predict. I've demonstrated that on my site time and time again with the chart of the dollar index.
The shortage of dollars is starting to cause other currencies - the Chinese yuan, and the Indian rupee being two - to start to lose value quickly has they lose the "hardness" of being backed by dollar inflows.
You can ignore the fact that 85% of all foreign exchange transactions are done against the dollar and that the dollar represents 60% of the world's foreign exchange reserves, but you're foolish to do it.
In the 1300's, gold became the basis for fractional-reserve banking. Slowly, people realized that there did not need to be physical assets as reserves because there were huge advantages in accepting book entries as money.
There are people who don't like being part of any system and want the ability to take their ball and go home, but that's just childishness.
You sir are not only a mis informer but also an idiot.
When you talk about "immutable laws" and gold, you clearly share the belief of Islamists
I just explained to you how there can be illegal laws (since you pointed out how since that notion was that even a child could see it) and you now try to tie what I have said about immutable universal truths to imply that I said GOLD is an immutable currency or something like the Muslims. Let me spell it out to you.First, I am not a Muslim and even if I was, my argument has nothing to do with Islam. Why do you want to tie what I say to Islam? Secondly, the laws that have been written that only allow govt issued fiat currency as the only legal tender while outlawing GOLD are illegal. A free people should be able to use whatever they mutually agree to be legal tender without victimization from their govts; like the Ron Paul Liberty GOLD coins.
make you realize that you simply don't understand banking and finance
Of course that should be it. What is there not to understand? The illegal legalized fraud that is called fractional banking or is the various flavors of derivative finance? It seems that I understand more than you sir. You only understand them since the 1300s while I sir understand them from way before then. Which sir is why you cannot understand why no single currency from the 1300s exists today or why the Dollar will not exist in the future or that you are a blatant liar and do actually understand all that but want to misinform others.
Tell us since why is the US Govt trustworthy that it will make good its promise? And if the Answer is because it used all over the world, then I am sorry to disappoint you again that I am more informed than that. Can you say Dollar Hegemony, Bretton Woods, Imperialism, War, Nuclear weapons. Enough said.
The Dollar is not going down you said. Again you are a liar. I am not talking about this week or next week. The dollar has lost its purchasing power by 95% since 1913. If that is not loosing its "value" then I concede I don't know what loosing value is. Further what has been saving the dollar is its world reserve currency status which was established while the dollar was backed by GOLD with the understanding that the US would give equivalent GOLD value to dollars upon request. Hence why I earlier said that the US has defaulted at least once before; when Nixon rescinded on this by taking the Dollar from GOLD peg. And why I can predict with 100% certainty that the US will default on its debt er dollars.
In the 1300's, gold became the basis for fractional-reserve banking. Slowly, people realized that there did not need to be physical assets as reserves
No, bankers realized that they could commit fraud since they realized that they could issue more paper than was backed by GOLD. Why? because not everyone demanded GOLD back at the same time and because it was convenient to carry paper, the people did so fully trusting that the issued paper was backed by GOLD. Just like today. Most people believe that their savings are in their banks. When they loose faith in that, Can you say "run to the bank".
There are people who don't like being part of any system and want the ability to take their ball and go home, but that's just childishness.
Of course, it must be childishness. It cannot be that they understand they ponzi scheme. I have just been re-reading your responses and not once have you addressed the core contentions. You skirt around the issue raising straw men to draw away from the issue while never addressing the issue. GOLD is money has always been and will always be because it is universally accepted by people as money. govts can illegalize it but that will not change its status. Humans already accepted it as money more than 5000 years ago. It is not a representation of value but stores its value intrinsically; it is timeless, not easily destroyed, cannot be inflated at will for you have to work to produce it (ah labor) etc
Just so that your readers know Islam did not make GOLD money. GOLD as money has existed for over 5000 years. Islam is nearly about 1400 years old. I just thought to make that clear so that you are unable to use that again to misinform others or brand me a Muslim.
Anonymous,
Look, either get some more of your fellow goldbugs to write here or stop saying the same things over and over.
If gold is money, then go and BUY something with your American Eagles or Kruggerands or "Liberty Dollars".
You say that gold is money. Go and prove it. I just went to 7-11 and proved that fiat money will get you a hot dog and a coke.
There IS NO LAW against your using gold for trade. The law of legal tender only requires people to ACCEPT U.S. currency, not use it.
People CAN AND DO ACCEPT OTHER CURRENCY IN THE U.S.. It happens. You can go to a store in the United States of America and use euros to pay. You can also use Canadian dollars in some U.S. stores. You can also barter with gold or whatever you want.
So your weird theory that other forms of money are illegal is simply wrong.
Now I am a gold bug eeeehhh. I have countered your arguments point by point while bringing you to the original issue of Gold being money and you have failed to counter that; hence I suppose your last response asking me to go away and stop raising the same point. I must have missed something since that is what I believe we have been debating about.
As for your other arguments, I need not quote you the law; educate yourself. But, I can show you actions that prove it is impossible for me to trade with GOLD.
http://www.bloggernews.net/111739
http://www.financialsense.com/fsu/editorials/2007/1118.html
http://www.gata.org/node/5764
ETC ETC ETC ETC
It is illegal for me and others to trade in GOLD. I did not make that so. I am just reporting on it. Get it?
As for your other silly argument about other currencies being used. Are they not all fiat currencies issued by their respective govts? Have not central banks accepted their use as valid legal tender? I will enlighten you again; just because slavery was "legalized" did not make slavery right. And just because there was ample proof of its legality through slave ownership does not invalidate that slavery is a savage and illegal activity: That is an immutable truth. Get it?
I nearly fell off my chair when I saw this article. This Dude must be reading my mind.
http://www.safehaven.com/article-11320.htm
Absolutely phenomenal. I will let Alex Wallenwein educate you some more.
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