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38 Responses
The central bankers are so certain that another money cannot spontaneously emerge on the market that they are failing to see it happen before their eyes. Gold is money. Whether it enjoys a privileged legal-tender status or not, gold will remain money.
Remember, the gov’t can always seize your gold. It would not be the first time.
What is so difficult to understand? The money traders of the world have been buying dollars with increasing amounts of other currencies so the ratio of dollars to other currencies is increasing. This does not mean that the number of dollars isn’t increasing, it means that the rate of value drop of the dollar (or in this case the increase in the number of dollars) is not as great as the rate of value drop of the other currencies (or in these cases the increases in the units of other currencies). But the rate of increase in the units of gold is far less than that of the dollar. So investors looking to store money are leaving dollars to buy gold.
I don’t think Big Ben is this ignorant. Big Ben’s problem is that he has no logic to explain this because he has the wrong definition of inflation. If he used the Austrian definition of inflation: The artificial increase in the amount of money and/or credit, then it would not be such a mystery.
Ben and friends are doing this on purpose.
The forums are closed for new registration? Cool.
While I think Big Ben’s economic theory and policy decisions are flawed, he really isn’t this stupid. He’s just trying to put a smokescreen of denial and confusion, just as Greenspan did when he was in charge. See 2004-2005: “Housing bubble? What housing bubble?”
Just an observation– I think Bernanke is smarter than Greenspan, but he’s not the expert deceiver that he was. Greenspan would’ve trotted out multisyllabic words in run-on sentences making horribly obtuse and contradicting points, essentially making anything he said in a public forum completely meaningless.
Greenspan:*In creaky monotone voice* “To be more transparent, that is to say, slightly less opaque, about changes in current monetary policy to be engaged in; I would say that it would not be the opposite of baseless if the possibility of exuberance would be conditionally irrational or not, while if the true measure of our continued expressions of nominal success in terms of underlying or non-underlying growth turns out to be particularly beneficial or non-beneficial, I might add that values could or could not correct from present levels, of that, and of which, we can’t be sure, as forecasting ability is unlikely to get better than what has previously been the norm.
I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
Congressmen, reporters, general public: “ZZZZZZZ. . . . “
they can always SAY they will seize your gold. yet they have pragmatically failed to seize all street narcotics. I don’t see the big difference. …and even when they made gold illegal, i’m fairly certain the majority of its owners failed to comply with that law.
I agree with bob. I’m sure under that scenario many people would be robbed, but the overall population would still have some. In regards to government ban on certain drugs, I think it’s very telling that they can’t even keep them out of prison. Government gold confiscation would be problematic for all but, largely for the government.
What Bernanke is really thinking is, “Hm, this can’t be right — we’re trying to keep the gold price deceptively low by dumping reserves onto the market … and we’ve been doing that. So why the heck isn’t it working? Come on, you’re supposed to be trading gold for LESS, dagnabbit! You big traders used to do that ALL the time whenever we dumped gold onto the market. What went wrong this time?”
The Hunt brothers had it right back in the day–paper money’s no good in the long run; it just gets inflated away by financially insane governments. And bank promises backed up in paper money are even worse. But metals are not printed by governments. Not that complicated a lesson.
Also, the fundamental difference is that gold is no more tied to their currencies as it was in 1930′s (however weak that link was). Therefore, to outlaw gold is a much harder task as they cannot use the argument of gold being linked to country’s economic prosperity etc. Of course, I’d urge everyone to keep it, hide it, refuse to comply.
Perhaps you’ve run out of reserves Ben? What you’ve been dumping were fake claims for gold that you do not posses in your vaults. You claim to have so much on the paper, yet you have leased and sold it out and you can’t deliver physical stuff when requested. The game is over. Gold to go vertical.
J. Cortez and Bob:
Contrary to what you might think, the government was extremely successful in their roundup. The penalty for holding out was severe (and there were allowances for gold jewelry and numismatic
coins).
What would happen in this day age, I don’t know and wouldn’t make predictions. There are a lot more who might be inclined to hold out–and, then, there are a lot more who would inform on them.
Gold would NOT well serve as money under those circumstances by the very fact that, in order to make a transaction, the parties would both be liable to criminal conspiracy charges.
In a sense, government (ours and others) benefitted from a “lucky break”–the fact that, for reasons of convenience and comfort, people generally much prefer paper money to metal money (of course, they’re under the assumption that it’s “good” paper). As long as the paper’s convertible, most don’t worry. But, knowing that their intention is to inflate as much as possible in the future, governments realize that people will, increasingly, “catch on” and convert their paper into metal, which would quickly expose the degree to which they’d been scammed when the metal stock was exhausted long before the all the paper presented had been redeemed. So, what could be simpler than getting hold permanently of all the gold so that it no longer represents a threat?
Bob (up top) is right; gold is still money. And all those who deny it know it just as well–they simply can’t “let on” or the end will be in sight. Greenspan, Bernanke, all of ‘em in every gov’t. everywhere–watch that gold price over their shoulder or out of the corner of their eye while pretending it doesn’t mean that much. To take the pressure off, they’ve sold off some to dampen its rising price, or “leased” it (like the U.S.)–moves designed to “stabilize” its price and punish aggressive “long” speculators in the futures markets. In the longer run, though it merely increases the amount of it by which they’re short (insofar as its realtion to the money supply), so aggravating the condition they’ve been trying to deal with.
At some point, folks will decide their $$ aren’t any good, or their marks, or yen, or whatever. What the price of gold is just before that dreadful event takes place is anyone’s guess. If we’re LUCKY, gold will go to $5-6000 per oz.; actually I more or less expect to see $12,000 and wouldn’t be at all surprised to see $45,000. Don’t snicker–or you’ll be just like the people who snickered back in the mid-’60s (at which time the price of gold you couldn’t buy was $35) when I said I expected gold to go to at least $300, maybe $1000. The important question is: How far up does the price have to go before an important number of people decide they don’t want their paper any more–or obligations and deposits payable in that paper? Because that’s when everyone gets to find out–first hand–just how important economics really is.
Is there anything a government can’t seize? Note that it wouldn’t even need to seize fiat currency, since it can just turn all yours into Monopoly money without even entering your home.
You did that way too well.
To bad you did end that run on sentence with a Bel Air (yo Holmes smell you later)…you would have gotten a lot of people good!
I think the problem is that you take a course in economics, and you learn there are very precise formulae that link the price of gold to the amount of currency in circulation. And it’s not really so.
Gold prices obey the law of supply and demand. There’s plenty of gold on gold traders’ shelves, so prices just go up with increased demand. And who wants gold?
Fearful people, who think the economy’s tanking. People who dwell on Mises.org, for example. They all rush to the gold window and buy more bars they can hide under their beds, to stave off the great Coming Collapse.
Not a surprise that prices consistently go up in worrisome times. But people only sell their gold when times are good and the crisis is past. And then gold goes down. So if you buy high now, some day you’ll be unloading low.
Also take a look at the ‘sell’ price for gold. It’s 25-30% lower than what you can buy the stuff for. Whereas with currency the ‘buy’ and ‘sell’ prices are always the same.
Maybe you should buy diamonds instead.
“The Hunt brothers had it right back in the day–paper money’s no good in the long run; it just gets inflated away by financially insane governments.”
It’s been pretty good over the past hundred years. How much of a ‘long run’ do you require? Even when convertibility has been suspended, as it was in the US in 1933* and Switzerland in 2000, the currencies didn’t devalue.*
Look at the historic tables. The dollar had been deflating from the beginning of 1921 up to the time convertibility was suspended, in 1933. And at times, gravely so. Then it comes into balance. Over the next five years it has a positive inflation rate of only 1.766%. That’s as close to being in absolute balance as you’re going to get.
http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=6
“And bank promises backed up in paper money are even worse.”
Better take a look at one of your greenbacks. Doesn’t it now say “federal reserve note”? It’s not backed by anything but itself. It is what it is. And life goes on despite that fact.
Whoever told you our greenbacks were backed by promises told you wrong. It’s Treasury notes that are backed by promises– to pay in dollars.
All true, however I’m speaking of what the gov’t would do if it feared gold started to replace the dollar as a currency. At that point I would think individual holdings would be substaintal hence the reason for confiscation. Just my guess.
Diamonds aren’t rare, just controlled by a monopoly at the source(which is probably half the reason blood diamonds are illegal). Gold’s got all the properties money needs and has a history as such; besides, gold rarely falls very much – it’s normally sold off when inflation’s stabilized and investors are more interested in investing than hedging; but if Bernarke decides to take the printing press to ludicrous speed, it’s not going to happen and gold can very easily return to active circulation. All the guns in the world are meaningless if the majority wants to do something.
Federal reserve notes are only valuable because people have to take them for “all debts, public and private”. What he was referring to were actual banks’ notes.
Governments are more likely to implement a wealth tax, which would apply to one’s holdings in gold and silver and plat. The tax would start out at a low percentage, and be applied initially only to sums beyond a seemingly high figure.
Were inflation to take off, that high figure will not be so high anymore in real terms. And the low percentage will increase.
michael,
Do you see the same numbers I do? A 95%+ dollar devaluation over the last 100 years is ‘pretty good’? Sure, there was ‘low’ inflation from 1933 to 1938, but you conveniently ignore the atrocoties of the 60s and 70s. Even over the 2000s there has been more than a 25% devaluation of the dollar in terms of purchasing power.
Just because the US hasn’t seen short-term hyperinflation…yet…does not mean that the American people have not been robbed over the last 100 years by the insiduous tax of inflation. It just means that, relatively speaking, the Federal Reserve has been less aggressive in stealing from the savings and salaries of American than, say, the Central Bank of Argentina from Argentines.
On the topic of gold: the advice here is not to short-term speculation trading of gold. It’s to buy as an insurance policy in the case of the currency failure.
Moreover, the buy and sell prices of currencies do not stay the same! Sure the nomincal value of a federal reserve note is the same from one day to the next. However, what it can obtain in terms of goods and services from one day to the next changes based on supply and demand of the goods and currency. Over the long term (say 3 years), the clear historical trend is that it sells for less in terms of goods. As you noted, gold prices fluctuated according to supply and demand. So do dollar prices. The price of a dollar is what it can obtain of a given good on the open market. A dollar might be worth 3 oranges or 1.2 euros today, but tomorrow it will be different.
Do you see the same numbers I do? A 95%+ dollar devaluation over the last 100 years is ‘pretty good’?
how many more dollars are there now than 100 years ago?
Just because the dollar has been devalued over the last century how have the people been ‘robbed’ (anymore than so than for who see tax as theft)? To presume 95% of dollar loss equates to a 95% in the loss of the standard of living is ridiculous. Who says that the unit of currency must be static anyway?
I would offer that gold supplies are actually controlled by a small number of companies as well. It’s not as tightly organized as the diamond cartel, of course.
“..besides, gold rarely falls very much – it’s normally sold off when inflation’s stabilized and investors are more interested in investing than hedging”
Like so much one reads here at Mises, that depends on what you mean by ‘inflation’. If you use the Austrian definition, it means approximately what I mean when I say that fear rules the gold market. It goes up when more people are afraid.
But if you look at the price index, there’s no link. Prices fell last year. This year they’re up by a negligible amount. Yet gold prices are being kept buoyed up by a very high demand.
What do you make of all reports telling us M3 has fallen? Doesn’t that counter your argument? True, the money’s ending up in bank vaults in the form of reserves– it’s not being retired by the Fed. But the effect is precisely the same. Less money in circulation, by a long shot.
“All the guns in the world are meaningless if the majority wants to do something.”
Tube– I’m intrigued by this statement.
Are you implying that the temptation was there for you to take up arms to try to overthrow the decisions the majority among us have made concerning how we prefer to be governed? That you feel so strongly that you’re entitled to make such a move, and to execute it with violence against the majority?
That seems counter to the spirit of America. When we were all young we were taught that the strength and worth of our country was that we were organized according to democratic principles.
Of course that was then, this is now. I note that the Texas School Board, in its wisdom, is now putting out new history books with the word ‘democracy’ excised. In its place we now see the new formula– we are a ‘Constitutional Republic’. Which doesn’t exactly stir the same allegiance in a fourth grader’s breast!
So we slide toward a state I would describe as fascism. I suspect you’d use another word for it.
Brent– You keep looking at a hundred years, a hundred years. Why? This is an abstraction that doesn’t affect our lives. Look at decades instead.
From one decade to the next, we find an hour’s worth of income buying more than it did ten years before. And if we’re lucky enough to have any investments, they’re spinning off enough money to keep up with any price increases and then some. So what’s the problem?
Everybody here’s telling each other the sky’s falling. Yet last year we had actual price DEflation. And this year prices are only gaining by a modest two percent. So if you earned a dollar two years ago, gas was four dollars. And today you can spend it on gas for $2.59.
But that’s not important, apparently. The real problem is the money supply’s growing by such a terrible rate. Yet if we look at that, M3 is now actually shrinking at quite a fast pace.
So forgive me if I observe that we’re being sold some snake oil.
I think we’re succumbing to a confusion over the idea of ‘legal tender’. If someone offers you repayment of a debt in gold, you’re not required to take it. But if he offers you a handful of Federal Reserve notes, you are. That’s the law.
However there’s nothing to preclude you from trading bars of gold in payment for a good or service if the vendor agrees to accept it. Really. Check this out.
The only caveat is that you’re required to attach a dollar value to the transaction and report your earnings to the IRS as either income or an expense. If you exchange gold for some item that’s deductible in your business, you can take the dollar amount off your taxable income.
Is that your problem, that gold exchanges can’t be used to evade tax liability?
Finally “The important question is: How far up does the price have to go before an important number of people decide they don’t want their paper any more–or obligations and deposits payable in that paper?”
I suspect an important number of people are like me. They think that what goes up very likely will be coming down. And so they hesitate to trade something they’re familiar with– dollars– with something they aren’t– gold.
The dollar has been holding steady the past few years. If people are looking for a store of value they’re likely to stay put. But if you and your friends want to exchange gold amongst each other, more power to you! It’s all legal.
Just be sure to report all your earnings to the IRS.
“…I think we’re succumbing to a confusion…”
please confine yourself to the first person, unless you’re royalty.
That sounds too much like charlatan talk from a government plant. I notice more & more lately NWO scum pushing diamonds. Hell, the Golden League series of track events is now called the Diamond League.
“Don’t ever even mention gold. Talk up diamonds instead because they are becoming cheaper & cheaper to produce — like paper.” I think those one-world PsOS are angling toward introducing a “sound” global currency backed by diamonds. Yeah, good luck with that, fraudsters.
I’m pretty sure I can refuse your preferred payment medium no matter what, and also that government gets no say until “we’re” talking taxes.
newson:
MIchael’s making no grammatical mistake nor is he employing some royal plural as you seem to indicate. In using “we,” he’s merely referring loosely to others in some discussion whom, he avers, are in error (whether they are or not is beside my point but, if they have interpreted “legal tender” in the way he’s indicated, they are).
I’m a ‘we’ person, just as you are a ‘me’ person. I use it in the sense of “We, the People”.
Amen to that! One wouldn’t almost believe that it is possible for ‘intelligent’ top managers who work with and around money all their life to be so blind about the consequences of their action. Have they at least taken Econ101?
The relationship between gold and the amount of dollars in circulation is so far out of whack, as Juraj pointed out, that I don’t see the government being that worried about keeping them linked together that closely. Juraj is right about the government not being able to use the argument of gold being linked to economic prosperity. I don’t think that enough people have any gold to start worrying about it replacing the dollar as currency.
It seems there isn’t anything the government cannot seize… It’s sad really. I guess I’ll just have to start hiding things under my mattress (or maybe somewhere I little less obvious).
It is patently untrue that “sell” prices for gold are 25-30% lower than buy prices and I can’t believe it took so long for someone to correct you. Most dealers, especially the big guys, are working on a 1-3% margin between buy and sell prices, similar I would guess, to the forex outfits. As an example, today’s sell price of American Eagles at a prominent dealer are $1358, while they are buying the same coin for $1323. Hopefully that clears things up for you.