Gold Bubble Anyone

[Guest]

Re: Gold Bubble Anyone

Sapiens - You wrote:

<< You replied to RB with drivel and planted the seeds of doubt and deceit >>

Someone else might have replied that any disagreement with your own views here was merely a matter of opinion. But that's apparently not your style. Please also note my short comment above, was merely a verbatim quote of your own self-preoccupied words from another thread.

[c1ue]

Re: Gold Bubble Anyone

Lukester,

Your sentiment on gold is not wrong, but my personal view is somewhat slanted differently.

1) People need to have something to attach value to - since very few individuals can point to specific tangible values added.
2) Gold has this historical legacy, but this legacy was supplanted by currency because currencies in abstraction ultimately represent continued production whereas gold primarily represents scarcity.
3) Only when currencies lose their link to production via blatant and prolonged debasement, do people feel the need to find a different value store.
4) Once a new currency store is created which people believe in - in reduction due to some reasonable representation of production - then gold will again fade into the background until the next round.

Thus my admittedly extreme bear views on the dollar - between the prolonged and blatant supply inflation/debasement and the simultaneous erosion of the underlying production, 60 years of goodwill is being erased (1945-2005).

Multiple generations who grew up with the dollar representing growth and also stability are now having their ingrained beliefs challenged by US government actions and US corporate self-enrichment.

The rise of China and the fall of the dollar are not coincidental - in China you have a tremendous population of individuals who have relatively little faith and experience in the dollar but lots of daily evidence of their own currencies representing their own production.

This is not true of Russia as the dollar has a recent and strong history vs. the ruble collapse of 1997 and even before that as an illicit luxury buying commodity; nor India with its tremendous inflow of dollars from Indians working in the US. Brazil itself hasn't had that much experience either way, but did witness very closehand the collapse of Argentina due to a US dollar peg.

I may be putting words in Sapiens' mouth, but I believe what is meant here is the belief linking the dollar to value, and lack of that belief similarly impacting the dollar. This same argument can be said for gold - except of course the scarcity vs. production thing.

[Guest]

Re: Gold Bubble Anyone

C1ue -

If you dial your focus on our current experiment with the fiat US dollar out by several centuries, what emerges is everything you are referring to in your post above might be summarized as effectively saying 'it's different this time'.

Of course there are many good reasons why money needs to be a far more elastic medium than precious metal could ever be. Employing only precious metal as 'money', with it's tiny existing stores globally, would obviously only fit an archaic society with very primitive and simple forms of commerce, and a tiny fraction of the world's economic size. Gold alone can't work any more, because we've 'outgrown' it. That in no way obviates the issue that gold starkly highlights regarding all the alternatives.

Clearly a dumb 'Calvinistic' adherence to gold or silver as being the only permissible 'money' would plunge the world into a liquidity deprived depression, as there is zero elasticity in this monetary medium of exchange. That's entirely clear - and any idiot espousing such ideas should be kept firmly at arms length from government. In fairness to gold bugs, I think the vast majority of them are perfectly well aware of this point.

The real issue becomes apparent if you look out across 500 years. The past sixty years of apparent stability and prosperity under a fiat dollar system becomes merely another historic speck along with every other experiment with fiat money. They all had periods of time in which the fiat currency fostered a stable and apparently dynamic growth.

These are very long periods of time - so that anyone evaluating them on "only" a 75 year time frame might miss the predictability of the dismal end they all seem to meet with clockwork predictability.

Looked at with the 'thousand yard stare' of a 500 year time frame, the past sixty years 'stability and success' with the fiat dollar in no way demonstrates that an unbacked fiat medium of exchange supported by the 'confidence' of society is even remotely functional at the historical scale.

We are duped into thinking it's 'modern sophistication' to believe that currencies austerely and inflexibly backed by precious metals as in past centuries are hopelessly anachronistic to the modern world - whereas if we scaled our view out a few hundred years, we'd quickly see our current system is just one more in a dreary line of similar experiments and there is not a single other such experiment across the centuries that survived a wipe out.

One very interesting variant on the current fiat experiment compared to all the prior historic ones however is that it's gone 100% global. That's food for considerable reflection.

What hubris to think the 21st Century is 'smarter' so that 'our' fiat experiment has unlocked the riddle that five previous centuries could not!

If you can find a half dozen disparate fiat experiments across 500 years and they all follow the same plot, the stability of the past 60 years of USD fiat experiment means nothing different even if our world is fabulously more glossy, networked and advanced than all those previous ones. Fiat Dollar was not doomed by the slide into 'bad monetary administration' in recent years. It was doomed by definition, because it's the same model that's done the same face-plant every single time before for 500 years.

In different parts of the world, at different times, every other last fiat currency disintegrates because the glue you ascribe to it, the "public confidence" and the "good government", is not fastened to anything which can prevent abuse. Fastening fiat systems to "good administration" and calling that viable is about as firm a safeguard on the historical time scale as would be fastening it to a pile of sand.

Therefore your surmising that a view of fiat money in 2007 can be 'gold agnostic' is really only saying "it's different this time", from all the other times fiat currency imploded. You and I both probably know that it's never 'different this time' on a historical scale, because the human factor is the common factor in all the fiat experiments, and that factor certainly does not inspire confidence in the maintenance of high standards of monetary control.

Calling the apparently stately reign of the USD for sixty long years a 'proof' that currency can exist without the discipline imposed by gold backing is a-historical. Concluding from a short term (60 year) view of history, that fiat currency's survival for that long shows it can be a functional form of money is a denial that each such instance throughout history has wound up doing a quite dreary and spectacular face-plant, with no exceptions.

The singular lack of exceptions across very long spans of time - 500 or 1000 years, shows there is no 'different this time' to be had here. Prudent Governments and sound institutions have never been able to salvage any money that was not tethered to gold.

Your observations - for example about the present vitality and implicit deep under-valuation of the Chinese Yuan paper, suggests that viable fiat currencies can and do exist. This seems to my view to examine the issue of unbacked paper from a far too short-term (a-historical) perspective.

China's Yuan is every bit as compromised as the US dollar despite their roaring GDP growth. The Swiss Franc is every bit as compromised as both of these - they are ALL complete flim-flam on a historical time frame, and that's the only time frame that should be employed when discussing absolutes regarding the 'soundness' of paper money as the 'modern' and 'sophisticated' alternative to gold during currency transitions.

On the micro scale, for example for us human ants looking out across the next decade, in an normal decade we could gloss over these distinctions and keep our life savings in paper because the above trends are much longer than a decade so we only catch a portion of any adverse effect in that 'short' span of time.

But at the turning points, when the 'giant toilet flush' occurs at the conclusion of these periodic 60 or 100 year fiat experiments, that's when the distinction between the fiat paper and the "real gold as basis money" thingy can't be finessed much at all. At the transitions, the over-sophisticated distinctions that argue "modern money" can be on equal footing with the "historical money" become expendable. Or you can espouse them, and experiment the validity of such novel assumptions upon your own hide in the ensuing turmoil.

One bloody well clears out of the paper, because the global currency toilet bowl is about to flush out the dregs of the current fiat experiment, and history shows us, in easy-to-read parables, that there are no exceptions.

I'm entirely comfortable with others considering these views to be a lot of tripe and nonsense, as Sapiens seems inspired to do. Each one must draw his own conclusions and try to protect his own savings as he thinks best.

Sometimes the most sophisticated however have to beware of their own inclination to complicate the analysis. When it comes down to salvaging your life savings, a little plain horse sense can go a long way.

Respectfully -

[c1ue]

Re: Gold Bubble Anyone

Lukester,

I think you are slightly misunderstanding me.

I am not saying that the fiat system is better, I was simply commenting that one reason why gold cannot become a long term monetary standard is because of its scarcity.

Think of it this way: if money - whether fiat dollar or gold - is intended to represent production (not productivity!), then either supply or valuation must change as production increases.

Whatever your views on the use (abuse) of the fiat system, you probably can agree with me that the last 100 years in the US have seen extraordinary increase in production via productivity gains, as well as population gains.

In addition, major parts of the world have exited the (essentially) barter system and joined in the overall monetary markets.

Thousands of years ago, even hundreds of years ago, even in the early 19th century, money itself was extremely scarce. This was largely because production increases were generally low. In this context a scarcity based monetary system seems perfectly sensible.

The Industrial Revolution changed all this.

The productivity, hence production increases engendered by the Industrial Revolution in agriculture, mining, artisanal product manufacture, etc etc were too dramatic.

Whereas before gold could be gradually devalued to represent more and more production, the new productivity changes made understanding the true 'value' of gold and gold-backed currency much more difficult.

In this context, a fiat currency could be seen as being more adaptable for this environment.

However, the problem with the fiat currency is:

Quis custodiet ipsos custodes?

Clearly we've seen abuse of the fiat system - expanding money far beyond actual production.

Thus gold comes back into play temporarily.

But ultimately - unless there is a reversion to a low productivity gain - this thesis states that gold would inevitably return to its scarcity home turf: jewelry, GOTH currency (go to hell), and Depression era saver's choice.

Of course, it could be Depression II saver's choice...:eek:

Note that the underlying theme behind the thesis is that rapid changes in valuation are unsupportable in a currency - people are uncomfortable with rapidly fluctuating valuation, but have no problems with rapidly fluctuating supply so long as the value of their own part of the supply remains (feels) fair.

[rabot10]

Re: Gold Bubble Anyone

Boys

"Why was it hundreds or thousands of years ago people isolated from each other in South and Central America to Europe and

Look at the word isolated, these different peoples didn't have any of the things we take for granted, internet, phones, Drudge Report etc or even iTulip. The question was and is - Why?

[touchring]

Re: Gold Bubble Anyone

because of women, women liked to wear them! :confused:

Boys

"Why was it hundreds or thousands of years ago people isolated from each other in South and Central America to Europe and :pAfrica were digging it up and killing each other to own it."

Look at the word isolated, these different peoples didn't have any of the things we take for granted, internet, phones, Drudge Report etc or even iTulip. The question was and is - Why?

[Sapiens]

Re: Gold Bubble Anyone

The question was and is - Why?[/SIZE][/FONT]

How intimate are you with the yellow metal? I have an acquaintance which resembles Scrooge McDuck, his attitude towards Gold can only be described as being infected with Gold Fever. I tell him I am a Silver person, in that way his demons of envy and jealousy are not awaken.

[Guest]

Re: Gold Bubble Anyone

Huh? Can't make heads or tails of this ...

How intimate are you with the yellow metal? I have an acquaintance which resembles Scrooge McDuck, his attitude towards Gold can only be described as being infected with Gold Fever. I tell him I am a Silver person, in that way his demons of envy and jealousy are not awaken.

[rabot10]

Re: Gold Bubble Anyone

How intimate are you with the yellow metal? I have an acquaintance which resembles Scrooge McDuck, his attitude towards Gold can only be described as being infected with Gold Fever. I tell him I am a Silver person, in that way his demons of envy and jealousy are not awaken.

I have tryed talking to it - will let you know if it talks back.

[Rajiv]

Re: Gold Bubble Anyone