Skip to comments.2011 – The year when money starts to die
Posted on 01/05/2011 9:54:25 PM PST by dollarbull
Between 1716 and 1720, John Law tried to rescue the French government from bankruptcy with a scheme that came to be called The Mississippi Bubble. His strategy was to set up two entities: a bank whose purpose was to issue paper money, and a company whose primary but undeclared function was to refinance government debt. Law realised that he had to confiscate all gold and silver other than smaller quantities, and force French citizens to pay their taxes and buy shares in the Mississippi Company, only with the banks newly issued notes. These were the three essential elements of his scheme.[i]
This is precisely what central banks in the US, Europe, Japan and the UK are doing today. They are rigging the markets by buying government debt at artificially high prices with freshly created paper money, having previously excluded gold and silver from any role as legal tender. The following quote from John Law, could equally be attributed to a central banker of today: An abundance of money which would lower the interest rate to two per cent would, in reducing the financing costs of the debts and public offices etc. relieve the King. This is quantitative easing, pure and simple, and John Law had fully anticipated modern central banking. Laws scheme ended in disaster and as a precedent for todays central banking this should worry us greatly.
(Excerpt) Read more at financeandeconomics.org ...
Paperbugs getting nervous?
The value of the fiat dollar is what is based on psychology.
Gold has a 5000+ year history of being valuable. You cannot reconcile that with your beliefs...cognitive dissonance if I’ve ever seen it.
There has never been a time when Gold was worth nothing.
Martin Armstrong has written some great things lately. He was held in prison on contempt of court in one of the weirdest cases in history.
He said govts have been defaulting on debt for over 2,000 years. The American public is so manipulated by the media especially TV - ALL of TV is garbage including Fox. CNBC is the worst. I am so glad I dumped TV over a year ago.
If you want to learn something more about this:
People will barter (trade). They will trade whatever they have for whatever they need.
Wendy is absolutely correct: “the value of gold is entirely based on psychology”.
Federal Reserve Notes are much, much more secure than gold because they are backed by US Treasury securities, which are in turn backed by the full faith and credit of the US government. Well, they used to be ... now there are bunch of junk mortgages backing US dollars, but there are still a whole lot of US Treasury securities on the Fed’s balance sheet.
So the question is, which do you put your faith in, gold or the US government?
Dream on. You can stick with Keynes and the Experts in Washington. A Psychological aberration that has persisted universally for in excess of 5 millennias is probably at least as reliable as the wonderfully rational fiat money of the government experts for so long as there have been governments and has been very reliably debased to the destruction of systems and empires over and over again for almost that same period of time.
Dream on. You can stick with Keynes and the Experts in Washington. A Psychological aberration that has persisted universally for in excess of 5 millennia is probably at least as reliable as the wonderfully rational fiat money of the government experts for so long as there have been governments and has been very reliably debased to the destruction of systems and empires over and over again for almost that same period of time.
Unless you think this "can never happen here" that is:
What happens if the person that has what you need doesn't need what you have?
Here is a fun animation of the housing crash mixed in with a very quick history of money.
It is pretty funny. Bit of Back to the Future, Twilight Zone, and ends with a nod to 300, only 29 minutes long.
The American Dream
Does that not then simply make gold and silver a symbolic measure of the total production of an economy? If that is the case and the total amount of precious metal reserves set aside for currency remains fixed, would a prosperous, growing economy strengthen or weaken the buying power of a gold-backed unit of money?
The truth is not that gold has any intrinsic value (something known to the ancient Romans) but that that it is just plain hard work to get more of it in circulation. In contrast, a government with floating paper can just “monetize” its debt whenever it feels the need (usually often).
Why is gold better than paper? Try a thought experiment. Which is a faster way of producing dollars: Congress going out into the hills with pickaxes, or Congress going into session?
The value of gold is the same as the value of a written Constitution - in its restraint of government.
Every paperbug has to answer this question: which is the easier to create ex niliho, paper currency/credit accounts or gold? If money is a store of value then which kind of money is easier to manipulate if you need to steal without stealing?
"So the question is, which do you put your faith in, gold or the US government?"
With this administration? 3Gs
God, guns, and gold.
Money serves two purposes: as a medium of exchange and a store of value. The former use is why it is better than barter - instead of an N*M problem (N needs finding M goods) we have an N+M problem - N needs paying money for M goods.
Almost anything can serve as a medium of exchange: beads, cowrie shells, bits of paper with pictures of dead people on them. But a store of value, to be effective, must retain that value indefinitely - you should be able to leave your value to your son (or daughter), and he to his son, and so on. And, throughout all recorded history, there is only one safe store of value: gold.
One could argue that gold is valuable because people like it, rather than people like it because it’s valuable.
Throughout recorded history, people liked to wear the pretty, rare, yellow metal.
The psychology involved is the psychology involved with making jewelry out of it. If people didn’t find gold pretty anymore, that would effect the price of gold.
Would it really remain fixed? Even in a nominally fixed-amount system, it would pay for private investors to exploit available sources of gold, unofficially increasing currency. Some economists believe that this slow increase would be the best system, as a truly fixed M1 would be deflationary in a growing economy. Many economists believe that deflation is more destructive than inflation, because in deflation, nominal income would fall, while nominal debts would not.
But to answer your question simply: a growing economy would strengthen the buying power of a fixed amount of gold-backed notes.
Gold has an economic value. Gold doesn’t weather. This is why it was, and will always be used to store wealth.
Paper on the other hand, what value is it except to burn?
And that is precisely why gold is , always has been, and always will be valuable.
I’d trade my gold AND my loaf of bread for Ginger.
The human mind is fascinated with anything bright - gold, silver copper; therefore, the metals will keep their value.
If we ever advance beyond our prehistoric predilection for shiny things, that will change.
“....you and one other guy were stuck on a desert island with two loaves of bread, would you sell your loaf to him for all of his gold?”
Yes, I would.
Then I’d go fishing with my newly made solid gold fish hook and trade him my extra fish for his bread AND his gold when he got really hungry. When I got rescued a week later (using a shiny gold coin to signal the search plane) I’d come back, buy the island and open a fishing resort for fellow Freepers.
And bring Ginger and Mary Anne with me!
Perhaps your humor is too subtle for me.
I have gold and silver stored in a fire proof vault, right next to an impressive collection of firearms, that I have absolute control over. It is there to serve whatever need of mine I should desire.
Less that 100 miles from where I now sit, lies the seat of US Government in all of it’s might, though lacking some of it’s former glory at the moment. I have no control what so ever over the monster that it has become. It considers me, as a productive citizen, to be here to serve any need what so ever it should consider necessary.
I guess I have to go with the gold. At least if I have to bug out, I can take some of it with me.
lol. Maybe you need a better analogy. The Constitution restrains government? LoL!
Money has to be based on something connected to reality (as opposed to gold); best would be to base it on some typical basket of the goods and services which your country actually produces.
GOLD and Silver too, do I win?
——The value of the fiat dollar is what is based on psychology.——
The value of the fiat currency is based on nothing. The value is derived from the public faith in the governments that issued the paper. The problems arise when the governments are corrupted and the looting becomes the primary objective. Once the money is stolen and only debt instruments remain, faith crumbles.
Chris Dodd, Barney Franks and Eliot Spitzer are the figurehead examples of the thieves. Barack Obama, Nancy Pelosi and Harry Reid are implementers of the looter policy.
There should be talk of death to the looters but alas complacent sheep are content with their chains, misery and bottled water.
The one other thing gold would be really good for would be waterfowl shot. Half again denser than lead, soft, and totally inert, it would be the perfect metal for killing ducks and geese with. You could kill geese all day long with 2.75" shells and #7 shot.
You said again and are wrong again. For a little help in correcting that condition I would counsel to buy and read “The Power of Gold: The History of an Obsession “
It can be obtained used for as little as $.55. It is very interesting history and provides detailed background on previous debacles that are caused by theories and rulers who try to or are forced to break the rules.
You will learn what has transpired throughout human history as gold repeatedly salvaged lost economies. Now is no different, only the circumstances of how the problem was created.
Gold is a store of wealth (the labor needed to mine, refine, smelt) and not a consumable, but not necessarily the best basis for trade (portability and availability), which is what currency must also be. So we have our dollar, which is based on the future labor of the nation (also called debt, but that really isn't a true representation). Works pretty well.
...Goldbugs argue that there will always be enough gold in a gold-based money system to go around, because prices will naturally adjust downward so that supply matches demand.7 But this fundamental principle of the quantity theory of money has not worked well in practice. The drawbacks of limiting the medium of exchange to precious metals were obvious as soon as the Founding Fathers decided on a precious metal standard at the Constitutional Convention, when the money supply contracted so sharply that farmers rioted in the streets in Shays Rebellion. When the money supply contracted during the Great Depression, a vicious deflatio-nary spiral was initiated. Insufficient money to pay workers led to demand falling off, which led to more goods remaining unsold, which caused even more workers to get laid off. Fruit was left to rot in the fields, because it wasnt economical to pick it and sell it....
Those kinds of contractions and destructions always occurred in cycles so long as money was based on gold. At some point too much gold or gold-based money would be lent out and bankers would call it all in again, collapsing the system as they did so. That speech of W. J. Bryant's was on the money; the gold standard was creating havoc in the late 1800s, and it would work a lot worse now.
Gold is reality. Deal with it.
...Goldbugs argue that there will always be enough gold in a gold-based money system to go around
I've not heard that argument made. Can you give me some names and dates? Thanks.
The drawbacks of limiting the medium of exchange to precious metals were obvious as soon as the Founding Fathers decided on a precious metal standard at the Constitutional Convention,
Go dig up what George Washington had to say about paper money after the Revolution. You obviously haven't.
When the money supply contracted during the Great Depression,
Except that's not what happened during the GR. Go do some of your own research.
Ben Franklin was called the father of paper money. Colonists, particularly in Pennsylvania, had created a super economy using script money and then George II crashed that economy into depression by banning script money. Or did you actually think anybody was going to fight a war over tea or some tax on tea??
Looks like you got a lot of response to you post, but you haven’t answered your critics
Do some research, honey. All that paper money was backed by gold in banks.
Or did you actually think anybody was going to fight a war over tea or some tax on tea??
Whoever taught you History belongs in a prison cell for fraud.