Ratzalot wrote:Additionally, currency is printed as well as created in cyber space. Those digital zeros are literally worth nothing intrinsically. The recent audit of the Federal Reserve found $16 Trillion in secret international bailouts. It's easy for the Federal Reserve to keep the world's bad banks afloat when they can create infinite amounts of money and shroud it's distribution in secrecy.
Just so everybody knows what we're talking about:
http://www.forbes.com/sites/steveschaef ... -trillion/Regardless of the dollar figure, or whether it was secret or anything else, the relevant issue at hand is that these loans were
not made by printing currency, they were issued with securities, just like the U.S. debt is not paid for with printed/digitally printed currency, it's paid for with treasury bonds, which are owned by investors, foreign governments and private individuals. Even I own treasury bonds (oh no, the Federal Reserve conspiracy theorists are OUT TO GET ME!), though thankfully not a lot.
Ratzalot wrote:As for inflation, it depends on which iteration of which index you want to believe. If you use an older, more honest index, inflation is closer to 10-30% annually recently.
The current inflation that we do have isn't monetary inflation it's price inflation, meaning that it isn't our currency devalueing it's an external factor raising the cost of doing business. The price of oil has gone up from $25 a barrel to more than $100 a barrel in barely ten years. In fact in such a case it actually
can make sense to add more currency to the market because if there are D dollars available and C commodities, but an external factor raises prices, then even though each dollar might be more valuable the only way for consumers to maintain their purchasing power is to increase the available currency, otherwise consumers will no longer have enough currency to be able to buy C commodities and the market will shrink. Of course there's only so long you want to juggle that.
Ratzalot wrote:I completely agree with your statement "money only exists because we agree it exists". I prefer to believe gold and silver are the closest thing to "real" money as evidenced by thousands of years of such practice. I don't trust the Great Keynesian Experiment happening in our world right now. I prefer holding a majority of my "liquidity" in gold and silver rather than fiat currency, especially with interest rates failing to keep up with inflation. I can hedge myself against the counterparty risk keeping some cash on hand as well as holding physical gold and silver...
There are gold and silver coins minted in the United States meant to serve as bullion but are legal tender. The face value of a Silver American Eagle coin is one dollar. The face value of a (1 oz) Gold American Eagle/Buffalo is $50. I'd be more than happy to take any of these off your hands for face value. Gold and silver are no longer everyday currency because the metals got too expensive. Keep in mind the U.S. was on a gold standard until 1971 and central banks still hold gold in their vaults. If you believe Ben Bernanke that it's "tradition" central banks hold gold rather than gold being "money", we're going to have to disagree fundamentally. I believe gold and silver ARE money and fiat currency is nothing more than a trust system forced upon the people. I don't agree a gold standard would devalue a currency; instead it would be deflationary. I would have no problem with a dollar being able to purchase what 45 Dollars would purchase today. Sure, the amount of currency people held would be reduced, but the purchasing power of their reduced currency would increase.
Okay, back when we were on the gold standard, it was true that you could literally walk to a bank and trade all of your dollar bills for their worth in gold. Gold standard meant that a dollar bill was a promise that there was a piece of gold to match that piece of paper. That's no longer the case. Now a dollar bill is just a promise that dollar bill will be accepted as currency anywhere in the United States, it says so right on them.
All the gold held by the Federal government amounts to less than 1% of the wealth of the United States. You can buy gold as a commodity all you like but you can't trade your dollars for the gold in Fort Knox. The only reason the government even still keeps any gold is in case of dire emergency. The treasury does print gold coins but they are commemoritve and only faced with gold. One ounce of gold- not $50.
Actually the reason we stopped using gold as everyday currency was not that it was becoming too expensive it was that Franklin Roosevelt forced everyone to turn in every piece of gold currency in the U.S. because gold speculation was considered one of the causes of the great depression.
I agree that the fiat system is a trust system. The fact that it's forced on everybody is exactly what makes it so trustworthy. We could be trading in wampum or glass beads, gold and silver are no different. It's only money because we agree it's money. Money is the ultimate expression of division of labor. Even Catalan anarcho-syndiclists created work-hour slips which were traded as currency.
Ratzalot wrote:Perhaps I wasn't specific, but mining the Earth's gold supply is not the same as creating more gold. Gold, silver, platinum, etc. are believed to be distributed to celestial bodies via super nova. These metals will not naturally form on Earth, thus the current supply on/in Earth is all we'll ever have (unless we mine another celestial body or a gold space rock impacts Earth). The believed amount of gold in/on Earth has already been taken into account. One of the biggest concerns is for miners keeping up with demand. Gold/silver extraction is becoming increasingly difficult, even with advanced technologies as quality ground supplies diminish. Although gold and silver never really disappear, their consumption in electronics effectively removes that gold and silver from the global supply. Some companies are trying to buy old, used cell phones and such to capitalize on their gold/silver contents, but it's hardly a large enough industry to make a significant impact. For those speculating on silver, the big belief is there will be a major silver shortage by 2020. Global silver supplies are diminishing at an alarming rate. Silver mining activities aren't even close to being able to keep up with the recent annual trends. If/when this shortage comes, we'll see a true supply/demand concept in addition to it's supply/demand as a long-time traditional store of value. Unless we come up with a good technology to extract molten gold and silver from the Earth's core, I believe gold and silver will continue to rise steadily and eventually skyrocket beyond anything we can imagine.
Clearly when we talk about the gold supply we're talking about the gold in circulation not all that will ever be extracted from the earth. I'm glad you brought this up. The mentality of the investors is more important in spotting a bubble than looking at the price index, and these kinds of arguments are the hallmark of a bubble.
Back when the real estate bubble was growing people would tell me "Well, there's a constantly growing population, and a finite amount of land, therefore prices will continue to rise indefinately." If we were talking about competition for arable land in 8th century Scandanavia or feudal Japan, I might be inclined to agree with that, but the fact is that in 1800 75% of New England was farmland and 25% forrest now its 75% forrest again, and more than 60% of the continent of North America is open desert and arid grassland, while almost all of Canada and Alaska is covered in a vast wilderness. Meanwhile, people are leaving stacked on top of eachother in super skyscrapers and the population density of Manhattan is 71,000 per square mile. So clearly we weren't "running out of land."
The bubble bursts when the price driven by speculation reaches a point where no one can reasonably expect to buy and a downward cycle begins. It might also be instigated when the investors are strapped for cash and start a sell off, especially if they've invested all their assets. In the case of the real estate bubble defaulters caused banks to lose liquidity (no cash) which meant adjustable rates went up and people who couldn't afford their mortgages were forced to default or sell. In fact the bubble still hasn't completely burst because the government has been spending huge amounts of money to keep prices up, and real economic recovery and affordable housing won't be possible until the bubble bottoms out. In the case of gold there is a huge deficit between supply and demand, and not the deficit investors would like to think.
So let's take a look at that supply and demand and whether we're really running out of gold and silver. Back when the Athenians were mining silver they pretty much were digging holes a ways into the ground and pulling up almost pure silver in huge quantities. Xenophon and Thucydides thought the mines were pretty deep but by todays standards they were just scratching the surface of the earth. Up until fairly recently you could still make a profit doing it the old fashioned way as attested by Sebastiao Salgado's famous photographs from the 80s:
http://www.masters-of-photography.com/S ... _full.htmlIn the 19th century during the famous gold rush in the American west prospectors were panning solid gold pieces from streams. Today massive strip mining operations are digging up huges quantities of earth and transporting them up the mine in building-sized trucks. The ore is processed using modern chemical distilation methods. Some mines are turning a profit getting less than one part per million out of the ore. If you live in Colorado or the Pacific northwest there's a good chance your house is built on land with enough gold to turn a profit from strip mining:
http://en.wikipedia.org/wiki/Open-pit_miningMines are also getting deeper. There's a gold mine in South Africa that's more than 2.4 miles deep:
http://en.wikipedia.org/wiki/TauTona_MineThere's really no reason to believe that by the time we run out of gold on the accessable surface of the earth that we won't posses the technology to extract it from the asteroid belt. Conveniently, astronomers can observe the mineral content of celestial bodies based on the radiation they emit.
So, "on the other side of the coin," where is all the demand coming from? A small amount of gold is used as conductors in electronics, but as Ratzalot has pointed out, those aren't just being thrown out, much like nobody was forgeting about the platinum in catalytic converters. Perhaps a tiny amount of silver is thrown away from film and traditional photo printing methods, but those techniques are falling more and more out of use. Jewelers have responded to rising gold prices by using less gold: facing rings instead of making them solid gold, increasing the concave shape on the inside, making the rings thinner, using a lower gold content, using gold foil or paint for chains and watches. In some cases they're turning to different metals entirely.
So the question remains, who's buying it? Other than organized crime, rogue states and intelligence spooks the only other major buyer seems to be speculators. Now since people aren't buying it because they need it, like houses, I think the prices can go quite high because people buy it to feel "safe," but the lack of actual demand means that when prices finally do crash, they will crash hard.
Edit: Fixed a few typos
Perhaps we should discuss the foolishness of that. At the end of the day, it's all about beliefs and expectation management.
