The Gold and Silver Thread

[DSGE]

Monetarists still think they can control the velocity of the monies. Human action is always quantifiable.....somehow.

No they don't. What are you talking about?

 

[Paulie]

Actually, he is correct. There has been little correlation between the consumer price index and the price of gold.

There has also been little correlation between the consumer price index and reality.

Very true.

 

[Paulie]

Powerful argument, that there.

How about this...since common belief is that gold IS a good inflation hedge, why don't you prove your case.

That's not a common belief at all. Maybe it's common among goldbugs...

It should be easy enough for you to show that the real price of gold is stable.

Now we're talking about stability?

In times when the Fed is increasing the monetary base, gold goes up. Gold has been going up since the early part of last decade when the Fed dropped rates down to 2% and housing boomed. Governments have been running huge deficits ever since, waging unfunded wars, etc, and gold has been going up.

You'll have to forgive me if I don't run to CPI and other indices as the only indication of inflationary policies.

What are you paying less for these days other than tech products?

 

[DSGE]

Now we're talking about stability?

Yeah. To be a good hedge against inflation, the real price of gold should be relatively stable. The nominal price won't be, but the real price needs to be. It can't be moving around like crazy for reasons other than inflation. So just show me a relatively stable real price of gold.

In times when the Fed is increasing the monetary base, gold goes up.

We can get to analysing your claims once you actually substantiate them.

Gold has been going up since the early part of last decade when the Fed dropped rates down to 2% and housing boomed.

Post hoc ergo propter hoc? Also, more interest rate nonsense. I wish I could just shoot everybody who tries to use interest rates to assess the stance of monetary policy, because that is so fucking dumb. What, do you think there's one interest rate that just stays the same forever? It's just always 5% or something. Then "the Fed drops it down to 2%", oh no that must be easy money. It's not like the natural rate moves or anything.

Governments have been running huge deficits ever since, waging unfunded wars, etc, and gold has been going up.

Well there's a hint. Maybe people like gold because it's a hedge against any potential crises. The cool thing about gold, which makes it different from other assets like bonds and stocks is that it isn't anybody's liability. So if a crisis hits, you don't have to worry about the solvency of your counterparty. Of course setting aside rising demand from emerging markets, which goldbugs never seem to consider.

You'll have to forgive me if I don't run to CPI and other indices as the only indication of inflationary policies.

I don't run to the CPI either. I run to NGDP growth.

Also, what's with all this anecdotal post hoc bullshit? Either you're dumb enough to actually believe your own shit, in which case I doubt it's productive to be talking to you, or you think I'm stupid enough to swallow it. Either way, could you please start producing actual arguments and evidence, rather than bullshit? That'd be super.

What are you paying less for these days other than tech products?[/QUOTE]

 

[Toro]

Well there's a hint. Maybe people like gold because it's a hedge against any potential crises. The cool thing about gold, which makes it different from other assets like bonds and stocks is that it isn't anybody's liability. So if a crisis hits, you don't have to worry about the solvency of your counterparty. Of course setting aside rising demand from emerging markets, which goldbugs never seem to consider.

Demand for gold has come primarily through the loss of confidence in fiat currencies. Most of the increase in the demand from gold over the past decade has come through investment products, primarily ETFs. Demand from Asia, primarily China, has also been significant, but again, at least part of that in China is coming from investment demand through physical ownership via loss in confidence in the dollar. There are counterparty issues regarding the ETFs - which is why some ETFs such as Sprott's are so popular - and when you listen to the largest owners of the ETFs, their rationale for owning gold through the ETFs is the loss of confidence in fiat currencies.

As for inflation, it depends on how you define it. Gold certainly has not been a hedge against consumer price inflation. However, if you define inflation as the creation of money, then gold has been more effective.

 

[FireFly]

I think there's a signficant difference between buying and selling gold to make money in a going economy, versus holding gold and silver for the end of the economy event.

When you hold gtold and silver for an end of cvilization scenario, you are assuming that your gold and silver will buy you something you actually need....like CHICKENS.

So your Krugerrand might actually not be worth a chicken in truly hard times.

Might I suggest that it might make more sense to store up things that you'll actually need?

Coffee, cigarettes, drugs, food, guns, ammo, those are the KINDS of things you'll and everybody else will be needing.

Gold and silver might you buy you stuff...then too, it might not.

Your starving children aren't going to be clamoring for GOLD, they're going to be crying for FOOD.

Just a thought.

Plan accordingly.

The problem is most things you need are perishable. You also do not know exactly you will require in the future. You may need surgery but the surgeon does not want anything you have. You may need solar panels, wind turbine, batteries, copper wire, shortwave radio, education for kids, medicine, shoes, gasoline, heat, grain for your animals, etc. But the companies that make this stuff don't want anything you have. A crop farmer needs Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor Parts, etc. Hardly any of this stuff comes from this country & the foreigners won't accept anything but Gold.

If you don't have physical gold in your possession, you will be up shit creek without a paddle if the economy collapses, the dollar loses its status as the world reserve currency, dollar collapses or the world passes "Peak Oil".

Yes you will need weapons & food. But if you also don't have gold & farm land, you might just wind up using your guns on yourself.

 

[DSGE]

Well there's a hint. Maybe people like gold because it's a hedge against any potential crises. The cool thing about gold, which makes it different from other assets like bonds and stocks is that it isn't anybody's liability. So if a crisis hits, you don't have to worry about the solvency of your counterparty. Of course setting aside rising demand from emerging markets, which goldbugs never seem to consider.

Demand for gold has come primarily through the loss of confidence in fiat currencies. Most of the increase in the demand from gold over the past decade has come through investment products, primarily ETFs. Demand from Asia, primarily China, has also been significant, but again, at least part of that in China is coming from investment demand through physical ownership via loss in confidence in the dollar. There are counterparty issues regarding the ETFs - which is why some ETFs such as Sprott's are so popular - and when you listen to the largest owners of the ETFs, their rationale for owning gold through the ETFs is the loss of confidence in fiat currencies.

As for inflation, it depends on how you define it. Gold certainly has not been a hedge against consumer price inflation. However, if you define inflation as the creation of money, then gold has been more effective.

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run). Rising prices reduces the purchasing power of money. That's something you need to hedge against. Increasing the money stock only for it to be held, rather than contributing to nominal spending, has no effect. That doesn't need to be hedged, because nothing happens! The purchasing power of money is not reduced by increasing the money stock. The purchasing power of money is reduced by prices rising in response to that new money trying to be spent. If the new money is held, it's effect on real variables is equivalent to there not being any new money at all.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

 

[editec]

I think there's a signficant difference between buying and selling gold to make money in a going economy, versus holding gold and silver for the end of the economy event.

When you hold gtold and silver for an end of cvilization scenario, you are assuming that your gold and silver will buy you something you actually need....like CHICKENS.

So your Krugerrand might actually not be worth a chicken in truly hard times.

Might I suggest that it might make more sense to store up things that you'll actually need?

Coffee, cigarettes, drugs, food, guns, ammo, those are the KINDS of things you'll and everybody else will be needing.

Gold and silver might you buy you stuff...then too, it might not.

Your starving children aren't going to be clamoring for GOLD, they're going to be crying for FOOD.

Just a thought.

Plan accordingly.

The problem is most things you need are perishable. You also do not know exactly you will require in the future. You may need surgery but the surgeon does not want anything you have. You may need solar panels, wind turbine, batteries, copper wire, shortwave radio, education for kids, medicine, shoes, gasoline, heat, grain for your animals, etc. But the companies that make this stuff don't want anything you have. A crop farmer needs Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor Parts, etc. Hardly any of this stuff comes from this country & the foreigners won't accept anything but Gold.

If you don't have physical gold in your possession, you will be up shit creek without a paddle if the economy collapses, the dollar loses its status as the world reserve currency, dollar collapses or the world passes "Peak Oil".

Yes you will need weapons & food. But if you also don't have gold & farm land, you might just wind up using your guns on yourself.

I suspect you are and are bascially on the same page here. I suspect we just talking about two different kinds of social COLLAPSE.

The worth of gold truly depends on the condition of the nation.

If the collapse is orderly, that is to say if the structure of society and markets remains essantially intact, and all we're facing is hyperinflation, then YES gold and silver are going to be VERY useful.

But if the collapse is disorderly, if the structure of society and markets really goes very chaotic, then gold and silver aren't going to be an especially useful items to have.

I know it must seem impossible that things can ever get so bad that people won't value such well understood units of value as fold and silver, but things CAN get that bad, too.

Starving people in a collapsed society do not value GOLD or silver very highly. Their needs (and fear) are too immediate for them to value something they cannot ACTUALLY use.

Gold and silver are ONLY useful as long as people are confident that there is still market enough around that people will recognize those units of value as having a market value.

Here's the thing...people always need to eat but they do NOT always value symbolic representations of value.

 

[TakeAStepBack]

In the face of an economic collapse, which will not be orderly, gold and silver will not be units of exchange until a relative level of stability is restored. There are several ways that it could go in such an event. From my point of view, the next financial crisis is only a how and when, not an if.

 

[Paulie]

Well there's a hint. Maybe people like gold because it's a hedge against any potential crises. The cool thing about gold, which makes it different from other assets like bonds and stocks is that it isn't anybody's liability. So if a crisis hits, you don't have to worry about the solvency of your counterparty. Of course setting aside rising demand from emerging markets, which goldbugs never seem to consider.

Demand for gold has come primarily through the loss of confidence in fiat currencies. Most of the increase in the demand from gold over the past decade has come through investment products, primarily ETFs. Demand from Asia, primarily China, has also been significant, but again, at least part of that in China is coming from investment demand through physical ownership via loss in confidence in the dollar. There are counterparty issues regarding the ETFs - which is why some ETFs such as Sprott's are so popular - and when you listen to the largest owners of the ETFs, their rationale for owning gold through the ETFs is the loss of confidence in fiat currencies.

As for inflation, it depends on how you define it. Gold certainly has not been a hedge against consumer price inflation. However, if you define inflation as the creation of money, then gold has been more effective.

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run). Rising prices reduces the purchasing power of money. That's something you need to hedge against. Increasing the money stock only for it to be held, rather than contributing to nominal spending, has no effect. That doesn't need to be hedged, because nothing happens! The purchasing power of money is not reduced by increasing the money stock. The purchasing power of money is reduced by prices rising in response to that new money trying to be spent. If the new money is held, it's effect on real variables is equivalent to there not being any new money at all.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

You miss the point. The point is that increases in the supply of money are perceived to be an inevitable cause of rising prices. Cash runs to gold in response to money creation for the purpose of hedging before consumer prices rise.

Whether or not you believe in such a thing is irrelevant because as it stands, the increase in the supply of money is historic as well as the increase in the price of gold.

 

[Toro]

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run).

Stop!

The rest of your paragraph reinforces this point, so I've excluded it.

Clearly, you are an intelligent and well-educated individual, schooled in modern economic theory and, I think you are demonstrating an absolutely critical flaw in modern economic thought. I think it's part of the reason why so many conventional economists were unable to identify the stock market bubble of the late 90s and the housing bubble of the mid 00s, and the dangers they wrought.

A rising supply of money does NOT necessarily translate into higher consumer/producer price inflation. It might, or it might not. It depends on the circumstances. It probably (well, almost certainly) does over the long run but it may not over the short and intermediate term. Instead, excess liquidity can flow into asset markets, pushing up asset prices rather than into, say, labour markets. Austrians say that inflation is defined as the excess creation of money, and consumer price inflation is merely an effect of that. But it is not the only effect, and can manifest itself in other ways. Thus, the rising price of gold is, in part, indicative of the excess creation of money over the past decade. Thus, the argument goes, gold has been a good indicator of inflation, just not consumer price inflation. (At least not yet, anyways.) Maybe I'm wrong, I don't know, but I think this explains a lot of what has happened in the economy over the past 15-20 years.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

I agree. This is why I've argued with the gold bugs against the gold standard. The retort from the more thoughtful gold bugs paraphrases Churchill in that gold is the worst form of money, except for all the others. We've essentially had a completely free fiat money system for 40 years now. Some would say its worked pretty well. Others would say, "Yes, but communism 'worked' for nearly 70 years in the USSR before it collapsed under its inevitable logical contradictions." I have much more sympathy for this argument.

Or, perhaps a better analogy is Nassim Taleb's "Turkey Problem."

The Turkey Problem | Stephen Kinsella

 

[FireFly]

I think there's a signficant difference between buying and selling gold to make money in a going economy, versus holding gold and silver for the end of the economy event.

When you hold gtold and silver for an end of cvilization scenario, you are assuming that your gold and silver will buy you something you actually need....like CHICKENS.

So your Krugerrand might actually not be worth a chicken in truly hard times.

Might I suggest that it might make more sense to store up things that you'll actually need?

Coffee, cigarettes, drugs, food, guns, ammo, those are the KINDS of things you'll and everybody else will be needing.

Gold and silver might you buy you stuff...then too, it might not.

Your starving children aren't going to be clamoring for GOLD, they're going to be crying for FOOD.

Just a thought.

Plan accordingly.

The problem is most things you need are perishable. You also do not know exactly you will require in the future. You may need surgery but the surgeon does not want anything you have. You may need solar panels, wind turbine, batteries, copper wire, shortwave radio, education for kids, medicine, shoes, gasoline, heat, grain for your animals, etc. But the companies that make this stuff don't want anything you have. A crop farmer needs Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor Parts, etc. Hardly any of this stuff comes from this country & the foreigners won't accept anything but Gold.

If you don't have physical gold in your possession, you will be up shit creek without a paddle if the economy collapses, the dollar loses its status as the world reserve currency, dollar collapses or the world passes "Peak Oil".

Yes you will need weapons & food. But if you also don't have gold & farm land, you might just wind up using your guns on yourself.

I suspect you are and are bascially on the same page here. I suspect we just talking about two different kinds of social COLLAPSE.

The worth of gold truly depends on the condition of the nation.

If the collapse is orderly, that is to say if the structure of society and markets remains essantially intact, and all we're facing is hyperinflation, then YES gold and silver are going to be VERY useful.

But if the collapse is disorderly, if the structure of society and markets really goes very chaotic, then gold and silver aren't going to be an especially useful items to have.

I know it must seem impossible that things can ever get so bad that people won't value such well understood units of value as fold and silver, but things CAN get that bad, too.

Starving people in a collapsed society do not value GOLD or silver very highly. Their needs (and fear) are too immediate for them to value something they cannot ACTUALLY use.

Gold and silver are ONLY useful as long as people are confident that there is still market enough around that people will recognize those units of value as having a market value.

Here's the thing...people always need to eat but they do NOT always value symbolic representations of value.

Unless you have your own self contained & self supportive working farm & a way to defend it against roving bands of thugs, then there will have to be a trusted reliable medium of exchange such as gold. There are nearly 7 billion people on the planet. Without a functioning trade system there is no way to grow enough food or distribute it to the people. There will be all out war before starvation.

Farming is an expensive high risk high tech operation & requires a medium of exchange. Farmers must have a supply of Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor, Planter, Trucks, Sprayers, Harvesting Equipment & Parts, storage facilities, grain drying equipment, accurate measuring & mixing equipment, computerized on-board GPS navigation dispensing, loading equipment, Pesticide, Nitrogen, Phosphate, Natural Gas, Electricity, Copper, Steel, Rubber, Weather Forecast, savings to reinvest in the event of crop failure or insurance, etc.

 

[TakeAStepBack]

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run).

Stop!

The rest of your paragraph reinforces this point, so I've excluded it.

Clearly, you are an intelligent and well-educated individual, schooled in modern economic theory and, I think you are demonstrating an absolutely critical flaw in modern economic thought. I think it's part of the reason why so many conventional economists were unable to identify the stock market bubble of the late 90s and the housing bubble of the mid 00s, and the dangers they wrought.

A rising supply of money does NOT necessarily translate into higher consumer/producer price inflation. It might, or it might not. It depends on the circumstances. It probably (well, almost certainly) does over the long run but it may not over the short and intermediate term. Instead, excess liquidity can flow into asset markets, pushing up asset prices rather than into, say, labour markets. Austrians say that inflation is defined as the excess creation of money, and consumer price inflation is merely an effect of that. But it is not the only effect, and can manifest itself in other ways. Thus, the rising price of gold is, in part, indicative of the excess creation of money over the past decade. Thus, the argument goes, gold has been a good indicator of inflation, just not consumer price inflation. (At least not yet, anyways.) Maybe I'm wrong, I don't know, but I think this explains a lot of what has happened in the economy over the past 15-20 years.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

I agree. This is why I've argued with the gold bugs against the gold standard. The retort from the more thoughtful gold bugs paraphrases Churchill in that gold is the worst form of money, except for all the others. We've essentially had a completely free fiat money system for 40 years now. Some would say its worked pretty well. Others would say, "Yes, but communism 'worked' for nearly 70 years in the USSR before it collapsed under its inevitable logical contradictions." I have much more sympathy for this argument.

Or, perhaps a better analogy is Nassim Taleb's "Turkey Problem."

The Turkey Problem | Stephen Kinsella

There are internal debates regarding the supply of money within the Austrian school too. It is not a windfall of agreement on this. The increase in the amount of gold extracted from the ground is around 1.5% per year. Rothbard used to say to those claiming there wasn’t enough gold in the world to have a gold standard. “You could have a gold standard with a single ounce,” he said. It’s not about the amount; it’s about price.

He is right.

 

[Toro]

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run).

Stop!

The rest of your paragraph reinforces this point, so I've excluded it.

Clearly, you are an intelligent and well-educated individual, schooled in modern economic theory and, I think you are demonstrating an absolutely critical flaw in modern economic thought. I think it's part of the reason why so many conventional economists were unable to identify the stock market bubble of the late 90s and the housing bubble of the mid 00s, and the dangers they wrought.

A rising supply of money does NOT necessarily translate into higher consumer/producer price inflation. It might, or it might not. It depends on the circumstances. It probably (well, almost certainly) does over the long run but it may not over the short and intermediate term. Instead, excess liquidity can flow into asset markets, pushing up asset prices rather than into, say, labour markets. Austrians say that inflation is defined as the excess creation of money, and consumer price inflation is merely an effect of that. But it is not the only effect, and can manifest itself in other ways. Thus, the rising price of gold is, in part, indicative of the excess creation of money over the past decade. Thus, the argument goes, gold has been a good indicator of inflation, just not consumer price inflation. (At least not yet, anyways.) Maybe I'm wrong, I don't know, but I think this explains a lot of what has happened in the economy over the past 15-20 years.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

I agree. This is why I've argued with the gold bugs against the gold standard. The retort from the more thoughtful gold bugs paraphrases Churchill in that gold is the worst form of money, except for all the others. We've essentially had a completely free fiat money system for 40 years now. Some would say its worked pretty well. Others would say, "Yes, but communism 'worked' for nearly 70 years in the USSR before it collapsed under its inevitable logical contradictions." I have much more sympathy for this argument.

Or, perhaps a better analogy is Nassim Taleb's "Turkey Problem."

The Turkey Problem | Stephen Kinsella

There are internal debates regarding the supply of money within the Austrian school too. It is not a windfall of agreement on this. The increase in the amount of gold extracted from the ground is around 1.5% per year. Rothbard used to say to those claiming there wasn’t enough gold in the world to have a gold standard. “You could have a gold standard with a single ounce,” he said. It’s not about the amount; it’s about price.

He is right.

The problem with gold as a monetary base is that it's supply is erratic. From 2000 through 2009, global gold production actually declined by ~1% per year despite the price of gold rising from $250 to $1500. (It rose by 4% in 2010.) Through the 80s and 90s, however, gold production rose by 3%-5% per annum. Ideally, the supply of money should grow at the rate of the economy. Gold doesn't do that except over very long periods of time.

 

[TakeAStepBack]

That is true. However, and again, the amount is not the most important aspect. It is the true price that is the real point of interest. The "price" indicated in FRN is not the real exchange rate of gold. It assumes that the fiat money dollar is anchor by which all prices are calculated. This is true as of right now, but if the money supply was gold and the amount of gold is limited, the dynamic between price completely changes.

Like I showed back before about the inflation of the "price" of gold through the 1800s, up until about 1920. It remained almost completely stable. Even though gold was mined, refined and coined (among other uses) in that period. The idea is that real wealth is created by labor which in turn, creates capital. Printing paper escapes this idea and becomes an object at the whims of those in charge of its printing and calculations. That in and of itself is the reason paper money always fails, while gold was money by economic law for at least 5,500 years. Wealth can not be created out of thin air. it requires labor, and in turn capital to generate.

Will the fiat system in place last the sands of time? Not according to the complexity theory, human nature/action and history.

 

[DSGE]

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run).

Stop!

A rising supply of money does NOT necessarily translate into higher consumer/producer price inflation.

I know. That's why I chose my words carefully. I said "raising nominal spending (and hence prices in the long run).

For new money to have any effect at all on the real economy, somebody has to try to spend it. Hence it must raise nominal spending. If it doesn't raise nominal spending, it is just sitting there. It's being held as liquid money. It may as well not exist in the first place.

Also, I seriously don't get why those of the Austrian persuasion don't understand this. Even under no central bank, under strictly free banking, the supply of money increases endogenously to offset increases in the demand to hold money. It's absurd that people think it's somehow optimal or natural for the supply of money to be fixed.

I agree. This is why I've argued with the gold bugs against the gold standard. The retort from the more thoughtful gold bugs paraphrases Churchill in that gold is the worst form of money, except for all the others.

That's a more thoughtful response, except it's wrong. Just freezing the monetary base is far superior to a gold standard. Oh that's another thing that confuses me about Austrians: why do you get so many of them in love with the gold standard? Free Banking is what they should obviously be pushing for.

We've essentially had a completely free fiat money system for 40 years now. Some would say its worked pretty well. Others would say, "Yes, but communism 'worked' for nearly 70 years in the USSR before it collapsed under its inevitable logical contradictions." I have much more sympathy for this argument.

Except it's not fiat money that hasn't been working well, it's central bank discretion.

Or, perhaps a better analogy is Nassim Taleb's "Turkey Problem."

The Turkey Problem | Stephen Kinsella

I should really get around to reading Black Swan. I wanted to read Fooled by Randomness first, but my library doesn't have it (and I don't want to buy it).

 

[editec]

The problem is most things you need are perishable. You also do not know exactly you will require in the future. You may need surgery but the surgeon does not want anything you have. You may need solar panels, wind turbine, batteries, copper wire, shortwave radio, education for kids, medicine, shoes, gasoline, heat, grain for your animals, etc. But the companies that make this stuff don't want anything you have. A crop farmer needs Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor Parts, etc. Hardly any of this stuff comes from this country & the foreigners won't accept anything but Gold.

If you don't have physical gold in your possession, you will be up shit creek without a paddle if the economy collapses, the dollar loses its status as the world reserve currency, dollar collapses or the world passes "Peak Oil".

Yes you will need weapons & food. But if you also don't have gold & farm land, you might just wind up using your guns on yourself.

I suspect you are and are bascially on the same page here. I suspect we just talking about two different kinds of social COLLAPSE.

The worth of gold truly depends on the condition of the nation.

If the collapse is orderly, that is to say if the structure of society and markets remains essantially intact, and all we're facing is hyperinflation, then YES gold and silver are going to be VERY useful.

But if the collapse is disorderly, if the structure of society and markets really goes very chaotic, then gold and silver aren't going to be an especially useful items to have.

I know it must seem impossible that things can ever get so bad that people won't value such well understood units of value as fold and silver, but things CAN get that bad, too.

Starving people in a collapsed society do not value GOLD or silver very highly. Their needs (and fear) are too immediate for them to value something they cannot ACTUALLY use.

Gold and silver are ONLY useful as long as people are confident that there is still market enough around that people will recognize those units of value as having a market value.

Here's the thing...people always need to eat but they do NOT always value symbolic representations of value.

Unless you have your own self contained & self supportive working farm & a way to defend it against roving bands of thugs, then there will have to be a trusted reliable medium of exchange such as gold.

Not necessarily. What the above tells us is that you cannot even imagine a society so fractured that REPRESENATIONALS OF VALUE won't be recognized as such.

I'm here to tell you that that IS a possibility, at least for the anarchic period following a serious collapse of civil authority.

Under that scenario, you're better off with a few pounds of food and a gun that a TON of gold or silver.

There are nearly 7 billion people on the planet. Without a functioning trade system there is no way to grow enough food or distribute it to the people. There will be all out war before starvation.

True.

Farming is an expensive high risk high tech operation & requires a medium of exchange.

Industrial farming, yes. Subsidence farming? No.

AGain, I suspect you and I are talking about two very different collapses.

The collapse you are imagining is a minor disruption of the economy and one where some authority basically keeps anarchy at bay.

The collapse I am imagining is complete and will have a brief period of true anarchy.

Note I say "brief" period of anarchy?

But that brief period can be much longer than the amount of time you and your kids can go without eating.


A wiser approach to suvivalism is to assume and plan for BOTH events, really.

Because a state of ANARCHY doesn't last for very long before some authoritarian government gets formed, but it can last long enough that you and yours will be hard pressed to stay alive.

 

[editec]

The problem is most things you need are perishable. You also do not know exactly you will require in the future. You may need surgery but the surgeon does not want anything you have. You may need solar panels, wind turbine, batteries, copper wire, shortwave radio, education for kids, medicine, shoes, gasoline, heat, grain for your animals, etc. But the companies that make this stuff don't want anything you have. A crop farmer needs Potash Fertilizer, Glyphosate weed killer, Diesel Fuel, Tractor Parts, etc. Hardly any of this stuff comes from this country & the foreigners won't accept anything but Gold.

If you don't have physical gold in your possession, you will be up shit creek without a paddle if the economy collapses, the dollar loses its status as the world reserve currency, dollar collapses or the world passes "Peak Oil".

Yes you will need weapons & food. But if you also don't have gold & farm land, you might just wind up using your guns on yourself.

I suspect you are and are bascially on the same page here. I suspect we just talking about two different kinds of social COLLAPSE.

The worth of gold truly depends on the condition of the nation.

If the collapse is orderly, that is to say if the structure of society and markets remains essantially intact, and all we're facing is hyperinflation, then YES gold and silver are going to be VERY useful.

But if the collapse is disorderly, if the structure of society and markets really goes very chaotic, then gold and silver aren't going to be an especially useful items to have.

I know it must seem impossible that things can ever get so bad that people won't value such well understood units of value as fold and silver, but things CAN get that bad, too.

Starving people in a collapsed society do not value GOLD or silver very highly. Their needs (and fear) are too immediate for them to value something they cannot ACTUALLY use.

Gold and silver are ONLY useful as long as people are confident that there is still market enough around that people will recognize those units of value as having a market value.

Here's the thing...people always need to eat but they do NOT always value symbolic representations of value.

Unless you have your own self contained & self supportive working farm & a way to defend it against roving bands of thugs, then there will have to be a trusted reliable medium of exchange such as gold.

Not necessarily. What the above tells us is that you cannot even imagine a society so fractured that REPRESENATIONALS OF VALUE won't be recognized as such.

I'm here to tell you that that IS a possibility, at least for the anarchic period following a serious collapse of civil authority.

Under that scenario, you're better off with a few pounds of food and a gun that a TON of gold or silver.

There are nearly 7 billion people on the planet. Without a functioning trade system there is no way to grow enough food or distribute it to the people. There will be all out war before starvation.

True.

Farming is an expensive high risk high tech operation & requires a medium of exchange.

Industrial farming, yes. Subsidence farming? No.

AGain, I suspect you and I are talking about two very different collapses.

The collapse you are imagining is a minor disruption of the economy and one where some authority basically keeps anarchy at bay.

The collapse I am imagining is complete and will have a brief period of true anarchy.

Note I say "brief" period of anarchy?

But that brief period can be much longer than the amount of time you and your kids can go without eating.


A wiser approach to suvivalism is to assume and plan for BOTH events, really.

Because a state of ANARCHY doesn't last for very long before some authoritarian government gets formed, but it can last long enough that you and yours will be hard pressed to stay alive.

 

[Toro]

This makes no sense at all. "If you define inflation as the creation of money, then gold has been more effective". The creation of money is irrelevant if it isn't raising nominal spending (and hence prices in the long run).

Stop!

A rising supply of money does NOT necessarily translate into higher consumer/producer price inflation.

I know. That's why I chose my words carefully. I said "raising nominal spending (and hence prices in the long run).

For new money to have any effect at all on the real economy, somebody has to try to spend it. Hence it must raise nominal spending. If it doesn't raise nominal spending, it is just sitting there. It's being held as liquid money. It may as well not exist in the first place.





That's a more thoughtful response, except it's wrong. Just freezing the monetary base is far superior to a gold standard. Oh that's another thing that confuses me about Austrians: why do you get so many of them in love with the gold standard? Free Banking is what they should obviously be pushing for.

We've essentially had a completely free fiat money system for 40 years now. Some would say its worked pretty well. Others would say, "Yes, but communism 'worked' for nearly 70 years in the USSR before it collapsed under its inevitable logical contradictions." I have much more sympathy for this argument.

Except it's not fiat money that hasn't been working well, it's central bank discretion.

Or, perhaps a better analogy is Nassim Taleb's "Turkey Problem."

The Turkey Problem | Stephen Kinsella

I should really get around to reading Black Swan. I wanted to read Fooled by Randomness first, but my library doesn't have it (and I don't want to buy it).

Both of those books are worth it. I've read hundreds of books on finance and economics over the years and they are at the very top of the list, if for any other reason Taleb's style and wit, which is often sorely lacking in this discipline.

 

[DSGE]

...if for any other reason Taleb's style and wit, which is often sorely lacking in this discipline.

Too right.