And from the link posted in the previous post: "From an economic viewpoint, however, money is just a medium of exchange and a store of value. Efforts to turn it into a political football invariably are a sign of a hidden agenda or perhaps a psychological aberration. But, that said, money does have a moral as well as an economic significance. And it’s important to get that out in the open and have it understood. My view is that money is a high moral good. It represents all the good things you hope to have, do and provide in the future. In a manner of speaking, it’s distilled life. That’s why it’s important to have a sound money, one that isn’t subject to political manipulation.
Over the centuries many things have been used as money, prominently including cows, salt and seashells. Aristotle thought about this in the 4th century BCE and arrived at the five characteristics of a good money:
* It should be durable (which is why, say, wheat isn’t a good money – it rots).
* It should be divisible (which is why artwork isn’t a good money – you can’t cut up the Mona Lisa for change).
* It should be convenient (which is why lead isn’t a good money – it just takes too much to be of value).
* It should be consistent (which is one reason why land can’t be money – each piece is different).
* And it should have value in itself (which is why paper money leads to trouble).
Of the 92 naturally occurring elements, gold (secondarily silver) has proved the best money. It’s not magic or superstition, any more than it is for iron to be best for building bridges and aluminum for building airplanes."
So there it is, gold has proved throughout history to be the best money, with silver in second. Hoarding copper would pull it out of industrial applications, drive up the price, make life more expensive. Gold is not particularly useful (except in small, varied instances) in industry, but its qualities make it ideal for money. I wonder how this reflects on silver as it is now being more and more widely used in industry, with some uses not easily or at all being replicated by any other metal. Will that make silver more useful or less useful as a money?
I can see the authors points that gold "hoarding" does not hurt industry, only hurts govts printing too much money, thus safeguards the savings of everyone. So gold is like the praetorian guard of money.
Makes sense to me...
Tony.
"So how is gold a good hedge against inflation? Why not buy tin, copper, or any other commodity when gold is what gets confiscated by the government during periods of turmoil historically?"
Here is an interesting view on that argument:
http://www.zerohedge.com/article/guest-post-debunking-anti-gold-propaganda
Interesting to read both sides. I try to read sites about deflation and inflation, try to get both sides of the argument. And the argument for hyperinflation. I guess i am leaning towards inflation and a chance of hyperinflation (devaluation of the dollar). I do believe that deflation would be the natural course if there were not intervention by the fed, but Bernanke knows this and is determined to not allow deflation. We will see if the fed is more powerful than the market, at least in the short term. If so, inflation, and ultimately hyperinflation is the result.
If understanding the mechanics of what leads to hyperinflation is hard, go read about the other instances of hyperinflation in history, and why they occurred.
I do believe that gold was used in Zimbabwe recently as money when the Z dollar was measured in trillions...
Tony.
Matty, another version of the could not deliver story:
http://www.lewrockwell.com/slavo/slavo35.1.html
Interesting times, silver over 50, gold shooting up... is it time to buy silver and gold (in other words, is it time to sell dollars?)
We live in very interesting times, I think those of us who are alive with grandkids 40-50 years from now will have very strange stories to tell.
Tony
Originally posted by Bryan Hancock
The insurance argument makes sense...I just don't see how this choice is superior to owning income-producing property with debt on it that acts as the needed hedge. Any thoughts there?
Matty-
I certainly agree that real estate is great. I am not touting gold or silver over real estate. I don't think either/or. I like both.
===========
I agree, I am not saying gold silver over real estate, as mentioned I have both. I do not believe I can know for sure what is going to happen, tho I can make guesses. So I put the main part of my money on my guesses/opinion and hedge that with a what if scenario. Still, I am not sure that hyperinflation is around the corner, but I am pretty sure that inflation will stay with us. Unless there is deflation, which would be the natural response to a debt bubble, a debt deflation. However, govt cannot let that happen or they are out of a job, so I am siding with inflation for the short term.
"The purpose of this study is to try to understand, using public survey methods, why
people are so concerned and dismayed by inflation, the increase in the price level and
decline in value of money.
" is the first quote of that article Bryan posted. I have not read it yet (55 pages!) but I do not find it hard to understand why people would dislike when their savings decline in value and prices rise compared to their earnings. Self evident to me.
And as I posted on another thread, here is a good explanation of what is going on:
http://www.chrismartenson.com/page/transcript-axel-merk-why-anyone-still-waiting-sell-dollar
I think that the interviewee has the correct idea, but you will notice that even he is not saying that "this is going to happen", rather that he is putting his money on what seems most likely, and that it is a fluid, changing situation.
I found it interesting that one point raised was that Bernanke is basically trying to prove his thesis here in real life, trying to prove that what works in isolation works in the dynamics of real life. (reminds me of the quote: "but that cannot be, we cannot prove it on paper" or something to that effect... supposed to show how academics often try to fit real life to a model instead of trying to make a model fit real life)
A deep subject, this inflation/hyperinflation/deflation one, and never ending. In the end there is not any right answer until it happens, then some will be right and some will be wrong.
Personally, I often wonder what would be wrong with no inflation? A dollar that maintained its purchasing power, that you could save it and 10 years later still buy the same amount. Or even deflation, you could buy more 10 years later? So retirement would actually reward saving money, a down payment for a house would not need to keep growing larger and larger, etc. Just some thoughts.
Tony
Matty, I am in the same boat. Almost nobody I know owns gold or silver, and when I suggest that they are going up and have been for a long time, people say they are too expensive now, that they are in a bubble. I wonder how they can be in a bubble when almost nobody is buying them, silver is in a supply / demand imbalance where it is being used as fast as it is mined and most silver that is used is used in such minute amounts that it is not economically recoverable (think cell phones, other electronics, etc, very small amounts very widely dispersed).
I agree that when the biggest detractors of gold and silver (media, some people I know) switch to being supporters/buyers, then I will know it is time to be gone. At that point my plan is to cash out and buy as much real estate as I can. Prime farmland, income properties, etc.
The bubbles are the same, or rather they follow the same patterns. First the moves are steady, and people are dismissing them left and right. Then they start moving up a bit stronger, and some people make some money. After this people start to think that there is money to be made, and here is where the speculators / gamblers jump in. Some of them make money, and then there becomes a mad rush to join the sure thing (see tech bubble, people quitting their jobs to day trade convince that they were geniuses when in actuality is was just an upwards moving market, housing bubble when people adding on, buying rental properties for appreciation, cashing out bubble equity in their house believing they would never have to actually pay it, the next buyer would pay it). So when this mad rush happens, when the media is breathlessly extolling the advantages of safe money, that gold is the way to go, Cramer is pimping mining stocks, my friends who love to argue about gold/silver even tho they cannot disagree that it has been a great investment for a long time now decide that I am not just lucky and they should join the parade, that gold and silver are "Going to the Moon!!!", then I will sell most of what I have. And exchange it for real estate via dollars. I plan to have the dollars long enough to make the transition, but no longer.
That is my plan. Do I have my total net worth in gold/silver? No, because I am not so conceited/ignorant/proud/brave to think that I am 100% right, my crystal ball is gone, remember? So this is just a hedge. I still have some cash, some stocks (less and less), some real estate... etc, so the PMs are a hedge that if something happens like has happened every other time in history (and I do not think this time is different, other than when it happens this time it will be worse) then I have a plan to put in place to get through it.
Here is an interesting interview about the dollar. Not much about silver or gold in there, but after reading the article you may have some idea why some buy gold/silver/real estate to hedge against the dollar:
http://www.chrismartenson.com/page/transcript-axel-merk-why-anyone-still-waiting-sell-dollar
I am not trying to convert anyone to PMs, just pointing out that there is an argument to be made for owning them, just as there are arguments for saying that real estate has a long way to fall yet...
Tony.
Bryan, I have seen the stats for gold prices and inflation as well. It kinda threw me for a loop at first, I figured that the gold bugs were out to get me just like the stock pushers... But then I started to look at it. It seems as tho when the expectation of hyperinflation, ie a somewhat collapse in the system, is prevalent, then the price of gold goes up. In other words, plain old inflation is not always what puts it up, but when people start to worry about hyper or really high inflation, then gold goes up. In that regard it is a form of insurance. And that is why I have a portion in PMs. I think Matty covers this as well.
As for why gold, why not copper, lead, etc, you have a point. Cotton, lead, sugar, etc have risen in price more than gold, but imagine how much lead or sugar or cotton you would have to store to keep a million dollars worth... and transportation, and some of those are not so durable... Oil would have been a great play, from 30 to 110, and looks like higher. But again, how to buy, transport, store (it goes bad after a while if not properly stored), then sell it again. Here is a good article explaining why gold: http://www.lewrockwell.com/casey/casey31.1.html
And yes, they do sell a newsletter, but I see nothing wrong with reading and verifying the facts. So I will continue to invest, and buy gold and silver as long as it continues to go up.
That brings up one other reason I am holding it: the trend. It has been going up since 2000, and I do not believe in fighting the trend. So until I think it has run out (and looking at histories of bubbles it has a way to go yet) I am not scared.
And no, as stated before, I do not have a crystal ball anymore, so I am flying in the dark blind like everyone else...
Tony
Rich, I am the same with my gold; It is physical, I can hold it, and I am not selling.
Silver is more a speculative play based on the fundamentals; I got lucky and did not buy in the 90s when it was dead or I would prob have been turned off...
I think paper gold and paper silver are just for speculating. There is a difference between allocated and eligible bullion; one is counted as being able to deliver, the other is counted as reserved, cannot be leased out, etc. Too many sources have stated that the amount leased out is to high compared to the amount in holding (similar to the goldsmiths in antiquity...) See Eric Sprott for a good analysis of this.
People I read in this issue are:
Jim Sinclair
Marc Faber
Jim Rogers
Peter Schiff
The Turd Ferguson :)
GATA
But educate yourself.
Read Henry Hazlitt's "Economics in One Lesson", it can be found online for free. Read The Creature from Jekyll Island. Understand what is going on.
No, I do not think gold is in a bubble yet, though it will be. The fundamentals which are causing it to rise are still there, and if anything worse, meaning a stronger case for gold. It looks that it is in a bubble because the dollar and other papers are devaluing, confidence is decreasing... but gold is holding value and actually increasing it these days.
I am curious: lets start an informal poll. How many people of all the people you know own gold. Not paper gold. Actual gold coins, bars, etc, something they can hold. I know four people of all the people I know. Many are in real estate, many in stocks, but only four in gold. Two of them I explained, they read, they read some more, I explained some more, they read some more, all the while gold was rising, then they bought. One asked me "but what do I do when gold is 3-5k per ounce or whatever point I want to sell? I just get worthless paper in exchange..." I said at that point you exchange that worthless paper for real estate. I explained that in my opinion real estate would continue to drop while gold and silver would continue to rise. At some point it would become obvious to make the exchange. It was like a visible click and the light went on in his head. He said: Oh, Ok. hung up the phone and went to buy gold (Dec 2008) and silver. I am pretty proud that I helped him out...
On the other hand are the 10-15 others who when I explain, the say it is too expensive, they would like to see it cheaper before they buy. This same story since 700, 800, 1000 (esp here, such a psychological thing), 1200, 1300, 1400, and of course now, it is really expensive at 1500. Funny how it has been in a bubble the whole way, but they could not see the stock market bubbles, the housing bubble, etc. And same with the media, they did not see the stock and housing bubbles, yet they are calling a bubble in gold.
Ok, gotta run.
Tony
Just curious on number two, the way it is worded it says annual premium, the quote is for three years. What is the correct way to read that? I think Jon also touched on this point.
Thanks,
Tony.
Also, anyone here work on their CCIM? any recommendations/advice? Thanks.
Couple points: first, hyperinflation is not a myth. It has happened (germany in 1920s, zimbabwe couple a years ago, argentina now and 90s?...) and will happen again. The root causes are printing too much money, easy credit (which leads to a bubble), and then a deflationary collapse (return to sanity) which the printers try to alleviate by printing more. This is like putting a bandaid on cancer, it hides it but it just keeps spreading and manifests itself elsewhere.
The way a gold standard, or any kind of peg where the govt has to exchange a commodity of a finite amount which they cannot reproduce (hmm, wonder what would happen if we had an oil standard), is that it limits the printing that can be done. That is why the US govt took all the gold from US citizens and made it a crime to own gold; it could not redeem the demands. If people came with $20 and said give me the gold, I do not trust that you are not printing and devaluing the dollar, the govt would run out of gold too fast. So in 1933 Roosevelt took away the gold and made the money purely fiat (for US citizens). In the 1970s the same thing happened again. Foreigners were demanding gold because inflation (paper being printed) was eating away at their purchasing power, the US was loosing gold like crazy (to make up for the dollars being printed) so Nixon said no more, you have paper and you are not getting our gold. The amazing thing is that people accepted that, and still continue to take paper that has been printed more and more. When you study money creation, how it is created, it is really amazing. I am not judging whether right or wrong, or what should be better, but it makes my head hurt when I look at it and think I understand it because it does not make sense... But anyways, a gold standard, where paper can be exchanged for gold, puts a limit on printing, or inflation. If the value of the dollar starts to go down to quickly, people will exchange them for gold to preserve their savings / wealth. The govt will start running out of gold, and have to start changing their monetary policy. We do not have any such brakes in today's climate, printing is feasible and is happening.
I have gold and silver, as stated previously. I bought most of it several years ago, when I was convinced of where we are heading. I will still buy gold and silver as I get more wealth to protect. I see it as a hedge against the printing, if printing increases, money goes down, but gold goes up. And if there is hyperinflation someday, then I am ready to buy some cheap real estate (in gold term; in dollar terms it will be crazy expensive). So a hedge, and insurance.
Bubbles are interesting items. I remember the run up to the tech bubble; people were saying buy, buy anything, it is crazy but they are all going up. I looked, no earnings, no business, no business plan even for some, looked too crazy, I did not even know how to buy a stock back then, too busy doing other stuff, I stayed out.
Then the real estate bubble, same thing. People were buying like crazy, easy to get loans, people quiting their jobs to "get rich", same thing, a bubble was not possible until it was already half way down, even then many (see choice speeches from Bernanke, Geitner, Greenspan, etc) denied it. Remember that it is easier for most to believe the easy lie than to face the hard truth...
So bubbles and money and history, they are kind of a hobby of mine. Not so interested in memorizing dates, etc, but interested in why things happen, why people do the same things again and again, why money systems inevitably lead to inflation (no control over printing) in the end, etc. So understanding human nature, and what has always happened, I feel confident that similar things will happen again and prepare accordingly.
I agree with Matty that there is a ton of pessimism in goldbug communities, but it is worth reading the counter to the koolaid given in the media just to stretch your mind and make you think.
And yes, Bryan, I totally agree that saving your wealth in dollars is not good in todays environment, govt inflationary policies are going to steal it. They want you to spend, to keep the economy limping along, inflation is a means of making you do that (we should buy before prices go up, if we save we just loose anyways, etc...).
And I also agree if you do not know anything about this stuff, if you do not understand yourself why you should buy gold or silver than you should not buy based on someone's recommendation. But I highly recommend learning. Some good references above, get both sides of the argument. Maybe you will arrive at the point I am; not sure which will come first, but wanting to be prepared for whatever comes...
Tony
Bryan, not sure where the gold standard came into this conversation, maybe I missed something?
I did watch the video you reference, and agreed with much of what the author states.
But I did some fact checking, and here is what I found:
"The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price...
The period from 1880 to 1914 is known as the classical gold standard. During that time, the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital...
Widespread dissatisfaction with high inflation in the late 1970s and early 1980s brought renewed interest in the gold standard. Although that interest is not strong today, it seems to strengthen every time inflation moves much above 5 percent. This makes sense: whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the “classical gold standard,†inflation averaged only 0.1 percent per year."
[url]http://www.econlib.org/library
/Enc/GoldStandard.html[/url]
(in 1914 the fed was started, and was the start of getting off the gold standard so they could print money to benefit themselves. "Let me issue and control a nation's money and I care not who writes the laws." was attributed to one of the Rothschild bankers, and we see it followed today by the wall street bankers...)
I would venture to say that his representing those inflationary periods of the 20s - 30s as occurring during the gold standard as somewhat disingenuous.
But one thing that I do not totally agree with, or I guess I have a different explanation. He points at the graph of savings going down since 84, and says that until savings stops or fed printing makes up for the balance, there will be only deflation, not inflation. While I agree that after a bubble caused by money printing there should be a debt deflation, I have some thoughts about his explanation. I think that the easy credit and money printing (see Greenspan Put et al) caused people to spend like there was no tomorrow where payment was due. I have heard numerous instances where politicians and economists have stated that it is a consumer economy and consumers need to go spend. But they now need to pay all the debt from the last 20-30 years of spending. Remember, debt is a promise/requirement to pay tomorrow for todays spending, and this hurts/robs savings and investment. The rise in capacity during that time was a result of that spending demand fueled by debt and easy money. Now debt is tight, maxed out, so where will the spending come from? He proposes the fed will spend, the government will spend... but that spending does not do anything productive. When is the last time any government anywhere actually produced something of value that sold for a profit? That is why items are getting cheaper (houses, so many built when money was easy, debt was cheap, now it is time to pay the bills, prices slump due to demand deflation) while others are getting more expensive (food, gas, etc. but I think those are all a function of oils price...) I guess in short I think that now the bill for the last 30 odd years needs to be paid, and that is why there is not enough money, we overspent. And this is true at the govt levels as well, look at all the social programs, we over spent, now we have to pay, and pay more and more...
Another thing, he says to not buy gold until some metric is met, forgot which, but that means he is holding cash (eroding in purchasing power) and missing out in the 20%? annualized gains gold has enjoyed over the last decade. I like the sayings that don't fight the trend, and the trend is your friend. My savings are gold (and silver) backed, how about you?
I do not know what the solution is nor what will happen, but that is my clearest murky explanation of what is happening/happened.
Tony