 It seems to me that history is actually pretty clear regarding cases where precious metals have lost their value. The instance cited by Dom is one such example. Yes, it is true that the results of the transfer of gold and silver to Spain from South America and Mexico did not take place all at once, but it is also quite true that during the reign of Phillip II, inflation rose by 500%. While not the sole reason that he was forced to default 4 times on the national debt, it must certainly be considered a very important contributing factor. But there are also other examples from history. We could look at how America was forced to demonetize silver in 1873 after large new discoveries in the west drove the price so far down that people actually preferred to hold paper dollars. Gresham's law in action. Imagine that! But if that is still not convincing enough, we can look at what happened in Europe after the demise of the Western Roman Empire. The whole idea of money vanished. It would take 600 years before another gold coin would be minted. Japan went through a similar 600 year interregnum during which coins were not minted.
As for gold held in the waters of the oceans, the best--and most conservative--estimate that i have come across is that they contain 20 million tons. That is more than 100 times the amount of gold ever mined. And that figure does not include the gold actually on and beneath the floor of the ocean. That is estimated to be a further 30 million metric tons. While OTE is likely correct to believe that these resources are not likely to come onto the market in the short term, it does seem to be not a question of will it happen, but when will it happen. (There is a Canadian inventor who has come up with an economical way to utilize the movements in the ocean to produce electricity. As a by-product of the generating process, gold is the "waste material".[True, still only unproven theory. But how long before an investor comes forward to see if it actually does work?] ) And there are now a number of companies that are actively working toward starting mining operations in the asteroid belt. This one requires nothing of what one might consider to be science fiction to make happen. This one just needs investors to put existing technology together. And a number of investors with very deep pockets are making it happen as we live and breathe. They will not all be unsuccessful and even if they are, others will follow in their efforts until one day, one of them will be able to proclaim the words spoken by Newton so long ago: "If I have seen further, it is because I have stood on the shoulders of giants."
Regardless, the take away point is that basing money on precious metals is not without needless risk. And it is needless risk because, as noted elsewhere, money is a mental construct. What we choose to represent it is up to us. Even a cursory knowledge of monetary history will show that to be true. When we choose something such as gold, we are now not only at the mercy of just how good stewards of the currency those entrusted with its care will prove to be, but we now also face the very real possibility that at some point in the future, large new supplies will enter the market and wipe out the value of the gold backed currency. As we can use anything to represent money, it seems wisest to remove that layer of risk. That is best achieved with either paper or digital (though we would require something unhackable before i would feel comfortable going the digital route). What makes paper ideal is that there is a virtually limitless supply of the stuff and so its intrinsic value will always be less than the dollar figure printed on the bill.
Now i can hear some of you saying that this is a proven recipe for hyperinflation. My contention is that nothing could be further from the truth. Granted, it is not immune from the possibility. It would be silly to make such a claim. In this regard it is the same as any other monetary system. Trouble arises when those entrusted with how our tax dollars get spent become reckless. They print more paper, or decree that it will henceforward take 35 paper dollars to purchase an ounce of gold, or they put less metal in the coin, but do not change the denomination stamped onto its face; all because they consistently spent more than was coming in. That never changes. My point is that by using paper to represent money, we remove a wild card when it comes to establishing its value. And were we to be so crazy as to pass laws mandating to what degree a deficit could be tolerated, (there are natural disasters to say nothing of the occasional nuclear reactor accident and the possibility of war, that there may not be sufficient lead time to be adequately prepared) we could drastically reduce the danger government poses to the soundness of our money. And that should be the goal. The argument that gold can control the spending habits of government has worked neither in theory nor practice. One can only make that case by ignoring the many examples from history. And there has yet to be any new iteration of a gold standard system that gets around the thorny problem of potentially catastrophic fluctuations in the supply chain.
Now, to change gears.
Understanding what gold is right now, not 42 years ago or in 1792, seems more sensible than clinging to the illusion that gold is money or that it should be so again. Gold is not now money. Money is that stuff that governments allow to be issued and if not totally corrupt, it is the only thing they will accept as payment of taxes. Gold is a prudent hedge at this time against what has been the assault conducted against all the major currencies by the various governments and their central banks. If you have this understanding and so have gold as your hedge, it will not concern you that gold could drop further from here in price. Its true value will only be revealed when the current monetary systems collapse under the weight of all the unpayable debt in the system, with the attendant implosion of confidence in its worth. So, it is good that gold is not money, because the idiots in charge of our money have already set the wheels in motion for its inexorable demise and we are hedged against that eventuality. We should also be happy that many of the herd animals have yet to see the danger and so are not bidding up the price on us. Mostly, we should hope not only that the stories of gold manipulation are true, but that the manipulators have far better success in bringing the price down. The way i see it, the system is irretrievably broken and so it is prudent to have an insurance policy. As the end time is not yet upon us, let us hope that insurance can be purchased for less.  Commented 4172 days ago |
| Beginning of the headline :Here's something that Arthur Laffer (who was also working closely
with Chuck Kadlec at the time) put out in February 1980. Of course,
in 1980 the dollar had been declining in value for a decade, and, at
the time of this paper, had just had a real crash which
brought its value momentarily to $850/oz. Mercantilist "easy money"
was a disaster. There was a lot of talk at the time of reinstating a
gold standard system, which at the time had been gone only nine
years, sinc... Read More |
