Silver at $40 an ounce.

[maple_leafs182]

True deflation is, of course, a contraction of the money supply with a resultant drop in the general price level. People would not stop buying US bonds under that condition. The US dollar would strengthen

and demand for the dollar would rise with silver and gold droppong. Could Soros have known that there would not be a QE3?

.

I think I think more in the long term.

I don't think the economy can afford deflation for very long, right now the economy is too reliant on inflation for growth. There would have to be a collapse in the economy with deflation which you are right would drive up the US dollar not only because the amount of dollars in circulation would be shrinking but also because the US dollar has become the worlds carry trade currency and people would be forced to buy dollars to pay off their debts. I think what strength the dollar will show will be temporary and followed by its collapse.

When the economy collapses again people will stop buying US bonds and probably rush into gold and silver.

[dre]

Yeah. Or the bank could issue you a receipt of deposit and you could trade that or you could get a check book and write checks. Dollars? We don't need no stinkin' dollars.

I hear the word deflation and I wonder why people would say they "worry" about falling prices. They are a downward adjustment to the price level so, I suppose, that means until prices adjust downward, goods look unaffordable and the economy doesn't grow.

Governments, because of their committed liabilities, cannot afford the revenue loss that deflation would bring. So I understand that they would "worry" about deflation.

There would have to be a collapse in the economy with deflation which you are right would drive up the US dollar not only because the amount of dollars in circulation would be shrinking but

Why do you say the ammount of dollars in circulation would be shrinking? The money supply doesnt have to contract for you to get deflation... you need to start by reading some basic articles on what inflation and deflation are. Especially since you like to rant about them so much... know what they are might be usefull.

True deflation is, of course, a contraction of the money supply with a resultant drop in the general price level. People would not stop buying US bonds under that condition. The US dollar would strengthen

and demand for the dollar would rise with silver and gold droppong. Could Soros have known that there would not be a QE3?

True deflation is, of course, a contraction of the money supply.

No thats not what true deflation is. The money supply doesnt have to increase or decrease in order have either deflation or inflation.

I hear the word deflation and I wonder why people would say they "worry" about falling prices.

Deflation is just as much of a problem as inflation.

Yeah. Or the bank could issue you a receipt of deposit and you could trade that or you could get a check book and write checks. Dollars? We don't need no stinkin' dollars.

That receipt of deposit would STILL be a token, much like a dollar is. There would be nothing to force banks to keep the same ammount in reserve as they had issued in tokens.

This would do nothing to fix any of the problems you go on about, and economic growth would stop dead in its tracks.

Edited May 20, 2011 by dre

[Pliny]

No thats not what true deflation is. The money supply doesnt have to increase or decrease in order have either deflation or inflation.

Let me guess. Deflation is a drop in the CPI and inflation is a rise in the CPI?

Deflation is just as much of a problem as inflation.

Inflation robs people of purchasing power and deflation results in a downward adjustment of prices.

Different problems. Over time, for the public, the worst is inflation. If you are a government that can't afford the loss in revenues that deflation would naturally bring about then it is a horrifying problem.

That receipt of deposit would STILL be a token, much like a dollar is. There would be nothing to force banks to keep the same ammount in reserve as they had issued in tokens.

Well, I'm glad you see the dollar as a "token" that part is true. A receipt of deposit is just that, a receipt of deposit - a record that you own the deposit - far from being a token. Tokens generally have an expiration date. When the dollar reaches Zimbabwe level it has more or less expired.

This would do nothing to fix any of the problems you go on about, and economic growth would stop dead in its tracks.

You know, I come across socialists all the time that wish to stop materialist consumerism and the unsustainable growth that capitalism is all about. According to them populations must decline before we destroy ourselves and we must stop development. Well, growth of an unsustainable nature is really more about democratic governments that need ever increasing revenues for ever increasing entitlements it offers the ever increasing voting public.

Deflation brings it's own set of problems to the public, I agree but for governments it is devastating to their sustainable growth.

[Pliny]

.

I think I think more in the long term.

I don't think the economy can afford deflation for very long, right now the economy is too reliant on inflation for growth. There would have to be a collapse in the economy with deflation which you are right would drive up the US dollar not only because the amount of dollars in circulation would be shrinking but also because the US dollar has become the worlds carry trade currency and people would be forced to buy dollars to pay off their debts. I think what strength the dollar will show will be temporary and followed by its collapse.

When the economy collapses again people will stop buying US bonds and probably rush into gold and silver.

Of course the dollar will eventually collapse it is a paper fiat currency and its collapse is inevitable because governments cannot help themselves, if they are not restrained by some factor (being gold backed, perhaps?)they will print the dollar into oblivion - and blame the previous administration.

The economy has never really recovered but I hear there is a sale at Macy's after the world ends tomorrow!

Edited May 20, 2011 by Pliny

[dre]

Let me guess. Deflation is a drop in the CPI and inflation is a rise in the CPI?

Inflation robs people of purchasing power and deflation results in a downward adjustment of prices.

Different problems. Over time, for the public, the worst is inflation. If you are a government that can't afford the loss in revenues that deflation would naturally bring about then it is a horrifying problem.

Well, I'm glad you see the dollar as a "token" that part is true. A receipt of deposit is just that, a receipt of deposit - a record that you own the deposit - far from being a token. Tokens generally have an expiration date. When the dollar reaches Zimbabwe level it has more or less expired.

You know, I come across socialists all the time that wish to stop materialist consumerism and the unsustainable growth that capitalism is all about. According to them populations must decline before we destroy ourselves and we must stop development. Well, growth of an unsustainable nature is really more about democratic governments that need ever increasing revenues for ever increasing entitlements it offers the ever increasing voting public.

Deflation brings it's own set of problems to the public, I agree but for governments it is devastating to their sustainable growth.

Well, I'm glad you see the dollar as a "token" that part is true. A receipt of deposit is just that, a receipt of deposit - a record that you own the deposit - far from being a token. Tokens generally have an expiration date. When the dollar reaches Zimbabwe level it has more or less expired.

Even going back to ancient times most money has been tokens. And gold and silver coins are essentially tokens as well because most of their value isnt derived from their intrinsic worth, its derived for demand for them as financial intruments. You think gold costs what it does because its pretty and you can make good electrical connections with it? Not even close... its worth what it is because investors use it as a hedge against government backed currency.

A receipt of deposit is just that, a receipt of deposit - a record that you own the deposit - far from being a token

Right but you can have multiple receipts against the same gold. The bank will lend your deposit out to others with the same effect the fractional reserve multiplier has. You dont have to print more money or mint more tokens to increase the size of the money supply... you can simply lower reserve requirements for central banks.

[maple_leafs182]

Even going back to ancient times most money has been tokens. And gold and silver coins are essentially tokens as well because most of their value isnt derived from their intrinsic worth, its derived for demand for them as financial intruments. You think gold costs what it does because its pretty and you can make good electrical connections with it? Not even close... its worth what it is because investors use it as a hedge against government backed currency.

I don't understand why gold is considered so valuable, silver has far more intrinsic value then gold.

Anyways, the market should decide what money is, it should not be determined by bankers.

Right but you can have multiple receipts against the same gold. The bank will lend your deposit out to others with the same effect the fractional reserve multiplier has. You dont have to print more money or mint more tokens to increase the size of the money supply... you can simply lower reserve requirements for central banks.

We need a 100% reserve requirements. If the people think the banks are lying and giving away more receipts then they have gold then the people can go and claim their gold and if the bank does not have that gold then the bank will fail.

[Pliny]

So inflation is a rise in the CPI and deflation is a drop in the CPI????

Even going back to ancient times most money has been tokens. And gold and silver coins are essentially tokens as well because most of their value isnt derived from their intrinsic worth, its derived for demand for them as financial intruments. You think gold costs what it does because its pretty and you can make good electrical connections with it? Not even close... its worth what it is because investors use it as a hedge against government backed currency.

The intrinsic worth of any product is in it's supply and demand. If it is used as a financial instrument then part of its value will depend upon its demand for that reason. Since gold and silver also have commercial uses part of it's intrinsic value is contained in that demand.

It is true that it is used as a hedge against "fiat", or what you call government backed, currency. The currency becoming weak, usually as a result of overprinting (that is inflation), then demand for gold and silver goes up.

Right but you can have multiple receipts against the same gold.

The fractional reserve system in essence.

You dont have to print more money or mint more tokens to increase the size of the money supply... you can simply lower reserve requirements for central banks.

Lowering reserve requirements means you are increasing the receipts for deposits ratio. It may be in the form of printing more money or in creating more credit(debt).

Edited May 21, 2011 by Pliny

[Pliny]

I don't understand why gold is considered so valuable, silver has far more intrinsic value then gold.

Intrinsic value is only contained in its supply and demand for whatever purposes the commodity is used.

There is more silver than gold. Gold has more demand as a store of wealth than silver. One of the reasons I think silver is a better investment. It's value as a store of wealth is underrated. Gold is fairly safe as an investment and acts more as a hedge against inflationary or failing currencies under the current circumstances but I believe silver will be the better investment because it will have more demand as a financial instrument and consequent store of wealth.

Anyways, the market should decide what money is, it should not be determined by bankers.

I agree.

We need a 100% reserve requirements. If the people think the banks are lying and giving away more receipts then they have gold then the people can go and claim their gold and if the bank does not have that gold then the bank will fail.

Well, the banks just need to be honest. If they are going to take your deposit and invest it in loans or whatever then you need an honest account of that. All along banks just want to use your money to make loans and investments, make interest on those loans and investments and pay you a pittance in return for keeping your money deposited there. You should know your banks economic, investment and lending policy but they just assume you wouldn't understand anyway and don't bother - besides they are subject to the whim of the central bank and government anyway.

[dre]

I don't understand why gold is considered so valuable, silver has far more intrinsic value then gold.

Anyways, the market should decide what money is, it should not be determined by bankers.

We need a 100% reserve requirements. If the people think the banks are lying and giving away more receipts then they have gold then the people can go and claim their gold and if the bank does not have that gold then the bank will fail.

We need a 100% reserve requirements.

Thats a REALLY bad idea for a whole lot of reasons. And you seem to want to scrap the fed and let the "markets decide". You do realize that the fed is the only reason banks keep as much in reserve as they do, and they are constantly lobbying to be allowed to keep less right?

Well, the banks just need to be honest.

... Oh boy...

Edited May 21, 2011 by dre

[maple_leafs182]

Thats a REALLY bad idea for a whole lot of reasons. And you seem to want to scrap the fed and let the "markets decide". You do realize that the fed is the only reason banks keep as much in reserve as they do, and they are constantly lobbying to be allowed to keep less right?

Please, tell me all the reasons why that would be a bad idea.

Do you really not see how much inflation hurts the poorest of the people the most.

[Pliny]

Here is an interesting article that will see the demand for gold and silver for use as a "currency" go up and thus increase it's purchasing power.

Utah eliminates capital gains on gold/silver investments.

[dpwozney]

Here is an interesting article that will see the demand for gold and silver for use as a "currency" go up and thus increase it's purchasing power.

Utah eliminates capital gains on gold/silver investments.

In the above article, Forrest Jones writes: “Some aren't calling for gold to be used as tender but are calling for a return to the Gold Standard, which attaches the value of the dollar to a certain amount of gold.”.

One disadvantage with gold as a monetary standard is that it is too high-value for small-change circulation coin, unless very-low-percentage-gold alloys are used. The smallest unit of value typically available in coin form for gold (say, for example, 1/10th of an ounce) is generally too high for purchasing many lower-value items and definitely too high for making change. Either pure nickel or cupronickel alloy, as a monetary standard, does not have this same problem.

I prefer the idea of having the metals that are functioning as the monetary standard being in circulation as coin rather than all being stored away in a vault all of the time.

A cupronickel alloy monetary standard is more likely than a gold monetary standard at this point in time. If the intrinsic metal value, of 1946-2011 U.S. Mint cupronickel nickels, remain close enough to face value, a cupronickel alloy monetary standard is possible.

Alternatively, if the stated value, of “Federal” Reserve notes, declines enough with respect to copper and nickel, the 1946-2011 U.S. Mint nickels, composed of cupronickel alloy, could become somewhat rare in mass circulation.

The June 3rd metal value of these nickels is “$0.0626101” or 125.22% of face value, according to the “United States Circulating Coinage Intrinsic Value Table” at Coinflation.com.

[Pliny]

In the above article, Forrest Jones writes: “Some aren't calling for gold to be used as tender but are calling for a return to the Gold Standard, which attaches the value of the dollar to a certain amount of gold.”.

One disadvantage with gold as a monetary standard is that it is too high-value for small-change circulation coin, unless very-low-percentage-gold alloys are used.

......

I understand your point. What needs to be used as tender though, is "money" and it must contain all the properties of money that determine it's evolution to that status. Money substitutes, such as paper dollars are not necessary to be accepted as a legal tender - except they are by fiat which only serves to confuse what money is.

The above disadvantage of gold as a monetary standard that you point to is in it's use as specie. Or as a currency. Being "money" it may or may not be a currency. I would not have to make a one cent coin of gold. I could make a redeemable paper penny that represented .0015 oz of gold or what ever the value.

The only advantage of not having a gold backed currency is that banks and governments can print as much as they need. They are only constrained by the fact that if they print too many they will become valueless.

[dpwozney]

The only advantage of not having a gold backed currency is that banks and governments can print as much as they need. They are only constrained by the fact that if they print too many they will become valueless.

In the U.S.A., banks and governments are constrained by the reality that if they print too much money and “Federal” Reserve notes decline considerably in value, the 1982-2011 U.S. Mint 97.5% zinc pennies, and the 1946-2011 U.S. Mint cupronickel nickels, would become quite rare in mass circulation.

[maple_leafs182]

The only advantage of not having a gold backed currency is that banks and governments can print as much as they need. They are only constrained by the fact that if they print too many they will become valueless.

Yes. Another benefit in my opinion is that the large corporations the banks and governments support would not be able to get so big on something such as the gold standard. Right now they are too big, they have too much influence over our lives and create too many environmental problems.

[ZenOps]

Yup, there is too little gold out there.

About 1/4 ounce for every person on the planet. About 1/4 to 3 ounces of silver per person (and thats all of it mined since the beginning of time) depending on how much you belive industrial silver has been consumed over the centuries.

Assuming the central banks use half of the gold for themselves, you are looking at less than an eigth of an ounce of gold per person. It actually works out better to have the banks use gold and the public to use silver.

Nickel is a definite possibility. There should be 25 pounds (half a shoebox full) of nickel for every person out there. Now if you actually want to use that for industrial use in stainless steel (like say a car frame, or AA batteries) or currency - it would still hold value.

Every year not including industrial use, there would be enough to divvy up 8 ounces of nickel. Nickel is a perfect circulating currency metal IMO. All of our dollars should (and in the case of loonies and toonies to 2010, they were nickel) be on a nickel standard.

http://www.mint.ca/store/news/modification-de-la-composition-des-pieces-de-un-et-de-deux-dollars-prevue-dans-le-budget-federal-8200004?cat=News+releases&nId=700002&parentnId=600004&nodeGroup=About+the+Mint

Unfortunately - it also appears that there are so many fiat dollars out there - that a nickel standard is nearly unfeasable as a $2 coin as well - But you could reform it into a $20 coin.

It is plain scary that there is so much fiat out there that we have decided its uneconomical to use nickel and copper for a $2 coin...

Edited June 5, 2011 by ZenOps

[dpwozney]

Yup, there is too little gold out there.

About 1/4 ounce for every person on the planet. About 1/4 to 3 ounces of silver per person (and thats all of it mined since the beginning of time) depending on how much you belive industrial silver has been consumed over the centuries.

Assuming the central banks use half of the gold for themselves, you are looking at less than an eigth of an ounce of gold per person. It actually works out better to have the banks use gold and the public to use silver.

There is enough gold in the world for a gold monetary standard, if fractional reserve banking is allowed, just as it is allowed now with the current banking system.

With credit money based on representative money acting as a claim on gold, enough gold is available to effectively act as the standard for the financial system.

[dre]

I understand your point. What needs to be used as tender though, is "money" and it must contain all the properties of money that determine it's evolution to that status. Money substitutes, such as paper dollars are not necessary to be accepted as a legal tender - except they are by fiat which only serves to confuse what money is.

The above disadvantage of gold as a monetary standard that you point to is in it's use as specie. Or as a currency. Being "money" it may or may not be a currency. I would not have to make a one cent coin of gold. I could make a redeemable paper penny that represented .0015 oz of gold or what ever the value.

The only advantage of not having a gold backed currency is that banks and governments can print as much as they need. They are only constrained by the fact that if they print too many they will become valueless.

Your definitions of money and currency are objectively wrong.

I could make a redeemable paper penny that represented .0015 oz of gold or what ever the value.

You could do that but it wouldnt fix any of the problems that you rant about... Because youll still potentially have inflation based on the reserve rate. Theres nothing to stop a country or bank from printing tokens for gold they dont actually have, which is exactly what happened when we used paper as tokens for gold.

The only advantage of not having a gold backed currency is that banks and governments can print as much as they need. They are only constrained by the fact that if they print too many they will become valueless.

First of all governments can print as many gold tokens as they want as well. Furthermore there are a lot of good reasons to not base currency on a commodity and you didnt touch on ANY of them.

[Pliny]

Yes. Another benefit in my opinion is that the large corporations the banks and governments support would not be able to get so big on something such as the gold standard. Right now they are too big, they have too much influence over our lives and create too many environmental problems.

I agree. It creates a system of monopoly or cartelization.

[Pliny]

Your definitions of money and currency are objectively wrong.

oh boy....

You could do that but it wouldnt fix any of the problems that you rant about... Because youll still potentially have inflation based on the reserve rate. Theres nothing to stop a country or bank from printing tokens for gold they dont actually have, which is exactly what happened when we used paper as tokens for gold.

Only the fact that they become worthless will stop the printing of tokens.

First of all governments can print as many gold tokens as they want as well. Furthermore there are a lot of good reasons to not base currency on a commodity and you didnt touch on ANY of them.

I think I said governments can control the economy much better.

[Oleg Bach]

Try selling your silver - or gold - you will not get what it is worth.

[Pliny]

There is enough gold in the world for a gold monetary standard, if fractional reserve banking is allowed, just as it is allowed now with the current banking system.

With credit money based on representative money acting as a claim on gold, enough gold is available to effectively act as the standard for the financial system.

Gold is indeed too scarce to use as specie. It is impossible to use it exclusively as specie or currency. If gold is used as "money" then it must serve as a measure of value against all other commodities and a basic understanding of it's value must be held by the individuals in society using it as money. We aren't, for the most part, using it as "money" today - today it is just a commodity to most people.

Today we use fiat currency or electronic entries as our "measure of value". What has happened to the measure of value? In order for a car to cost $500 and increase to $50,000, money has to have inflated. Certainly cars are not scarcer then than now and in fact are more plentiful. Our measure of value is distorted by that inflation. If money had not inflated a $500 dollar car at that time would today cost say $50 - I'm just using these as illustrative numbers. How could that happen? Impossible, you say! The money supply would have shrunk and money itself would have been scarcer and increased it's purchasing power that much. If money remained stable in relation to all other factors the car would have remained at $500. If you follow the logical sequence, money becomes in too short a supply so that it becomes detrimental to trade, a new or different form of money will evolve that will serve to facilitate trade. Government in agreement with the banks, more or less hijacked the process and started the printing presses. It really greased the wheels of trade, fractional reserve banking meant they didn't have to worry too much about the amount of gold in reserve and the fraction was smaller. As the money supply increased it became unwieldy to base the dollar on gold and it was taken off the gold standard altogether. Now the only worry is creating too many credits to make them worthless as a measure of value - there would be so many they would have no value - it would take a million to buy a cup of coffee.

[Pliny]

Try selling your silver - or gold - you will not get what it is worth.

And what is it worth besides what I can get for it? You cannot say I will not get what it is worth - what I can get for it is all that it is worth. I only need to value it less than what is offerred in exchange for it. Otherwise I will not trade it. If I am starving I will trade it for a loaf of bread - if someone else values it more than the loaf of bread. If no one does then I am out of luck and gold has become valueless - something that has never happened in it's history but something that has happened many times in the history of paper money.

Edited June 7, 2011 by Pliny

[dpwozney]

Gold is indeed too scarce to use as specie.

Gold is not too scarce to be used as specie in a money system, that allows fractional reserve banking, because more, than just gold, is used as money in such a system.

Many more assets, other than just gold, are used as collateral by which commercial banks create money when they make loans.

As the money supply increased it became unwieldy to base the dollar on gold and it was taken off the gold standard altogether.

The reason why Nixon unilaterally cancelled the direct convertibility of “Federal” Reserve notes to gold is because the U.S.A. was running a balance-of-payments deficit and a trade deficit for the first time in the 20th century, due to costs such as the Vietnam war, and the U.S.A.’s gold reserves were starting to becoming depleted. If countries were to balance their budgets and not run perpetual balance-of-payments deficits (as should be required), devaluation of their currencies would not be necessary, and a unchanging long-term gold standard could be maintained.

The current fiat money system allows for the stated value of currencies to be determined by decrees, external authoritative commands or orders for them to have various stated values, with those stated values constantly changing during trading hours so that they have the appearance of floating in a free market with normal supply and demand.

In contrast, the value, of representative money, that is a claim on a commodity, is determined in a worldwide market for that particular commodity, with a large number of people deciding on the value. Unlike gold and silver, commodities, in which the market cannot be “cornered”, are much less likely to have their value manipulated. The market is very unlikely to be cornered for many base metals such as nickel.

Now the only worry is creating too many credits to make them worthless as a measure of value - there would be so many they would have no value - it would take a million to buy a cup of coffee.

Again, if such a scenario was to happen, and “Federal” Reserve notes were to decline considerably in value, the 1982-2011 U.S. Mint 97.5% zinc pennies, and the 1946-2011 U.S. Mint cupronickel nickels, would become quite rare in mass circulation.

[ZenOps]

Nickel is not *that* common. It estimated to be about 50x more prevalent than silver.

But its also been used at a rate of about 5% with iron to make stainless steel. Iron being about 2200x more common than nickel. Other than coinage, nickel is actually quite scarce right now. In fact the LME defaulted on nickel contracts back in 2006 (which everyone is expecting for silver on the CME, but has not happened - yet.) You can blame waste - because while silver is thrown away in small amounts, nickel was thrown away in unrecycled steel at a much higher rate.

http://www.time.com/time/magazine/article/0,9171,841662,00.html

Nickel now surpassing its non-inflation adjusted 1969 value of $7.70/pound (at a time when workers were getting paid $3.10/hour just to put it into perspective)

One should never forget what happened to war nickels in the US. The US actually had such demand for nickel, that they replaced the nickels with silver content because nickel was "more important" than silver at the time. In many ways, even nickel is too rare to use as a circulating currency because its value fluctuates wildly, arguably fluctating even more than silver if demand is high.

Yes - I hoard nickels.

Edited June 8, 2011 by ZenOps