Silver at $40 an ounce.

[maple_leafs182]

I am starting to think we may be heading into a deflationary period. I may sell off some of my silver and buy back in a little later. I think we may see the stock market crash by years end.

[dre]

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.

It really depends how fast the "units" change in purchasing power and how far prices lag behind. Sure a car cost 500 dollars 80 years ago, and they cost 50k now. But whats important as far as price stability is the ammount of labor an aspiring owner has to trade for a car. When a car cost $500 for example a carpenter probably made about 10 cents an hour... the real question is how much labor does a carpenter have to surrender in exchange for a car. I dont feel like doing the math right now, but my guess is that even though you might need 50 times as many units of economic account to purchase a car now than you did then, the ammount of actual labor a person needs to exchange is probably in fact less.

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.

Thats a great point and thats why so many economists have favored having some sort of unit of international economic account. It would be more stable in the long term because its value would be based on how many goods and services there are in the global marketplace.

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

Yup. And the same is true whether those are tokens are backed by a commodity or by the ammount of goods and services in the marketplace.

Edited June 8, 2011 by dre

[ZenOps]

Its a decent time to sell silver IMO. Yes, the possiblity of a stock market crash is high, and both silver and gold will crash along with it. Silver may break $50 and $100 an ounce, but the majority of runup from $4 eight years ago might be over.

Often quoted is the Dow to gold ratio of 2:1, but what people tend to not mention is that the DOW could drop to 2,000 and gold to $1,000 an ounce. Silver typically fares worse than gold in a market crash.

Pre-1982 Nickels! Protects against both inflation and deflation, and greatly increases in value if "it all falls apart" (wartime).

Edited June 8, 2011 by ZenOps

[Oleg Bach]

About 14 years ago - I had some cash ...after reading some scripture that stated "buy gold refined by fire" - I was about to buy about 20 thousand dollars of the stuff...but I did not think long term - Imagine if I had been patient and followed through with the purchace and held the investment in tact up to the present - I WOULD BE RICH! Instead of some grumpy and poor fiddler on the roof.

[Pliny]

I am starting to think we may be heading into a deflationary period. I may sell off some of my silver and buy back in a little later. I think we may see the stock market crash by years end.

The stock market may crash in the fall. Traditionally, in that occurrence, money would seek comfort in the US dollar but I don't believe it has that option now. The US Dollar is shaky because of Obama and his monetary policies. I think it will stay with gold and silver. Just my guess.

[Pliny]

Its a decent time to sell silver IMO. Yes, the possiblity of a stock market crash is high, and both silver and gold will crash along with it. Silver may break $50 and $100 an ounce, but the majority of runup from $4 eight years ago might be over.

Often quoted is the Dow to gold ratio of 2:1, but what people tend to not mention is that the DOW could drop to 2,000 and gold to $1,000 an ounce. Silver typically fares worse than gold in a market crash.

Pre-1982 Nickels! Protects against both inflation and deflation, and greatly increases in value if "it all falls apart" (wartime).

You may be right but I think gold and silver are not as high as they are due to outright speculative exuberance. There is undoubtedly some speculation because that is how investors make money. How much of the price of gold and silver is speculative will definitely reveal itself in a market crash. How much is driven by fear from instability in the economy due to poor monetary policies and a weak dollar is the other side of the coin. The price will fall if it has been driven up by speculation and will rise higher if it has been driven up by lack of confidence - where else will money go if it can't find solace in the dollar?

[Pliny]

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.

If gold is the money what else is used as money? Anything else would be a "money substitute" or type of redeemable-for-gold currency. Silver could also be "money" but then it would be a bi-metal money system.

A fractional reserve system allows for more money substitutes and redeemable for money currencies to be issued than "money"(in our case - gold) in reserves. It doesn't allow other types of "money".

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

Gold isn't really a part of a commercial banks assets today, unless maybe incidentally. Why would it be?

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.

American gold reserves were indeed being depleted. But if we take the dollar off the gold standard why do we care what the gold reserves are?

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.

Devaluation of a currency is the direct result of creating too much of it plus creating debt. But in reality what is a debt when an electronic entry is all that is necessary to create "money"? If the powers that be just created the "money" to pay the debt it might get into the hands of the public and become entirely worthless instead of just a debt. What a shell game!

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.

That explains why people find it increasingly difficult to understand pricing. I mean, how does Walmart price things so low? And how come a seatbelt ticket costs $175. Why are houses in my area over a million dollars? How come a plumber can make as much as a doctor? Does it really sound like they are determining the stated value of currencies by decree? And if they do, why is there even a currency market - wouldn't government then just decree a certain value and then make a killing on the currency exchange?

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.

Supply and demand are of course not considerations in an economy any more. A large number of people just determine value.

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.

Precisely why gold and silver should also go up.

[maple_leafs182]

The stock market may crash in the fall. Traditionally, in that occurrence, money would seek comfort in the US dollar but I don't believe it has that option now. The US Dollar is shaky because of Obama and his monetary policies. I think it will stay with gold and silver. Just my guess.

I still believe long term gold and silver will rise I just think we will hit a deflationary period before we hit the inflationary period. There is also the wildcard, who knows what the Fed will do.

I may just hold on to my silver and ride it out, it is getting kind of hard to find physical around where I live. I do think it may fall to the low 30's high 20's.

[dpwozney]

If gold is the money what else is used as money?

In a money system with gold as the monetary standard, the following would all be part of the money supply and therefore would all qualify as being called some type of money: gold, non-gold coins, bank notes, traveler’s checks, credit money, demand deposits, checking deposits, savings deposits, and time deposits.

Gold isn't really a part of a commercial banks assets today, unless maybe incidentally. Why would it be?

I was referring to a gold-standard money system with fractional reserve banking.

In a gold-standard money system with fractional reserve banking, many more assets, other than just gold, are used as collateral by which commercial banks create money when they make loans.

However, in today’s money system, gold incidentally (and in addition to many other assets) can be used as collateral for commercial banks to create money when they make loans.

American gold reserves were indeed being depleted. But if we take the dollar off the gold standard why do we care what the gold reserves are?

I do not claim that we necessarily care what the gold reserves are, with the dollar off the gold standard.

However, with the dollar on the gold standard, we would definitely care what various gold reserves are.

But in reality what is a debt when an electronic entry is all that is necessary to create "money"?

An electronic entry is not all that is necessary to create money, in properly-done fractional reserve banking.

In properly-done fractional reserve banking, collateral is also necessary to create money.

Does it really sound like they are determining the stated value of currencies by decree? And if they do, why is there even a currency market - wouldn't government then just decree a certain value and then make a killing on the currency exchange?

It isn’t necessarily “government” decreeing currency values that constantly change during trading hours, and if anyone non-government is making a lot of money doing this, they would not want to make it obvious and known to the public.

Supply and demand are of course not considerations in an economy any more. A large number of people just determine value.

Supply and demand are considerations in the economy for many commodities, such as many base metals, which have a large number of buyers and sellers negotiating price and in which the market is not “cornered”.

Such commodities are much less likely to have their values manipulated by some relatively small group of people.

Precisely why gold and silver should also go up.

In your view, will silver and gold still “go up” even if “Federal” Reserve notes do not decline in value relative to the value of copper and nickel?

There is no absolute guarantee that, in the future, “Federal” Reserve notes will decline considerably in value relative to the value of copper and nickel.

Edited June 9, 2011 by dpwozney

[GostHacked]

An ounce of gold is much smaller and lighter than carrying 70+ $20 bills around.

Indeed, that ounce of gold is what ..over $1500 US now? But that is more or less attributed to the inflation and the dollar dropping in value.

I think banks prefer electronic because they control the money supply. If they hook you to electronic, they can hook you to fees, interest rates, etc.

You don't pay interact fees when you pay cash. They can also simply turn your card off as well and you lose access to your money, if they wanted to.

[dpwozney]

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 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.

Silver production is about 21,000 tonnes per year.

Nickel production is about 1,600,000 tonnes per year.

Copper production is about 15,000,000 tonnes per year.

Pig iron production is about 1,000,000,000 tonnes per year.

The amount of nickel used in U.S. Mint nickels is less than 2,000 tonnes per year.

Fluctuations in the stated value of “Federal” Reserve notes are significantly responsible for fluctuations in the stated values of all commodities including silver, nickel, copper, and steel.

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

The text in the above article dated November 21, 1969 states:

“Canada will continue to be the world's main supplier for the next few years, but enough new sources will be opened up by the mid-1970s to reduce the leverage of the Ontario unionists, who have a habit of striking at the expiration of each three-year contract. Inco has acquired concessions in Guatemala and Indonesia. The French firm of Le Nickel is mining in New Caledonia. Most important, recent discoveries show that Western Australia may some day rival Ontario as a ‘nickel province’. For the moment, however, anyone who has a source of nickel can make a mint.”

Additional new sources of nickel opened up since the mid-1970s include the relatively recent production of nickel pig-iron in China, as discussed in this article dated today. Nickel pig-iron is made from laterite ore mined in Indonesia and the Philippines.

Edited June 9, 2011 by dpwozney

[Pliny]

In a money system with gold as the monetary standard, the following would all be part of the money supply and therefore would all qualify as being called some type of money: gold, non-gold coins, bank notes, traveler’s checks, credit money, demand deposits, checking deposits, savings deposits, and time deposits.

Gold is only the "monetary standard" then? Gold is not the standard that backs all those other things?

Those other things could stand alone as money. Is that what you are saying?

I was referring to a gold-standard money system with fractional reserve banking.

In a gold-standard money system with fractional reserve banking, many more assets, other than just gold, are used as collateral by which commercial banks create money when they make loans.

However, in today’s money system, gold incidentally (and in addition to many other assets) can be used as collateral for commercial banks to create money when they make loans.

In a gold-standard money system, my understanding is that gold is what is considered money. Deposits of gold are then the basis upon which a fraction of receipts may be produced above the actual gold deposits.

It's loans appear as assets on their books and are liabilities to the borrowers but they cannot make loans based upon those "assets". They can only make loans based upon the the considered safe fractional reserve of deposits of gold or receipts from other banks that are themselves redeemable in gold.

I do not claim that we necessarily care what the gold reserves are, with the dollar off the gold standard.

However, with the dollar on the gold standard, we would definitely care what various gold reserves are.

An electronic entry is not all that is necessary to create money, in properly-done fractional reserve banking.

In properly-done fractional reserve banking, collateral is also necessary to create money.

Of course, a fraction of a banks deposits, whether in the form of cash or electronic credits from it's customers, must be held by the bank and determines the amount above which it can make loans above those deposits. I believe the fractional amount of depsitis that they require to have on deposit is about 3%.

It isn’t necessarily “government” decreeing currency values that constantly change during trading hours, and if anyone non-government is making a lot of money doing this, they would not want to make it obvious and known to the public.

Government attempts to stabilize wages and prices in an economy by manipulating the money supply and regualting the demand for money with interest rates.

Add money = inflate general price level. It likes to keep an economy appear to be growing so likes to inflate at about 2% for what is considered stable growth in the eocnomy.

In your view, will silver and gold still “go up” even if “Federal” Reserve notes do not decline in value relative to the value of copper and nickel?

The factors of value in a commodity are supply and demand. The "value" of Federal Reserve notes, being considered a commodity, also depends upon their supply and demand and it is an intervention of the central bank to control the money supply and thus it's value, which is a measure of value, a yardstick as it were, affecting the value of all other commodities in relation to it.

From that the price of silver and gold could go up depending upon supply and demand. Federal notes, their prime purpose being the stabilization of prices and wages in an economy, if they decline in supply will lower the prices of all other commodities and if they are increased in supply will raise the prices of all other commodities.

There is no absolute guarantee that, in the future, “Federal” Reserve notes will decline considerably in value relative to the value of copper and nickel.

If the Federal Reserve continues to print or "create" them above the level of replacement there is a guarantee they will decline considerably in value. That's the prime purpose of the federal reserve note and the federal reserve regulates their supply and demand.

[dpwozney]

Gold is only the "monetary standard" then? Gold is not the standard that backs all those other things?

Those other things could stand alone as money. Is that what you are saying?

In a gold-standard money system with fractional reserve banking, gold is the standard by which the dollar is valued; the dollar is worth some fixed unchanging mass of gold.

In a gold-standard money system with fractional reserve banking, various types of money are backed by many other assets (i.e. collateral) other than just gold, just like in the present fiat money system.

In the present fiat money system which has fractional reserve banking, various types of money are backed by many non-gold assets (i.e. collateral).

In a gold-standard money system, my understanding is that gold is what is considered money.

In historical gold-standard money systems with fractional reserve banking, banknotes, non-gold coins, etc., were commonly used as money and considered to be money.

Of course, a fraction of a banks deposits, whether in the form of cash or electronic credits from it's customers, must be held by the bank and determines the amount above which it can make loans above those deposits. I believe the fractional amount of depsitis that they require to have on deposit is about 3%.

In Canada and some other countries, there is no reserve requirement enforced by the central bank. However, commercial banks still have to meet customer demand for cash and coin.

The factors of value in a commodity are supply and demand. The "value" of Federal Reserve notes, being considered a commodity, also depends upon their supply and demand and it is an intervention of the central bank to control the money supply and thus it's value, ...

Supply and demand of mere numbers is not the same as supply and demand of a real physical commodity. Supply and demand of mere numbers does not affect price like supply and demand of a real physical commodity.

Edited June 10, 2011 by dpwozney

[ZenOps]

Nickel in US 25% nickels is small but tangible. There is also 8% nickel in dimes, quarters, and half dollars. There are also Euro coins, and up until recently, pure nickel Canadian coins... All nations of the world actually prefer nickel for coinage, its a *hugely* important currency metal (I'd even say more important to the public than gold) Nickel for industrial consumption might be 10x more than silver, and it *is* in shortage - has been for a decade if you go by Canada nickel plating most coinage in 1999 to reduce the nickel from 99.9% to about 2%.

The center of the Euro E$2 coin, is 4.1 grams of pure nickel (which may not be around for long, as again, it is expensive to use 4.1 grams of nickel for a $2cdn or a E$2 euro coin)

The only reason the US gets away with 25% content of nickel in their 5 cent nickel - is because they print money, give it to JPmorgan - and then they steal the copper and nickel they need (blunt assessment) Technically, the US should probably be using the metal composition and weight of the 5 cent piece for a $2 US coin, or maybe even a $20 coin.

It is the perfect circulating currency, even moreso than the currency of "ammunition" because nickel is and important ingredient in armor plating (And when things get bad, you want a helmet made of nickel more than an extra copper bullet most of the time)

Nickel is expensive to mine, probably one of the main reasons the LME defaulted on Nickel contracts in 2006 was because the price of oil was starting to get out of hand. At $20/barrel, there is enough supply of nickel each year. At $100+ barrel of oil, nickel production is greatly strained as the price must be much higher to cover the expense. Gold is surprisingly cheap, and not really tied to the price of oil to produce (millions of hand panning south africans do mine a surprising amount of gold.)

If oil continues to stay above $100/bbl, the LME has a more likely chance of defaulting Nickel for a second time, than silver does defaulting for the first time on the CME, in my opinion.

On a side note: Two nickel miners in Sudbury Ontario died this morning in a accident. RIP.

Edited June 10, 2011 by ZenOps

[dpwozney]

Nickel in US 25% nickels is small but tangible. There is also 8% nickel in dimes, quarters, and half dollars. There are also Euro coins, and up until recently, pure nickel Canadian coins... All nations of the world actually prefer nickel for coinage, its a *hugely* important currency metal (I'd even say more important to the public than gold).

If the amount of nickel, used in U.S. Mint coins, is about 4,000 tonnes per year, and if the rest of the world uses about the same average per-capita amount of nickel in their coins as the U.S.A., the whole world would use about 85,000 tonnes of nickel per year for coinage. 85,000 tonnes of nickel is about 5.3% of global yearly nickel production.

But, rather than a nickel monetary standard, a cupronickel alloy monetary standard is more likely at this point in time. A one-dollar “Federal” Reserve note is directly convertible to a fixed mass of cupronickel alloy, namely, the amount of cupronickel found in twenty 1946-2011 U.S. Mint nickels.

[Pliny]

In a gold-standard money system with fractional reserve banking, gold is the standard by which the dollar is valued; the dollar is worth some fixed unchanging mass of gold.

I agree. A dollar is a specified "weight" in gold...well it used to be. The dollars "value", i.e., the specified weight in gold, is then determined by the value of the weight in gold it is specified to represent. We should not confuse the "dollar bill" as containing the value itself although this is exactly what has occurred.

In a gold-standard money system with fractional reserve banking, various types of money are backed by many other assets (i.e. collateral) other than just gold, just like in the present fiat money system.

Well....this represents a confusion of "money". It is either a gold-standard money system or it is a system of various types of money. I really don't see that saying gold is money and also other things are money is a gold standard money system. For anything to be truly money it needs no backing. It is an asset in and of itself. Money backed by other assets is not really money - it is only a representation, a substitute for those other assets that it backs and those assets are the actual money, aren't they?

In historical gold-standard money systems with fractional reserve banking, banknotes, non-gold coins, etc., were commonly used as money and considered to be money.

Yes. That is not untrue. But then there is no differentiation between a currency and money?

Bank notes, certificates, bills, dollar bills, etc, in a gold standard money system were used as currency. Eventually, over a century or so the bank notes, certificates, bills, dollar bills, came to be considered the money itself. People didn't carry around gold for all their transactions they carried around the redeemable currency. It was as good as gold, especially a government currency. Governments then made laws that the dollar bills issued upon the deposit of gold were not redeemable for their deposit anymore and we finally had a "paper money" system. The currency became the money.

Now we are progressing to a system of electronic banking where bank accounts are simply debited and credited - no cash needs to move around. Just as under the gold standard, no gold, just paper moved around.

In Canada and some other countries, there is no reserve requirement enforced by the central bank. However, commercial banks still have to meet customer demand for cash and coin.

So, there being no reserve requirement enforced by the central bank, there is no fractional reserve banking today? Is that what you are saying?

There must be a limiting or governing factor that determines how much money should be created to maintain stability in the economy and the "dollar" though. Whatever that factor is, it must serve as the basis of wealth to determine a fractional ratio to "money". Something like GNP maybe?

Supply and demand of mere numbers is not the same as supply and demand of a real physical commodity. Supply and demand of mere numbers does not affect price like supply and demand of a real physical commodity.

If this is true how could an international currency exchange, with constantly varying relative values between those currencies and based entirely upon electronic balances and transfers, exist?

In reality, China holds American dollars only on an electronic balance sheet. It is considered a real commodity. Banks and governments consider all debts to them as "assets"? Thus mere numbers have become a commodity. Granted they have some basis in the production of the country. Those "commodities" are currently in danger of being defaulted upon. Their only value is in the trust and confidence that exists between governments to honour their liabilities. The US government has overspent and confidence that it can honour it's liabilities is eroding. Because of it's position in the world economy this apprehension is the source of global economic uncertainty.

The position is not dissimilar to the over-production of redeemable paper and other debt liabilities(promises to pay), that resulted in ending the gold standard by Nixon in the early seventies. Now, there has been an overproduction of US debt liabilities that can only be tied to the production of the American people as a nation. That is it's only wealth. Right now, concern for it's economy is grave. Barack Obama and Ben Bernanke are busy playing domestic political games, along with Republican politicians doing the same thing, mind you. And, I think personally, while focusing myopically upon domestic social policy and wealth reditribution instead of wealth creation is ignoring or not understanding international economic concerns about it's growing, and seemingly out of control, liabilities.

[Pliny]

But, rather than a nickel monetary standard, a cupronickel alloy monetary standard is more likely at this point in time.

Something that is probably best left to market evolution rather than an artificial determination. You could probably start buying up cupronickel alloy in hopes of it becoming the monetary standard and perhaps it will come to be, you will then be rich. The trick is in getting everyone on board.

[ZenOps]

If the amount of nickel, used in U.S. Mint coins, is about 4,000 tonnes per year, and if the rest of the world uses about the same average per-capita amount of nickel in their coins as the U.S.A., the whole world would use about 85,000 tonnes of nickel per year for coinage. 85,000 tonnes of nickel is about 5.3% of global yearly nickel production.

But, rather than a nickel monetary standard, a cupronickel alloy monetary standard is more likely at this point in time. A one-dollar “Federal” Reserve note is directly convertible to a fixed mass of cupronickel alloy, namely, the amount of cupronickel found in twenty 1946-2011 U.S. Mint nickels.

True, Canada also had 25% cupronickel nickels from 1982-1999 (before we decided in 2000 to move to plated iron for all change with the exception of loonies and toonies)

I see nickel to copper content, as gold to silver content. I mean, you have your 24K gold, but most circulation gold is actually 22K. Jewellery goes down to 18, 14 and 10K. The only drawback to using pure nickel is that it can be confused with iron becuase of its magnetic properties (and sound test, a 25% cupronickel makes a nice ring - a pure nickel just "thuds" which is also easily confused with iron) Too much copper though, and its a bad thing:

70% Cu, 24.5% Zn, and 5.5% Ni has been a disaster for the British pound, which is getting to near 1 in every 16 being fake.

The current consensus is pure nickel inner or outer ring and a non-magnetic cupronickel or otherwise metal, Which makes it very easy to determine metal quality and content. But even that looks to be too expensive - as Canada is now moving to plated iron for the toonie (inner and outer ring)

Add: Too expensive to use nickel and cupronickel for a $2 Cdn 2011 piece... Yeesh... And no - silver circulation currency is completely out of the question if nickel is too expensive (unless of course we drastically reduce the US dollar to say $8,000 per ounce gold, and realign all metals based on that value)

Edited June 10, 2011 by ZenOps

[dpwozney]

Well....this represents a confusion of "money".

According to Wikipedia, “Money is any object or record, that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context”.

It is either a gold-standard money system or it is a system of various types of money. I really don't see that saying gold is money and also other things are money is a gold standard money system.

According to Wikipedia:

“The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. There are distinct kinds of gold standard. First, the gold specie standard is a system in which the monetary unit is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.

“Similarly, the gold exchange standard typically involves the circulation of only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard. This creates a de facto gold standard, in that the value of the silver coins has a fixed external value in terms of gold that is independent of the inherent silver value. Finally, the gold bullion standard is a system in which gold coins do not circulate, but in which the authorities have agreed to sell gold bullion on demand at a fixed price in exchange for the circulating currency.”

For anything to be truly money it needs no backing. It is an asset in and of itself. Money backed by other assets is not really money - it is only a representation, a substitute for those other assets that it backs and those assets are the actual money, aren't they?

Paper money, such as bank notes, would not have any value if it had no backing. In your view, is paper money, such as bank notes, “not really money”?

Paper money, backed by assets, is not really separate from the assets because a contractual or legal obligation ties the money to the assets.

So, there being no reserve requirement enforced by the central bank, there is no fractional reserve banking today? Is that what you are saying?

As I said, commercial banks still have to meet customer demand for cash and coin. So the cash and coin, made available by a bank to meet customer demand, is some fraction of a larger money total.

There must be a limiting or governing factor that determines how much money should be created to maintain stability in the economy and the "dollar" though. Whatever that factor is, it must serve as the basis of wealth to determine a fractional ratio to "money". Something like GNP maybe?

The value of collateral pledged by borrowers is a limiting factor that determines how much money commercial banks can create when they make loans.

[dpwozney]

Something that is probably best left to market evolution rather than an artificial determination. You could probably start buying up cupronickel alloy in hopes of it becoming the monetary standard and perhaps it will come to be, you will then be rich. The trick is in getting everyone on board.

Actually, if cupronickel alloy currently is functioning as the monetary standard, the intrinsic metal value, of 1946-2011 U.S. Mint cupronickel nickels, will continue to remain somewhat close to face value. If such is the case, buying up cupronickel alloy will not really make anyone rich.

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

The June 10th metal value of these nickels is “$0.0616203” or 123.24% of face value, according to the “United States Circulating Coinage Intrinsic Value Table” at Coinflation.com.

[ZenOps]

Nickel is definitely in a strange phase.

Here in Canada we have one of two mines in the world that produce the vast majority of the worlds nickel. 30% from Sudbury Ontario and 40% from Norilsk Russia. The rest of the world produces a surprisingly tiny amount.

Our government has decided to reduce the nickel content of loonies and toonies from 99% to 2% nickel this year (2011) It may be a last ditch attempt to keep the prices low, and keep inventories available so that we can prop up the US. Just like there is little reason to keep oil in the ground when you are the main producer of it - if you really want to be nice you sell it to the US so that they can put it into the ground (US Strategic petroleum reserve)

Has nickel been kept artificially low based on US dollar spot? Probably, just like Silver was (and perhaps still is). The breakout to $23/pound when there was a shortage in 2006 should be a warning sign.What tells me that there never was that much nickel to start with - is that when Canada moved from silver dollars to nickel dollars in 1968 - they did not even *try* to maintain the size or weight of the silver dollar.

Metal analysis of Canadian metal dollar:

19531967 23.33 gram 36.00 mm 80% silver, 20% copper

19681986 15.62 gram 32.13 mm 99.9% nickel

1987-2010 7.00 gram 26.5 mm 91.5% nickel 8.5% bronze plate

2011? - Less than 7 grams, 26.5 mm probably 94% Iron.

Edited June 11, 2011 by ZenOps

[Pliny]

According to Wikipedia, “Money is any object or record, that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context”.

Sounds like the defintion for currency as well, doesn't it? This definition fails to make a differentiation. Is there one?

For a true definition of money one must go to the legal defintion, as say, in Black's Dictionary of Law.

I accept the wiki definition as the street definition which doesn't differentiate well between the terms currency and money. Black's dictionary does in it's latest editions also contain the wiki definition as a casual understanding.

According to Wikipedia:

“The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. There are distinct kinds of gold standard. First, the gold specie standard is a system in which the monetary unit is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.

The first sentence is entirely correct. The second sentence is a contradiction of the first - unless there are different types of gold but I don't see any on the periodic table.

Subsiduary coinage made from a lesser valuable metal, I believe he is referencing silver here, means that money is now on a bi-metal standard. The pre-1933 American bi-metal standard - silver and gold.

Specie does not a standard make. Gold and silver specie are simply coins of gold and silver. Platinum specie would be coins of platinum, if platinum were used as money or considered the monetary standard. It is needless to redeem them for anything as they are money themselves and are minted with a predetermined specified weight. Receipts of deposit or bank issued credit notes redeemable for gold in the form of specie or bullion are often the preferred use of currency.

“Similarly, the gold exchange standard typically involves the circulation of only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard. This creates a de facto gold standard, in that the value of the silver coins has a fixed external value in terms of gold that is independent of the inherent silver value.

Finally, the gold bullion standard is a system in which gold coins do not circulate, but in which the authorities have agreed to sell gold bullion on demand at a fixed price in exchange for the circulating currency.”

One thing has to be made clear. A gold standard is a gold standard.

The "gold specie standard", the "gold exchange standard", the "gold bullion standard" were not standards in themselves but different forms of a gold standard. After Bretton Woods in 1944 only the US dollar as a national currency was redeemable in gold internationally. It was not redeemable in gold domestically as FDR had made it illegal for Americans to own gold so they never printed gold certificates (dollar bills redeemable in gold) after 1933 or made gold specie. They were still printing silver certificates up until 1963, I believe it was. Domestically the gold standard had been removed in 1933. As you know, Nixon ended any ties to the "gold standard" entirely in the early seventies with the cancellation of Bretton Woods.

Paper money, such as bank notes, would not have any value if it had no backing. In your view, is paper money, such as bank notes, “not really money”?

Yes. It is not really money. It is a currency by fiat (decree). It must be accepted in trade as a legal tender. No one challenges that fiat, of course, and as long as people generally accept it there is no need to. There are some recent problems in Utah and Nevada where gold and silver are being used by some as the favoured currency. They usually don't enforce the use of the fiat currency just disallow the primary use of any other form of currency. As an example, you will have endless problems with the IRS if you pay your employees in gold or silver instead of dollars or a cheque in a specified amount of paper dollars.

Paper money, backed by assets, is not really separate from the assets because a contractual or legal obligation ties the money to the assets.

What would those assets be? Loans? Loans that demand payment in "paper"? Bonds, GICs, actual cash(Edit: Cash being paper dollars or metal tokens)? You are getting close to what money actually is legally. It must fulfil a contractual or legal obligation. I suppose if the contract says I want paper currency as exchange for what I have in trade then it fulfills the obligations of the contract but really no trade occurs of any value for the recipient of the paper currency. His trade is only so good as he can further trade or exchange his Paper for what he really wants. If his paper becomes worthless because of an overthrow of government, or the dumping of his particular paper currency on the market devalues what he owns of it, he is made a pauper. Thus it is de facto only a half a trade.

Edit: Real Money in fact is not the contract or agreement of a trade it is the trade and satisfies the definition of trade as agreed to by those participating. It is not redeemable for money. It is not a debt instrument, a piece of paper that says it must, by decree, be accepted in a further trade to obtain any real item of property or wealth. It is considered a trade where full value has been received by the participants. The mistake made in accepting a debt instrument in trade is that the trade is indeed thought of as complete. This will work for awhile until those making the debt instrument, the "currency", will make too much and then it will eventually become worthless. Rubles of the old USSR were basically just tokens and the US dollar today is domestically basically just a token as well. The bonds that are held from the US federal reserve internationally and domestically are obligations of the US, promises to pay. Nothing but IOUs.

If you think of someone accepting gold in a trade and how it, or any commodity became money, it is because, firstly there was a demand for it and secondly, it was fairly easy to carry around and thirdly it was easily divisible, all factors of which facilitated trade. But it was not expected to be redeemable to satisfy the terms of the trade or fulfill a contractual obligation that a currency (other than specie) would demand - it was the trade.

Something used as a currency (other than specie, which is a minted coin of the monetary standard {gold or silver in a bi-metal standard} is generally an accepted redeemable receipt from a bank, the receipt being a record of deposit at the bank in someone's account of "money" . Your "check" as a redeemable receipt would never become a currency unless everyone knew you and trusted you had the "money" on account, then perhaps it might, but normally a third party presenting a check, basically an IOU, from someone would not circulate like a currency.

As I said, commercial banks still have to meet customer demand for cash and coin. So the cash and coin, made available by a bank to meet customer demand, is some fraction of a larger money total.

True but only if you consider cash (paper dollars) and coin (metal tokens) as money. And the central bank can move cash and coin if a run on a bank occurs so the fractional ratio is probably tied to that banks daily average demand for cash and coin on the micro level and all banks together would probably set a national fractional ratio for determining the amount of "currency", that is: dollar bills to print or tokens to coin, bonds to sell or loans to make or create as an electronic entry.

The value of collateral pledged by borrowers is a limiting factor that determines how much money commercial banks can create when they make loans.

That would have prevented the housing bubble from occurring, I suppose. But it didn't. The value of the collateral was overstated and the estimation of the ability of the borrowers to repay was lowered. Those limits, can be and were ignored in the recent bubble. The paper made available was created because of a social policy to make home ownership a realization of the American Dream. Speculators took advantage of the opportunity for easy credit too - and the boom was on.

Edited June 14, 2011 by Pliny

[dre]

Sounds like the defintion for currency as well, doesn't it? This definition fails to make a differentiation. Is there one?

For a true definition of money one must go to the legal defintion, as say, in Black's Dictionary of Law.

I accept the wiki definition as the street definition which doesn't differentiate well between the terms currency and money. Black's dictionary does in it's latest editions also contain the wiki definition as a casual understanding.

The first sentence is entirely correct. The second sentence is a contradiction of the first - unless there are different types of gold but I don't see any on the periodic table.

Subsiduary coinage made from a lesser valuable metal, I believe he is referencing silver here, means that money is now on a bi-metal standard. The pre-1933 American bi-metal standard - silver and gold.

Specie does not a standard make. Gold and silver specie are simply coins of gold and silver. Platinum specie would be coins of platinum, if platinum were used as money or considered the monetary standard. It is needless to redeem them for anything as they are money themselves and are minted with a predetermined specified weight. Receipts of deposit or bank issued credit notes redeemable for gold in the form of specie or bullion are often the preferred use of currency.

One thing has to be made clear. A gold standard is a gold standard.

The "gold specie standard", the "gold exchange standard", the "gold bullion standard" were not standards in themselves but different forms of a gold standard. After Bretton Woods in 1944 only the US dollar as a national currency was redeemable in gold internationally. It was not redeemable in gold domestically as FDR had made it illegal for Americans to own gold so they never printed gold certificates (dollar bills redeemable in gold) after 1933 or made gold specie. They were still printing silver certificates up until 1963, I believe it was. Domestically the gold standard had been removed in 1933. As you know, Nixon ended any ties to the "gold standard" entirely in the early seventies with the cancellation of Bretton Woods.

Yes. It is not really money. It is a currency by fiat (decree). It must be accepted in trade as a legal tender. No one challenges that fiat, of course, and as long as people generally accept it there is no need to. There are some recent problems in Utah and Nevada where gold and silver are being used by some as the favoured currency. They usually don't enforce the use of the fiat currency just disallow the primary use of any other form of currency. As an example, you will have endless problems with the IRS if you pay your employees in gold or silver instead of dollars or a cheque in a specified amount of paper dollars.

What would those assets be? Loans? Loans that demand payment in "paper"? Bonds, GICs, actual cash(Edit: Cash being paper dollars or metal tokens)? You are getting close to what money actually is legally. It must fulfil a contractual or legal obligation. I suppose if the contract says I want paper currency as exchange for what I have in trade then it fulfills the obligations of the contract but really no trade occurs of any value for the recipient of the paper currency. His trade is only so good as he can further trade or exchange his Paper for what he really wants. If his paper becomes worthless because of an overthrow of government, or the dumping of his particular paper currency on the market devalues what he owns of it, he is made a pauper. Thus it is de facto only a half a trade.

Edit: Real Money in fact is not the contract or agreement of a trade it is the trade and satisfies the definition of trade as agreed to by those participating. It is not redeemable for money. It is not a debt instrument, a piece of paper that says it must, by decree, be accepted in a further trade to obtain any real item of property or wealth. It is considered a trade where full value has been received by the participants. The mistake made in accepting a debt instrument in trade is that the trade is indeed thought of as complete. This will work for awhile until those making the debt instrument, the "currency", will make too much and then it will eventually become worthless. Rubles of the old USSR were basically just tokens and the US dollar today is domestically basically just a token as well. The bonds that are held from the US federal reserve internationally and domestically are obligations of the US, promises to pay. Nothing but IOUs.

If you think of someone accepting gold in a trade and how it, or any commodity became money, it is because, firstly there was a demand for it and secondly, it was fairly easy to carry around and thirdly it was easily divisible, all factors of which facilitated trade. But it was not expected to be redeemable to satisfy the terms of the trade or fulfill a contractual obligation that a currency (other than specie) would demand - it was the trade.

Something used as a currency (other than specie, which is a minted coin of the monetary standard {gold or silver in a bi-metal standard} is generally an accepted redeemable receipt from a bank, the receipt being a record of deposit at the bank in someone's account of "money" . Your "check" as a redeemable receipt would never become a currency unless everyone knew you and trusted you had the "money" on account, then perhaps it might, but normally a third party presenting a check, basically an IOU, from someone would not circulate like a currency.

True but only if you consider cash (paper dollars) and coin (metal tokens) as money. And the central bank can move cash and coin if a run on a bank occurs so the fractional ratio is probably tied to that banks daily average demand for cash and coin on the micro level and all banks together would probably set a national fractional ratio for determining the amount of "currency", that is: dollar bills to print or tokens to coin, bonds to sell or loans to make or create as an electronic entry.

That would have prevented the housing bubble from occurring, I suppose. But it didn't. The value of the collateral was overstated and the estimation of the ability of the borrowers to repay was lowered. Those limits, can be and were ignored in the recent bubble. The paper made available was created because of a social policy to make home ownership a realization of the American Dream. Speculators took advantage of the opportunity for easy credit too - and the boom was on.

That would have prevented the housing bubble from occurring, I suppose. But it didn't. The value of the collateral was overstated and the estimation of the ability of the borrowers to repay was lowered. Those limits, can be and were ignored in the recent bubble. The paper made available was created because of a social policy to make home ownership a realization of the American Dream. Speculators took advantage of the opportunity for easy credit too - and the boom was on.

Actually no. The money was there because investors and speculators world wide were investing money into the US realestate market. Weve already gone over this, and the fact that the vast majority of sub prime players were realestate income trusts, pure mortgage companies, and thrifts that obtained the money they lent out from private investors though investment banks.

The paper made available was created because of a social policy to make home ownership a realization of the American Dream.

I assume youre talking about the CRA... The reality is that the CRA didnt apply to any of the institutions doing all this lending, because they did not accept FDIC insured deposits, and in fact most of them didnt accept any deposits at all.

[Pliny]

Actually no. The money was there because investors and speculators world wide were investing money into the US realestate market. Weve already gone over this, and the fact that the vast majority of sub prime players were realestate income trusts, pure mortgage companies, and thrifts that obtained the money they lent out from private investors though investment banks.

I assume youre talking about the CRA... The reality is that the CRA didnt apply to any of the institutions doing all this lending, because they did not accept FDIC insured deposits, and in fact most of them didnt accept any deposits at all.

Thank you for your insight. Many believe that to be the case.

Although the greatest scientific minds of the time declared the world flat, a fiat granted by authority to declare it flat never made it so. Nor does a thousand people chanting your same refrain make it so.

Edited July 11, 2011 by Pliny

[Pliny]

An interesting article about silver and gold.

&rrid=306940693"]Silver a legal tender.

Also another one here:

Silver short Squeeze