Semi OT: Three questions for goldbugs
Mr. Jaggers
backed by anything of value (i.e., we are not on a gold, or even silver,
standard).
I replied that even in spite of the U.S. being on the gold standard for a
very long time, we still experienced numerous panics and even a few
depressions from time to time.
Since then, some questions have begun to beg:
1) Can we assume that those panics occurred because parts or all of our
economy were indeed not on any metal standard (including the possibility
that all those gold certificates were not fully backed by gold, but were
issued in excess in the hope that not all of them would be brought in for
redemption at the same time, i.e. we were on the gold standard in name only?
2) Is that why the government, through legislation, froze the price of
gold, creating a false sense of security that might prevent the currency
from inflating?
3) Did FDR take us off the gold standard because he realized that the
system was so hopelessly far from its original configuration, and wanted to
have free reign to construct other "rescue" schemes?
James
Bob
Some interesting questions, James. It cannot be said that the Panic
of 1837 was the fault of the gold standard, since it was caused by the
inability of banks to meet their promises to pay in gold. The Civil
War inflation and postwar depression also are not the fault of the
gold standard--the greenback dollar wasn't backed by gold. I am less
clear as to the causes of the Panic of 1907, but it ended pretty
quickly.
The causes of the Great Depression have been much debated. The
original market crash was similar to the NASDAQ dot-com collapse of
2000-01, with RCA (the Amazon.com of the 1920s) selling for something
like 60 times earnings, and was exacerbated by excessive leverage (in
this case, buying on margin). So the Crash of '29 and the Crashes of
2001/08 seem pretty alike in terms of cause, though the gold standard
was in effect for 1929 and not recently: going off the gold standard
does not seem to have improved market stability.
FDR responded to the drop in asset prices (stocks, farmland, metals,
etc.) by trying to reinflate the economy. This included raising
wages, buying silver (the resumption of Peace dollar coinage in 1934
was one result--a complete waste, since hundreds of millions of Morgan
dollars from the 19th century were languishing in storage), and
revaluing gold. (Reinflation seems to be the Democratic/Obama plan
too.) For many reasons, this strategy was not very successful.
By the way, it is not correct to say that the government froze the
price of gold; rather, the dollar is defined as a certain weight of
gold. The price of gold was actually not frozen (though it scarcely
varied from $35 an ounce), and silver moved from 25 cents per ounce to
80 cents or so in the 1930s, with government buying, never close to
$1.2929 until the 1960s.
The gold standard nails the economy to a "Cross of Gold," since it is
dependent on newly-mined supplies for an increase in the currency
supply and thus national income. Efforts to restore it in the 1960s
and 1970s were doomed, because most newly-mined gold came from pariah
nations South Africa and Russia. But the current alternative--no
limits to currency issue at all--also has its problems, as we see from
Zimbabwe.
Fortunately, we can protect ourselves by owning physical gold again,
in the convenient form of U.S. gold eagle coins (and anything else).
Bob Leonard
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
news:glfb2...@enews5.newsguy.com...
According to Wikipedia, in 1835 Andrew Jackson eliminated the national
debt. "A severe depression from 1837 to 1844 caused a ten-fold
increase in national debt within its first year." So it would seem
that budget deficits and large debt are not necessary for economic
downturns. And we were on the gold standard during this and previous
and subsequent panics, that seems not to be a determining factor.
Again from Wikipedia: "After a titanic struggle, Jackson succeeded in
destroying the Bank by vetoing its 1832 re-charter by Congress and by
withdrawing U.S. funds in 1833. The bank's money-lending functions
were taken over by the legions of local and state banks that sprang
up. This fed an expansion of credit and speculation. At first, as
Jackson withdrew money from the Bank to invest it in other banks, land
sales, canal construction, cotton production, and manufacturing
boomed. However, due to the practice of banks issuing paper banknotes
that were not backed by gold or silver reserves, there was soon rapid
inflation and mounting state debts. Then, in 1836, Jackson issued the
Specie Circular, which required buyers of government lands to pay in
"specie" (gold or silver coins). The result was a great demand for
specie, which many banks did not have enough of to exchange for their
notes. These banks collapsed. This was a direct cause of the Panic of
1837, which threw the national economy into a deep depression. It took
years for the economy to recover from the damage."
This seems to verify your assumption in #1, although the culprits were
private banks, not the government. I suspect that your #2 and #3 are
correct - it's easier to issue fiat money and take other measures to
get money flowing into economic activity if you don't have to have
gold backing. But I'm all googled and wikied out for now.
(BTW, there are some interesting modern parallels in Jackson's
administration and the conditions leading to the Panic of 1837.)
Mr. Jaggers
I've been reading through (or trudging through) John Meacham's new book
about Jackson, American Lion. He corroborates what Wiki says.
My guess is that the economy is based on flimflammery, skullduggery, and
tomfoolery, and it's anybody's guess what makes it tick.
Thanks for your insight!
James
mazorj
posted after I had looked ahead. Hate it when that happens.
"mazorj" <maz...@verizon.net> wrote in message
news:rEIel.1892$aI1....@nwrddc01.gnilink.net...
Mr. Jaggers
> On Jan 24, 9:12?am, "Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote:
>> A couple of weeks ago one of our regulars lamented that our currency
>> is not backed by anything of value (i.e., we are not on a gold, or
>> even silver, standard).
>>
>> I replied that even in spite of the U.S. being on the gold standard
>> for a very long time, we still experienced numerous panics and even
>> a few depressions from time to time.
>>
>> Since then, some questions have begun to beg:
>>
>> our economy were indeed not on any metal standard (including the
>> possibility that all those gold certificates were not fully backed
>> by gold, but were issued in excess in the hope that not all of them
>> would be brought in for redemption at the same time, i.e. we were on
>> the gold standard in name only?
>>
>> of gold, creating a false sense of security that might prevent the
>> currency from inflating?
>>
Thanks for the thoughtful response, Bob.
We had some friends over for cards last evening, one of them with an
accounting degree. I ran all this by him, and he framed the argument in
terms of so much wealth being in the form of I.O.U.s of one kind or another.
The value of the stock market seems to fit that description. Paper money
fits that description. Loans made to and by banks fit that description. It
makes a guy wonder what is real. You say "gold." But what's it going to
take to make the dollar value of gold rise to the level that it should
actually be right now, let alone once the genie of Iraq-related and
bailout-related inflation is finally let loose?
James
Mr. Jaggers
> Bob did a much better job - too bad I didn't see it first. But his
> posted after I had looked ahead. Hate it when that happens.
Nothing to feel bad about. I posed the questions to get more than one
person's take on this. Right now I'm waiting for oly to chime in. Mr.
Olson, sign in, please. And anyone else who feels qualified, for that
matter.
James
Bob Golden
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
news:glfb2...@enews5.newsguy.com...
>A couple of weeks ago one of our regulars lamented that our currency is not
>backed by anything of value (i.e., we are not on a gold, or even silver,
>standard).
>
> I replied that even in spite of the U.S. being on the gold standard for a
> very long time, we still experienced numerous panics and even a few
> depressions from time to time.
>
> Since then, some questions have begun to beg:
>
> 1) Can we assume that those panics occurred because parts or all of our
> economy were indeed not on any metal standard (including the possibility
> that all those gold certificates were not fully backed by gold, but were
> issued in excess in the hope that not all of them would be brought in for
> redemption at the same time, i.e. we were on the gold standard in name
> only?
>
caused by losses of gold, think SS Republic in 1857 and the panic that year
with something along the lines of $300 million pulled out of the economy by
it's sinking - then.
> 2) Is that why the government, through legislation, froze the price of
> gold, creating a false sense of security that might prevent the currency
> from inflating?
>
They can freeze the price of gold all they want, it still carries a premium.
Think Civil War, at its worst after the 7 Days campaign in 1863, but before
Gettysburg, the paper dollar was worth only 40% of a gold dollar. Wanna
know why all coinage, including base metal cents disappeared? Wanna know
why the original greenbacks were SO unpopular, even if they put Lincoln on
the $10? Paper is only as tangible as the government backing it.
> 3) Did FDR take us off the gold standard because he realized that the
> system was so hopelessly far from its original configuration, and wanted
> to have free reign to construct other "rescue" schemes?
>
Basically they were out of money, and to inflate the value of the currency,
they removed gold from circulation and depreciated the value of the dollar
by nearly 75%, in essence making an ounce of gold worth $35 instead of the
usual $20.67. This created a whole lot of new money for the system, and
removed the possibility of people hoarding gold and depriving the government
of that source of control over their destiny.
Mr. Jaggers
> "Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
> news:glfb2...@enews5.newsguy.com...
>> A couple of weeks ago one of our regulars lamented that our currency
>> is not backed by anything of value (i.e., we are not on a gold, or
>> even silver, standard).
>>
>> I replied that even in spite of the U.S. being on the gold standard
>> for a very long time, we still experienced numerous panics and even
>> a few depressions from time to time.
>>
>> Since then, some questions have begun to beg:
>>
>> 1) Can we assume that those panics occurred because parts or all of
>> our economy were indeed not on any metal standard (including the
>> possibility that all those gold certificates were not fully backed
>> by gold, but were issued in excess in the hope that not all of them
>> would be brought in for redemption at the same time, i.e. we were on
>> the gold standard in name only?
>>
> Free credit has existed for a long time. But some panics were
> indirectly caused by losses of gold, think SS Republic in 1857 and
> the panic that year with something along the lines of $300 million
> pulled out of the economy by it's sinking - then.
I hadn't thought of that. Good point.
>> 2) Is that why the government, through legislation, froze the price
>> of gold, creating a false sense of security that might prevent the
>> currency from inflating?
>>
> They can freeze the price of gold all they want, it still carries a
> premium. Think Civil War, at its worst after the 7 Days campaign in
> 1863, but before Gettysburg, the paper dollar was worth only 40% of a
> gold dollar. Wanna know why all coinage, including base metal cents
> disappeared? Wanna know why the original greenbacks were SO
> unpopular, even if they put Lincoln on the $10? Paper is only as
> tangible as the government backing it.
Oh, oh, we're in trouble, Tonto!
>> 3) Did FDR take us off the gold standard because he realized that
>> the system was so hopelessly far from its original configuration,
>> and wanted to have free reign to construct other "rescue" schemes?
>>
> Basically they were out of money, and to inflate the value of the
> currency, they removed gold from circulation and depreciated the
> value of the dollar by nearly 75%, in essence making an ounce of gold
> worth $35 instead of the usual $20.67. This created a whole lot of
> new money for the system, and removed the possibility of people
> hoarding gold and depriving the government of that source of control
> over their destiny.
I think that was a "yes".
Thanks for taking the time to help sort all this out, Bob.
James
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
news:glfmd...@enews5.newsguy.com...
Fundamentalist economists rail against fiat money and long for the
good old days when money had to be backed by something "real," i.e.,
gold.
The question that is never asked, let alone answered, is "What makes
gold (or silver) an intrinsically 'real' form of money?" After all,
they're just metals. You can't eat or clothe or shelter yourself with
them. They're relatively rare enough to be called "precious" metals,
but that really just reflects their market price relative to other
metals. What makes gold and silver "real" currency?
The answer is exactly the same reason that we accept base-metal
coinage and money made out of paper: Because we put faith ("credit")
in their acceptability when we go to exchange them for something else.
That's it! There's nothing "magic" about gold that says that the laws
of the universe decree its acceptability as a medium of exchange.
It's true that in the absence of faith (acceptability) in paper money,
gold will be more acceptable as a payment medium. But that's only
because the seller has faith in the gold that the buyer is offering,
which in turn is tied to its relative scarcity (with a little esthetic
appeal thrown in). If gold were as common as iron, silver or platinum
probably would top the scale as "real" money. If silver and platinum
also were as common, copper might top the list, and so on. Carry this
out far enough and sea shells would be valued as the only "real"
money.
I'm not arguing that we should (or even could) abandon gold as a
marker for currency value. I'm just saying that gold only has value
because of human psychology - people put their faith and credit in it.
So in that respect, our adulation of gold as a "real" medium of
exchange also is flimflammery and smoke-and-mirrors, just like the
rest of our money supply. If for whatever reason we lose faith in
gold, then Ft. Knox becomes a giant scrap yard and a bag of junk
silver might become worth its weight, well, in what gold used to be.
IMO, that makes conservatives who relentlessly worship the Golden Calf
of money standards (and declare all others to be heretics) look just a
bit silly.
oly
wrote:
>
> - Show quoted text -
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
The longer the reply, the more likely that the computer goes down!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
On Jan 24, 12:17 pm, "Mr. Jaggers" <lugburzman[at]yahoo[dot]com>
wrote:
> mazorj wrote:
> > "Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
> >news:glfb2...@enews5.newsguy.com...
> >> A couple of weeks ago one of our regulars lamented that our currency
> >> is not backed by anything of value (i.e., we are not on a gold, or
> >> even silver, standard).
>
> >> I replied that even in spite of the U.S. being on the gold standard
> >> for a very long time, we still experienced numerous panics and even
> >> a few depressions from time to time.
>
> >> Since then, some questions have begun to beg:
>
> >> 1) Can we assume that those panics occurred because parts or all of
> >> our economy were indeed not on any metal standard (including the
> >> possibility that all those gold certificates were not fully backed
> >> by gold, but were issued in excess in the hope that not all of them
> >> would be brought in for redemption at the same time, i.e. we were on
> >> the gold standard in name only?
>
> >> 2) Is that why the government, through legislation, froze the price
> >> of gold, creating a false sense of security that might prevent the
> >> currency from inflating?
>
> >> 3) Did FDR take us off the gold standard because he realized that
> >> the system was so hopelessly far from its original configuration,
> >> and wanted to have free reign to construct other "rescue" schemes?
>
> I've been reading through (or trudging through) John Meacham's new book
> about Jackson, American Lion. He corroborates what Wiki says.
> My guess is that the economy is based on flimflammery, skullduggery, and
> tomfoolery, and it's anybody's guess what makes it tick.
>
> Thanks for your insight!
>
> James- Hide quoted text -
>
> - Show quoted text -
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Nathaniel Hawthorne wrote a very insightful contemporary piece about
the factors that caused the Panic of 1837 (I believe he was an
American Consul in Manchester or Liverpool at the time). He
attributed much to the dreaminess of human nature and our self-
willingness to be deceived.
I can't find the article, although somebody republished it in the
financial blogs very recently... but I can kind of recap...
Financial panics must be preceded by a financial bubble.
The primary thing that makes a financial bubble possible, is that
people are highly credulous and that is has been at least a generation
since the last truly resounding financial crash (kind of like how the
French had to forget about John Law & the Missisippi Company (1720)
before the debacle of the Revolutionary Assignats and Mandats was
possible 70 years later)(Great Historical Financial bubbles invariably
built an "inverted pyramid" of paper upon a narrow gold and silver
basis).
When people are credulous, investment and credit grow apace, primarily
to fund the favored speculation of the "New Era", but also for
consumption - especially of luxury goods. Besides the favored
speculation of the "New Era", this is an era where banks and bankers
and successful speculators become the objects of much adulation.
Cassandras in the "New Era" are always much villified - by the
speculators, the financiers and the purveyors of luxury goods. (Me
and RF know something about that).
Finally with the passing of time, almost any old thing, any small or
large failure can eventually arise to become the "straw that breaks
the camels back" and the universal trust of the bubble turns into the
universal distrust of the collapse. Thus, with the burst of universal
trust, the leveraged "New Era" system starts to unwind, probably with
some considerable vehemence and/ or violence.
This was the gist of Hawthorne's article; there is also a similar
conclusion in John Kenneth Galbraith's short and enjoyable history
"The Great Crash of 1929" (this books has been constantly in print for
many years and is a great read).
++++++++++++++++++++++++++++
What follows below is Olyism:
The Gold Standard is not probably so much of a factor in "funding" or
causing the panic - that speculation is almost all done in banks, on
paper - but when the financial debacle finally starts, the fact that
people want to change their dubious paper wealth for gold and/ or
silver can greatly exacerbate the spectre of crisis.
Today, Central Banks have an unlimited ability to create "fiat paper"
and they have a stated goal to keep the paper banking system
functioning in good times and bad. This greatly enables the
speculators to pump the bubble in financial system (and the
conspicuous consumption of the winning players) up to much greater
heights than ever before in all of History. But, nevertheless,
financial crashes are inevitable.
Also, as we saw during the last ten years the U.S.A., the Federal
Reserve had the ability to use their unlimited power to issue paper to
contain the Great Tech Stock Market Crash of 2000, Also to achieve
their stated policy goal of keeping the game of musical chairs going,
following 2001 the Fed created another bubble in U.S. Real Estate to
soften the impact of the earlier crash in tech stocks. But, soon
enough, there was "irrational exuberance" in all forms of Real Estate
AND, with the passage of time, now we are at or over the edge of the
precipice again. THINK WYLIE E. COYOTE.
Also, after the bubble bursts, today's fiat paper system give the
"successful" players fewer options of how to turn their dubious paper
into assets that will retain their value - as, there is no obligation
to redeem any dubious papers in valuable precious metals. Given that
all countries use fiat paper today, I would posit that this inability
to convert paper into valuable assets could result yet in even greater
financial panic than has ever been seen in the history of the world.
Also, modern telecommunications instantly tell the whole world about
declining asset values, business failures, and frauds - this will
probably help feed any frenzy of attempted redemption of dubious paper
assets.
As you may surmise, I am vastly pessimistic today. But the primary
difference between bubbles under the historical gold standard and
bubbles under the present Central Banking/ Fiat Currency regime(s) is
that the bubbles can today be pumped much higher than in the past -
but also remember that speculative bubbles and historicial amnesia
seem to be deeply ingrained in human nature in ALL eras.
Like a delinquent graduate student, I have posited here at length
without much answering mon professeur's examination questions.
oly
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
You do know that your last requirement is going to limit replies to a
trickle, don't you?
Oh, wait, you said "feels" not "is".
Mr. Jaggers
> "Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
> news:glfmd...@enews5.newsguy.com...
>> Thanks for the thoughtful response, Bob.
>>
>> We had some friends over for cards last evening, one of them with an
>> accounting degree. I ran all this by him, and he framed the
>> argument in terms of so much wealth being in the form of I.O.U.s of
>> one kind or another. The value of the stock market seems to fit that
>> description. Paper money fits that description. Loans made to and
>> by banks fit that description. It makes a guy wonder what is real.
>> You say "gold." But what's it going to take to make the dollar
>> value of gold rise to the level that it should actually be right
>> now, let alone once the genie of Iraq-related and bailout-related
>> inflation is finally let loose?
>
> Fundamentalist economists rail against fiat money and long for the
> good old days when money had to be backed by something "real," i.e.,
> gold.
In my worldview, these are the good old days.
> The question that is never asked, let alone answered, is "What makes
> gold (or silver) an intrinsically 'real' form of money?" After all,
> they're just metals. You can't eat or clothe or shelter yourself with
> them. They're relatively rare enough to be called "precious" metals,
> but that really just reflects their market price relative to other
> metals. What makes gold and silver "real" currency?
>
> The answer is exactly the same reason that we accept base-metal
> coinage and money made out of paper: Because we put faith ("credit")
> in their acceptability when we go to exchange them for something else.
> That's it! There's nothing "magic" about gold that says that the laws
> of the universe decree its acceptability as a medium of exchange.
> It's true that in the absence of faith (acceptability) in paper money,
> gold will be more acceptable as a payment medium. But that's only
> because the seller has faith in the gold that the buyer is offering,
> which in turn is tied to its relative scarcity (with a little esthetic
> appeal thrown in). If gold were as common as iron, silver or platinum
> probably would top the scale as "real" money. If silver and platinum
> also were as common, copper might top the list, and so on. Carry this
> out far enough and sea shells would be valued as the only "real"
> money.
Kind of like wampum, n'est-ce pas?
> I'm not arguing that we should (or even could) abandon gold as a
> marker for currency value. I'm just saying that gold only has value
> because of human psychology - people put their faith and credit in it.
> So in that respect, our adulation of gold as a "real" medium of
> exchange also is flimflammery and smoke-and-mirrors, just like the
> rest of our money supply. If for whatever reason we lose faith in
> gold, then Ft. Knox becomes a giant scrap yard and a bag of junk
> silver might become worth its weight, well, in what gold used to be.
> IMO, that makes conservatives who relentlessly worship the Golden Calf
> of money standards (and declare all others to be heretics) look just a
> bit silly.
Perhaps the entire "science" of economics is a subset of human psychology.
When I was a senior in high school I had chemistry third period and
economics fourth period. The hotness of the chem teacher notwithstanding,
during third period I remember thinking, "This is cool, it's based on
reproducible scientific methodology (which we attempted in the lab,
sometimes with disastrous results), give us more! During fourth period I
remember thinking "What a bunch of B.S." Then my attitude was cemented in
place during fifth hour English, where learned the Shakespearean line, "It
is a tale told by an idiot, full of sound and fury, signifying nothing."
I'm always amused by those radio ads that tout investment in gold, as "the
price is going to hit $2000 before we know it (the esteemed Pat Boone is one
of the hucksters, he must be desperate for a new pair of white bucks to
stoop that low)." I must wonder why the company offering to sell me the
gold at $2000 minus X doesn't just hold on to its gold, wait a few months,
and then hawk it for the $2k. Why should they share this state secret with
li'l ol' me?
James
Peter
wrote:
1. We have been off and on the gold standard at various times. Even
though they were severe in some sense, earlier depressions under a
gold standard were fairly brief. As far as I know, the use of
leverage was an important component of the cause.
2. I don't actually think I understand the question, I tend to agree
that it is more about how a dollar was defined, rather than anything
that happened to gold.
3. Whether we were on the gold standard under Roosevelt is a point to
discuss. If it was a gold standard, how is it that you could convert
gold to paper, deposit either in a bank (with a government guarantee),
collect interest and then convert the deposited money to gold? Not
only did you collect interest, but the government was responsible for
keeping your money safe (without charging!).
oly
>
>
> - Show quoted text -
People who are brokers or vendors need a sale and a commission today
to pay the rent and stoke the crock pot. But that doesn't mean the
Pat Boone doesn't have any gold himself.
From "THE BATTLE FOR INVESTMENT SURVIVAL" (1965), by Gerald M. Loeb,
reprinted by Fraser Publsihing Company, Vermont (1988)
Chapter 3 [IS THERE AN INDEAL INVESTMENT?] "In the history of the
world we find the record of savings really saved through buying gold,
hoarding precious stones, and other forms of "hard wealth" privately
secreted. In the future history of America most of us will, in my
opinion, learn this lesson too late. Currently, this is a personal
matter for each individual to decide and execute for himself without
consultation."
Note: Chapters 3 and 33 [INVESTMENT AND INFLATION] are most applicable
to the present topic. The first half of this book is an absolute joy
to read. The book is easily worth paying $100 to get a copy, if
necessary.
oly
Mr. Jaggers
[snip]
> Nathaniel Hawthorne wrote a very insightful contemporary piece about
> the factors that caused the Panic of 1837 (I believe he was an
> American Consul in Manchester or Liverpool at the time). He
> attributed much to the dreaminess of human nature and our self-
> willingness to be deceived.
>
> I can't find the article, although somebody republished it in the
> financial blogs very recently... but I can kind of recap...
>
> Financial panics must be preceded by a financial bubble.
>
> The primary thing that makes a financial bubble possible, is that
> people are highly credulous and that is has been at least a generation
> since the last truly resounding financial crash (kind of like how the
> French had to forget about John Law & the Missisippi Company (1720)
> before the debacle of the Revolutionary Assignats and Mandats was
> possible 70 years later)(Great Historical Financial bubbles invariably
> built an "inverted pyramid" of paper upon a narrow gold and silver
> basis).
>
> When people are credulous, investment and credit grow apace, primarily
> to fund the favored speculation of the "New Era", but also for
> consumption - especially of luxury goods. Besides the favored
> speculation of the "New Era", this is an era where banks and bankers
> and successful speculators become the objects of much adulation.
>
> Cassandras in the "New Era" are always much villified - by the
> speculators, the financiers and the purveyors of luxury goods. (Me
> and RF know something about that).
Thank you for not going into detail here! Psst - wanna buy some MS70
Lincoln cents? Cheap?
> Finally with the passing of time, almost any old thing, any small or
> large failure can eventually arise to become the "straw that breaks
> the camels back" and the universal trust of the bubble turns into the
> universal distrust of the collapse. Thus, with the burst of universal
> trust, the leveraged "New Era" system starts to unwind, probably with
> some considerable vehemence and/ or violence.
>
> This was the gist of Hawthorne's article; there is also a similar
> conclusion in John Kenneth Galbraith's short and enjoyable history
> "The Great Crash of 1929" (this books has been constantly in print for
> many years and is a great read).
>
> ++++++++++++++++++++++++++++
>
> What follows below is Olyism:
>
> The Gold Standard is not probably so much of a factor in "funding" or
> causing the panic - that speculation is almost all done in banks, on
> paper - but when the financial debacle finally starts, the fact that
> people want to change their dubious paper wealth for gold and/ or
> silver can greatly exacerbate the spectre of crisis.
>
> Today, Central Banks have an unlimited ability to create "fiat paper"
> and they have a stated goal to keep the paper banking system
> functioning in good times and bad. This greatly enables the
> speculators to pump the bubble in financial system (and the
> conspicuous consumption of the winning players) up to much greater
> heights than ever before in all of History. But, nevertheless,
> financial crashes are inevitable.
This has been my general conclusion as well.
> Also, as we saw during the last ten years the U.S.A., the Federal
> Reserve had the ability to use their unlimited power to issue paper to
> contain the Great Tech Stock Market Crash of 2000, Also to achieve
> their stated policy goal of keeping the game of musical chairs going,
> following 2001 the Fed created another bubble in U.S. Real Estate to
> soften the impact of the earlier crash in tech stocks. But, soon
> enough, there was "irrational exuberance" in all forms of Real Estate
> AND, with the passage of time, now we are at or over the edge of the
> precipice again. THINK WYLIE E. COYOTE.
I think I'll convert my entire net worth into Acme stock.
> Also, after the bubble bursts, today's fiat paper system give the
> "successful" players fewer options of how to turn their dubious paper
> into assets that will retain their value - as, there is no obligation
> to redeem any dubious papers in valuable precious metals. Given that
> all countries use fiat paper today, I would posit that this inability
> to convert paper into valuable assets could result yet in even greater
> financial panic than has ever been seen in the history of the world.
> Also, modern telecommunications instantly tell the whole world about
> declining asset values, business failures, and frauds - this will
> probably help feed any frenzy of attempted redemption of dubious paper
> assets.
>
> As you may surmise, I am vastly pessimistic today. But the primary
> difference between bubbles under the historical gold standard and
> bubbles under the present Central Banking/ Fiat Currency regime(s) is
> that the bubbles can today be pumped much higher than in the past -
> but also remember that speculative bubbles and historicial amnesia
> seem to be deeply ingrained in human nature in ALL eras.
Perhaps all this bailout business will once again temporarily staunch the
bleeding and we will pull out of immediate danger, only to await the start
of a new, even more voluminous bubble.
> Like a delinquent graduate student, I have posited here at length
> without much answering mon professeur's examination questions.
I always considered myself a success when I had students who would go on to
surpass me. It appears you have done just that, mon vieux.
Félicitations!
James
oly
>
>
> - Show quoted text -- Hide quoted text -
>
> - Show quoted text -- Hide quoted text -
>
> - Show quoted text -
Merci, mon professeur, c'est facile comme tout.
Robert
Bob Golden
here.
What we have is a dire situation where more money has been created, rather,
invented - than is possibly sustainable.
If gold seems like some relic of barbarism to some, consider this, a lot of
people and institutions seem to want it - and the prices have been held
artificially low from pressure from the Fed. Real demand is such that
people are willing to pay premiums of $75-100 per ounce.
Years ago K-rands were avoided like some bubonic plague, but try to find one
now without paying that typical premium, yes gold is just under $900 an
ounce right now, but expect to pay nearly $1000 if you want any real bullion
coin.
Up until about a year ago I could buy $20 Saints and Libs for like 5% over
spot, good luck getting them for under 20% over spot now.
oly
May I suggest that, today, the world's wealthiest banks and richest
people are sucking up the supply of even the smallest gold coins with
a vacuum cleaner? That is what I see happening, and maybe you should
get on the bandwagon???
Silver? No 90% silver coin available fo sale in Champaign, or
Decatur, or Springpatch, Illinois yesterday. Zip, rien, nada. No
small bars, no big bars either. The only silver that was readily
available was American Silver Eagles at $17 to $20 a pop. I bought a
couple (it was pay-day).
To say something about the "sustainability" of "The System": the
present system will survive, short of some unexpected non-conventional
warfare. But the purchasing power of the paper currencies of the
world is "on the line". This is because of the Fed(FRB), Bank of
Engalnd and European Bank resposne to the crisis [i.e., give semi-
trucks full of money & electronic credits to a few favored insider
banks]. We have already had the "Last Good Christmas" before the
financial debacle.
Yesterday, the price of gold in British Pounds hit a record all-time
high.
The Euro is very close to the same situation.
The U.S. Dollar has had a great run recently, but that seems to be
more because we are on a different continent than the rest of the
Europen world, in a wealthy law-abiding country, than because of any
good financial prospects of our own.
I don't slap mon professeurs bum, though I might give him a good
"embrassade" a la francais.
oly
Mr. Jaggers
> Okay you fools, stop patting each others bums and get back on
> discussion here.
Speak for yourself, I don't see any fools in this discussion. So far.
> What we have is a dire situation where more money has been created,
> rather, invented - than is possibly sustainable.
This apparently has occurred at many times in the past. Is there something
unique about this time, other than magnitude?
> If gold seems like some relic of barbarism to some, consider this, a
> lot of people and institutions seem to want it - and the prices have
> been held artificially low from pressure from the Fed. Real demand
> is such that people are willing to pay premiums of $75-100 per ounce.
Judging from the severity of the current situation, I daresay it should be
vastly more than that. So, exactly how can the Fed have influence to the
extent you claim?
> Years ago K-rands were avoided like some bubonic plague, but try to
> find one now without paying that typical premium, yes gold is just
> under $900 an ounce right now, but expect to pay nearly $1000 if you
> want any real bullion coin.
I think the old saw, "Buy American" has played much too large a role in that
avoidance (we don't want none of that furrin' gold). How about Canadian
Maple Leafs? Are they pariahs as well? I'm really not up to date on all
this.
> Up until about a year ago I could buy $20 Saints and Libs for like 5%
> over spot, good luck getting them for under 20% over spot now.
Not news, but still pertinent information.
James
mazorj
"oly" <oly...@aol.com> wrote in message
news:d9f7632a-732f-48b5...@p23g2000prp.googlegroups.com...
...
++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++
I can't disagree with the gist of what you said, but simply add my
vagrant thoughts...
Inflation seems to be built into our theories of monetary systems.
Regardless of how inflation might be exploited today, I think it
started as an unavoidable consequence of another economic assumption:
that growth will and must continue indefinitely. A non-growing
economy is by definition a stagnant economy - a definite no-no for
most economists except for the few whose philosophies are rooted in
the green zone. That's not unreasonable given the virtually unbroken
history of us hairless apes for continued population growth, which
inevitably drives economic growth. But if we are to avoid
disinflation - which runs counter to the historical current by
shrinking economic activity - a small amount of inflation to "keep the
economic pumps pumping" seems necessary and inevitable.
So if inflation is inevitable, then it's not a question of "whether"
but "how much?" The same can be said for most other economic
phenomena. Unemployment is generally not a good thing, but we'll
never have zero unemployment nor would that be good for the overall
economy. Efficiency in production and transactions is to be sought,
but carrying it to an extreme causes other problems. The trick seems
to be to keep all these factors in balance within an acceptable range.
So why am I tacking this onto your observations? For these and other
reasons, I'm not as pessimistic as you are about the future of fiat
money. We only have so much gold and silver to go around for coinage
and bullion. At some point the shortage of PM specie becomes a choke
point for economic activity. Historically, one answer to that has
been private issue of tokens as a proxy for coins. Another is
debasement of specie. You're not going to keep a world economy
running, let alone growing, with those gimmicks. The only other
answer is fiat money. So IMO, fiat money is here to stay and the
system cannot allow large-scale failures of it.
Yes, there will be ups and downs in the demand for PMs as a safer
place to park money, but much of what you wrote here can be summarized
as "The bigger they (or their monetary house of cards) are, the harder
they fall. Which means that large national and regional economies
indeed are too big to be allowed to fail. Much pain may be inflicted
until an economy recovers, but our economies are too closely tied
together for all the various stakeholders to allow one to drag the
others into ruin with it.
(For the record: Like you, I admit to no greater claim to authority
than the fact that I'm just free-wheeling off of half-forgotten
courses and a lifetime of reading. This is rcc, not The Economic
Journal.)
Mr. Jaggers
Unfortunately, the specter of non-conventional warfare is not all that
unexpected. I consider it a miracle that some outfit hasn't already lobbed
a "non-conventional" device into somebody else's Great City.
> Yesterday, the price of gold in British Pounds hit a record all-time
> high.
>
> The Euro is very close to the same situation.
>
> The U.S. Dollar has had a great run recently, but that seems to be
> more because we are on a different continent than the rest of the
> Europen world, in a wealthy law-abiding country, than because of any
> good financial prospects of our own.
>
> I don't slap mon professeurs bum, though I might give him a good
> "embrassade" a la francais.
Oh, oly, I love it when you talk dirty.
James
oly
>
> - Show quoted text -
One of the reason that I learned French was to impress certain young
ladies, but sadly, it never over "came" certain "short"-comings.
oly
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
> mazorj wrote:
...
>> The answer is exactly the same reason that we accept base-metal
>> coinage and money made out of paper: Because we put faith
>> ("credit")
>> in their acceptability when we go to exchange them for something
>> else.
>> That's it! There's nothing "magic" about gold that says that the
>> laws
>> of the universe decree its acceptability as a medium of exchange.
>> It's true that in the absence of faith (acceptability) in paper
>> money,
>> gold will be more acceptable as a payment medium. But that's only
>> because the seller has faith in the gold that the buyer is
>> offering,
>> which in turn is tied to its relative scarcity (with a little
>> esthetic
>> appeal thrown in). If gold were as common as iron, silver or
>> platinum
>> probably would top the scale as "real" money. If silver and
>> platinum
>> also were as common, copper might top the list, and so on. Carry
>> this
>> out far enough and sea shells would be valued as the only "real"
>> money.
>
> Kind of like wampum, n'est-ce pas?
Per-zackly my point. Wampum was sea shells. Oddly enough, it was the
colonists and not the Indians who used it as money.
http://www.thebeadsite.com/FRO-WAPM.htm
>> I'm not arguing that we should (or even could) abandon gold as a
>> marker for currency value. I'm just saying that gold only has
>> value
>> because of human psychology - people put their faith and credit in
>> it.
>> So in that respect, our adulation of gold as a "real" medium of
>> exchange also is flimflammery and smoke-and-mirrors, just like the
>> rest of our money supply. If for whatever reason we lose faith in
>> gold, then Ft. Knox becomes a giant scrap yard and a bag of junk
>> silver might become worth its weight, well, in what gold used to
>> be.
>> IMO, that makes conservatives who relentlessly worship the Golden
>> Calf
>> of money standards (and declare all others to be heretics) look
>> just a
>> bit silly.
>
> Perhaps the entire "science" of economics is a subset of human
> psychology.
Economics is a social science, not a hard science like the chemistry
that you and I struggled through. That was one advantage of "soft"
studies as opposed to the sciences. In literature or history or
sociology or psychology you usually could BS your way through to some
extent. Most economists have learned to exploit that in spades.
OTOH, in the empirical part of hard sciences there usually is only one
correct answer.
> When I was a senior in high school I had chemistry third period and
> economics fourth period. The hotness of the chem teacher
> notwithstanding, during third period I remember thinking, "This is
> cool, it's based on reproducible scientific methodology (which we
> attempted in the lab, sometimes with disastrous results), give us
> more! During fourth period I remember thinking "What a bunch of
> B.S." Then my attitude was cemented in place during fifth hour
> English, where learned the Shakespearean line, "It is a tale told by
> an idiot, full of sound and fury, signifying nothing."
Heh, heh. Of course, it never would have occurred to us that the
Bard's declaration also might have applied to our exam answers.
> I'm always amused by those radio ads that tout investment in gold,
> as "the price is going to hit $2000 before we know it (the esteemed
> Pat Boone is one of the hucksters, he must be desperate for a new
> pair of white bucks to stoop that low)." I must wonder why the
> company offering to sell me the gold at $2000 minus X doesn't just
> hold on to its gold, wait a few months, and then hawk it for the
> $2k. Why should they share this state secret with li'l ol' me?
Ditto for those who want to sell you their secrets to becoming
fabulously wealthy. Wouldn't their time be more profitably be spent
applying those secrets to make them rich enough that they don't need
the relative pittance of income from huckstering?
Mr. Jaggers
The ads apparently are their secret, in the style of a chain letter (send me
$19.95 and I'll reveal to you that the secret of making money is to place
ads like this asking people to send you $19.95 to reveal the secret, etc.
etc.
James
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
I remember that a few from my youth were exactly that! Nowadays, the
more sophisticated ones actually have plausible, attractive schemes
that can make money - if you're the type of person who doesn't need to
be told how to do it. Most of the clueless suckers - er, wannabe
entrepreneurs - ended up trashing the overpriced tapes and books after
they realized that they don't have what it takes.
In the 1990s there was a boom in hucksters selling the "secrets" to
flipping real estate. They seem to be making a bit of a comeback now.
Bruce Remick
______________
Does it mention an age beyond which one might as well stick with lottery
tickets instead of waiting for a century of gold investment performance
statistics to kick in?
Bruce Remick
>
> I remember that a few from my youth were exactly that! Nowadays, the more
> sophisticated ones actually have plausible, attractive schemes that can
> make money - if you're the type of person who doesn't need to be told how
> to do it. Most of the clueless suckers - er, wannabe entrepreneurs -
> ended up trashing the overpriced tapes and books after they realized that
> they don't have what it takes.
>
> In the 1990s there was a boom in hucksters selling the "secrets" to
> flipping real estate. They seem to be making a bit of a comeback now.
>
The secret when I was young was how to sell enough packets of flower and
vegetable seeds from the ad on the back cover of comic books to win a
bicycle. Once you got some help from mom, dad, a couple aunts and the two
neighbors there had to be a way to convince that farmer down the road with
the 2,000 acres that he needed a couple packs of your marigold and radish
seeds.
RWF
> Yes, there will be ups and downs in the demand for PMs as a safer
> place to park money, but much of what you wrote here can be summarized
> as "The bigger they (or their monetary house of cards) are, the harder
> they fall. Which means that large national and regional economies
> indeed are too big to be allowed to fail. Much pain may be inflicted
> until an economy recovers, but our economies are too closely tied
> together for all the various stakeholders to allow one to drag the
> others into ruin with it.
The more people think the system is failing, the more they will turn to
gold and, to a lesser degree, silver.
IMHO the undervalued metals now are platinum & palladium. They are vital
to the now-ailing auto industry and other pollution control devices.
As the economy recovers (and it will, eventually) the demand for them
will grow.
Conversely, a strengthening economy will probably cause silver and gold
to go down in relation to the dollar.
Short term, I think the play is in gold and silver but for those with
the ability to wait may find platinum the smart buy.
YMMV
BTW: Junk silver is currently selling for about 10X face on eBay.
Last time I visited my local coin shop about a week or so ago, they were
selling junk silver for 10-10.5X face
oly
> "oly" <oly2...@aol.com> wrote in message
>
> - Show quoted text -
Gold is the yardstick, not an investment. Yardsticks don't change
(well, if the Federal Government made them, they would probably be 15
inches long nowadays). Gold is the "numeraire" and financial paper
goes up and down (and finally down to its intinsic value as paper),
not the gold.
I would say that Mr. Loeb, now long deceased, got it. You could have
bought a $20 gold piece for $37.50 back in 1965 when he wrote the last
edition of his book.
Based upon your many comments here, I would say that Bruce Remick
doesn't "get it".
oly
Bruce Remick
"RWF" <R...@200901.invalid> wrote in message
news:glgj95$qek$1...@news.motzarella.org...
> "mazorj" <maz...@verizon.net> wrote in message
> news:ZVKel.1937$aI1....@nwrddc01.gnilink.net...
>> Yes, there will be ups and downs in the demand for PMs as a safer place
>> to park money, but much of what you wrote here can be summarized as "The
>> bigger they (or their monetary house of cards) are, the harder they fall.
>> Which means that large national and regional economies indeed are too big
>> to be allowed to fail. Much pain may be inflicted until an economy
>> recovers, but our economies are too closely tied together for all the
>> various stakeholders to allow one to drag the others into ruin with it.
>
> The more people think the system is failing, the more they will turn to
> gold and, to a lesser degree, silver.
> IMHO the undervalued metals now are platinum & palladium. They are vital
> to the now-ailing auto industry and other pollution control devices.
> As the economy recovers (and it will, eventually) the demand for them will
> grow.
I'd bet that many people who keep a good chunk of their assets in gold as a
store of wealth will eventually develop a King Midas attitude and never will
be able to convince themselves it's the right time to cash it in. Ah, to
be a relative and heir.
j-rod
"Now I don't know but I been told
it's hard to run with the weight of gold
Other hand I heard it said
it's just as hard with the weight of lead"
New Speedway Boogie
Words by Robert Hunter; music by Jerry Garcia
JAM
Bruce Remick
____________
What makes you presume I didn't buy any of my gold coins back in 1965? And
I don't see how one might have bought something back in 1965 for much less
than today indicates that they "get it". Or how it relates to your
criticism of my question and intellect.
If gold is not considered an investment vehicle, I guess I really don't "get
it". We should be investing in yardsticks? It sure looks like collectors
and investors are looking to buy gold for SOME reason. Please don't quote
more Economics 101 textbook buzzwords to me. I don't "get it". And no
more coulda shoulda cites, either. I'm more comfortable dealing in
practical realities and not "getting it" as far as the economics textbooks
might take several chapters to explain. I'll trust my 70 years of life
experience. I've made out fine so far after choosing physics over economics
as an elective in college, and actually finding a practical use for some of
the stuff I learned in physics.
Bruce Remick
"j-rod" <j-...@nospam.net> wrote in message
news:497BE989...@nospam.net...
Sounds more like one of the silly songs we had to shout while running a few
miles every morning at 6AM at Ft. Dix. NJ during basic training. I found
out later that Jodie never even knew my girl.
oly
>
> - Show quoted text -
Yes, you don't get it. You may well find, like the old baushkas and
military widows in the former Soviet Union, that your federal pension
may buy nothing in just a few years. We are now in a world where
financial paper is very very suspect and an awfully large number of
smart people are chasing a rather small amount of gold. Gold hit a
record price in Pounds and near record price in Euros last week.
After a $43 "gain" on Friday, gold is less than 10% to 12% from its
record price in dollars.
There's a financial shit storm out in the world right now and it
doesn't seem to be abating. The "practical reality" is that paper is
reverting to its intrinsic value.
oly
j-rod
LOL
JAM
mazorj
"Bruce Remick" <rem...@cox.net> wrote in message
news:_TRel.209986$2w3....@newsfe19.iad...
...
> I'll trust my 70 years of life experience. I've made out fine so
> far after choosing physics over economics as an elective in college,
> and actually finding a practical use for some of the stuff I learned
> in physics.
Yep. "What goes up must come down" seems to work as a rule for
markets, too.
Chemistry also informed my knowledge of economics when I learned that
it is theoretically possible to fulfill the alchemists' dream of
transmuting lead into gold - but the energy cost outweighs the value
of the gold.
Bruce Remick
Yes, you don't get it. You may well find, like the old baushkas and
military widows in the former Soviet Union, that your federal pension
may buy nothing in just a few years. We are now in a world where
financial paper is very very suspect and an awfully large number of
smart people are chasing a rather small amount of gold. Gold hit a
record price in Pounds and near record price in Euros last week.
After a $43 "gain" on Friday, gold is less than 10% to 12% from its
record price in dollars.
There's a financial shit storm out in the world right now and it
doesn't seem to be abating. The "practical reality" is that paper is
reverting to its intrinsic value.
________________
At least you were a bit kinder in this response. You apparently remember me
saying before that I have not recognized paper money as becoming devalued.
During my working years, the percentage of my annual COL-adjusted salary
(discounting promotions) required for essentials remained pretty much the
same. My pension supports my needs to the same degree it did when I retired
twelve years ago. I can't picture a day when the dollar, paper or
electronic, will be near worthless to me. With gold, I would consider it an
investment gain when I buy gold at $800 at the beginning of 2008 and sell it
later that year for $1,000, while my other living expenses did not increase
during that period. If there's something I don't understand there, you'd
probably be wasting your time trying to explain it to me.
oly
> "oly" <oly2...@aol.com> wrote in message
If I was particularly grating or impolite, I am sorry, that was not my
intention. My intention is to knock people out of a certain level of
complacency. I truly feel that 2009 will be a much worse year than
2008 in all things financial.
oly
Michael Benveniste
<lugburzman[at]yahoo[dot]com> wrote:
>I replied that even in spite of the U.S. being on the gold standard for a
>very long time, we still experienced numerous panics and even a few
>depressions from time to time.
I suppose that's true, for sufficiently short values of "for a very
long time." Depending on how you look at it, the United States was
on the gold standard from 1873-1878, 1875-1878, or arguably never.
Before 1873, the United States (and other countries) attempted to
enforce an economic impossibility by law, namely that silver and gold
should have fixed values relative to each other. This policy of
bimetallism first failed in the early 19th century. In coinage, we
find evidence of these failures in the suspension of minting silver
dollars in 1804, the low survivor rate of 1820's gold coins due to
arbitrage, and such coins as the 1853 Arrows and Rays quarters.
The Coinage Act of 1873 (aka Crime of 1873) demonetized Silver, but it
wasn't until the 1875 Resumption Act that the Treasury was given a
mandate to redeem legal tend notes in gold. But the Resumption Act
had a grace period until January 1, 1879, before which the Treasury
could limit redemptions.
The Silver Act of 1878 directed the resumption of coinage of silver
dollars at a specified weight and that such silver coins were legal
tender as 1 dollar, thus reestablishing bimetallism. This took effect
before the end of the grace period of the Resumption Act.
The Gold Standard Act of 1900 once again purported to place the United
States on a gold standard, but it explicitly affirmed the legal tender
status of the Silver Dollar. So at no time in history was the United
States government legally required to repay a dollar-denominated debt
in gold.
>1) Can we assume that those panics occurred because parts or all of our
>economy were indeed not on any metal standard. (snip)
No. Economic panics can occur whenever credit is extended, even in
a hypothetical "hard money" economy. Whenever one writes a check or
create any sort of negotiable instrument, the money supply increases.
>2) Is that why the government, through legislation, froze the price of
>gold, creating a false sense of security that might prevent the currency
>from inflating?
As others have pointed out, a gold standard doesn't freeze the price
of gold relative to any other good or service. But FDR's Presidential
Executive Order 6102 "froze" the price of gold by prohibiting free
trade and so-called "hoarding" of gold bullion. At that time,
inflation wasn't a concern, but deflation was.
>3) Did FDR take us off the gold standard because he realized that the
>system was so hopelessly far from its original configuration, and wanted to
>have free reign to construct other "rescue" schemes?
This is being addressed elsewhere in the thread. I have little to add
beyond the above paragraph.
--
Mike Benveniste -- m...@murkyether.com (Clarification Required)
I said, Au, get off of my cloud!
Bruce Remick
_____________
Hey! I can UNDERSTAND that. I may consider going out on the lecture
circuit now. :>)
mazorj
You're certainly right on that. The first half of 2008 was dominated
by the falling big dominoes of housing and finance. It took a while
for the busted housing bubble to dry up the lending channels enough
for the effects of the meltdown to reach other industries, and then
every working Joe. In an economy, everything is connected to
everything else. The meltdown is reaching to everywhere and now it's
not just the bigs that are failing, it's local retailers and service
providers plus all the people who worked for them and they in turn
will be buying less goods and services and around and around she goes.
It will keep getting worse all through 2009 before it even starts to
get better.
Having said that, why didn't all the bad news of 2008 raise and keep
gold prices at stratospheric levels? If ever there were a time in the
past several decades to lose one's faith in the dollar, this would
have been it. One countering factor may have been from big
institutional holders selling gold to meet other obligations, and when
that stops, prices may jump.
OTOH, gold may stay down because of the related but opposite effect.
Buyers, big and small, who need every dollar to meet their obligations
aren't well positioned to be hoarding even token amounts of coins and
bars. There will be the usual speculators buying, but will they be
enough to drive prices significantly higher if demand from other
investors and industrial applications is weak?
Goldbugs can point to Mint sell-outs and other indicators of demand.
But they've been doing that for as long as I can remember and gold has
stayed within a fairly narrow band. There are other historical
indicators going in the opposite direction, like the one saying that
over time the price of gold correlates with worldwide economic growth.
So if anything, a worldwide slowdown or recession would tend to keep
gold pricing down - which is what we've been seeing so far.
It would take a major panic to spike gold prices in the coming year.
You apparently see one coming. Others are of the opinion that we've
built enough brakes and cushions into the system that the comedown may
be a relatively soft landing, a fairly rough landing, but not a crash.
Unfortunately, we're all trying to read the tea leaves while the water
is still boiling. You're honest enough to admit that you just are
opining an opinion, and so am I and the others. If any of us really
knew what will happen, we wouldn't be wasting out time yakking away
here. Each side has plenty of plausible facts and arguments. And I
do appreciate your point about trying to get others not to be
complacent about the risks. I think most of us who disagree with your
outlook are just trying to do the same thing from the other
direction - keep others from panicking or engaging in irrational
exuberance. The truth almost certainly will fall somewhere in the
middle.
Like any prudent person, I'll be keeping a weather eye on gold and
maybe even buy a few more token pieces, but it's not going to become
an obsession or occupy a massive chunk of my portfolio.
oly
>
> - Show quoted text -
The recent action in the U.S. Dollar is certainly mystifying. It's
recent strength probably reflects that we are physically isolated, on
almost our own continent, away from the problems of many other nations
(gotta watch old Mexico closely, however). We have still have a
large, reasoably hard-working group of middle class people living in a
nation under a somewhat-consistent rule of law (but both of these
things being chipped-away at almost everyday). On a relative basis,
these factors seem to make our financial paper better than the
financial paper in a lot of other countries.
Many people feel that the "official" price of gold has been
manipulated/ suppressed by the banks in NYC and by the big boys on the
COMEX. If this is so, just remember: Price supports invariably tends
to an ultimate price implosion; Price suppression invariably tends to
price explosion. IMHO, when the big change in the gold prices finally
comes, it could be quite rapid and violently upwards. As it is now,
small amounts of gold are difficult to find and priced well above
"spot".
oly
Mr. Jaggers
Thanks, Michael. It appears that reality is not congruent with popular
perception (just as I have long suspected).
James
mazorj
...
< The recent action in the U.S. Dollar is certainly mystifying. It's
recent strength probably reflects that we are physically isolated, on
almost our own continent, away from the problems of many other nations
(gotta watch old Mexico closely, however). We have still have a
large, reasoably hard-working group of middle class people living in a
nation under a somewhat-consistent rule of law (but both of these
things being chipped-away at almost everyday). On a relative basis,
these factors seem to make our financial paper better than the
financial paper in a lot of other countries.
Yes - what to make of investors buying T-Bills at zero or even
negative ROI? The dollar still seems to be the preferred place to
park assets. That says the dollar is strong relative to many
currencies, but may or may not speak to its absolute strength.
< Many people feel that the "official" price of gold has been
manipulated/ suppressed by the banks in NYC and by the big boys on the
COMEX. If this is so, just remember: Price supports invariably tends
to an ultimate price implosion; Price suppression invariably tends to
price explosion. IMHO, when the big change in the gold prices finally
comes, it could be quite rapid and violently upwards. As it is now,
small amounts of gold are difficult to find and priced well above
"spot".
Like the strong dollar, that seems anomalous, too. We're seeing
opposition of some "traditional" indices, like when stagflation
surprised us with economic stagnation and inflation occurring
simultaneously. As to bubbles of either kind, when they go bust, they
do indeed inflict a lot of damage.
However, if the Gnomes of New York and others are supporting gold
prices to this degree, you'd think it would have leaked at least to
some extent by now. I don't read the business pages religiously (in
fact, when they try to prognosticate, I'm an atheist) but I haven't
seen any credible news reports documenting that.
I keep hearing a hint of catastrophist/survivalist fears in your
posts. As they say, it's not paranoia if someone really is out to get
you - or if the end really is nigh. I can understand a certain amount
of that kind of prudence. I don't overdo it but I keep a well-stocked
pantry and my firearms are all oiled and loaded. I'm more concerned
about short-term emergencies and intruders, but the principal is the
same.
We have a long, long way to go before we see civil breakdown here.
OTOH, any civilization is a few days' food supply away from chaos.
How many days' money supply are we away from the same?
Maybe I'm just whistling in the dark, but for now it hasn't reached a
point where I start hoarding food or gold in earnest. Given the
consequences of a collapse of the dollar, I would like to think that
you are merely counseling against, and not hoping for the conditions
that would increase the value of your gold holdings. That way lies
madness.
oly
> "oly" <oly2...@aol.com> wrote in message
I am hardly hoping for the conditions that would lead to anarchy; but
the financial system has boatloads of bad assets and speculators have
abused the system all to hell. You have another thing exactly
backwards - the "Gnomes of New York" don't exist and the big boys in
NYC are suppressing gold, not supporting it.
One of the big lessons of historical inflations is that the small
saver gets wiped out, in purchasing power terms, well before the
"hyperinflationary" stage. The German Mark was 4.2 to the dollar in
1913 and at least 70 to the dollar by the end of 1920. What happened
in 1921, 1922 and 1923 was all a carny side-show - people who saved in
currencies and other financial paper (as opposed to gold and other
tangible assets) were already wiped out by the end of 1920.
oly
oly
>
> - Show quoted text -
I found the literary thing that I mentioned earlier - it was
Washington Irving, not Nathaniel Hawthornre:
The ongoing chaos we’re experiencing is just another cycle playing
itself out against the backdrop of human fear and greed. These
financial collapses constitute cathartic episodes typical of natural
systems that need to correct themselves of any excesses as a matter of
survival.
The passage below could easily have been written to describe today’s
debacle (this was written in 1837!):
"Every now and then the world is visited by one of these delusive
seasons when "the credit system", as it is called, expands to full
luxuriance; everybody trusts everybody; a bad debt is a thing unheard
of; the broad way to certain and sudden wealth lies plain and open;
men are tempted to dash forward boldly from the facility of borrowing.
Promissory notes, interchanged between scheming individuals, are
liberally discounted at the banks, which become so many mints to coin
words into cash; as the supply of words is inexhaustible, it may
readily be supposed what a vast amount of promissory capital is soon
in circulation. Everyone now talks in thousands; nothing is heard but
gigantic operation in trade, great purchases and sales of real
property, and immense sums made at every transfer. All, to be sure, as
yet exists in promise, but the believer in promises calculates the
aggregate as solid capital and falls back in amazement at the amount
of public wealth, the ‘unexampled state of public prosperity!’
Now is the time for speculative and dreaming or designing men. They
relate their dreams and projects to the ignorant and credulous, dazzle
them with golden visions, and set them maddening after shadows. The
example of one stimulates another; speculation rises on speculation;
bubble rises on bubble; everyone helps with his breath to swell the
windy superstructure and admires and wonders at the magnitude of the
inflation he has contributed to produce.
Speculation is the romance of trade and casts contempt upon all its
sober realities. It renders the stock jobber a magician and the
exchange a region of enchantment. It elevates the merchant into a kind
of knight-errant, or rather a commercial Quixote. The slow but sure
gains of snug percentage becomes despicable in his eyes: no
‘operation’ is thought worthy of attention that does not double or
treble the investment. No business is worth following that does not
promise an immediate fortune. As he sits musing over his ledger with
pen behind his ear, he is like La Mancha’s hero in his study dreaming
over his books of chivalry. His dusty counting-house fades before his
eyes, or changes into a Spanish mine: he gropes after diamonds or
dives after pearls. The subterranean garden of Aladdin is nothing to
the realms of wealth that break upon his imagination.
Could this delusion always last, the life of a merchant would indeed
be a golden dream; but it is as short as it is brilliant. Let but a
doubt enter, and the ‘season of unexampled prosperity’ is at an end.
The coinage of words is suddenly curtailed; the promissory capital
begins to vanish into smoke; a panic succeeds, and the whole
superstructure, built upon credit and reared by speculation, crumbles
to the ground, leaving a scarce wreck behind."
The author is Washington Irving, who is credited with the origin of
the term, "the Almighty Dollar."
The Panic of 1837, to which Irving makes reference, is said to have
started on May 10th, 1837 after the banks stopped the issuance of gold
and silver bullion for American currency. This caused a panic which
threw the U.S. economy into a depression that lasted for 5 years.
oly
++++++++++++++++++++++++++++++
Credit is "Money of the Mind" to borrow a title from James Grant...
Mr. Jaggers
Numismatically speaking, that event caused the issuance of all those neat
Hard Times tokens, which are eminently collectible. And you won't ever see
one of those in an MS70 CAC slab, nosirree!
James
mazorj
...
===========================================
Economists reduced all that to the much more prosaic term "irrational
exuberance" but Irving pretty much nailed it. Thanks, it made nice
reading.
His reference to literature's tilter at windmills reminded me that the
Dutch had their "Tulip Mania" centuries earlier. The ancient Greeks
and Romans probably had their own, if smaller, episodes of speculative
bubbles running up the price of grain or wine or whatever. Greed and
pain and human folly. There wouldn't be any investment markets
without them.
mazorj
"Mr. Jaggers" <lugburzman[at]yahoo[dot]com> wrote in message
> oly wrote:
...
>> The Panic of 1837, to which Irving makes reference, is said to have
>> started on May 10th, 1837 after the banks stopped the issuance of
>> gold
>> and silver bullion for American currency. This caused a panic which
>> threw the U.S. economy into a depression that lasted for 5 years.
>
> Numismatically speaking, that event caused the issuance of all those
> neat Hard Times tokens, which are eminently collectible. And you
> won't ever see one of those in an MS70 CAC slab, nosirree!
I think a Chinese vendor has some on e-Bay.
Mr. Jaggers
Grâce à Dieu, I have not seen any of those yet.
James