Wealth Transfers

[Smith1776]

Dollars are not wealth. Our property, capital goods, consumable goods, homes etc. are wealth. Our time is what we use to create more wealth.

By giving other people dollars, the government gives them a claim on our wealth.

Hmmm...

On giving that some thought, I would suggest the dollar gives a claim, albeit irredeemable, on the Treasuries wealth (eg Gold or Silver certificates). There is no obligation to give someone your house if they present you with dollars....

Interested in peoples thoughts on this.

https://www.youtube.com/watch?v=Cgyf9BtKaVo

An irredeemable claim is not a claim at all, because a claim implies that someone is obligated to do something at some point in the future.

A "US Dollar", on the other hand, has no obligor and no payee. It is a green piece of paper that can be used to pay US taxes.

That's about it.

Succinctly stated.

[Hal]

Dollars are not wealth. Our property, capital goods, consumable goods, homes etc. are wealth. Our time is what we use to create more wealth.

By giving other people dollars, the government gives them a claim on our wealth.

Hmmm...

On giving that some thought, I would suggest the dollar gives a claim, albeit irredeemable, on the Treasuries wealth (eg Gold or Silver certificates). There is no obligation to give someone your house if they present you with dollars....

Interested in peoples thoughts on this.

https://www.youtube.com/watch?v=Cgyf9BtKaVo

An irredeemable claim is not a claim at all, because a claim implies that someone is obligated to do something at some point in the future.

A "US Dollar", on the other hand, has no obligor and no payee. It is a green piece of paper that can be used to pay US taxes.

That's about it.

Succinctly stated.

Touche! I stand corrected.
Does that mean it doesn't matter how much gold the treasury holds as its irredeemable?
Kind of like issuing an IOU against my house but then saying I won't honour it.....

[Libertarian666]

Dollars are not wealth. Our property, capital goods, consumable goods, homes etc. are wealth. Our time is what we use to create more wealth.

By giving other people dollars, the government gives them a claim on our wealth.

Hmmm...

On giving that some thought, I would suggest the dollar gives a claim, albeit irredeemable, on the Treasuries wealth (eg Gold or Silver certificates). There is no obligation to give someone your house if they present you with dollars....

Interested in peoples thoughts on this.

https://www.youtube.com/watch?v=Cgyf9BtKaVo

An irredeemable claim is not a claim at all, because a claim implies that someone is obligated to do something at some point in the future.

A "US Dollar", on the other hand, has no obligor and no payee. It is a green piece of paper that can be used to pay US taxes.

That's about it.

Succinctly stated.

Touche! I stand corrected.
Does that mean it doesn't matter how much gold the treasury holds as its irredeemable?
Kind of like issuing an IOU against my house but then saying I won't honour it.....

The Treasury doesn't have to have any gold because they officially defaulted on their obligation to redeem gold certificates in the 1970's.

They claim that they still have a pretty big chunk, but as far as I know there hasn't been a third-party audit for a very long time, so who knows?

See https://sdbullion.com/blog/how-much-gol ... he-us-have.

[glennds]

An irredeemable claim is not a claim at all, because a claim implies that someone is obligated to do something at some point in the future.

A "US Dollar", on the other hand, has no obligor and no payee. It is a green piece of paper that can be used to pay US taxes.

That's about it.

Except that it can also be used for every transaction with every other party that will accept it as a medium of exchange. Which at this moment is everybody.

[vnatale]

An irredeemable claim is not a claim at all, because a claim implies that someone is obligated to do something at some point in the future.

A "US Dollar", on the other hand, has no obligor and no payee. It is a green piece of paper that can be used to pay US taxes.

That's about it.

Except that it can also be used for every transaction with every other party that will accept it as a medium of exchange. Which at this moment is everybody.

True, but that could change at any time. On very short notice.

How so? It has never prior happened in the United States? Or, has it? Last time in another country? Last time in another stable country?

[Mark Leavy]

How so? It has never prior happened in the United States? Or, has it? Last time in another country? Last time in another stable country?

Obviously, at the point a country defaults on it's currency, it is no longer stable. However, the most recent occurence that I am aware of in an until then stable country was Iceland in 2008.


Of course if you are willing to go back a generation or two, we have many others. Notably the Weimar Republic.

In 1919, one loaf of bread cost 1 mark; by 1923, the same loaf of bread cost 100 billion marks

That's a lot of marks

[glennds]

Except that it can also be used for every transaction with every other party that will accept it as a medium of exchange. Which at this moment is everybody.

True, but that could change at any time. On very short notice.

If that were to happen, what do you predict will take it's place as a medium of exchange?
I assume whatever substitute will need to be available on very short notice.

On a related question, Japan has printed more money than the US, at least as a % of its GDP. Way more.
Why has the Yen not collapsed?
I'm asking because I really would like to know.

[Mark Leavy]

The US dollar is undoubtedly the strongest fiat currency in the world right now.

However, considering that the US has defaulted twice in my lifetime 1971, 1966 and once in my grandparents’ lifetime 1933, I don’t consider US currency immune to default.

If I held convertible notes (and I do) and then later... when the underlying increased in value, Whoops! My bad.

But you can still use them to pay taxes or buy vegetables.

I consider that a hard default.

[vnatale]

Correct, Mark.

Also Vinny, have you heard of this place they call Argentina China? I hear they are jockeying to take over as the world's reserve currency! If they do, and there is a worldwide sell-off of US dollars, who knows what could happen.

Except what then happens to the billions and billions and billions of $$$$$ that they have invested in our U.S. Treasury Bills?

Do they want that to happen? Would they risk that happening?



I asked the question....After doing a quick Bing search this is what I found from a year ago...those billions and billions and billions I cited have added up....to more than a Trillion!

P.S. Dualstow for showing me the trick! I tried to add another response to provide the additional information below but I was going to be shut out for the nearly two hours. But I was able to edit this response to add to it.

Vinny


https://www.thebalance.com/how-much-u-s ... own-417016

How Much U.S. Debt Does China Own?

China's Large Position in U.S. Treasuries

China, who owns an estimated $1.1 trillion in U.S. Treasuries, is the number-two investor among foreign governments, according to the January 2020 figures released by the U.S. Treasury. This amounts to over 21% of the U.S. debt held overseas and about 7.2% of the United States’ total debt load.

[Hal]

The US dollar is undoubtedly the strongest fiat currency in the world right now.

However, considering that the US has defaulted twice in my lifetime 1971, 1966 and once in my grandparents’ lifetime 1933, I don’t consider US currency immune to default.

If I held convertible notes (and I do) and then later... when the underlying increased in value, Whoops! My bad.

But you can still use them to pay taxes or buy vegetables.

I consider that a hard default.

Sounds like Gold/Silver should be considered a store of wealth and Shares/Bonds/Cash as investments. All investments can go to zero if you are unfortunate..... Seems odd that debt instruments can be used to pay taxes and buy vegies when you think about it

[boglerdude]

> Why has the Yen not collapsed?

Demand for it, the world wants Japanese products. And cultural cohesion, they tolerate high inflation. Westerners go smashy-smashy https://www.youtube.com/watch?v=xeg5u14TIEU

[Mark Leavy]

=True, but that could change at any time. On very short notice.

If that were to happen, what do you predict will take it's place as a medium of exchange?
I assume whatever substitute will need to be available on very short notice.

In the early 2000's I did a lot of work at Mt. Weather, VA. Pre FEMA. Above ground. Not in the silos below. This was before the WaPo exposed the 'Continuity of Government' shadow system living below the mountain. I was there soon after Cheney had been moved there to run the US - post 9/11. All of that is real.

In spite of the sheer imbecility that are the USA elected officials, there are some smart people behind the scenes. The backup government is just one of the emergency plans in place. (Note, it has been moved since the WaPo article)

While I was there, the guy that I was working with pointed to a nearby mountain. One of the other issues that the US was dealing with at the time was that North Korea was trying to collapse the US economy by printing $100 US bills that were virtually indistinguishable from the Treasury Department's own product. So, the US had set up another facility under that mountain where they had a full supply of an alternate currency - not dollars - that they would use to swap out and replace US dollars if North Korea succeeded in collapsing the dollar. That new currency would have whatever valuation was required.

Fortunately, the US was able to ahem slow down the North Korean production of C-Notes soon enough so that the alternate currency was never deployed. In the meantime, the USA went to the bluish 100 dollar bills to obviate the North Korean process.

All of this long winded story is to point out that if the dollar were to collapse, the USA is prepared with an alternate currency. Now, this has been a few years, so there may be a different plan in place today. But there surely is a plan.

[Libertarian666]

=True, but that could change at any time. On very short notice.

If that were to happen, what do you predict will take it's place as a medium of exchange?
I assume whatever substitute will need to be available on very short notice.

In the early 2000's I did a lot of work at Mt. Weather, VA. Pre FEMA. Above ground. Not in the silos below. This was before the WaPo exposed the 'Continuity of Government' shadow system living below the mountain. I was there soon after Cheney had been moved there to run the US - post 9/11. All of that is real.

In spite of the sheer imbecility that are the USA elected officials, there are some smart people behind the scenes. The backup government is just one of the emergency plans in place. (Note, it has been moved since the WaPo article)

While I was there, the guy that I was working with pointed to a nearby mountain. One of the other issues that the US was dealing with at the time was that North Korea was trying to collapse the US economy by printing $100 US bills that were virtually indistinguishable from the Treasury Department's own product. So, the US had set up another facility under that mountain where they had a full supply of an alternate currency - not dollars - that they would use to swap out and replace US dollars if North Korea succeeded in collapsing the dollar. That new currency would have whatever valuation was required.

Fortunately, the US was able to ahem slow down the North Korean production of C-Notes soon enough so that the alternate currency was never deployed. In the meantime, the USA went to the bluish 100 dollar bills to obviate the North Korean process.

All of this long winded story is to point out that if the dollar were to collapse, the USA is prepared with an alternate currency. Now, this has been a few years, so there may be a different plan in place today. But there surely is a plan.

I suspect that plan involves the revaluation of element 79 by at least a decimal order of magnitude.

[Hal]

So why does the US have (supposedly) gold reserves if they are not necessary for the currency. Canada has no gold reserves now.
And no quoting the Bernank -> https://www.youtube.com/watch?v=iKYKLgzyF9o

[Hal]

Thanks Tom,
If I am understanding you correctly, gold reserves are not mandatory "but" it gives a country options it wouldn't otherwise have .

[Libertarian666]

Thanks Tom,
If I am understanding you correctly, gold reserves are not mandatory "but" it gives a country options it wouldn't otherwise have .

Correct, they aren’t mandatory in the sense of something like a state making a law banning alcohol sales or dental practice on a certain day of the week, but it’s smart to do and gives the country options and gives current and potential creditors piece of mind in getting repaid.

On the other hand, it's even better to just SAY that you have the gold but no one is allowed to audit it.
Then you can sell whatever you may actually have out the back door whenever you want, and still have the benefits of keeping it.
Fortunately no one would ever do that!

[boglerdude]

Canada has oil, timber, real estate. High quality of life. Gold is just another tradable asset, that has been declining in utility for centuries as trade has gotten easier. People used to need physical gold in hand to go into town and buy things, now no one does. Crypto's another emerging alternative for trade and store of value. Gold will spike in value during crisis and is insurance for instability. Ceteris paribus you'd rather own productive assets, land and stocks. A large gold allocation is betting against society. But this year maybe not unreasonable...

[ahhrunforthehills]

The US's relationship with gold seems pretty straight-forward...

There are 2 outcomes for the US (and the world) in regards to fiat currency:

1. The status quo is maintained (the US wins)

or

2. The system collapses and the world returns to a partial (or full) gold standard (the US wins).

The US has the lions-share of gold reserves. Let's say another county wanted to have more gold than the US. If they attempt to BUY the gold in the open market, it would only drive up the value of the gold that the US owns. The US wins.

Let's say that the rest of the world say's gold is a relic and dumps it all. Gold prices plummet... but so what, that only makes the US Dollar more powerful.

The US put itself in a win-win situation.

This is also exactly why the US has been pissed at countries like China. They have allegedly been acquiring gold mining companies and have been filling their vaults with what has been mined. In doing so, they avoid increasing the price of gold in the open market (which would have normally benefited the US).

This is somewhat hinted upon in the following 2009 wikileak coming out of the Beijing Embassy (http://www.gata.org/files/USEmbassyBeij ... 8-2009.txt):

"Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

and here from 2010 (http://www.gata.org/files/USEmbassyBeij ... 8-2010.txt):

A crucial move for the U.S. is to shift its crisis to other countries - by coercing China to buy U.S. treasury bonds with foreign exchange reserves and doing everything possible to prevent China's foreign reserve from buying gold.

If we [China] use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold - we will be dumbfounded. Today when the United States is determined to beggar thy neighbor, shifting its crisis to China, the Chinese must be very clear what the key to victory is. It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds. The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.'s real intention."

and here is an article talking about China shadow reserves (https://www.mining.com/chinas-secret-go ... -strategy/)

In examining gold flows into China as well as Chinese gold production, some experts believe that China actually holds more than 10,000 tons of gold, not the “paltry” 1,658 tons the People’s Bank of China is disclosing.

10,000 tons would be more than the US has.

[Mark Leavy]

That was a great read ahrunforthehills. Thank you.

[glennds]

Let's say that the rest of the world say's gold is a relic and dumps it all. Gold prices plummet... but so what, that only makes the US Dollar more powerful.

A plummet in gold prices would make the US Dollar more powerful in relation to gold yes, but not necessarily in relation to other currencies.

Interesting post, thank you!

[ahhrunforthehills]

That was a great read ahrunforthehills. Thank you.

No, thank you Mark! Only a small handful of posters keep me checking in on this forum from time to time (too many ego-driven posts for me). However, many of your insights/experiences are especially fascinating to me.

This is also exactly why the US has been pissed at countries like China. They have allegedly been acquiring gold mining companies and have been filling their vaults with what has been mined. In doing so, they avoid increasing the price of gold in the open market (which would have normally benefited the US).

Very interesting theory. I wonder if it’s really possible to do so?

Suppose there’s 100 gold mining companies in the world. And suppose China wants to buy half of them, so they can divert the mined gold to their vaults. The process of buying the gold mining companies would bid up the price of all gold mining companies, even the ones China didn’t buy, due to supply and demand for gold mining company stocks.

If all gold mining stocks are more valuable, might that increase the price of gold in and of itself? I’m stream of consciousness thinking out loud here.

Such that owners of other non-Chinese gold mining companies would say, “the shares of my gold mining stocks went up 30% this year even though gold stayed flat, so let me sell these shares”

And since the market is supportive of those higher priced shares, the investors buying them would need gold to be higher in price to justify the valuations. Or at least would want gold higher.

So the new investors in gold mining stocks raise the price of gold. If that’s possible. I assume they can say, we just mined X ounces of gold but we are are not selling at market price, we are selling at Y% over market. And when enough gold miners do that, the price of gold goes up.

Like the bid/ask spread will increase until people decide it’s worth bidding the new higher ask.

I don’t think this would even require the current gold mining non-Chinese investors to sell their shares, because selling them would put a downward pressure on the mining stock prices. Just that their mining stock is worth more, so they need to raise the price of gold to justify keeping these stocks.

Let’s look at the housing market. It’s been going up 10% to 20% a year in my area for a few years. If you bought a house to rent out 3 years ago for $250k and market rent was $1500 and now the house is worth $400k, you will either raise the rent to $2500/month or you will sell the house and take the $150k profit.

It’s not worth you still only getting $1500 rent when the house value has increased so much and you could just sell the house.

I would think same for gold. If your mining stock goes up a huge amount because of demand pressure from China, then the price of gold has to go up to support it.

Maybe? Does this make any sense, I’m not sure.

I am not sure myself. There seem to be lots of moving pieces to this. I suspect a lot of it has more to do with the mines inside China.

In 2007, China overtook South Africa to become the world's largest gold producer, mining 276 tonnes. Last year it mined 430 tonnes, about 50% more than Australia, the world's second-largest producer.

China now accounts for around 15% of total annual global gold production. But China keeps all of the gold it mines; it does not sell a single ounce abroad.

https://moneyweek.com/499249/how-much-g ... y%20number.

https://en.wikipedia.org/wiki/Gold_mining_in_China

China is basically mining as much gold as Australia (#2) and Russia (#3) combined.

If a mining operation in Africa is solely owned by the state owned China National Gold Group Corporation, who is to say how much was mined?

If it is jointly privately owned, who says the dividend needs to be paid in US Dollars? It can be paid in any currency or even payable in gold ounces. The price of gold only changes in the market when the first owner of the gold sells it. If the original owner never sells it, the price never changed.

Granted, it may still increase the overall value of the company... but valuations only matter if you are selling stock. I suspect many of these large private operations do not change investor hands (and have very limited shareholders).

For gold mines that are not privately owned outside of China (or are not paying distributions in gold), I would think that it would increase prices. But then again, China is PUBLICLY ACKNOWLEDGING that it is increasing its holding (same goes for Russia, etc.). Gold prices over the last decade help reflect that. The only real question is "how much has been mined off the books?" and "how much does that difference grow year-after-year-after-year-after-year...?".

[ahhrunforthehills]

In a simplified world the price is only affected by the bid-ask spread when a sale happens.

If there are 5 known Mickey Mantle baseball cards in the world and I find a 6th one in my basement, the price does not change until the world knows about it by me selling it. If the sale is a private transaction, the change in value is limited to a extremely small segment of the market (after-all, only 2 people in the entire world know there are actually 6 cards... everybody else still thinks there are 5 cards).

Now, would China's mine exploration deprive another mine of its future resources that could cause market distortions elsewhere in the gold mining market? Possibly. However, I don't think it matters. If China's primary goal is to increase their holdings, I don't think they would just give up their ambitions because the price of gold went up a percent per year due to their stealth hording after the fact. That would be a drop in the context of their overall currency ambitions.

So yes, I see this as a potential gold manipulation by China to raise the price of gold and hoard it, but it becomes less useful to them because if they decided to sell/trade the gold, it would increase the supply considerably and cause prices to drop.

The end result would probably be incredibly useful to them. You can't talk about "supply" without talking about "demand". I am pretty sure that if China introduced a gold-backed currency, gold would rise despite their previously undisclosed reserves... as would China's standing in the global market.

Just my 2 cents.

[Hal]

Great discussion! And to think this is in the Politics forum