Reason #1 to Keep Buying That Gold

Discussion of the Gold portion of the Permanent Portfolio

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Bean
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Re: Reason #1 to Keep Buying That Gold

Post by Bean » Wed Jul 10, 2013 9:39 am

Playing the hypothetical game...

If I were China and within a year or two would have enough gold to back my currency.  Then I would, and instantly become the world reserve currency.

The US doesn't have to be the reason the dollar falls from grace, China could very easily make that happen in the here and now.
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.� ~Talmud
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Wed Jul 10, 2013 9:47 am

Bean wrote: Playing the hypothetical game...

If I were China and within a year or two would have enough gold to back my currency.  Then I would, and instantly become the world reserve currency.

The US doesn't have to be the reason the dollar falls from grace, China could very easily make that happen in the here and now.
Did you know that China is now the world's largest gold producer? And none of the gold they mine makes it to the world market; all of it is purchased by their central bank. I wonder why?

(By the way, I have already predicted that they would go on the gold standard sometime in the next few years.)
Last edited by technovelist on Wed Jul 10, 2013 9:48 am, edited 1 time in total.
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Re: Reason #1 to Keep Buying That Gold

Post by Bean » Wed Jul 10, 2013 9:55 am

technovelist wrote: Did you know that China is now the world's largest gold producer? And none of the gold they mine makes it to the world market; all of it is purchased by their central bank. I wonder why?

(By the way, I have already predicted that they would go on the gold standard sometime in the next few years.)
Gold and most rare earth metals if I remember correctly.  They are also #1 or #2 for importing gold next to India.  If they want to make the play it is right in front of them and my two guesses; they are setting up a Mutually Assured Destruction currency cold war or are just flat out going for reserve status.

I suspect you and I read a lot of the same things  :P
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.� ~Talmud
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Re: Reason #1 to Keep Buying That Gold

Post by Pointedstick » Wed Jul 10, 2013 9:57 am

technovelist wrote: (By the way, I have already predicted that they would go on the gold standard sometime in the next few years.)
But what would that gain them?
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Wed Jul 10, 2013 10:09 am

Pointedstick wrote:
technovelist wrote: (By the way, I have already predicted that they would go on the gold standard sometime in the next few years.)
But what would that gain them?
Tremendous economic power.
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Re: Reason #1 to Keep Buying That Gold

Post by Pointedstick » Wed Jul 10, 2013 10:14 am

technovelist wrote:
Pointedstick wrote:
technovelist wrote: (By the way, I have already predicted that they would go on the gold standard sometime in the next few years.)
But what would that gain them?
Tremendous economic power.
Specifically how, though?
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Re: Reason #1 to Keep Buying That Gold

Post by Gumby » Wed Jul 10, 2013 10:37 am

Pointedstick wrote:If the dollar collapses, that would require a new world reserve currency. Who's gonna provide it? The Euro? I think not. The Yen? No way. The Yuan? I'm sure China would like that, but I don't see it happening.
The irony — and what few people ever realize — is that in order to be the world's reserve currency, a country with a debt-based fiat currency has to run an enormous deficit in order to create enough liquidity for the entire world (since money comes from debt in a debt-based monetary system). If that country ran an ongoing surplus, eventually it would make the currency too scarce and there wouldn't be enough liquidity for every country.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Wed Jul 10, 2013 10:40 am

Pointedstick wrote:
technovelist wrote:
Pointedstick wrote: But what would that gain them?
Tremendous economic power.
Specifically how, though?
In many ways. One of the most obvious is that they could set up a new version of SWIFT using their currency, preventing the US from interfering with their trade.
Also, they would be able to import whatever they want without having to earn dollars.
Need more? I'll come up with some additional ones later.
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Re: Reason #1 to Keep Buying That Gold

Post by Pointedstick » Wed Jul 10, 2013 10:43 am

technovelist wrote:
Pointedstick wrote:
technovelist wrote: Tremendous economic power.
Specifically how, though?
In many ways. One of the most obvious is that they could set up a new version of SWIFT using their currency, preventing the US from interfering with their trade.
Also, they would be able to import whatever they want without having to earn dollars.
Need more? I'll come up with some additional ones later.
True, but none of that requires that they have a big-ass pile of gold. They's just have to defeat our efforts to stop them, whether those efforts be political, military, economic, espionage, or whatever.

Put perhaps another way: if all the gold in the Fed's vaults suddenly disappeared, would the USA either stop having the world's reserve currency, or experience any meaningful stress in its efforts to maintain that position?
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Wed Jul 10, 2013 10:52 am

Pointedstick wrote:
technovelist wrote:
Pointedstick wrote: Specifically how, though?
In many ways. One of the most obvious is that they could set up a new version of SWIFT using their currency, preventing the US from interfering with their trade.
Also, they would be able to import whatever they want without having to earn dollars.
Need more? I'll come up with some additional ones later.
True, but none of that requires that they have a big-ass pile of gold. They's just have to defeat our efforts to stop them, whether those efforts be political, military, economic, espionage, or whatever.

Put perhaps another way: if all the gold in the Fed's vaults suddenly disappeared, would the USA either stop having the world's reserve currency, or experience any meaningful stress in its efforts to maintain that position?
Even if that gold is still there, it is irrelevant because the dollar is irredeemable.

What I'm referring to when discussing a gold standard Chinese yuan is not an irredeemable paper currency, but a redeemable one, i.e., a real gold standard, in which each unit of currency would be 100% backed by physical gold that you could get if you wanted it. That is, if you had 1 million yuan (or whatever the number would be) you could turn it in for 100 g of gold (or whatever the number would be).

This would instantly make China the #1 economic power in the world, allowing them to import anything they wanted without needing to worry about their dollar balances.
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Re: Reason #1 to Keep Buying That Gold

Post by MediumTex » Wed Jul 10, 2013 10:59 am

technovelist wrote: What I'm referring to when discussing a gold standard Chinese yuan is not an irredeemable paper currency, but a redeemable one, i.e., a real gold standard, in which each unit of currency would be 100% backed by physical gold that you could get if you wanted it. That is, if you had 1 million yuan (or whatever the number would be) you could turn it in for 100 g of gold (or whatever the number would be).

This would instantly make China the #1 economic power in the world, allowing them to import anything they wanted without needing to worry about their dollar balances.
Let's think this through.

All countries in the world target an inflation rate in the low single digits.  If China did as you are suggesting, that would mean that the yuan would appreciate each year by a few percentage points in relation to all other world currencies, which would likely feel like a noose slowly tightening around the neck of China's vast export-oriented manufacturing sector. 

Why would they want to do that?

To date, China has been repeatedly chastised by the U.S. for being a "currency manipulator" because it has done all sorts of things to artificially depress the value of the yuan in order to strengthen its position as exporter to the world.

It seems like you are suggesting that China would decide to go in the exact opposite direction, but I don't understand how that could possibly be in China's self-interest.
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Re: Reason #1 to Keep Buying That Gold

Post by Pointedstick » Wed Jul 10, 2013 11:03 am

technovelist wrote: Even if that gold is still there, it is irrelevant because the dollar is irredeemable.

What I'm referring to when discussing a gold standard Chinese yuan is not an irredeemable paper currency, but a redeemable one, i.e., a real gold standard, in which each unit of currency would be 100% backed by physical gold that you could get if you wanted it. That is, if you had 1 million yuan (or whatever the number would be) you could turn it in for 100 g of gold (or whatever the number would be).

This would instantly make China the #1 economic power in the world, allowing them to import anything they wanted without needing to worry about their dollar balances.
Why would the Chinese want a 100% gold-backed reserve currency? That would mean that every time someone else in another country wanted to buy a Chinese bond, China would have to go mine some gold and put it in the Chinese central bank's vault. The whole point of being the world's reserve currency issuer is that you can create currency at will in response to international demand for liquidity and a safe place to put savings. Tying your currency to gold totally hamstrings that.
Last edited by Pointedstick on Wed Jul 10, 2013 11:36 am, edited 1 time in total.
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