The Bernanke: Gold Not Money

[Reub]

The Bernanke spoke before before Congress today and stated that gold isn't money:

http://blogs.forbes.com/afontevecchia/2 ... not-money/

With the possibility of QE3 looming, I guess that's a good thing. Right?

[longeyes]

The Emperor isn't the only one with no clothes.

[Jan Van]

I'd think the question would be, can I go to McDonalds and pay for my Iced Coffee (large) and Spicy Chicken Sandwich with an American Eagle gold coin that say $50 on it?

Could I?

btw, they are purteeee:

[MediumTex]

I'd think the question would be, can I go to McDonalds and pay for my Iced Coffee (large) and Spicy Chicken Sandwich with an American Eagle gold coin that say $50 on it?

Could I?

Could you use a U.S. $100 bill?

Could you?

***

Are you saying you want to use the gold coin as a $50 piece of currency or based upon its gold value?

[Gumby]

I'd think the question would be, can I go to McDonalds and pay for my Iced Coffee (large) and Spicy Chicken Sandwich with an American Eagle gold coin that say $50 on it?

Could I?

McDonalds would have to honor the face value of the coin (just like any legal tender). But, they don't have to honor the melt value of the coin. Same thing with a silver dollar, or a copper penny.

[moda0306]

Could one think of a gold $50 coin as an option instrument then?

There's an arbitrage opportunity here... I just can't quite figure it yet.

[Jan Van]

If they have to honor the face value, then it's money. Maybe the Ben Bernank was referring to bullion?

[MediumTex]

If they have to honor the face value, then it's money. Maybe the Ben Bernank was referring to bullion?

I think he was definitely referring to bullion.

[TBV]

It's hard to argue with the truth of what Bernanke is saying, which is that the U.S. government doesn't recognize gold as money in and of itself, except for those few coins which the government deems to be legal tender at face value.  It's also hard to argue with the fact that people throughout time have recognized gold as being inherently valuable and quite suitable for use as money.  Most of the time, people around the world are also content to accept US dollars as money even though they aren't legal tender outside the USA.  So does that mean money isn't money unless one's own government says so?  In theory, yes.  In practice, no.

[smurff]

I'd think the question would be, can I go to McDonalds and pay for my Iced Coffee (large) and Spicy Chicken Sandwich with an American Eagle gold coin that say $50 on it?

Could I?

Assuming you were in McDonald's today...

Most McDonald's I see have a sign somewhere near the cash registers or the ATM machines that says, "Please, no bills over $20."  Meaning, no currency with a face value of more than $20.   Lots of convenience stores and fast food restaurants have rules like that, as do taxi drivers.  Even post offices refuse bills over $20 or $50.  So no, it's not likely that McDonald's will take your one ounce gold American Eagle coin.  Even if you don't think of it as a "bill" or as "currency," the crew member who takes your order will turn the coin over a few times and look at it, look for its picture on the cash machine, ask, "Don't you have anything smaller?", and hand it back to you.

Now if you had the 1/10 oz coin, with a face value of $5, you might have to come up with two or three of them to pay for 2 Spicy Chicken sandwiches, 2 iced coffees, 2 large fries, and a shake.  And instead of getting back $360 (or so) in change, you might be lucky to get back $4 in FRNs.

Even in some unspecifiable future, after Carmegeddon, Armegeddon, Farmegeddon, and other Megiddo disasters, there might be a new sign saying, "Please, no gold coins, and no silver coins larger than 1/10 ounce."  McDonald's still might not accept a one ounce gold coin, even though by then most everyone will presumably know the value of gold and silver.  But after taking such a gleaming coin out of your pocket, you might not leave the restaurant hanging on to it, either--especially if the restaurant is crowded.

[TBV]

I'd think the question would be, can I go to McDonalds and pay for my Iced Coffee (large) and Spicy Chicken Sandwich with an American Eagle gold coin that say $50 on it?

Could I?

Assuming you were in McDonald's today...

Most McDonald's I see have a sign somewhere near the cash registers or the ATM machines that says, "Please, no bills over $20."  Meaning, no currency with a face value of more than $20.   Lots of convenience stores and fast food restaurants have rules like that, as do taxi drivers.  Even post offices refuse bills over $20 or $50.  So no, it's not likely that McDonald's will take your one ounce gold American Eagle coin.  Even if you don't think of it as a "bill" or as "currency," the crew member who takes your order will turn the coin over a few times and look at it, look for its picture on the cash machine, ask, "Don't you have anything smaller?", and hand it back to you.

Now if you had the 1/10 oz coin, with a face value of $5, you might have to come up with two or three of them to pay for 2 Spicy Chicken sandwiches, 2 iced coffees, 2 large fries, and a shake.  And instead of getting back $360 (or so) in change, you might be lucky to get back $4 in FRNs.

Even in some unspecifiable future, after Carmegeddon, Armegeddon, Farmegeddon, and other Megiddo disasters, there might be a new sign saying, "Please, no gold coins, and no silver coins larger than 1/10 ounce."  McDonald's still might not accept a one ounce gold coin, even though by then most everyone will presumably know the value of gold and silver.  But after taking such a gleaming coin out of your pocket, you might not leave the restaurant hanging on to it, either--especially if the restaurant is crowded.

Very entertaining post.  As to the safety issue, if one reads the papers, it seems our safety is already in jeopardy at fast food outlets.  Regardless of what's in your wallet.