Reason #1 to Keep Buying That Gold

Discussion of the Gold portion of the Permanent Portfolio

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goodasgold
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Reason #1 to Keep Buying That Gold

Post by goodasgold » Tue Jul 09, 2013 11:04 am

Yes, the skeptics keep laughing at us, but someday (I don't pretend to know when) the cows have to come home and begin depositing some very unpleasant materials in the national (and global) living room:

http://www.forbes.com/sites/thomasdelbe ... -of-cards/

Before our "leaders" get a clue and solve it by taxing us savers at 75% rates, not to mention raising the collectibles tax rate to 90% before confiscating our gold (again), let's hope we have a few good years enjoying the benefits of our PP wisdom and frugality.  ::)
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MediumTex
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Re: Reason #1 to Keep Buying That Gold

Post by MediumTex » Tue Jul 09, 2013 11:11 am

Why would a politician or central banker want to go back to a gold standard?

That's something I have never understood when talking about confiscation scenarios.

Big spending politicians and inflationary monetary policies by central banks don't work very well under a gold standard.

Always trust politicians to act in their own self-interest and a gold standard is simply not in the self-interest of most politicians.
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Tue Jul 09, 2013 11:27 am

MediumTex wrote: Why would a politician or central banker want to go back to a gold standard?

That's something I have never understood when talking about confiscation scenarios.

Big spending politicians and inflationary monetary policies by central banks don't work very well under a gold standard.

Always trust politicians to act in their own self-interest and a gold standard is simply not in the self-interest of most politicians.
It's not that they will want to go back to a gold standard, it's that they will be forced to do so or no one will take their money. That's the way it has been in the past, at least.
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Re: Reason #1 to Keep Buying That Gold

Post by Pointedstick » Tue Jul 09, 2013 11:34 am

technovelist wrote: It's not that they will want to go back to a gold standard, it's that they will be forced to do so or no one will take their money. That's the way it has been in the past, at least.
That's interesting. Could you give a historical example? sort of embarrassingly unfamiliar with familiar with thie part of monetary history.
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Tue Jul 09, 2013 11:52 am

Here's one example I could find fairly easily. It's oddly difficult to construct a Google query to locate such examples, for some reason, although I know this has happened on quite a few occasions:

http://rgrossman.web.wesleyan.edu/Resea ... 202009.pdf

Of course the US went back on the gold standard after the War Between the States as well.
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Re: Reason #1 to Keep Buying That Gold

Post by MediumTex » Tue Jul 09, 2013 12:04 pm

technovelist,

What do you think about the idea that since the early 1970s the U.S. has basically been on an "Oil and Guns" standard in which the U.S. military is used to keep world oil supplies flowing in exchange for oil producing states maintaining the petrodollar regime, which provides international structural support for the dollar?

I am not aware of any country with a productive economy and very powerful military that has experienced a currency collapse, other than following a war that it lost.

With the U.S., we are talking about the largest economy in the world, most powerful military in the world, largest bond market in the world, world reserve currency, very productive workforce, vast natural resource deposits, etc.  Is it realistic to imagine that this country would experience a currency collapse?  Under a currency collapse scenario, wouldn't the resulting spike in every other currency in the world as money exited the dollar basically turn the U.S. economy overnight into the strongest exporting nation in the world?  Would central banks in other countries REALLY allow this to happen?  Look at what the Swiss central bank did in 2011 in response to perhaps 1% of the scenario I am describing where the franc was experiencing modest appreciation in relation to other world currencies.
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technovelist
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Re: Reason #1 to Keep Buying That Gold

Post by technovelist » Tue Jul 09, 2013 12:13 pm

MediumTex wrote: technovelist,

What do you think about the idea that since the early 1970s the U.S. has basically been on an "Oil and Guns" standard in which the U.S. military is used to keep world oil supplies flowing in exchange for oil producing states maintaining the petrodollar regime, which provides international structural support for the dollar?

I am not aware of any country with a productive economy and very powerful military that has experienced a currency collapse, other than following a war that it lost.

With the U.S., we are talking about the largest economy in the world, most powerful military in the world, largest bond market in the world, world reserve currency, very productive workforce, vast natural resource deposits, etc.  Is it realistic to imagine that this country would experience a currency collapse?  Under a currency collapse scenario, wouldn't the resulting spike in every other currency in the world as money exited the dollar basically turn the U.S. economy overnight into the strongest exporting nation in the world?  Would central banks in other countries REALLY allow this to happen?  Look at what the Swiss central bank did in 2011 in response to perhaps 1% of the scenario I am describing where the franc was experiencing modest appreciation in relation to other world currencies.
I'm sure that the other countries would start printing even more wildly if that happened, so it's entirely possible that the dollar would remain fairly stable against other currencies.

But there is one type of money that no one can print. I'll leave the rest of the analysis as an exercise for the reader.
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Re: Reason #1 to Keep Buying That Gold

Post by Bean » Tue Jul 09, 2013 12:29 pm

Roman Empire, British Empire, etc.

I think the list is very extensive of the rise and fall of "empires" that at their peak had "the largest economy in the world, most powerful military in the world, largest bond market in the world, world reserve currency, very productive workforce, vast natural resource deposits, etc."

Each of them went through a civilization life-cycle that ended in the ultimate corruption of the currency.  That was either a direct cause or symptom of their fall from grace.

Currently reading "Currency Wars," but due to an ancient history kick, I can attest to historical accounts of currency corruption being a common theme.
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Re: Reason #1 to Keep Buying That Gold

Post by goodasgold » Tue Jul 09, 2013 1:06 pm

MediumTex wrote: Why would a politician or central banker want to go back to a gold standard?

That's something I have never understood when talking about confiscation scenarios.
Seizing the gold of us savers does not necessarily imply going back to the gold standard, it's just that desperate politicians will grab anything of value to gain a little more time. Kind of like junkies ripping the gold teeth out of their granny's mouth in order to get money for another fix.

The attitude of our "leaders" like Brown is, "Whaddya mean I'm driving us into bankruptcy! The banks still let me charge stuff on the credit card, don't they?"
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Re: Reason #1 to Keep Buying That Gold

Post by frommi » Tue Jul 09, 2013 1:37 pm

goodasgold wrote:
Seizing the gold of us savers does not necessarily imply going back to the gold standard, it's just that desperate politicians will grab anything of value to gain a little more time. Kind of like junkies ripping the gold teeth out of their granny's mouth in order to get money for another fix.

The attitude of our "leaders" like Brown is, "Whaddya mean I'm driving us into bankruptcy! The banks still let me charge stuff on the credit card, don't they?"
To do what with the gold? This would not reduce the debt. To reduce debt longterm there are only two ways, inflation/financial repression or default. In the US the default is unthinkable, in the EU not. So propably we are a very long time in the situation where inflation is above short-term yields. This happened before in the history of the US, from 1934 to 1954. From 1942 to 1948 you would have lost 44% of your purchasing power in cash alone.
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Re: Reason #1 to Keep Buying That Gold

Post by MediumTex » Tue Jul 09, 2013 1:49 pm

Bean wrote: Roman Empire, British Empire, etc.

I think the list is very extensive of the rise and fall of "empires" that at their peak had "the largest economy in the world, most powerful military in the world, largest bond market in the world, world reserve currency, very productive workforce, vast natural resource deposits, etc."

Each of them went through a civilization life-cycle that ended in the ultimate corruption of the currency.  That was either a direct cause or symptom of their fall from grace.

Currently reading "Currency Wars," but due to an ancient history kick, I can attest to historical accounts of currency corruption being a common theme.
As I have said many times, all human institutions are transitory, including monetary arrangements.  This is tantamount to saying that all of our individual lives are transitory.  In other words, human institutions have life cycles just like we as individuals do.

Recognizing the basic truths above, however, is not a reason to go Chicken Little at any particular point in time.

If someone starts screaming "We're all gonna die!  We're all gonna die!" I might try to calm everyone down and reassure the speaker that his death probably wasn't imminent.  I would be doing this with the understanding that what he was saying was absolutely true--we are all gonna die, but that death is not necessarily imminent, and thus it's not something to freak out about today.

The currency collapse narrative often takes historical currency "collapse" events that took place over decades and seeks to compress them into a news cycle or perhaps a couple of years.  That seems unrealistic to me, and it tends to stir people up in a way that can make it hard to think clearly about the full range of potential economic scenarios.

So yes, all currencies collapse sooner or later.  I just don't think that the collapse of the U.S. dollar is something to get too worked up about right now, but we all have 25% of our wealth in gold, so even if that were to occur we would be far more protected than most other investors, so it still doesn't seem like something that is worth getting worked up about.
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Re: Reason #1 to Keep Buying That Gold

Post by MediumTex » Tue Jul 09, 2013 1:51 pm

goodasgold wrote:
MediumTex wrote: Why would a politician or central banker want to go back to a gold standard?

That's something I have never understood when talking about confiscation scenarios.
Seizing the gold of us savers does not necessarily imply going back to the gold standard, it's just that desperate politicians will grab anything of value to gain a little more time. Kind of like junkies ripping the gold teeth out of their granny's mouth in order to get money for another fix.

The attitude of our "leaders" like Brown is, "Whaddya mean I'm driving us into bankruptcy! The banks still let me charge stuff on the credit card, don't they?"
Why wouldn't the government just borrow more money (from itself, if necessary)?  That's what it's been doing for about 30 years now when it wanted to spend more than it took in through taxation.
Only strength can cooperate. Weakness can only beg.
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