The Glade 4.0

http://www.scribd.com/doc/24685920/Jake ... -July-2009

Fiat currencies cannot hide their devaluation so long as gold is free.

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"...but there exists also in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level and reduces men to prefer equality in slavery to inequality with freedom." - De Tocqueville

WTB Hellfire.

Summary for those of us not inclined to slog through complicated economic and political ramifications on our vacation?

Otherwise, comment withheld until Tuesday. =P

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"Aaaah! Emotions are weird!" - Amdee
"... Mirrorshades prevent the forces of normalcy from realizing that one is crazed and possibly dangerous. They are the symbol of the sun-staring visionary, the biker, the rocker, the policeman, and similar outlaws." - Bruce Sterling, preface to Mirrorshades

This.

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It feels like all the people who want limited government really just want government limited to Republicans.
---The Daily Show

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █

Honestly, gold is the ultimate fiat currency. It only has value because people believe it does, there are virtually no practical uses for it, and its existence or mining does not help advance human society in any way. It's actually pretty disturbing how gold commands such a value despite being totally useless. I mean, the other typical "value metals," namely copper, silver, and platinum are all extremely valuable to industry. Gold is not. The article even admits it, saying there's far more aboveground reserves of gold than silver because silver is actually used to make things.

No practical uses?

Yeah, none















Is there some reason why you find it necessary to make proclaimations like this without even a cursory check to see if it's correct?

Furthermore, jewelry and other decorative purposes are perfectly practical. Just because they aren't used in some sort of production doesn't mean they are purely frivolous. Human beings aren't robots seeking a society of perfect efficiency. We have inherent appreciations for beauty and decoration, and those things have effects on our mental and even physical health.

Silver is used to make things more often because it's a lot cheaper most of the time, not because gold has no uses. That's also the reason copper is used in most wires instead of silver, even though silver has the best electrical conductivity of any metal. Copper is significantly cheaper.

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."

The utterly tiny amounts of gold needed for the non-decorative uses you listed don't justify even a tenth of its current value. Also gold has held very high value throughout history when there really were no practical uses for it at all.

Gold isn't used as a decoration simply because it's attractive looking, while this is of course subjective I would suggest there are far cheaper materials you can use to make things that are as aesthetically pleasing or more so. Gold is used to display how rich you are simply because it's rare and everyone knows it's rare, so you must be rich if you can display a lot of it. There's nothing inherently wrong with that but it has exactly the same problem as fiat currency, the value is totally artificial. People only want to display it because it's valuable, and it's valuable because people want to display it. There's nothing real there. If people's perceptions ever change the value will crash. Unlike say copper or silver which literally can't be mined fast enough anymore to meet industry demand, only a tiny minority of gold mined is actually used in industry. If the economy every truly collapses, your copper and silver will be very valuable, your gold won't because it's practically worthless.

People love to say we should use gold as a currency because its "can't be manipulated" like fiat currencies can, but this is bullshit. Just ask DeBeers how easy it is to manipulate the price of something primarily used for aesthetics. Honestly, a country backing their currency with gold is kind of scary these days. All they have to do is hire a good ad agency to create demand and suddenly they quadruple the value of their currency without doing anything.

Aside from the small amount currently avaialble and the fact that decorative uses are perfectly practical? There is no such thing as "justifying" it's current calue; it doesn't have to justify it. Its value is what it is.



Except that A) it isn't just because it's rare; it's also because it's attractive and very easy to use to make artistic works because of its malleability and other properties. B) History has never born out that gold gold is worthless in an economic collapse C) there won't be any industry to buy and use silver and copper if there is such a collapse and D) You're trivializing the amount of gold needed for such applications when in fact there isn't all that much gold available for them. Why do you think you see people advertising to buy unwanted gold jewlery?



This is a load of horseshit. Diamonds, for one thing, have industrial uses as well. For another, that's not "manipulating the market" any more than McDonalds is "manipulating the food market" by advertising cheap, rapidly served hamburgers. For a third, DeBeers controls the diamond price because it has control of such a large amount of naturally occuring diamond; I know of no one with similar control over gold deposits.

So no, it is not the same as fiat currency because Gold has inherent value and practical use, including deocrative uses, and there's no way to manipulate the actual physical amount of gold or assign it a price directly. Sure, you can try to create a "gold fad" to shoot the prive up.. but really, how are you going to create a demand for it that doesn't already exist? You're drawing a flase equivalence here.

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."

The only reason it's not "manipulating the market" is because there's no currency based on diamond. If currency were diamond-backed, it certainly would be, because the value of everything else would be based on the value of diamond. Also, industry mostly uses synthetic diamond which is far, far cheaper than natural diamond used in jewelry.



The issue here is that the value of a metal to industry depends pretty much entirely on the amount of that metal available. This isn't true for "decorative" and wealth-displaying uses of gold. If the amount of gold in the world were to be magically reduced to 1% of its current abundance, everyone could still use it just as well to display wealth, because everyone would know it's now 100 times as rare and the person displaying 1/100 as much as before is just as rich. But industry would then be unable to use it at all simply because there isn't any, and as such it would have no value to them. That's the point I'm trying to get at here. The industrial uses, which are dependent on the physical availability of gold, are only a small contributor to the gold price. The rest of the price is based on factors that really don't depend on the availability.

Next, even if you assume gold does have a high inherent value, that inherent value is only a very tiny fraction of the artificial value it would command if a currency were based upon it. If you base currency on gold, then gold has to represent the value of everything else created by your economy. That means most of the value is artificial anyway, if that economy were to collapse the value of your gold holdings would collapse from the artificially raised value to the "inherent" value, likely losing >95% of its value in the process. Is that really a huge improvement over losing 100% if you had pure fiat currency instead?

The reason the gold standard worked is because everyone used it. Everyone had an artificially-set high value for gold. So you knew that if say Germany's economy were to collapse, you could simply change your marks into gold, walk over to France and pick up francs with the same artifically-inflated value. Never would you have to actually stoop to accepting the "inherent" value. That's the point I'm trying to get at. People say we should base currency on gold because it has inherent value. But this is ridiculous, it just changes the system a little from the value of paper currency being 100% artificial to being 95% artificial. It doesn't prevent manipulation, because if a single country were to be on the gold standard, their legislature could just arbitrarily change the exchange rate of gold to paper at any time. And if multiple countries are on the gold standard, how do you guarantee that a foreign government will actually change their paper into gold if you ask them? Bretton Woods collapsed over exactly this, in 1971 everyone wanted to change their dollars into gold and the US simply said no.

I mostly agree with Diamondeye on gold, however, diamonds have only artificial value.

Manufactured diamonds are harder and better for industrial use, and less flawed--it's trivially inexpensive to create a flawless diamond of a size that would make the richest women in the world all hot and creamy, except that the De Beers cartel has managed to convince the world that an artificially created diamond is somehow "fake" and worth less. So we pay exhorbitant prices for flawed, mined versions of a gem that is easier and cheaper to create than mine, and our "artificial" versions are actually of better quality than the "real" ones. So the artificial ones look better, work better, and cost less. **** De Beers. Diamonds are nothing but a scam.

Gold? Unlike fiat currency, gold's value is real, but it is not fixed in any way. In a complete economic collapse, the bottom would fall out of it, but it wouldn't fall nearly as far or as fast. Simply put, people need to eat more than they need gold caps on their fillings or gold contacts in circuitry. Gold is useful, but its current practical value is far less than its current demand as a luxury. It would never entirely lose its value though, there will always be a demand for gold. The same cannot be said for fiat currencies.

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █

Disregarding the issue of industry, it still wouldn't be manipulating the market to make diamonds highly desireable. That's called "advertising", and the mere fact that currency is based on it doesn't change that.



No, the value of a metal to industry doesn't depend on it's availability, it depends on its usefulness. It doesn't matter what would happen if 99% of the gold magically disappeared because that isn't going to happen and even if it did, industry would start buying up what was available and it would go out of fashion. Anyone with a little gold jewelry would have an instant get-rich-quick chance to sell it.

The industrial uses aren't dependant on the physical availability of it either; they're dependant on how much gold it takes. It doesn't take a lot to fill a tooth or for most electronic applications. Gold isn't suitable in terms of its physical properties for most things that would require large mass or volume.



You're just pulling this out of thin air. Gold wasn't hugely higher in value when currency was based on it, and if your economy collapsed, gold wouldn't have reduced in value to everyone else's economy. Furthermore, even if everyone's economy collapsed at once gold would still be just as valueable relatively speaking. Finally, the gold doesn't ahve to represent the value of everything in the economy, just currency. If my cow has a calf there doesn't need to be additional gold to back the value if the new calf; it's valueable no matter what the economy is like.



Except that it's not ridiculous and it didn't work only because everone used it. Where are you getting this from? You're just making up your own idea of how things ought to be by sitting there thinking about it and none of that is actually the case.

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."

Gold is just as arbitrary as any other basis for currency, only it's less flexible than our current system. The Gold Standard can very easily shoulder the vast majority of the blame for the great Depression, and there's good reason nearly every country in the world ran as fast and as far away from a gold standard as they could during that time.

When the Spanish were bringing gold to the new world by the boat load, they were having to bury the stuff to keep inflation down.

What gold does is change the game to a much less flexible one in which hoarding becomes the goal, and not investing. It eventually focuses wealth into the fewest of hands even more than our current system does at present.

Yes, it has some industrial uses. Those uses are absolutely dwarfed by the main use of gold - pretty shiny things.

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It feels like all the people who want limited government really just want government limited to Republicans.
---The Daily Show

Do you have any clue how modern banking works? What is "hoarding". My grandmother had probably a hundred thousand dollars of physical currency in her basement in peanut butter jars we finally found after days of clearing out her house when she passed.

Nothing of what you are saying has any substance, relevance or basis in facts or reality in the slightest. How does having gold as money focus wealth into the hands of the wealthiest. If you even had one fraction of one clue of how our current centralized banking system works, you'd know that fiat currency does this better than gold ever could. With our current system, we monetize deficits and the first entities to receive the printed money are often large wallstreet entities, or big commercial banks. That means they get the benefit of using that cash before anyone else while the value of the currency has yet to adjust for the inflation and the people last to get it (working class, usually and the poor), get no benefit because they are sitting there with their static salaries and wages waiting for the cash to eventually get distributed while the cash is raising prices diminishing their wages.

It's the equivalent if we all used only gold coins, of some government people going around and taking a slice of everyone's coins and then giving them to the big commercial banks or lending institutions. Which do you think is easier or more likely to happen?

You also don't understand that "hoarding" doesn't happen. Like I pointed out, the people of my grandmother's generation (born pre-20's) are not around so much. The only time hoarding physical currency is worthwhile is in times of crisis like liquidity shortages (unlikely to happen since the Fed will just print FDIC out of its already gargantuan hole) or seizures. Even then, owning equities is ultimately the goal. Gold (if you discount its large industrial and decorative uses) is valuable insomuch as it can be used as a way to purchase the capacity to consume useful items. It doesn't matter if we traded in coconuts or TYCO RC Cars - the value of the currency itself would adjust to price things so that the inherent value of the money is accurately reflected within the market.

Lastly, in our modern day in age, the growth of gold and technology for gold mining industries is very healthy and steady. Unless someone comes up with the ability to alchemically transmute something into gold, we're not going to get major gold inflation. Pricing bubbles, perhaps, but that's indicative of the failure of fiat currency, and the usefulness of gold.

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"It's real, grew up in trife life, the times of white lines
The hype vice, murderous nighttimes and knife fights invite crimes" - Nasir Jones

We all know that if Monte really cared about people suffering he would take the time to understand how they are really being exploited.

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"...but there exists also in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level and reduces men to prefer equality in slavery to inequality with freedom." - De Tocqueville

Any industry has to be able to sell their product for a price people will pay. If gold costs too much they won't be able to sell gold-containing products profitably. However gold used for ornamental purposes is valuable simply because it's rare, if it becomes rarer people will be willing to pay more for less since they're using it to display wealth in the first place.



That's because under Bretton Woods the paper currency was not actually representative of a set amount of gold in a vault somewhere. Far more money was printed than there was gold to represent it. You could purchase gold from the Federal Reserve at the fixed price of $35/ounce, this was allowed under the assumption that only a few people would actually choose to do so. In the late 60s and early 70s the US printed a lot of money to finance the Vietnam War and because of that everyone started exchanging their dollars for gold, since there wasn't enough gold we just dropped out.

When I'm talking about using gold as currency I mean the paper currency is actually represented by a set amount of gold, namely you can't print more unless you acquire more gold to back it. One year of the USs GDP is worth more than all the gold ever mined in the history of man. There's no way you could use gold to back the dollar unless you artificially raised the price of gold.

What's really interesting is that if you asked five years ago people would say that inflation was really good for the poor and middle class, because you could "dodge" inflation by buying a house. The house was assumed to appreciate in value and even if you had to take out a mortgage to pay for it, inflation would help you pay the mortgage off. Then since you could also write the mortgage off your taxes, effectively giving you $1.40 in credit for every $1 spent on the mortgage, the interest rate would hurt you very little.

That was the American system. You get a mortgage on a small house, when you pay that off you sell it and use the profit from the house's appreciation to buy a bigger house. Then, when you retire, you sell your big house, buy a small house, and live off the rest. Today, that's out the window. Everyone has to be afraid their house will be worthless and that leaves the poor/middle class with no good options. What are you going to do instead of buy a house? Invest the down payment you would have spent on it? Unless it's a retirement account that's never going to work. Say you invest at 8%. 3% inflation turns 8% interest into 5% interest, 20% capital gains tax turns that into 4% interest, and then when you actually withdraw money to live off of you pay all your income taxes, combined with all the investing fees that's cutting your investment return down to 2-2.5%. A measly 2.5% return on an investment that is risky and could actually go down. I doubt the EV is even positive. The super-rich can invest their millions and never take them out, pay only the capital gains tax on most of it, and live off maybe 5% of their total wealth. Income tax only has to be paid on that 5% because the rest never gets taken out. Then when they die they get to distribute all their assets through a series of tax-free trusts and shelters.

Would seem to me that it would be fairly obvious that a highly useful commodity, while usually valuable, make a lousy currency, unless you are in a pure barter system.

If "people" and "the American system" both refer to people who can't understand complex mathematics and believe everything they're told, then yes. I knew it was a bad idea even back then. A house is not an investment.

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“The duty of a patriot is to protect his country from its government.” - Thomas Paine

If it costs too much to be used for important industrial purposes then it costs too much to be used for just displaying wealth too, and people will find something else to use. In any case, 99% of the gold on earth isn't going to mysteriously vanish any time soon, so I don't see why you're pursuing this nonsense.



So you're bringing up an example that has nothing to do with either what I said or with actual gold-backed currency... why exactly?



Or you could use more than one substance to back it. In any case, if you suddenly start backing your currency with a certain amount of gold that you actually posess, you haven't artifically raised its value to the value of the currency in circulation; you've actually raised it to that value in terms of the unit of measurement (dollars, euros, punds, yen, whatever). All currency measurements are arbitrary in the first place. They aren't like mass where there's an observable quantity we can use to establish value.

That's what you're not getting. Even though there's a certain amount of arbitrary assignment in gold or silver or whatever-backed currency, you're tying that value to something that does have an observable quantity to it - the mass/weight of gold available. You're reducing greatly the amount of subjectivity in it. Yes, you can change the ratio of gold to currency, but if you play too many games with that people will lose confidence that you're really backing the currency and then you may as well have fiat currency to begin with.

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."

I'm trying to point out that most of gold's value is not from industrial demand. This is why gold is attractive as a currency backing - its value doesn't change much. If gold were actually highly useful to industry like copper or silver its value would vary widely based on demand. Look at copper for example. 10 years ago it was 60 cents a pound. Now it's $3.50.



Yes, but that's not the point. While I can see that currency doesn't have to represent all the wealth of the economy, the intrinsic value of all the wealth that is represented by the printed currency is almost surely far more valuable than the intrinsic value of the gold you have, so to use the gold to represent that wealth, you have to artificially raise the price of it.



This was my whole point to begin with, that gold-backed currency is just as easy to arbitrarily manipulate as fiat currency, and therefore it's a huge waste of time. Of course there are nasty consequences if you do it. There's nasty consequences to manipulating fiat currency too.

Yes, in fact I do.




Inflation drives investment. When you have a currency base like gold, you encourage people to *not* invest, because the value of their currency is going to rise. Therefore, it makes more sense to simply sit on it, and collect more and more of it. When you have a a currency more subject to inflation, you then encourage people to go invest it in order to make a profit, and continue to profit. This is basic economics, Raf. You should know this.




It's pretty simple, actually. Gold is a limited resource. When you set Gold as the currency base, you turn wealth into a zero sum game. Those with money will acquire more and more of the currency base and simply sit on it. The less there is, the more it's worth. The wealthy get more and more wealthy, and those without continually bleed the means by which to generate wealth for themselves.




Irony is my favorite form of humor. Set aside your narrow libertarian economic theory and look at reality for a moment. Fiat currency is significantly more flexible as a system of currency, and since instituting that system, the poor and middle class have outperformed the same classes that labored under a gold standard in the past.



Oh, I don't disagree that our system has slowly been eroded by undue corporate interest in government. Those systems ought to be much more heavily regulated so they don't syphon off the public for their own profit. Glad we agree on something.



Which goes to prove my point, Raf - gold is no more or less arbitrary than any other system we could use. Coconuts, beads, or simple fiat. It's the same damn thing, only, when you tie currency to a limited resource you significantly reduce the flexibility of your economic system to handle crisis.



It's still a **** basis for a currency, however. Oil would be more rational, and would still screw us up when it comes to flexibility in the face of economic crisis.

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It feels like all the people who want limited government really just want government limited to Republicans.
---The Daily Show

Xeq, if your argument is purely industrial demand, then what about silver, palladium, titanium, and platinum?

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"...but there exists also in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level and reduces men to prefer equality in slavery to inequality with freedom." - De Tocqueville

I don't follow the logic of this statement, so I'm going to assume I am missing something. How does using gold as the value of currency (either directly or through gold backed paper currency) cause people to abandon the desire to accumulate more and "sit" on their wealth?

And I don't follow your argument for inflation, as it seems circular, but then I don't have a good grasp of economic systems. Inflation doesn't inspire investment... increase in personal wealth inspires investment. Inflation I would think would force more people to invest in commodities with a fixed value, taking that out of circulation (hence the spike in gold prices). Investing during inflation is merely an attempt to stave off loss of wealth due to decreased purchasing power, which with our taxes, is difficult. Because a persons efforts to essentially maintain a static level of purchasing power is considered by our government as "income", you have to at least get a return on any investment that matches the current inflation rate (not the cherry picked statistic presented by Washington) and the tax rate combined.



I can't tell if this is an acceptance by you after all these years that wealth is not a zero sum game, or change in your opinion about the current US economy.



What do you mean by "outperformed"? Buying power? Wages? I don't have a clear understanding of how you came to that conclusion, nor how any changes can be linked to the removal of the gold standard.


I believe the argument, though Raf can correct me, is that the intentional adjustments by the Fed in regulating our fiat currency is what created the crisis (among other things).


Oil, as I alluded to earlier, would make a horrible and significantly less rational basis for money.

The price of gold has risen consistently for some time now, and in any case, the fact is that you asserted initially that gold has "no practical use". I pointed out that it has many, and those decorative uses you dismiss are, in fact, practical. I don't see why you're trying to demonstrate that the majority of the value of gold is not due to industrail demand; I haven't argued that it is. I've taken issue with your assertion that it has no practical value, which is not true.



Except that you're not artificially raising the price of it. There is no unit of "wealth"; you could just reduce the amount of currency in circulation as well, and thereby not raise the price of the gold. Sure, you'd reduce liquidity, but as prices adjusted to match the lesser amount of currency you'd still have the same amount of wealth, since eliminating currency in no way affects the existence of goods, land, etc. All you're doing is quibbling over the ratio of currency to gold and therefore to other goods.



Except that you're wrong: It is not just as easy to manipulate as fiat currency, and you haven't espoused this "or there are nasty consequences to doing so" line until just now, thereby moving the goalposts. Yes, both have nasty consequences, but gold-backed currency cannot be manipultaed nearly as easily as fiat because it is pretty damn obvious to everyone when you do so. When you reduce the gold to currency ratio you're clearly and overtly devaluing it even to the casual observer. This is not true of "deficit spending" and other such charades because there really is nothing to compare the value of the currency to except its past state and other currencies which are equally arbitrary. There is therefore a greater disincentive to manipulate backed currency because negative responses can be far more immediate.

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."