This is Why NO $50 Silver

Where in the Coinage Act of 1792 does it declare gold as sovereign currency? I have read it many times and do not remember that passage. I read where they will accept gold or silver and coin it INTO currency, but not that gold IS currency.

Regarding gold as jewelry, look at any dig sites on ancient humans and you will see gold jewelry. "Money" as not created until the Lydians, having standard weight and purity and a mark of value. before that every transaction was barter. They would accept any commodity in exchange for another commodity after a agreement was made regarding conversion ratios. So lets see, ancient Egyptians circa 3100 BC, other human burial sites even earlier, and all of the gold was jewelry and finery. That predates coinage by 2500 years, and that is without even trying Fatima.

Edit: If you really want me to Fatima I will find some even older records of gold jewelry, but I am suspecting you will argue my premise anyway so why should I bother. If you accept the full definition of "money" was not met until the Lydians, I will go throught he work of finding you gold jewelry from humans even older than the ancient Egyptians. Gold was one of the first metals humans could extract, so was used early on for ornamentation.

 

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Passant, I'm going to assume that you have a basic understanding of economics and world trade modeling.

If we remove fiat currencies (all of them, not just the US) and remove the ability of the central bank to regulate prices, we don't get rid of inflation. We merely get smaller and smaller units. It's absolute lunacy to mandate that all governments peg their currency to the amount of gold in their vaults. Why? Because not all governments hold equivalent amounts of gold. The US government's largest asset is LAND. The USD is backed by the full faith and confidence of the United States of America. With confidence in our country at a low, obviously, the dollar weakened.

So, back to the point of using gold as money. If gold were used as money, and individuals refused to accept fiat currency as change, commerce would come to a grinding halt or we'd become a cashless society. Why? Well, have you ever actually tried to pay for something through PM barter? It's a time-consuming process. Also, it's an unfair process. At the retail level, perhaps even impossible.

Here's what would need to be done to use PMs as money in commerce:

1) Every register would need an assay device of some sort. Every cashier would need to be trained in how to identify (correctly, accurately and with a measure of speed/proficiency) PMs based upon appearance, size, weight, etc.
2) Every register would need CHANGE for any redeemed amount of bullion. Since silver costs between $8-$14 per ounce to extract, we'd need to carry around multiple types of PMs to properly pay for things.
3) We'd need to standardize the measures and coinage.
4) We'd need to peg all PMs to one another.
5) Countries with proven (and to an extent, unproven) reserves would become world powers overnight.

Now, this would be the backlash:

1) Premiums would be paid/charged by banks and stores for the smallest units of acceptable currency. This already happens now (with 1/10 oz plat/gold selling for 25-70% above spot), but it would get further exacerbated by demand.
2) It would be made illegal to hold anything but officially sanctioned currency.
2a) International commerce would stop until a global unified currency could be established.
3) The United States (let's say NAFTA), the EU and China would go into war mode over imperializing the world's natural resources. If you say how is it different than today, the answer is simple: We'd be able to keep the land (and resources contained therein) of countries that we despose.

Assuming you meant merely having a "gold standard" of paper currency, that would create unnecessary disruptions, as well as legal issues. If the world returned to "gold standard" currency, these would be the results:

1) Debt would be removed. Orders and contracts could not be placed more than net 30, and all bills would be balance due in full. Why? Because credit bureaus would fold. The entire credit industry is premised upon the idea of future earning power. Not just of individuals, but of businesses, as well.
2) Estimates place the total gold above ground at around 10B ounces. In 2005, the total of all world assets (assumedly inclusive of PMs) was $140T. To simplify math, I'll assume that number doesn't include PMs and that everything is relatively current. If we assume gold to represent 10% of all "wealth" in our pegged global currency, that puts gold at $14,000 per ounce. If we assume gold to represent 1% of all "wealth," we get $1400, which is closer to the current spot price. Under a pure gold standard, gold would represent 100% of the world's wealth, which would place gold at $140,000 per ounce. Since no government would want to pay those prices, they would simply, in a swift act of tyranny, make it illegal with some extreme penalty (say 5 years and $500,000 for every ounce held) to possess gold.
3) We'd see more extreme price shocks. A loaf of bread today costs approximately one grain of gold. Upon institution of a global "fix" to PMs, we could see weekly swings (in both directions) of the price of bread, depending upon how silver was valued at the time. This was witnessed in the 1800s during the gold rush when folks could buy gold, exchange it at the Federal Reserve bank (or whatever the branches were called back then) for a higher face amount in silver, then buy more gold to change for silver.
4) Technological developments would slow. It makes no sense for high industry to pour billions of dollars into researching efficiency if the payoff is improved marketshare of 2% at current dollar values. The best products would only be available to the extremely wealthy, period.
4a) Technology would suffer. We already see replacement metals being used for PMs in circuitry (gold-plated leads and connector tips would be made "obsolete" as marginally less efficient replacement metals get used in technology).
5) Utilities prices would skyrocket. Because gold is a commodity, it's use as a standard for currency would cause all other commodities to also rise in price. Gasoline would go from $4/gal (US pricing) to $40/gal on the day the dollar got revalued to the gold standard.

Removing fiat currency and implementing a global gold standard doesn't stop hyper-inflation, it creates systematic failure and hyper-deflation. The (real, legal) threat of returning to a gold standard would cause a run on banks as citizens would have no reason to have bank accounts.

While it's fun to talk about getting rid of fiat money on a global scale in theory, it's unrealistic and asinine.

As an end note:

To the person who mentioned interest rates being too low to save... that's almost true. The United States citizenry weren't net savers prior to the drop in interest rates. The idea behind dropping rates was to encourage the flow of money within the economy. So, yes, low rates = more spending, less saving, but the US was never really saving to begin with... so the artificially low rates merely created additional debt. This affects interest rates on credit cards, as well. With the US keeping rates low, lenders take on more risk (as actuarial models indicate more consumers are able to pay off lower rate balances within the time observed). I don't mind credit card companies being able to charge whatever they want based upon risk assessment. The issue is how long they're allowed to charge it. The government should work on instituting a mandated ratchet DOWN of credit card rates once individuals in default are able to pull themselves out. Then again, that's just me. I own no shares in any credit card companies (my last major CC holding was AMEX), so I don't benefit from their artificial profits.

 

I think the point you are missing is that gold and silver are not money at the present time. You can easily google the characteristics of money and prove it to yourself if you have intellectual honest. They WERE money, and no doubt COULD BE money again, but they aren't now. That's just the way. They are still investment assets that are currently in a bull market, but money? No.

 

You're not wrong, just very late. This has already happened. Petrodollar hegemony ended circa 2001-2003. That's what the Iraq war and "war on terror" was about -- it failed. That's why we've had a 10 year bull market in precious metals. You can see it clearly in the following 100 year chart:

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The period from about 1980 - 2003 is the time during which the U.S. Dollar was de-facto backed by oil by way of our supporting military dictatorships in the Middle East in exchange for their denominating all oil transactions in dollars. The reason we went to war in 2003 is because Saddam had indicated his intention to switch oil sales to Euros, which had just begun circulating in 2002. The result of the war was the end of virtually all Iraqi oil sales entirely, which cut off the Dollar backing in that case. In the meantime, most other oil exporters began denominating in multiple currencies, including the Euro, Renminbi, and Yen. This means that central banks no longer needed to keep large reserves of Dollars in order to import oil anymore, and so most have been slowly dishoarding their Dollar holdings for a greater balance of reserves, most notably increasing their holdings of euros. They also stopped dumping gold and in many cases have started buying gold again.

 

In case you are interested, silicon's historical use has been glass, not as semiconductors. I can show you 5,000 years of history of glass long before there was semiconductors, but I am sure that would not interest you, because "silicon is glass".

Based on your reasoning, silicon is not the best substance we know of to use for semiconductors. Since it is, your reasoning is obviously flawed. When semiconductors were invented, it was found that silicon was the best substance. When money was invented, it was found that gold was the best substance. Being money is an inherent property of gold just like being a semiconductor is an inherent property of silicon. That's not to say that you can't make jewelry out of gold or glass out of silicon, as certainly those things are demanded as well, but that does not diminish their properties of being money and a semiconductor, respectively.

Now paper, on the other hand, is NOT inherently money. Paper is only tortured into money through the force of law. But economic law always eventually wins out over fiat law, and as such, fiat money is evanescent. It soon boils away through monetization, as born out by every historical example.

 

Silicon is a very common element in combination with oxygen as silica. Silica is what the main matrix of glass if made of, not silicon. Silicon is very rare in it's elemental metalloid form, mainly being synthetically crystallize to make the pure silicon and doped silicon need for semiconductors. Until the invention of silicon production methods, modern semiconductors were not possible.

 

Getting "smaller and smaller units" of currency for the same goods in exchange is the very definition of deflation (i.e. appreciation of the currency).

I have not suggested "mandating" anything, certainly not an international fiat money standard. Precious metals are money in a free market -- free meaning without mandates.

That's preposterous. Precious metals and/or warehouse receipts backed thereby ARE cash. There's nothing particularly time-consuming or unfair about it. In fact, without having to worry about inflation, and all that entails, it will be LESS time-consuming using honest money rather than fiat.

We do this already. We have official mints that produce acceptable specie that is printed or stamped with the official weight or value contained therein. We use special devices to prevent counterfeit. How would this need to be any different for precious metals? In fact, with PMs, you can be assured that your government isn't counterfeiting too!

We do this already. Cash registers are built with multiple trays containing different denominations of money in order to make change.

A troy ounce is recognized the world over as a weight unit for precious metals. All major national mints produce bullion coins in both fractions and multiples of a troy ounce. No new standards need to be developed.

No we don't. It's called free competition. Different PMs can have floating exchange rates. Gold is the most stable, which is why it's the best form of money. But if people want to use silver, they are certainly free to do so, but may be subject to slightly more variability in value as a result of industrial consumption. The only issue precious metals have ever encountered as money is when governments artificially try to peg one to another. It shouldn't be done.

Not really. There's not enough recoverable gold anywhere in the world to significantly change the dynamics of the market since all the gold ever mined is still in existence. Whatever power structure exists will most likely remain relatively unchanged. It's not like you can just tap a gold well and have it gush out of the ground like oil. In fact, you can't even do that with oil anymore.

You mean as opposed to charging people $1 for a piece of paper "worth" a fraction of a cent? Spot price is NOT the value of PM currency, it is the value of 1000-oz bars. Being minted into a coin, stamped, and assayed is a value-added process. Likewise, storing bullion bars in a vault and issuing "warehouse receipts" against them is also a value-added process. Therefore, the trading price of PM currency will always be a "premium" to the spot price of a bar the same metal.

How do you figure?

Um, no.

War is far more expensive than any gold you could hope to mine from the land you conquer. The highest marginal use of a population is not as a conquering army, but as a free market economy engaged in producing goods and services.

Excessive debt and credit would indeed be bled out of the system. That is a good thing. But having honest money does not negate the existence of credit entirely. Losses are simply realized instead of monetized. This is good, as it prevents the cycle of bubbles and crashes. Also, since saving is encouraged by honest money, the capital base will expand significantly, making resources available for economic growth and for tempering any downturns.

What difference does it make what fiat paper value you assign to gold? The fiat value is meaningless. Fiat money is collapsing under its own weight. Quadrillions of dollars of derivatives must be unwound. $140,000 is a reasonable (and probably too low) exchange rate. When hyperinflation gets underway, probably $140 quadrillion would be more reasonable still. I don't see how this has any bearing on government confiscation. Governments confiscate the wealth of their citizens all the time. Ours is doing it right now through fiat money inflation.

I already dispelled the "need" to peg one PM to another.

Not true. Technological progress would hasten under honest currency because the benefits would be fully realized by those who produce them instead of the central bank stealing half of it. The principle problem of fiat money is the theft of productivity improvements, throwing employment and pricing out of whack. Go back to the equation.

All commodities are put to their best marginal use. To the extent that gold, silver, palladium, platinum, etc., are useful for industrial applications, they will be used there. Technology will not suffer. The amounts in most any electronics application are too small to be influenced by the money value of those metals.

Again, what difference does the fiat exchange rate make? Gasoline as priced in gold has not changed much in 100 years. See my previously posted chart. They rise and fall together because it is the fiat money which is volatile and being devalued. Gold and silver buy approximately the same amount of commodities as they have throughout history. ALL prices will be very stable under honest money.

Yes, it does. You cannot print gold. There is no such thing as hyperinflation under an honest currency. There is no such thing as hyper-deflation in any case. Certainly the banking industry would be radically changed if they were forced to be honest, that's for sure.

Actually it is perfectly reasonable and natural and must be done and in fact WILL be done as a consequence of global hyperinflation coming down the pike.

Prior to fiat money, yes people did save much more. That was a good thing. Having excessive debt and no savings is what has destroyed our economy. Interest rates are the price of money. Artificially setting interest rates is price fixing. This has never worked and has always caused massive problems.

 

I would find a way to make it fit!

 

Ok, then iron is very rare too because it's found as hematite, magnetite, pyrite, and other compounds. Gold is likewise these days often found as various telluride compounds. This is completely beside the point. Silicon and gold are elements. I was comparing the natural properties of these, not discussing how to extract them from the Earth.

 

Totally incongruous response.

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Then in my opinion, your perceived concept of always being correct is still intact in your mind.

Jim

 

Hey, Hey!! Be respectful or I'll shut this thread down! ...(j/k)

 

You are pretty good at that, maybe next time we add mods, I will mention your name

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Some thoughts about $50 silver. Although I am an infrequent poster, I enjoy reading the posts. The overall quality is high and I learn something with every visit. The dialogues are also polite and civil, values that are important to me.

Thought#1: We are closer to $50 silver than we were a week ago. Note to Yakpoo, there is still time to re-name this thread
This is WHY $50 Silver

Thought#2: From my seat at an investment firm, posters here are correct when they state that the inclusion of precious metals in a diversified portfolio have barely entered the consciousness of most investors. This is more so the case with most financial advisors who theoretically guide clients. Most of them are still stuck in the stocks and bonds mindset. As many have noted on this forum, the real contagion for precious metals will begin when the "crowd" discovers what many posters already know (and own) here.

Thought#3: My initial investment in gold began in 2004, based on the theory that it would provide insurance for my portfolio in times of uncertainty. I continued to add to this position until 2008. Every year since then, I have re-examined the PM portion of my portfolio with the "uncertainty index" uppermost in my mind. At this time, I am still holding.

Thought#4: I inherited a collection of mostly silver (ASE's, silver rounds, melt value silver and numismatic value silver) in late 2008. I have spent a fair amount of time cataloging and properly storing this collection. I know that the person I inherited this from would be absolutely thrilled to see where the price of silver is now. Even if the price of silver goes through the roof, I may find it difficult to sell the melt value coins simply due to the "sentimental value" aspect. This collection is also the reason I became a member of Coin Talk, an experience that continues to hold value for me.

Thought#5: The U.S. has a "gold mine" in it's ability to produce food for domestic consumption and export. This is also an inflation hedge. I don't think we'll need any more "Farm Aid" concerts for awhile.

Thought#6: Asia will continue to have a healthy appetite for gold and increasingly silver. Since inflation is already a real challenge in many emerging economies, buying will be consistent. There is as well, a long tradition over many centuries of using PM's to protect purchasing power.

Last Thought: As many posters have noted, use PM's wisely as a percentage of your investments. Avoid extremes. I do not subscribe to the survivalist mentality of fear and "end of times" scenarios.

 

You should say Why NO $1750 gold. Almost $41 silver!!!!!!!

 

Yes, that is precisely what I thought regarding your blathering about silica.

I have no illusion of "always" being correct, only insofar as I've made a reasonable proposition and nobody has countered it with a logical, empirical argument. This has always guided me to appropriate analysis and very good decisions.

I fail to understand the emotional attachment to fiat currency (and Keynesian hatred of precious metals) that is consistently displayed in this forum considering the massive debasement that has occurred even within our lifetimes let alone since the founding of the Fed. There seems to be a glaring lack of historical perspective.

 

My personal benchmark for when the public gets involved is when a precious metals fund is made available in my TIAA-CREF 403b account. For years I have requested it and always been told that a TIPS fund is sufficient for inflation protection. When they finally do add a PM fund, that will be the beginning of the mania, not the top.

 

Are you serious? TIAA-CREF doesn't even have a mid-cap fund.

BTW, silver @$40 = 35:1 ratio... silver is currently over-valued.

 

Uh, yes, they do. The only thing they don't have is precious metals or commodities.

Are you talking the gold:silver ratio? The natural ratio is around 16-19:1, so it's still undervalued relative to gold. And gold is undervalued relative to the adjusted monetary base and national debt.

You're just angry because you lost a ton of money shorting silver. Should have taken my advice before.

 

Well Congress avoided a government shutdown by compromising on $39 billion in cuts. Seriously? Out of a $1,650 billion deficit, that's the best you could do? Way to stand your ground Republicans! Our currency is doomed. There's no way we avoid hyperinflation at this rate.

 

I never went naked "short" silver. I was net long.

Also, $39B isn't bad, given $1T of the budget deficit is purely Obama. Once he's out of office, that $1T goes, too.