50th anniversary of the end of gold

Discussion in 'Ancient Coins' started by Tejas, Aug 15, 2021.

  1. Tejas

    Tejas Well-Known Member

    Agreed, the attempt to return to the gold standard at pre WWI valuations was a catastrophic decision, which let to depression and deflation. If a gold standard were to be created in future, it would have to be at new valuations that covers large parts or all of the now existing money supply. To achieve that, central banks would need to set a new gold price at somewhere north of 50'000 USD per ounce, by promising to buy any supply below that price. The gold price would jump immediately to the new valuation and the gold standard would be restablished without need for deflation or depression. So it is possible, but highly unlikely.
     
    Last edited: Aug 16, 2021
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  3. Tejas

    Tejas Well-Known Member

    Some 80% of all global government bonds yield negative nominal interest. US 12-month treasury bills yield around 0%, i.e. a real yield (- inflation) of around -5% per annum.
    In AAA-countries (i.e. countries with the highest credit rating), like Germany and Switzerland, all bonds out to 30 or 50 years yield negative nominal interest.
     
  4. Tejas

    Tejas Well-Known Member

    True, gold supply grows at a stable rate of around 2% per year. If your economy is growing faster than this, prices will fall, i.e. the purchasing power of money will rise over time, rewarding thrifty savers and punishing prodigal borrowers and putting very high demands on any investment project.

    Unfortunately, politicians of all eras wished to wage wars (the prime reason for going off the gold standard) or finance huge social and industrial projects, often involving the catastrophic overuse of the environmental resources. Gold is like a natural brake on the folly of men, but men has of course always found ways to loosen that brake.
     
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  5. Tejas

    Tejas Well-Known Member

    Yes, this measure would have been impossible, but it would also have been unnecessary, because neither the Asian crisis of the 1990s, the tech bubble of 2000, the great financial crisis of 2007/2008 or the euro debt crisis of 2010/11 would have been possible under a gold standard.
     
  6. Al Kowsky

    Al Kowsky Well-Known Member

    svessien, That's a wonderful group of solidi :happy:! Did you acquire these coins by auction, from dealers, or private treaty o_O?
    The Pre-Columbian zoomorphic pendant you posted is a fascinating artifact :D. It reminds me of a book I read in 1970, Chariots of the Gods, by Erich Von Daniken. Von Daniken postulated that many famous ancient monuments like the pyramids of Egypt, Meso-America, & the stone sculptures of Easter Island were made by extraterrestrial beings who visited our planet :rolleyes:. The book was a popular best seller that was later made into a movie. Of course most of Von Daniken's ideas were debunked & he was later charged with plagiarizing many of the ideas in his book :(.
     
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  7. Al Kowsky

    Al Kowsky Well-Known Member

    David, I'm sure your hypothesis is accurate, & one goal the powers pushing this change have in mind is the elimination of the underground economy, so all transactions can be monitored for legality & taxed when necessary :smuggrin:. Personally I don't think the underground economy will ever be eliminated as long as people have negotiable commodities to work with :p.
     
  8. svessien

    svessien Senior Member

    Thanks Al!
    They were all bought at various auctions. I have been doing a make-over of my collection the last 2 years, selling a lot of modern coins and some ancients. Those funds went straight back into the collection. It’s really nice to have some more solidii in it now.
    Believe it or not; one of the cuprio-nickel 20th century coins that I bought 20 years ago for 35$ sold for 500$, funding the purchase of a solidus. The post-covid collectors market really has gone wild.
     
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  9. Tejas

    Tejas Well-Known Member

    Assuming that you are a US citizen, had you attempted to buy gold in 1971 the state would have treated you like a common criminal. The possession of gold (bullion bar or coins) was illegal in the US until 1974.
     
  10. Tejas

    Tejas Well-Known Member

    Payments in cryptoassets (Bitcoin etc.) on DLT are not traceable to a person. In any case, if and when cryptoassets become a challange to state money, the state will outlaw them, under the pretext that they are used to fund criminal activity. China has done that already.

    States may allow some private "stablecoins" to operate, which are based on state money. More importantly, central banks will issue central bank digital currency (CBDC) to citizens in some countries and to banks in most countries. CBDC will increasingly replace physical cash, as it is convenient and safer than commercial bank deposits.

    Their downside: they don't allow for anonymous payments and the state can (and will) charge any amount of negative interest on them. CBDC removes the zero-lower bound that physical bank notes provide. Dostoyevskiy's famous words that "Money (he meant gold coins) is minted freedom", will no longer be true.
     
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  11. dltsrq

    dltsrq Grumpy Old Man

    Gold also takes wild swings.
    $42/ozt in September 1971
    $850/ozt in January 1980
    $251/ozt in August 1999
    $730/ozt in May 2006
    $543/ozt in June 2006
    $1,275/ozt in September 2010
    $1,900/ozt in September 2011
    $1,550/ozt in December 2011
    $1,082/ozt in January 2016
    $2,063/ozt in August 2020
    $1,780/ozt today
     
    Last edited: Aug 16, 2021
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  12. Tejas

    Tejas Well-Known Member

    True, that is what you get if you express the value of gold in terms of dollars. This way, it is is impossible to say what has taken the "wild swings", gold or the dollar.

    There are two ways to fix this:

    1. Express the value of gold in terms of "real", i.e. inflation adjusted, dollars. This will yield a much "smoother" series, with the gold price peaking in about 1980. However, it will show the substantial decline in the value (ie. the purchasing power) of the dollar over 50 year. There is no getting away from that.

    2. Express the value of gold in terms of a real asset like another commodity or houses. I.e. to ask how many ounces of gold does it take to buy a barrel of oil, a house or a ton of copper. Again, you will find that the real value, i.e. the purchasing power of gold was a lot more stable compared to gold expressed in dollar terms.

    Another point to make is this. With the abandoning of the gold standard gold was de-monitized, i.e. no longer used in payments. Instead, gold assumed a role as insurance against severe crises. This has made the value of gold more volatile, because in every crisis investors rush to gold which drives up prices. Conversely long periods of de-monitization, when central banks sold their gold reserves put downward pressure on the gold price. If gold is used in the monetary system to back a currency, its value will be automatically stabilised.
     
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  13. EWC3

    EWC3 (mood: stubborn)

    Thanks for raising an important matter (at last!). On my general positions - it seems likely to me that if we went back onto gold there would be a financial catastrophe immediately. If we stay with fiat there will very probably be an equivalent financial catastrophe fairly soon. What to do? Enjoy it while you can would be most people’s reaction, and suppose is mine too.

    But its curious to look at how people’s historical understandings of this matter are so much in flux. Back when I was a nipper, top UK academics all believed that there was a seigniorage on ancient and medieval precious metal coinage, most top US academics held that there was not. Its taken me about 45 years to figure out why they differed.

    I judge it was because the British delegation at Bretton Woods, 1944, were for ending the gold standard, but the US side were not.

    What took me 45 years was to come to terms with is the enormous extent to which top academics pander to the interests of their political paymasters. While near everyone else panders in turn to top academics. Its a strange world.

    Rob T
     
  14. Tejas

    Tejas Well-Known Member

    I agree, there is no smooth path to a gold standard. The only situation in which a return to a gold could possibly be contemplated is a US dollar crisis. Since 2007 the Fed has increased the US dollar supply from around 900 billion to over 8 trillion at present to fight off economic crisis and stabilize the financial markets. To back the 8 trillion the Fed has taken assets (bonds) of the same value on its balance sheet.
    If these assets would lose value, for example as a result of a sharp rise in yields (high yields mean low bond prices), people could loose trust in the dollar and try to convert their dollar holdings into other assets. In this situation gold could play a role in reestablishing trust in the currency. However, I don't think this is likely to happen.
     
  15. EWC3

    EWC3 (mood: stubborn)

    I assume the US situation is similar to the UK (QE etc). Except of course that the very clever Gordon Brown sold all “our” UK gold – (not that we had much).

    I watched Mark Carney (ex BofE) on TV lecturing over Christmas, and judge the most important question he was asked was by the MP Steve Baker (who might be your sort of guy?). It was about whether QE was destroying the understanding of economic reality itself within the general population. Obvious to me that the answer is to a significant extent - yes – though of course Carney ducked it.

    So I guess the fear for me concerns the maintenance of a stable democracy – with the risk that the population votes for jam today, and the currency as a whole collapses into an inflationary black hole.
     
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  16. EWC3

    EWC3 (mood: stubborn)

    I am certainly no expert – but that is not my understanding of QE. My understanding is that the bonds are not being in the main being bought by “people” at all, central banks are essentially buying them from themselves.

    Back on Yahoo groups – I discussed the situation with Richard Werner – reputedly the guy who invented the term QE

    https://www.bbc.co.uk/news/business-24614016

    Like Baker his fears were more for democracy itself. QE started in Japan and Werner’s analysis was that the Japanese central bank had become a secretive state within a state. I can probably dig out his papers on this if anyone wants to check. This seem to tally with what is happening in the UK. The Bank of England is now “independent” which if true means it is operated by “experts” under no democratic control. And the chief economist at the bank, Haldane, has already floated the idea of abolishing paper cash so that all currency is digital. Specifically so that BofE can directly apply a negative interest rate to it.

    That looks to me a lot like taxation without representation – which I would hope might ring a few bells in the US (or just one big one?)

    Anyhow – all that a bit of a digression – as the main thrust of my first mail concerned the way top history professors seem to re-writing economic history to meet contemporary economic fashions. Has anyone read eg Miskimin on seigniorage?

    Rob T
     
  17. EWC3

    EWC3 (mood: stubborn)

    No support? No criticism? Am I maybe the only person here who understands the operation of the economy these days?

    Anyhow - since I just typed up a footnote relevant to this thread, its easy enough to paste it here:

    Miskimin, prominent in the period when the USA maintained a gold standard, suggested that in 14th century France, prices and bullion content of coin were “precisely” aligned, and that "sophisticated" members of the public were “not fooled” by government manipulations of seigniorage. (Harry Miskimin, "Agenda for Early Modern Economic History." The Journal of Economic History 31, 1971 pp 172-83).

    Thirty years later, the gold standard was gone, fiat is the fashion, and now Sargent judged that John Locke was not “sophisticated” but rather an “embarrassment” and an “idiot” for promoting exactly the same philosophy. (Sargent & Velde, The Big Problem of Small Change, Princeton, 2003 p. 287 ff).

    Watching historical judgment turned on its head to match contemporary political ideology within my own lifetime has left me with diminished respect for these sort of people (Yale professors, Nobel Laureate economists and such like)

    People led to form their judgements solely by watching TV documentaries on "looted" coins should probably take note of this, and wonder who might be trying to lead them by the nose, and why.

    Rob T
     
    Last edited: Aug 29, 2021
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  18. David Atherton

    David Atherton Flavian Fanatic

    troll.JPG

    ... or did I miss something?
     
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  19. panzerman

    panzerman Well-Known Member

    Great posts!

    I just came upon it tonight/ been working lots of hours in past five months:) Look what happened with inflation, when Countries abandoned backing their currencies with gold.

    Here are some of mine....

    AV Aureus ND Ticinum Mint/ Constantius I Chlorus 305/6AD Rome
    AV 8 Escudos 1751-So Santiago Mint/ Fernando VI/ Chile
    AV 10 Zecchini 1786 Bologna Mint/ Papal States/ Pope Pius VI
    AV Principat ND (1506) Valencia Mint/ Fernando II of Aragon
    AV Dukat 1677 K-B Kremnitz Mint/ Hungary/ HRE Leopold I IMG_0072.JPG IMG_0073.JPG IMG_0074.JPG IMG_0075.JPG IMG_0077.JPG IMG_0078.JPG IMG_0080.JPG IMG_0081.JPG IMG_0083.JPG IMG_0082.JPG
     
  20. -jeffB

    -jeffB Greshams LEO Supporter

    Are... are you seriously proposing that the dollar more than tripled in value between January 1980 and August 1999? Or that it almost doubled between September 2011 and January 2016?

    Gold is a commodity with particular political, monetary and (to many posters here) religious significance. Its value fluctuates, as do the values of all other commodities, and the currencies we use to buy and sell them.
     
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  21. EWC3

    EWC3 (mood: stubborn)

    I would say so. Seems to me you missed the fact I posted that about 6 months ago – and this group being surely fluid – I thought to drop by and see if things had improved. On the current showing the answer will likely be no.

    I note Valentinian likes this - and as I recall - he is the only guy here I ever found an important measure of agreement with. I only half agree this Jeff.

    The so called “commodity” value of gold is surely in large part a function of its monetary significance. A lot of the reason people hold gold is surely to do with it being a store of value independent of government.

    As I recall back in the 1970’s the Indian gvt tried to undermine the value of gold by starting to sell 16 tons of gold onto the market - at a ton a day. Bullion dealers made a joke of it – from the get go the gold price went up every day. Gvt got cold feet a few days in. Similar thing happened with Gordon Brown – he wanted to be an intellectual world leader in a push to get gold out of the financial equation altogether, and sold all the UK’s stocks. Only made himself a laughing stock.

    So – I think its misleading to stress “commodity”. I think gold is still to an important extent a kind of traditional money form – a safe haven from gvt manipulation of the money supply. As it always was (though actually – to a less degree than silver most times pre 1870)

    Seems to me QE added a whole new dimension to this debate, and really - I am still amazed no one commented substantively at all on that

    Rob T
     
    Last edited: Aug 30, 2021
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