demagogic_schizoid
15 Apr 2007, 04:37 PM
from another forum I post on. inspired in part by wiki. these are just some initial thoughts I had, they could be wrong, or at the very least speculative and incoplete. But I'd like some feedback from anyone who knows about these questions.
WASHINGTON (Reuters) - Chancellor of the Exchequer Gordon Brown defended on Saturday his decision to sell a part of Britain's gold reserves in 1999 following a report that he did not take proper advice on the sale.
"Gold sales are a decision for the government. They were a decision that I made as chancellor of the exchequer in the right and proper way," Brown told a news conference at the International Monetary Fund/World Bank meetings in Washington.
Many countries at the time were doing exactly what Britain was doing, "diversifying our portfolio and reducing the risks. Actually, at the time, the governor of the Bank of England Eddie George said to the Treasury Select Committee that the decision to sell gold was a perfectly reasonable portfolio decision," Brown said.
A report in the Sunday Times citing "insiders" said some Bank of England officials had opposed the 1999 sale at the time.
It follows a political storm late last month over documents showing Treasury officials had warned Brown of possible risks to the pensions system from tax changes he made a decade ago that cast a shadow over the finance minister's bid to become prime minister.
Prime Minister Tony Blair is expected to step down in the next few months and Brown, in charge of the Treasury for a decade, is the overwhelming favourite to succeed him.
Brown told reporters the move to sell the bullion then had been studied by the National Audit Office and a parliamentary committee.
"Indeed, the National Audit Office said that it was in a transparent and fair manner that the sale had happened while achieving value for money, so that is actually what happened.
This is how I see our conundrum here in Britain, and in most of the western world, though I imagine it's very complicated and any attempt to analyse it is simplistic. This is just an intial attempt to get my head round of the more basic contradictions, and I'd appreciate any input:
Imagine we live in a house, and I'm the landlord. I issue you all with paper currency, which you would need to use the goods and services in the house; to watch my tv, to pay your rent, to eat my meals, maybe even to put towards owning space in an extension I'm building. You could then exchange the "money" between yourselves for your own goods and services, with it's worth being derived from the fact that you'd need it to deal with the landlord. As a means of exchange, I guess it's worth would therefore be tied to the overall worth of everything in the house. Maybe you'd tie it to the rent or something, but the value of the rent would only depend on the desirability of staying int he hosue in the first place.
One problem though - the house, the tv, the fridge, the extension - all bought by me, on credit, from someone else. So the worth of the currency is dependent on me being able to pay off my debt and meeting all obligations I've made which have led to demand for the currency. So, in may ways, it's a dangerous game to play, and this is the nature of fiat currencies. So this move by Brown seems pretty stupid, because our debt int his country is worryingly high (and the USA's is much worse, and we rely a lot on the strength of their economy) and if there are harder times to come in the global economy, something which many analysts predict and which we should be prepared for, then the ones most able to survive will be those with assets which keep their value, such as gold reserves.
Any thoughts?
A paper bill doesn't have much real value. It can be printed rather cheaply. If you issue a new bill and hand it to your tenants, you don't give them anything of value. You only give them a promise that you'll pay them later. They in turn use the paper bill to pass that promise of payment on to others.
Okay, that's how our economy works in general, but you are asking yourself rightly, how do you guarantee the stability of the system?
The FIAT economy has allowed us to live much more from virtual richness than we could ever have using the gold standard. We never had to actually put our cards on the table. The same poker game just continued to go on and on with ever increased bets. When we ran out of "money," we simply printed new chips.
... and this is precisely, why the FIAT economy was invented in the first place. The economies were growing faster than the gold supply. Hence it became impossible to keep the value of the gold fixed.
The FIAT economy provided us with some 35 years of a good life, of an excellent life, in fact, of a life that was too good to be true.
Why? Because we lived in this way by making all kinds of promises that we cannot keep, and that we have no intention on ever keeping, because we know that we can't. We were living our good life by eating the bread of our children, because ultimately, someone will have to foot the bill, whether we like it or not.
What is the effect of selling some of the national gold? As you wrote, many countries have done so -- also Switzerland.
On the one hand, gold is a material that we need. We need it for the contacts of printed circuit boards; we need it for a few other processes. Yet, we certainly don't need it nearly to the amount that it is available. Hence the value of gold is itself somewhat artificial. It was real enough as long as the gold standard was in effect. Now, it is not.
If you wish to make sound investments in commodities, you might be better off making long-term investments in materials that we are likely to run out of, or you might make short-term investments in materials of which you believe that the demand for them will increase significantly in the near future. Gold is in neither of these two camps.
So, when suddenly several national banks decided to sell their gold, you would expect that the price of the gold would decrease rapidly. This didn't happen. The price of gold is still climbing. Why?
In my view, the price of gold is still climbing, because our FIAT economies have been doing too well in recent years; yet, the only thing that rose was the stock market. There is nothing behind that justifies this rise. Our production capacity certainly hasn't increased. Thus, Joe Doe now has more money in his pockets than ever before, money that he must re-invest somehow, and he doesn't know how. He buys stuff that he doesn't really need; he invests in a weekend home; he adds airconditioning to his home, although he lived well enough without it before; etc. Since he still has some surplus money ... he goes and buys jewelry for his wife; he might even buy some gold stock. After all, the price of the gold is increasing.
It used to be that people bought stock in a company that they believed would prosper. By doing so, they provided money to that company that the owner of the company could use to make it happen. This is no longer the case. People invest in stock, because they believe that the price of that particular stock will be rising in the coming months and possibly only weeks. The price of the stock has very little relationship to the production capacity of that company. It has become something not much more solid than the roulette tables of Monte Carlo or Las Vegas.
Is our financial system stable? It most certainly is not.
So, what should you do? What can you do?
I personally am convinced that the first victim of the bursting economic bubble will be globalization. If we no longer have enough (too much, really) of everything, we'll begin again to rely on local means of production.
Hence it is a good idea to make yourself as independent as possible of global goods. You can buy your food at the mom-and-pop store, even if it is a little more expensive, to make sure that the mom-and-pop store is still around when the big supermarket chains will fold. You can try to invest in local infrastructure that will help you be less dependent on others when you won't be able to depend on them any longer. You can investigate what possibilities exist at your location for producing some of the energy that you consume on your own (solar, geothermal). You can invest in a woodstove or woodpellet stove so that you can buy some of your heating energy from local producers. You could do as the mormons do and keep some food items with long shelf life (30 years or more) in your house so that you aren't depending on being able to buy food from a store on short notice. You could check, how well your house is insulated, and possibly improve the insulation if this helps you get away with consuming less energy.
Making yourself less dependent on others, while you still have some surplus money bills lying around that you don't know very well what to do with, enhances your chances of doing well after the bubble bursts. This is true not only for entire nations, but even for individuals. Furthermore, if lots of individuals within a nation do it, the entire nation will become more robust.
thanks for the replies Francois, very interesting. What worries me most in this game of poker is that when the bloated state runs out of the ability to meet their comitments, it will simply devalue the currency to allow it to issue more "chips", therefore making a persons savings, at a stroke, worth only a fraction of what they were. It's some kind of perverted socialism I suppose, because in one sense it helps "many" (those who didn't save, those who rely on the state, directly or indirectly) over the "few". this is the trouble with fiat currencies, when the economy slows down, the government can effectively wipe out your savings at a stroke, like occurred in Argentina, just to defeat "deflation". Gordon Brown's attitude towards British pensions is just a hint at what we can expect in the future IMO - he's chosen to bankrupt the private sector to prop up the state. The more control a government has over the money supply, and the less the money supply is tied to anything tangible, the less real ownership you have over what you believe you own.
WASHINGTON (Reuters) - Chancellor of the Exchequer Gordon Brown defended on Saturday his decision to sell a part of Britain's gold reserves in 1999 following a report that he did not take proper advice on the sale.
"Gold sales are a decision for the government. They were a decision that I made as chancellor of the exchequer in the right and proper way," Brown told a news conference at the International Monetary Fund/World Bank meetings in Washington.
Many countries at the time were doing exactly what Britain was doing, "diversifying our portfolio and reducing the risks. Actually, at the time, the governor of the Bank of England Eddie George said to the Treasury Select Committee that the decision to sell gold was a perfectly reasonable portfolio decision," Brown said.
A report in the Sunday Times citing "insiders" said some Bank of England officials had opposed the 1999 sale at the time.
It follows a political storm late last month over documents showing Treasury officials had warned Brown of possible risks to the pensions system from tax changes he made a decade ago that cast a shadow over the finance minister's bid to become prime minister.
Prime Minister Tony Blair is expected to step down in the next few months and Brown, in charge of the Treasury for a decade, is the overwhelming favourite to succeed him.
Brown told reporters the move to sell the bullion then had been studied by the National Audit Office and a parliamentary committee.
"Indeed, the National Audit Office said that it was in a transparent and fair manner that the sale had happened while achieving value for money, so that is actually what happened.
This is how I see our conundrum here in Britain, and in most of the western world, though I imagine it's very complicated and any attempt to analyse it is simplistic. This is just an intial attempt to get my head round of the more basic contradictions, and I'd appreciate any input:
Imagine we live in a house, and I'm the landlord. I issue you all with paper currency, which you would need to use the goods and services in the house; to watch my tv, to pay your rent, to eat my meals, maybe even to put towards owning space in an extension I'm building. You could then exchange the "money" between yourselves for your own goods and services, with it's worth being derived from the fact that you'd need it to deal with the landlord. As a means of exchange, I guess it's worth would therefore be tied to the overall worth of everything in the house. Maybe you'd tie it to the rent or something, but the value of the rent would only depend on the desirability of staying int he hosue in the first place.
One problem though - the house, the tv, the fridge, the extension - all bought by me, on credit, from someone else. So the worth of the currency is dependent on me being able to pay off my debt and meeting all obligations I've made which have led to demand for the currency. So, in may ways, it's a dangerous game to play, and this is the nature of fiat currencies. So this move by Brown seems pretty stupid, because our debt int his country is worryingly high (and the USA's is much worse, and we rely a lot on the strength of their economy) and if there are harder times to come in the global economy, something which many analysts predict and which we should be prepared for, then the ones most able to survive will be those with assets which keep their value, such as gold reserves.
Any thoughts?
A paper bill doesn't have much real value. It can be printed rather cheaply. If you issue a new bill and hand it to your tenants, you don't give them anything of value. You only give them a promise that you'll pay them later. They in turn use the paper bill to pass that promise of payment on to others.
Okay, that's how our economy works in general, but you are asking yourself rightly, how do you guarantee the stability of the system?
The FIAT economy has allowed us to live much more from virtual richness than we could ever have using the gold standard. We never had to actually put our cards on the table. The same poker game just continued to go on and on with ever increased bets. When we ran out of "money," we simply printed new chips.
... and this is precisely, why the FIAT economy was invented in the first place. The economies were growing faster than the gold supply. Hence it became impossible to keep the value of the gold fixed.
The FIAT economy provided us with some 35 years of a good life, of an excellent life, in fact, of a life that was too good to be true.
Why? Because we lived in this way by making all kinds of promises that we cannot keep, and that we have no intention on ever keeping, because we know that we can't. We were living our good life by eating the bread of our children, because ultimately, someone will have to foot the bill, whether we like it or not.
What is the effect of selling some of the national gold? As you wrote, many countries have done so -- also Switzerland.
On the one hand, gold is a material that we need. We need it for the contacts of printed circuit boards; we need it for a few other processes. Yet, we certainly don't need it nearly to the amount that it is available. Hence the value of gold is itself somewhat artificial. It was real enough as long as the gold standard was in effect. Now, it is not.
If you wish to make sound investments in commodities, you might be better off making long-term investments in materials that we are likely to run out of, or you might make short-term investments in materials of which you believe that the demand for them will increase significantly in the near future. Gold is in neither of these two camps.
So, when suddenly several national banks decided to sell their gold, you would expect that the price of the gold would decrease rapidly. This didn't happen. The price of gold is still climbing. Why?
In my view, the price of gold is still climbing, because our FIAT economies have been doing too well in recent years; yet, the only thing that rose was the stock market. There is nothing behind that justifies this rise. Our production capacity certainly hasn't increased. Thus, Joe Doe now has more money in his pockets than ever before, money that he must re-invest somehow, and he doesn't know how. He buys stuff that he doesn't really need; he invests in a weekend home; he adds airconditioning to his home, although he lived well enough without it before; etc. Since he still has some surplus money ... he goes and buys jewelry for his wife; he might even buy some gold stock. After all, the price of the gold is increasing.
It used to be that people bought stock in a company that they believed would prosper. By doing so, they provided money to that company that the owner of the company could use to make it happen. This is no longer the case. People invest in stock, because they believe that the price of that particular stock will be rising in the coming months and possibly only weeks. The price of the stock has very little relationship to the production capacity of that company. It has become something not much more solid than the roulette tables of Monte Carlo or Las Vegas.
Is our financial system stable? It most certainly is not.
So, what should you do? What can you do?
I personally am convinced that the first victim of the bursting economic bubble will be globalization. If we no longer have enough (too much, really) of everything, we'll begin again to rely on local means of production.
Hence it is a good idea to make yourself as independent as possible of global goods. You can buy your food at the mom-and-pop store, even if it is a little more expensive, to make sure that the mom-and-pop store is still around when the big supermarket chains will fold. You can try to invest in local infrastructure that will help you be less dependent on others when you won't be able to depend on them any longer. You can investigate what possibilities exist at your location for producing some of the energy that you consume on your own (solar, geothermal). You can invest in a woodstove or woodpellet stove so that you can buy some of your heating energy from local producers. You could do as the mormons do and keep some food items with long shelf life (30 years or more) in your house so that you aren't depending on being able to buy food from a store on short notice. You could check, how well your house is insulated, and possibly improve the insulation if this helps you get away with consuming less energy.
Making yourself less dependent on others, while you still have some surplus money bills lying around that you don't know very well what to do with, enhances your chances of doing well after the bubble bursts. This is true not only for entire nations, but even for individuals. Furthermore, if lots of individuals within a nation do it, the entire nation will become more robust.
thanks for the replies Francois, very interesting. What worries me most in this game of poker is that when the bloated state runs out of the ability to meet their comitments, it will simply devalue the currency to allow it to issue more "chips", therefore making a persons savings, at a stroke, worth only a fraction of what they were. It's some kind of perverted socialism I suppose, because in one sense it helps "many" (those who didn't save, those who rely on the state, directly or indirectly) over the "few". this is the trouble with fiat currencies, when the economy slows down, the government can effectively wipe out your savings at a stroke, like occurred in Argentina, just to defeat "deflation". Gordon Brown's attitude towards British pensions is just a hint at what we can expect in the future IMO - he's chosen to bankrupt the private sector to prop up the state. The more control a government has over the money supply, and the less the money supply is tied to anything tangible, the less real ownership you have over what you believe you own.