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House Price Crash Forum


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Everything posted by Magpie

  1. This is a meaningless statement, like so many about how gold is the only 'real' measure of value. The value of gold, like the value of anything, can only be measured in one way. By choosing another item and saying how much gold is currently 'worth' a certain amount of that item. In other words the value of gold is defined by how much stuff you can exchange it for. In an economy of great food scarcity, a gold coin might buy you a bag of wheat or one cow. In times of abundance it might buy you ten bags of wheat or twenty cows. Relative to wheat or gold, its value has risen. The same applies to gold vs money. When money is in great abundance, like now, the value of gold rises vis-a-vis money. The philosophical error is to imagine there is any such thing as 'real' or 'objective' value. All value is relative - something is valuable in so far as it can be exchanged for something else. To pretend otherwise is metaphysical claptrap.
  2. I'd post more (not anti-gold, but anti-goldbug) - but I get frustrated waiting for my posts to appear. This is more or less the only thread I post in these days.
  3. The confusion on this issue arises from the fact that 'market value' can be defined in two different ways. You can define it as the price a good will actually achieve in the marketplace or as the notional price it will achieve in certain hypothetical conditions. With the former definition there is no such thing as BMV sales (which is the OP's argument). However, with the latter definition BMV makes sense as one can sell something for less than it might theoretically fetch in different conditions. Both definitions of 'market value' (actual and notional) are in common use. In a more efficient market such as stocks, the market value is simply the price that is produced by the interaction of sellers and buyers in the marketplace. But in property, market value is generally taken to refer to the notional price a property might achieve in certain conditions. Surveyors use this definition, because property is a complex market which doesn't have the liquidity of stocks and therefore it is harder to reach a valuation. To be precise, market value can be defined as the price at which an asset would trade in a competitive Walrasian auction setting (wiki this for definition). In other words in a state of perfect information and competition. In practise, surveyors don't assume perfect information in assessing market value - they just try to estimate "...the amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion" Clearly there are situations (although not as many as the BMV jackals like to think) where these conditions don't hold, in which case it is possible to buy 'below market value'. If a property hasn't been marketed properly, if the seller is under pressure or acting imprudently, he may sell for less than he could. Shameful that a whole business exists to take advantage of this possibility, but sadly it does.
  4. Er, but what about the constant refrain of this thread that the cartel is suppressing gold prices. And now you tell us 'why should they care about gold'? This gold stuff does strange things to people's rationality.
  5. Yes, I think there's something to that. I don't really like the term intrinsic value as I see all value as subjective. But I could agree for instance that gold will be given a higher value than paper or seashells in almost every situation I can imagine, and therefore that gold's intrinsic qualities do tend to give it a high subjective valuation. And that this is one of the reasons it has traditionally been used as gold. For me that doesn't make it 'real money', but it makes it a substance that often has been used as money and may again be used that way.
  6. I'm a he not a she (in spite of the avatar). The previous argument gets a bit bogged down in details at times, although it was a very interesting and useful discussion. My theory can be boiled down more simply thus: Money is never 'real' in the way that a physical object is real. Money is an idea, a promise of future exchange value. This is true whether it it represented by gold, computer records, coins or notes. There may be consequences to using a real object (or an object of high 'real value') for money, but the monetary aspect still lies in the idea, the promise, not in the object itself. So those who seek to identify 'real money' as gold are making a category mistake.
  7. Nice use of the word 'unique' - so effectively you're saying that gold is unique for having a monetary use. Except that silver also has that use. Oh, and seashells and cigarettes, and knots in bits of rope and so on... If in doubt, SHOUT!
  8. I wonder why he chose that particular year. Hmmm... I think this is actually inaccurate. There is an Evening Standard map of boroughs price falls in the last crash, widely reproduced and quoted here. It does show wide variations, but I think it is skewed because it shows the figures from 1988 (before the peak) to 1995 (when London had inched up from the very bottom). Figures from Q31989 to 1993 would be worse in my opinion.
  9. I love this theory that each and every fall in gold prices is down to those pesky conspirators whereas any rise is natural and right. I'm sure central bank operations have had an impact at times. But surely the 1980 falls were the inevitable consequence of an excessive boom in the gold price. Following natural inflation-driven rises in the price of gold in the 1970s, a speculative mania took hold and drove the price way too high. If anything the eventual crash was the fault of the gold-rampers who had driven the price up in the first place.
  10. Funny conversation I think one problem here is Injin's idea that an asset is a 'good' thing whereas a liability is a 'bad' thing. So he gives John a car, all he can see is loss = a bad thing. So he calls that a liability. Losing the car might be bad, but it's not a liability, as gavp points out - a liability is something that will cause you future loss. If John borrows the car and promises it back, he has a liability - he now has the car but will have to give it back. The asset to Injin in this deal (lending John the car) is the promise of repayment of the car - he will (or should) receive some future gain from this. This may not materialise if John lets him down, but until that happens it is perfectly reasonable to treat it as an asset. I run a business. When I run a profit and loss for the year I include all the money I have got or expect to receive as assets and all the money I have spent or expect to spend as liabilities. In this analysis it doesn't matter how much of that money has actually come in or out. Of course cashflow is also important, but in the most basic analysis of a business, money expected and money in hand are both assets.
  11. That's a pretty sensible viewpoint. Adapting to the times is important and this does indeed look like it might be a good time for gold, so long as one hedges one's bets and remembers how volatile gold can be.
  12. Yes, a very silly assumption. Instead, how about doing the sums from the trough of $290 in 1982. Surely gold has beaten inflation since then? Er, no, not really. $290 in 1982 is the equivalent of about $700 in 2007, so in dollar terms, gold has just managed to creep past the benchmark for keeping up with inflation since then. And in sterling, this low was about GBP160, so about GBP380 in 2007 money. As against gold's current price of about GBP360. So even from its low in the early eighties, gold has been a useless hedge against sterling inflation long term. Of course this means one can expect it to go higher (merely to catch up a bit). And I'm sure one could find counterexamples - it's been a good inflation hedge since the late nineties of course, and it would have been OK if measured from the early 1970s to now. But I'm not sure facts fit the goldbug fantasy over the longer term here.
  13. I don't know. I thought it a bit depressing that Goldfinger's response to 3000 men trapped underground was a kneejerk comment that if the gold price wasn't suppressed, everything would be ticketyboo. Mining is an especially dangerous process, and no matter what gold costs there will be mining operations running on low margins. Think how many men died mining coal - it's not to do with the cost, it's to do with the basic process. Plus we know a lot of gold mining goes on in third world countries with bad safety rules, so that doesn't help. Of course all sorts of industrial processes, oil included, cost lives. It's too simplistic to dismiss gold on the basis that people die mining it. But it does seem sad if as a species we can't find a way to regulate money supply without relying on a metal that has to be dug out of the ground. Kind of implies we haven't reached a particularly impressive level of civilisation.
  14. Balderdash. The other poster was countering your argument that 'society doesn't exist', using the specific example of property rights, and how they only work because of the social fabric. I see you now recognise that such a thing as social fabric does exist, so I hope you'll withdraw your earlier statement that society doesn't exist. The system of banking and money is largely based on social fabric, on shared convention and custom, not on coercion. It's certainly reasonable to query the way that it operates in detail, but to simply dismiss the whole thing as a fraud is to misunderstand how it works. I accept an IOU or a banknote, because I trust that I will be able to exchange it in future, because I understand how the society I live in works.
  15. Yes, the social fabric, verbal and written, formal and informal agreements between members of society. No forcefield, no magic. But in general enough people observe our customs and laws that a degree of order is maintained and we expect society as a whole to punish those who don't respect that. It's quite simple really, unless you're some kind of uber-libertarian idiot who can't comprehend how society functions and sees all customs and laws as a personal affront.
  16. You're missing the point here. What has the social fabric got to do with your house. Well, it's yours and others accept it is yours because it's written down on a bit of paper somewhere. Why don't people who take a fancy to your house come and beat you about the head with baseball bats and take the house for themselves. Because of the social fabric which provides a certain amount of order in society and protects the weak. This isn't a metaphysical point, it's a very practical point. Your name written on some deeds, some laws written on bits of paper, some people given powers to enforce that law, all these things are part of the social fabric that allows you to call your home 'yours'.
  17. No, the money is worth what the market says its worth. If it is 'overpriced' then goods, services, and foreign currencies go up in price to accomodate it. If the bank says a ten pound note is worth ten pounds, but the market decides a loaf of bread is all they'll swap for that ten pounds, then it's no good the BOE insisting that bread should cost £1.00 is it? Same with gold or any other commodity. Money's value is set by the market, not the banks. It's the central bank's (and financial regulator's) job to try and get the supply right so that the currency doesn't gain or lose too much value too rapidly.
  18. Here's a quick attempt at explaining the logical confusion here. Money (whether represented by a real object such as gold or by figures on a computer, or by a bit of paper) isn't a 'thing', it's a representation - a promise of future exchange value. Think about a babysitting circle where members use tokens to exchange sitting nights. At the start, each member has to be given some tokens to make the system work. It makes sense for each to start with maybe two or three tokens. This is a simple form of money. Has the money been created as debt? Not really, at least not in a sinister way - the tokens have simply been created for the sake of making the system work. So the fact that money is created 'from nothing' does not mean that it is 'created as debt' or that it is a fraud. Simply that it is not innately a real thing, but a representation. The group, society or state using a monetary system needs to try and regulate the supply of money so that there is sufficient liquidity (eg trade is enabled) but not so much that distortions are introduced. (For instance, start with ten tokens each and the babysitters may not be motivated enough to do the work to earn future services). One way to control money supply is to use a limited physical object such as gold as the base of your monetary system, and this often worked reasonably well in the past. If the monetary system is purely token, then it needs some body or person to make decisions about how to control the money supply, which is how we currently work as a society. Some of the problems we see now are due to a failure to collectively control money supply, mostly because we allowed banks and financial companies too much freedom in how they operate. But it really doesn't matter where that first £1000 'came from', though it probably arose steadily through the transition of promissory notes into currency. In a sense of course all money is 'debt' as all money is a promise of future exchange. But it's nothing to get too upset about.
  19. Try thinking of us as gold sceptics rather than haters. I like gold. It's a beautiful metal, and I think it will rise in value short term. I'm just sceptical of pseudo-religious beliefs in it.
  20. For the most part that wouldn't apply to housing because there will generally be some demand for a specific property. However property can become all but worthless - witness the terraces in semi-derelict areas of northern cities that were changing hands for a a few hundred quid only 15 years ago. One can imagine an outcome where some of the excess supply of condos and/or executive city centre apartments goes the same way. So 100% across the board, of course not. But in specific cases, it's not impossible.
  21. That raises complicated economic debates, certainly many economists would disagree with this formulation. http://en.wikipedia.org/wiki/Subjective_theory_of_value
  22. Goldfinger is correct that historically there hasn't been much correlation. For instance, from the gold peak in 1980 to 1999 the Dow Jones outperformed gold by a factor of 30. Since then gold has outperformed the Dow Jones comfortably, although it's still a long way from getting back to the peak ratio. But there is some speculation that gold is now more closely linked to stocks than in the past because more of the same money is flowing into both, meaning they are subject to some of the same pressures. It'll be interesting to see how they behave in future.
  23. A bit of interesting historical perspective. This article is from 1979, about someone predicting the imminent collapse of fiat: http://www.time.com/time/magazine/article/...,920273,00.html "Because paper currency will be valueless, Ruff argues, assets should be transferred into hard goods, such as gold and silver coins, that could be used for currency. "
  24. No, we spent hours explaining our respective points of view, and at the end of it I still fundamentally disagreed with your opinion. Gold is not 'real money' so far as I'm concerned, because there is no such thing as real money. Money is a measurement, representation (or token...) of future exchange value whether it uses an object with 'real' value or not. Gold is just a commodity that has traditionally been often used as money and may be again one day. It is as much of a category mistake to describe something as real money as it would be to describe an inch as 'real distance' because it was originally based on the width of a man's thumb. Incidentally one inconsistency I see in your position is that you seem to be expecting a repeat of the 1980s spike, followed by a crash in the gold price. Fair enough in that case to try to buy low and sell near the peak. But is it reasonable to describe a commodity that you expect to behave in that fashion as 'real money' or to unreservedly recommend it as a store of value? Surely the more honest way to talk about it is as a commodity that will (in your opinion) do better than inflation in the short to medium term, but that one needs to sell at or close to the peak.
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