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Magpie

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Some of you will know I like to argue with goldbugs, so apologies in advance if this is offensive.

But I was thinking about why the goldbug argument (ie the idea that gold is "real money" or that all our problems would be solved by a return to the gold standard) has such passionate adherents. It occurred to me that it may be a bit like when as a child you first realise that you are going to die one day. You have a choice between accepting this disturbing and difficult fact or regressing to the comforting belief in heaven and God.

In the same way there comes a time in life when you realise that money is merely a concept, a vehicle of exchange which is only worth what someone is prepared to give you for it. Either you think hard about inflation, or someone explains to you for the first time the concept of fractional reserve banking, or you just fret about the fact that fiat money is "only paper".

At this stage you can either accept the difficult and disturbing concept that money is relative, that the money you have may be worth less or more in future, and that any kind of money is only worth what you can exchange it for.

Or you can regress to a comforting fairy tale that there is such a thing as "real money", and it is called gold - at which point you are on the first step towards becoming a committed goldbug.

Feel free to express your moral outrage at the comparison whether you believe in gold or God, by the way...

Edited by Magpie

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Some of you will know I like to argue with goldbugs, so apologies in advance if this is offensive.

But I was thinking about why the goldbug argument (ie the idea that gold is "real money" or that all our problems would be solved by a return to the gold standard) has such passionate adherents. It occurred to me that it may be a bit like when as a child you first realise that you are going to die one day. You have a choice between accepting this disturbing and difficult fact or regressing to the comforting belief in heaven and God.

Thats rich coming from a Magpie.. :lol::lol::lol::lol::lol:

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I think we should return to the original currency , either cows or sea shells. Now how are house prices doing relative to cattle futures ;)

The History of Money

In prehistoric times, there was no such thing as money. When people needed to buy something, they had to charge it. And then when the bills came, nobody could understand them, because there was also no such thing as reading. This led to a lot of misunderstandings and hitting with rocks.

The first form of money that we are aware of by looking it up on the Internet was animals. From the start there were problems with this type of money, particularly the smaller denominations, such as squirrels, which were always biting the payee and scampering away.

By 9000 b.c., the most commonly accepted form of animal money was cattle. When you bought something, you would give the other person a cow, and the other person would give your change in calves. This was better than squirrels, but still not an efficient system. The cash registers were disgusting.

By 3000 b.c., the Mesopotamians had invented two concepts that revolutionized economic activity: (1) writing and (2) banking. This meant that, for the first time, it was possible for a Mesopotamian to walk into a bank and hand the teller a stone tablet stating:

GIVE ME ALL YOUR COWS AND NOBODY GETS HURT

These robbers were captured quickly, because they had to make their getaways at very slow speeds. Still, it was clear that a better medium of exchange was needed.

The ancient Chinese tried to solve the problem by using seashells as money. The advantage of this system was that seashells were small, durable, clean, and easy to carry. The drawback was that they were, in a word, seashells. This meant that anybody with access to the sea could get them. By the time the ancient Chinese had figured this out, much of their country was the legal property of gulls.

And so the quest continued for a better form of money. Various cultures experimented with a number of commodities, including tea, grains, leather, tobacco, and Pokémon cards. Then, finally, humanity hit upon a medium of exchange that had no disadvantages—a medium that was durable, portable, beautiful, and universally recognized to have lasting value. That medium, of course, was beer.

No, seriously, it was precious metals, especially gold and silver, which—in addition to being rare and beautiful—could be easily shaped into little disks that fit into vending machines.

Before long, many cultures were using some form of gold for money. It came in a wide variety of shapes and designs, as we see in these photographs of ancient coins unearthed by archeologists:

The problem was that gold is too heavy to be constantly lugged around. So, to make it easier for everybody, governments began to issue pieces of paper to represent gold. The deal was, whenever you wanted, you could redeem the paper for gold. The government was just holding your gold for you. But it was YOUR gold! You could get it anytime! That was the sacred promise that the government made to the people. That’s why the people trusted paper money. And that’s why, to this very day, if you—an ordinary citizen—go to Fort Knox and ask to exchange your U.S. dollars for gold, you will be used as a human chew toy by large federal dogs.

Because the government changed the deal. We don’t have the gold standard anymore. Nobody does. Over the years, all the governments in the world, having discovered that gold is, like, rare, decided that it would be more convenient to back their money with something that is easier to come by, namely: nothing. So even though the U.S. government still allegedly holds tons of gold in “reserve,” you can no longer exchange your dollars for it. You can’t even see it, because visitors are not allowed. For all you know, Fort Knox is filled with Cheez Whiz.

Which brings us back to the original question: If our money really is just pieces of paper, backed by nothing, why is it valuable? The answer is: Because we all believe it’s valuable.

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With respect, I'm not sure if you fully understand the Gold argument. :blink:

Gold is a store of wealth in times of trouble, and is a real asset. I don't think I'm wrong in saying that there has been buying of in recent months by central banks. Why do you think that is? :unsure:

No, I understand buying gold as an asset now (or any time you believe it may appreciate in value). And I understand that in times of currency collapse, gold generally becomes an emergency currency once again. So if we are indeed close to a civilisational or massive currency collapse, we may be going into a period when gold becomes a transitional currency, and those who are holding gold will be insulated to a degree.

What I don't understand is the whole raft of arguments that coagulate around this such as the wild-eyed claims that are made about how everything wrong with our economic system is because we abandoned the gold standard. I don't get the harping on about how fiat is bad, gold is good and so on. I think this comes close to fanaticism at times.

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With respect, I'm not sure if you fully understand the Gold argument. :blink:

Gold is a store of wealth in times of trouble, and is a real asset. I don't think I'm wrong in saying that there has been buying of in recent months by central banks. Why do you think that is? :unsure:

I think I'd rather have at least some exposure to Gold in a portfolio than an array of shares only. Each to his own. :)

If gold is a store of wealth then so is paper money, the values of both fluctuate. Today gold has value, it can be traded for goods, Two years ago it had less value, tomorrow its value will change again. There could come a time when your gold is worth nothing, because however much of it you have it is still not enough to exchange for food.

What makes it so ridiculous is the fact that it's always quoted in $ or other fiat currencies that permanently devalue though inflation or market confidence.

The argument that a particular inanimate object is a better store of the product of one's labour is possibly the most futile in the history of mankind.

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Well, and this is where I think you need a Masters or PHD in History (or indeed both), to fully understand the correlation.

There is a link which I'll try and post for you, which is a 50 minute interview with a double Doctorate chap whic explains this quite clearly. Back soon I hope. :)

You might do better to summarise the argument as 50 minutes is likely to stretch my patience. I've read many of the gold-ramping articles on the web and often find them to be historically selective at best. And when I argue with goldbugs here I often find that their history is based more on faith than facts.

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No, I understand buying gold as an asset now (or any time you believe it may appreciate in value). And I understand that in times of currency collapse, gold generally becomes an emergency currency once again. So if we are indeed close to a civilisational or massive currency collapse, we may be going into a period when gold becomes a transitional currency, and those who are holding gold will be insulated to a degree.

What I don't understand is the whole raft of arguments that coagulate around this such as the wild-eyed claims that are made about how everything wrong with our economic system is because we abandoned the gold standard. I don't get the harping on about how fiat is bad, gold is good and so on. I think this comes close to fanaticism at times.

It depends if you think that currency collapse is just a harsh fact of life.

Currency collapse is a direct result of having a fiat currency, backed by nothing.

Even if we had a gold-standard we would still be relying on our elected government and banking officials to not print money covertly. But they would probably get caught out when they don't have enough gold to redeem at the agreed rate for the currency, as has happened in the past.

We are in a bit of a unique position because the world's reserve currency has been the monopoly currency for oil sales for the last 30 years. Which has helped keep a lid on inflation in the west. The poverty in third world nations could be blamed on this situation.

Once the oil is effectively gone (in terms of common usage), in say 50 years. If we still have this fiat system based on nothing, and we are still fighting wars funded by government deficits, I think we will be feeling the economic effects of hidden wealth confiscation through inflation a lot more than we are now.

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All the gold in the world (193,000 tonnes) at todays value is half the US national debt.

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FWIW Gold is a crap store of wealth

In 1970 it was £16 and end 2005 it was £278. So a return of 1677%

Average UK house 1970 £4,582 end 2005 £165,000 So a return of 3501% (Plus the rent)

In 1982 Gold was £308 and Y/E 2005 was £278 so a loss of 10%

Average UK House in 1982 £25,580, end of 2005 was £165,000 so a return of 545% (plus rent)

FTSE Y/E 1984 (Furthest I can go back) 1229 Y/E 2005 5,638.3 so a return of 359% (Plus divi)

Gold Y/E of £294, End 05 £278 so a loss of 5%

Gold is a really rubbish store of wealth, but then you would expect that for something that has basically no use, doesn't degrade and you can dig it out of the ground.

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Here's the link I hope.

Link

No, this IS the link! Doh.

http://video.google.com/videoplay?docid=-6...1629374&pl=true

Hmm... I got as far as the summary where it mentions that they are going to tell us all about the "Illuminati masters of deception". I suspect you don't need a Phd in History so much as a Major in Conspiracy Theories And Credulity to sit through this one. I tend to file the Illuminati in the same drawer as the Protocols Of The Elders Of Zion.

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Gold is a really rubbish store of wealth, but then you would expect that for something that has basically no use, doesn't degrade and you can dig it out of the ground.

I agree, it does have a use though, fantastic conductor.

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when it comes down to it money is a medium exchange

e.g I will give you a mobile telephone if you give me your Pokemon cards.

assets ANY assets! are a store of wealth, e.g. houses/land gold equities bonds cattle Silver soybeans currencies Mortgages, domain names, that collectable 1967 classic ferrari you have in your garage.

you can only keep your store of wealth as long as the law permits and enforces your right to own these assets.

Markets - driven by human nature, supply and demand, fear and greed. drive the prices of these assets usualy within the context of fluctuating values denomonated in the medium of exchange, (prices).

http://www.answers.com/money&r=67

1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account.

So there you see, the primary definition of money is.... A medium of exchange, It may or may not be gold.... but you try paying the person at the checkout in the supermarket in gold. you will quickly find gold is not a medium of exchange in todays society. its an asset and is subject to the same fluctuations as any other asset.

At the end of the day your own Labor / skill / knowledge and resourcefulness (human capital), is the only asset you really need.

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FWIW Gold is a crap store of wealth

In 1970 it was £16 and end 2005 it was £278. So a return of 1677%

Average UK house 1970 £4,582 end 2005 £165,000 So a return of 3501% (Plus the rent)

In 1982 Gold was £308 and Y/E 2005 was £278 so a loss of 10%

Average UK House in 1982 £25,580, end of 2005 was £165,000 so a return of 545% (plus rent)

FTSE Y/E 1984 (Furthest I can go back) 1229 Y/E 2005 5,638.3 so a return of 359% (Plus divi)

Gold Y/E of £294, End 05 £278 so a loss of 5%

Gold is a really rubbish store of wealth, but then you would expect that for something that has basically no use, doesn't degrade and you can dig it out of the ground.

Anything is only a good store of wealth so long as someone else wants to exchange it with you for a product, except maybe scarce essential commodities themselves.

I agree that fervent goldbuggery (is that a new word?) is a bit over the top.

I buy gold when I expect it to go up, and sell when I expect it to go down.

If there is complete economic collapse I see no reason why gold would become a default currency again.

So few people have any gold that if gold was adopted as a currency either the government would come and take it from you, or the starving people in the street would rob you of it in any case.

If complete economic collapse occurred then I expect violence would be a more effective commodity of exchange than gold.

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It depends if you think that currency collapse is just a harsh fact of life.

Currency collapse is a direct result of having a fiat currency, backed by nothing.

Well, it either collapses for that reason or because the whole civilisation collapses. Then gold tends to be the fallback, but after a while the limitations of fully gold-backed currency make themselves felt (excessively restricted money supply, inflexibility), and some form of fractional reserve and/or fiat becomes necessary.

If we'd never had anything other than fully gold-backed currency then perhaps currencies wouldn't collapse, though civilisations still would. And we'd be living in a completely different world to the actual one, most probably one where industrial progress was more backward and little nation kingdoms or city states launched wars on each other to try and grab each others' gold reserves...

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I agree that fervent goldbuggery (is that a new word?)

Oh, if it is, I like it very much. You can be sure I'll be using it at least. :D

If there is complete economic collapse I see no reason why gold would become a default currency again.

So few people have any gold that if gold was adopted as a currency either the government would come and take it from you, or the starving people in the street would rob you of it in any case.

Good point. Although it has historically tended to be the fallback currency and still might be again in certain circumstances.

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In the same way there comes a time in life when you realise that money is merely a concept, a vehicle of exchange which is only worth what someone is prepared to give you for it.

The trouble may be that the Asian economies who have our money may be at this stage of growth?

An infantile obsession

Yeah, probably - But don't worry, you'll get over this intense questioning stage and be buying gold soon :)

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FWIW Gold is a crap store of wealth

In 1970 it was £16 and end 2005 it was £278. So a return of 1677%

Average UK house 1970 £4,582 end 2005 £165,000 So a return of 3501% (Plus the rent)

In 1982 Gold was £308 and Y/E 2005 was £278 so a loss of 10%

Average UK House in 1982 £25,580, end of 2005 was £165,000 so a return of 545% (plus rent)

FTSE Y/E 1984 (Furthest I can go back) 1229 Y/E 2005 5,638.3 so a return of 359% (Plus divi)

Gold Y/E of £294, End 05 £278 so a loss of 5%

Gold is a really rubbish store of wealth, but then you would expect that for something that has basically no use, doesn't degrade and you can dig it out of the ground.

What was average UK house in 2003 and what's it now. Now compare it with gold ;-)

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I agree, it does have a use though, fantastic conductor.

Value-density: It's pretty handy if you need to leave a country in a hurry - your life-savings strapped round your waist. If you've ever handled a bar (and considered your options), you can understand gold's attractions - to some extent.

As a store of wealth: can't a gentleman get suited and booted for an ounce of gold, just like he could 200 years ago? At today's prices he'd be wearing Armani, of course, with the integrated iPod pocket B)

Rubbish yield though and, as dom says above, its value is ultimately still based on trust, just like Fiat money.

JY

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With regard your last statement you offer no other suggestions. I take it you, like me, are a novice at world geopolitical history and economics then? ;)

The point is that any asset can be a store of wealth or not, depending on whether or not you can get someone to exchange things for it in future. Gold is a fair bet in this respect. (As are houses, though either might turn out to be less safe than we imagine). Currency is a bit iffy in that it tends to devalue. But there is no single asset that is the one "real" store of wealth. All we can do is try to preserve wealth in those assets we believe will endure.

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The trouble may be that the Asian economies who have our money may be at this stage of growth?

:D - good point. If they all turn to goldbuggery, all bets are off...

Yeah, probably - But don't worry, you'll get over this intense questioning stage and be buying gold soon :)

That's what all cults say. "Don't worry, just stop questioning and accept..." :P

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FWIW Gold is a crap store of wealth

In 1970 it was £16 and end 2005 it was £278. So a return of 1677%

Average UK house 1970 £4,582 end 2005 £165,000 So a return of 3501% (Plus the rent)

In 1982 Gold was £308 and Y/E 2005 was £278 so a loss of 10%

Average UK House in 1982 £25,580, end of 2005 was £165,000 so a return of 545% (plus rent)

FTSE Y/E 1984 (Furthest I can go back) 1229 Y/E 2005 5,638.3 so a return of 359% (Plus divi)

Gold Y/E of £294, End 05 £278 so a loss of 5%

Gold is a really rubbish store of wealth, but then you would expect that for something that has basically no use, doesn't degrade and you can dig it out of the ground.

KON why I think you comparison is crap ( same as most of your arguments ) is cos a true comparison can only be done by comparing houseing, shares or commodity cycles from peak to peak or trough to trough. Commodity has comaratively a much longer ( nearly a 40 years cycle) as compared to shorter cycles of housing or shares. Now wait for wait for commodity cycle to reach to it's peak and then see where housing and shares stand against gold.

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Value-density: It's pretty handy if you need to leave a country in a hurry - your life-savings strapped round your waist. If you've ever handled a bar (and considered your options), you can understand gold's attractions - to some extent.

JY

Take it from me Diamonds are much much better, gold is far too heavy, and it really shows up on the detectors!.

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Well, it either collapses for that reason or because the whole civilisation collapses. Then gold tends to be the fallback, but after a while the limitations of fully gold-backed currency make themselves felt (excessively restricted money supply, inflexibility), and some form of fractional reserve and/or fiat becomes necessary.

If we'd never had anything other than fully gold-backed currency then perhaps currencies wouldn't collapse, though civilisations still would. And we'd be living in a completely different world to the actual one, most probably one where industrial progress was more backward and little nation kingdoms or city states launched wars on each other to try and grab each others' gold reserves...

It is a total fallacy to say that a gold-standard wouldn't work because the money supply wouldn't be enough.

The price of goods and services would adjust to the money supply that is available.

The inflexibility you could argue exists is that the government couldn't wage war indiscriminately because it would need to be paid for via a direct taxation on the people. Rather than through the government debt / increased money supply.

I don't think progress would be more backward as you say. But I do wonder what type of conflict would exist in a world where the majority of countries had a gold standard.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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