<div class=”d4p-bbp-quote-title”>Malgus wrote:</div>Iam,
<P>“Money” has intrinsic worth. Meaning, “money” is worth something just by existing. Gold. Silver. Copper. Platinum (also known as “Bastard silver”).</P>
…and money must also be fungible, meaning it must have a consistent value; an ounce of gold from India must have the same value as an ounce of gold from New Mexico (factoring in for purity, of course). This is why gems are not considered “money”; a 2 carat diamond from Arkansas can have a widely disparate value from the same weight diamond from the Ivory Coast.
<P>“Currency” is what passes for “money”. It is paper, nothing more, backed by nothing. </P>
<P>It is conjured out of thin air by our respective Central Banks, then loaned to our respective governments at interest. It is also known as “Fiat currency”. “Fiat” means “force”. It is literally our respective government forcing us to accept what they tell us as “currency”. If they wanted to, they could declare used snot rags to be “currency” tomorrow, and there is little we could do. To pay back this debt to the bankers, our respective governments tax you and me and take the fruit of our labor. </P>
Banks loan money to each other at negotiated rates in order to maintain a legally required ratio of cash on reserve. The Federal Bank averages out these negotiated rates and comes up with the federal funds effective rate, from which they derive the national nominal rate, which is essentially the “cost of money”, or an index of how available the dollar is to be loaned out. If all the big banks are tapped out, or if a big bank needs cash quicker than it’s cohorts can lend it out, the Fed is a lender of last resort, and will loan that cash out at a rate higher (called the discount rate) than the nominal rate, which is one way the Fed recoups printed cash. However, the primary means the Fed has to remove excess cash out of circulation is by buying federal security bonds when cash (and thus security bonds) is cheap, then when they want to decrease the supply of cash and therefore raise interest rates, they sell the securities, thereby removing their proceeds from the cash supply, making cash more expensive and harder to procure.
<P>An ounce of gold mined and refined 4,000 years ago in Egypt has the exact same worth – value – as an ounce of gold mined and refined yesterday. It is important to note that the VALUE of the gold does not change. It is only the worthlessness of our respective currencies that changes in relation to gold, not the value of gold itself. When the price of gold goes up, that means your currency is worth that much less. </P>
Gold prices ebb and flow. The price of gold can be dependent on runs on gold due to fears of collapse, and marketing which targets those fears. In Greece during the fifth century BCE, 3g of gold was considered enough pay for a skilled worker to “live comfortably”. Three grams of gold today would be worth $93, which comes out to roughly $24000/year. That’s not comfortable living where I live, but I also recognize there are significant cultural differences. Does this prove your point or dispute it? I don’t have an opinion either way. The important thing is to compare the value of the dollar to goods and services, then compare the value of the dollar to gold. That will give you a good idea of the value of gold.
<P>to put this in perspective, one trillion seconds ago it was 30,000 BC… </P>
Lol awesome analogy!
<P>Buying “stuff” – literally trading worthless fiat currency for hard, 3 dimensional assets that will retain value – is always a good idea. Unless you have a giant pile of fiat currency, you’ll have to do like the rest of us and eat the elephant one bite at a time. One month, buy a good sheath knife or long term food or something similar. Next month, buy whatever precious metals you can – usually silver. Gold if you can afford it. Build your preps as best you can, while you still have time. </P>
Before long, people are going to realize silver is actually more valuable than gold. The crustal ratio (the amount of each present in the crust of the planet) of silver to gold is 17:1, but the amount of available silver is reducing because it’s used in manufacturing, but not in amounts than can be salvaged. For instance, every cruise missile we launch vaporizes (if I remember correctly) 10 oz of silver. Flat screen TVs use trace amounts of silver. Cell phones, computers…all use trace amounts, but the sheer volume of items eating up silver leads to a drastic consumption of it, and we’ll never be able to reclaim it. Gold, not so much. My point is, I’d buy silver over gold any day, at least until the cost ratio of gold to silver is 40:1, and that’s before people realize the actual value of silver. I think eventually the ratio will reverse, and silver to gold prices will be somewhere closer to 5:1, with silver being more valuable. Unless we find a suitable replacement for silver in our electronics. That would be a game-changer.
My biggest point in this novella is that gold is not money. Money is something you can readily trade for goods and services. Try paying for your groceries with gold, or your utility bill. Unless you barter it, gold must go through an intermediary before you can convert it into money to pay for things. That by itself means it cannot be considered money. It is a commodity. Arguably the most useful commodity when valuating currency. There is an awesome article about the “gold standard” here: http://www.forbes.com/sites/louiswoodhill/2013/04/18/gold-isnt-money-but-it-should-be-used-to-define-the-value-of-the-dollar/2/
That being said, I agree with you completely that commodities will be far more valuable during a collapse than fiat money. I don’t think gold is the way to go due to the issue of trying to barter it for a can of soup, but yes, tangible commodities are the way to go.