Debt ceiling fiasco

[hex11]

I think you're doing exactly what you're condemning, and that is worshipping gold for the sake of itself, when other metals have already been minted into practical (1oz, 1/2oz, etc.) coin and bar form and thus would be recognized as well as gold and silver. Platinum and palladium coins are even minted as legal tender (for example, 1oz Platinum Eagle has a face value of $100).

I agree that fine art isn't something you barter like some farm animal or whatever. But it is an investment that can preserve its value, and possibly even appreciate over time. Of course, there's no guarantee you'll find a buyer at any given moment, at least not for the price you might be willing to sell. But nobody invests all their money in art anyway, esp. when they don't already have their basic needs covered. It's best left to those well-off folks who have a passion for the art in question. I'm just using it as an example of how wealth can be preserved via many different ways.

Barter is not to be taken out of the equation if SHTF for real. And yes, I do believe people should be stocking up on basic goods before even considering buying metal. Food, hygyiene supplies, etc. are ultimately the only thing that really matter.

[Gez]

A large-scale, organized society needs abstract fiduciary tokens for exchange of goods and services. That's where money gets into play.

You can devise other systems, sure. But historically, they haven't fared that much better. For example, you can go with predefined roles. People do not work because they expect payment for it; but because it's their lot in life. You get a caste system. It doesn't work right. Or you can make a gift-based economy. You accumulate prestige by giving stuff away; you lose prestige by accepting gifts. This leads to waste even faster than our greed-based economy.

Once you have money, you need to have banks, and investors, and shareholding, and all these things. They don't exist just to ruin the little peoples' lives; they do serve a legitimate role. It's just that they're given a disproportionate influence on policies. The problems come from a lack of checks and balances on financial power. This in turn is a consequence of a shallow ideology that the divine "invisible hand" of the market will naturally lead to the most optimal results in the shortest time, so any attempt at external regulation will do more harm than good. Conveniently forgetting that for the invisible hand to actually work, all actors in a market need to be entirely rational, logical and omniscient 24/7; which is impossible on each point.

[GreyGhost]

AndrewB said:

Like I said, barter systems don't hold up. Money is always needed in any kind of society. Maybe you think we're going to embrace the ways of the aboriginal people and worship trees and cooperation and the spirit of the wolf and tobacco and all that. Failing that, my theory will work out better.

Also, what will you do when you finally run out of canned beans? What if you want some fresh fruit, meat, or bread? Would you rather be the person with shiny metal in his pockets, or the person without?

While money makes a convenient means of exchange (as do promissory notes and letters of credit), if hyperinflation and/or collapse of the financial system renders money valueless - regardless of the form it's carried in - are your pockets of shiny metal still going to be more valuable than half a dozen fresh eggs from my hen-house when it comes to purchasing a loaf of bread?

[AndrewB]

hex11 said:

I think you're doing exactly what you're condemning, and that is worshipping gold for the sake of itself, when other metals have already been minted into practical (1oz, 1/2oz, etc.) coin and bar form and thus would be recognized as well as gold and silver. Platinum and palladium coins are even minted as legal tender (for example, 1oz Platinum Eagle has a face value of $100).

Yes, other metals are being minted, and they're becoming more valuable than their face value. But what does the government do when this happens? They replace it with a cheaper metal. This is why silver dollars from the 60s are out of circulation and now worth more than 20 dollars.

Barter is not to be taken out of the equation if SHTF for real. And yes, I do believe people should be stocking up on basic goods before even considering buying metal. Food, hygyiene supplies, etc. are ultimately the only thing that really matter.

I agree that stocking up on food should be maybe the first priority. However, food has maybe a 3-5 year shelf life, max. And money offers liquidity. So you really need to look at both as being very important.

GreyGhost said:

if hyperinflation and/or collapse of the financial system renders money valueless - regardless of the form it's carried in -

Why do people keep saying this? Hyperinflation and a collapse of a financial system doesn't render gold and silver valueless. Look at Zimbabwe. People would pan the rivers for gold because there was nothing else they could do to survive. People seem to assume that this time it will be different, that gold and silver will be worthless in a ruined economy despite all of history showing that this is not the case. I'm simply assuming that history will repeat itself.

are your pockets of shiny metal still going to be more valuable than half a dozen fresh eggs from my hen-house when it comes to purchasing a loaf of bread?

Yes, it will, because for every silver coin in your pocket, there will be plenty of farmers and laborers who understand the value of money and will be more than willing to work or give you food in exchange for money.

Look at it this way: Why is it that now, in the US, despite jobless rates of around 15-20%, where people are struggling just to feed themselves, that people are desperate to work in exchange for green paper, and not food?

[GreyGhost]

AndrewB said:

Why do people keep saying this? Hyperinflation and a collapse of a financial system doesn't render gold and silver valueless. Look at Zimbabwe. People would pan the rivers for gold because there was nothing else they could do to survive. People seem to assume that this time it will be different, that gold and silver will be worthless in a ruined economy despite all of history showing that this is not the case. I'm simply assuming that history will repeat itself.

It renders them valueless as currency if the currency is worthless, though precious metals could still have some value as trade items if the person you're hoping to do business with is willing to accept them. In Zimbabwe they'd be traded for hard currencies like US dollars, which in due course became one of the country's alternative currencies.

Yes, it will, because for every silver coin in your pocket, there will be plenty of farmers and laborers who understand the value of money and will be more than willing to work or give you food in exchange for money.

If the shit hits the fan hard you'll have to stop thinking in terms of money and instead focus on the weight and fineness of the coins - which is what'll determine their value.

Look at it this way: Why is it that now, in the US, despite jobless rates of around 15-20%, where people are struggling just to feed themselves, that people are desperate to work in exchange for green paper, and not food?

Captain Obvious to the rescue - that green paper is legal tender which cannot be refused as payment for goods and services, it's also non-perishable and still of some value.

[dew]

AndrewB said:
You're not making any sense. You're still not describing how inflation in possible in a gold standard. Like I said, the U.S. went more than 150 years without any inflation at all on the gold standard. The country went from the renaissance era to the industrialized era during that time frame. So I don't see how you can possibly say that the standard didn't work.

even a short wiki trip proves you wrong on multiple accounts. for one, wars inevitably lead to borrowing and inflation, because governments forget about the gold standard pretty soon and just print money to outspend the enemy. your fancy civil war brought inflation to both sides, with south ending in hyperinflation. this paragraph says that britain, the world's strongest empire of the 19th century, went off the gold standard during every big war even when it didn't affect the country directly, heh. there's a [citation needed] mark, but if that is true, you can't rely on gold even when someone else decides to be stupid with guns. nations dropped the gold standard and shat money not unlike i drop pants during diarrhea, ww1 led to the revised bullion standard, the big depression and ww2 led to the bretton-woods standard. gold standard was finally murdered in 1971 by tricky dick to be able to print moneyz for the vietnam war. the gold standard kept failing repeatedly, because people aren't very rational and like to ruin their working economies in order to stab each other with submarines and ballistic missiles.

now let's see. reagan smothered the soviet union with military spendings, then came the two wars in iraq, campaign in afghanistan and lengthy occupation of both countries. america would have to drop the world police act, give up on "spreading democracy" and pretty much go into pre-ww1 isolationism. but how do you want to secure enough oil then, eh? and is it even possible to fix your own currency to gold and not hurt your export trade or household spendings when other countries just abuse your self-imposed restriction?

anyways, you also ignored gold rushes in california and australia, which supposedly caused a 30% inflation between years 1850-55. that's pretty brutal! "150 years without any inflation," eh? and what if russia starts exploiting its siberian resources much more and destabilizes prices of gold?

(also as an european, i'm lost on what you mean by "renaissance era." wasn't that strictly our business back in 15th century?)

Also, you're wrong about having to pay with gold coins. A gold standard means that a currency is backed by gold. The currency can be glorified paper, but as long as it's redeemable for gold, it has the best of both worlds.

oh yeah, but federal reserves usually go just up to 40% and the system isn't resistant to hoarding and speculative trading. wasn't this particular gold standard variation one of the main reasons for the big depression?

Why do people keep saying this? Hyperinflation and a collapse of a financial system doesn't render gold and silver valueless. Look at Zimbabwe. People would pan the rivers for gold because there was nothing else they could do to survive. People seem to assume that this time it will be different, that gold and silver will be worthless in a ruined economy despite all of history showing that this is not the case. I'm simply assuming that history will repeat itself.
Yes, it will, because for every silver coin in your pocket, there will be plenty of farmers and laborers who understand the value of money and will be more than willing to work or give you food in exchange for money.

yeah, but the people in zimbabwe knew they could buy dollars for the gold. in a worldwide monetary collapse, gold will be just a rare pretty metal with extremely limited use. its value is pretty much a virtual construct of mankind's history. i'd much rather have oil than gold.

Look at it this way: Why is it that now, in the US, despite jobless rates of around 15-20%, where people are struggling just to feed themselves, that people are desperate to work in exchange for green paper, and not food?

because the monetary system hasn't failed yet?

[AndrewB]

Basically everything you just said was an argument in favor of owning physical gold.

[GreyGhost]

The price of physical gold has doubled in the last three years and quadrupled over the last seven, what'll you use as a safe haven when the bubble bursts?

[AndrewB]

GreyGhost said:

The price of physical gold has doubled in the last three years and quadrupled over the last seven, what'll you use as a safe haven when the bubble bursts?

I thought we were talking about hedging against hyperinflation. In that context, it's a contradiction to call gold a bubble.

Just today, the fed announced it will not raise interest rates for at least 2 years. Pretty hard to call gold a bubble when faced with this news.

[999cop]

hex11 said:

Why do you only consider precedent?

Gold is not only a precedent in the past but is also wanted in this age of time, just ask any hedge fund managers on wall street

GreyGhost said:

The price of physical gold has doubled in the last three years and quadrupled over the last seven, what'll you use as a safe haven when the bubble bursts?

I don't see that happening when you use gold to hedge against a cash bubble which is way bigger

GreyGhost said:

are your pockets of shiny metal still going to be more valuable than half a dozen fresh eggs from my hen-house when it comes to purchasing a loaf of bread?

at least gold is globally acceptable, you save up gold for until 1)USD gets replaced by another newly approved currency issued by the Fed 2)exchange for a foreign currency for higher values. Your egg would only come as closely valuable as gold if and only if that is the only egg left in the world and i don't see how that is true.

[hex11]

999cop said:

Gold is not only a precedent in the past but is also wanted in this age of time, just ask any hedge fund managers on wall street

Best to ignore Wall Street advice altogether and arrive at conclusions through your own thought process.

[AndrewB]

hex11 said:

Best to ignore Wall Street advice altogether and arrive at conclusions through your own thought process.

Agreed, with the most important piece of advice to disregard being "Keep a balanced, diversified portfolio."

[999cop]

hex11 said:

Best to ignore Wall Street advice altogether and arrive at conclusions through your own thought process.

Actions speak louder than words, and its not about whether its wall street or not, it is whats actively being traded and gold is very much wanted. As a matter of fact, the rising demand for gold is a no-brainer prediction since Jan 2009 when QE1 was poured into the market.

AndrewB said:

Agreed, with the most important piece of advice to disregard being "Keep a balanced, diversified portfolio."

Maybe if you're just an ordinary individual making less than 100k a year then maybe you can care less that the dynamic of portfolio is limited. But diversification is absolutely crucial for managing portfolios with 250k or so.

[AndrewB]

999cop said:

Maybe if you're just an ordinary individual making less than 100k a year then maybe you can care less that the dynamic of portfolio is limited. But diversification is absolutely crucial for managing portfolios with 250k or so.

All I can say is that if I had half a million dollars lying around, I wouldn't have the slightest unease about pouring all of it into one or two key "high risk" sectors. For anyone who really understands the fundamentals of economics, this is probably the easiest, most exploitable market that we're ever going to see in our lifetime. For me, personally, it doesn't make any difference whether I had a few thousand dollars to invest in my 20s or my entire retirement fund in my 70s. My confidence level is too high for me to not simply go "all in".

[Grazza]

AndrewB said:

this is probably the easiest, most exploitable market that we're ever going to see in our lifetime

Presumably you weren't alive in October 2008. The few hundred thousand I made back then seemed pretty damned easy.

The current situation seems a lot less clear, as things could go in quite a variety of directions from here.

[Maes]

AndrewB said:

All I can say is that if I had half a million dollars lying around, I would retire and go on permanent vacations for the rest of my life

FTFY

[Phobus]

@Maes: I'd grab a friend and spend an awful long time travelling. If we did somehow manage to run out of money, I'd just work wherever we ended up and soak up some culture for a bit :P

[GreyGhost]

AndrewB said:

I thought we were talking about hedging against hyperinflation. In that context, it's a contradiction to call gold a bubble.

Maybe gold is just catching up to the rest of the market, but after seeing charts like this I wonder if it might be 1980 all over again.

999cop said:

at least gold is globally acceptable, you save up gold for until 1)USD gets replaced by another newly approved currency issued by the Fed 2)exchange for a foreign currency for higher values. Your egg would only come as closely valuable as gold if and only if that is the only egg left in the world and i don't see how that is true.

I'll admit gold has the advantage while there's a functioning financial system, it'll be a different story if we're reduced to bartering since "wealth" can then take all sorts of unusual forms, depending on what's available and in demand.

AndrewB said:

For me, personally, it doesn't make any difference whether I had a few thousand dollars to invest in my 20s or my entire retirement fund in my 70s. My confidence level is too high for me to not simply go "all in".

Brave words. Investors tend to become risk averse as they age and I doubt you'll be any different.

[hex11]

GreyGhost said:

I'll admit gold has the advantage while there's a functioning financial system, it'll be a different story if we're reduced to bartering since "wealth" can then take all sorts of unusual forms, depending on what's available and in demand.

That's one of the reasons I prefer silver over gold. There's a lot more of it out there, which could allow it to eventually be used as currency once things cool down a bit after a major SHTF total collapse scenario. Gold might be used also, but it's much rarer and not as useful for say buying food or other daily necessities.

The other thing is gold may be subject to some correction in the near future, like silver was earlier this year. Currently silver is hovering below $40/oz, whereas gold is around $1800/oz. Historically the Au/Ag ratio was around 16, but it's now 45. So probably gold will come down, or silver will go up, or a bit of both. Either way, it seems like silver is a better investment at the moment.

Ordering a monster box of silver eagles is near the top of my todo list, along with cases of MREs and various other critical stuff. I'd rather there not be any SHTF situation, but if it does arrive, I won't be totally helpless. And if nothing else, I can use that stuff to go on camping/hiking trips.

[999cop]

Grazza said:

Presumably you weren't alive in October 2008. The few hundred thousand I made back then seemed pretty damned easy.

The current situation seems a lot less clear, as things could go in quite a variety of directions from here.

lol exactly

2009 was the easiest year to make money thanks to Big Ben and the people that sold me the shares so dirt cheap

[myk]

Maes said:
It's not as simple as that. In Greece, tax raises have been so extreme that hey actually drove consumption, and therefore economy development down. Maybe for the USA such an extreme scenario may seem still far away, but if pushed far enough, it could happen there too.

Another factor that works against tax raising in Greece is the state's inability to enforce them against any actor with moderate to powerful connections and influence, and therefore they only end up affecting the working classes, which however in turn drive consumption and development down.

Again, I heard that in the USA the IRS is relentless and supposedly more fair (?) but even in that case I can't imagine that the lower classes have it any easier before a prospective tax raise.

If I am not mistaken, in Greece, a chunk of the taxes are used to pay up debt interests, and the tax raises are combined with "austerity measures" that reduce economic activity, employment and salaries. Taxes aren't just a figure or a cost to society. Taxes are how taxes are used. They are a form of financing, and often one of the few ways to offset the natural concentration of capital generated by business (competition may create some opportunities, but also giants that then dominate the scene).

The US just generates its debt relatively freely because it doesn't have anyone on its back, instead of begging for it and being punished directly for it. The main problem isn't debt generation, but the lack of growth to deal with debt, and the austerity measures are going to deepen that on a national level, even though some businesses, especially the ones with international operations and lobbying power on the legislature, will profit from it.

That asshole (an understatement) on the first video was saying society is on crack on government spending, which is amusing because it leaves out that the "crack" also consists of private enterprise, which adds to the debt but acts like it's none of its business. Private businesses all have a limited scope in regard to economics, based on their market interests, so they don't need to and don't want to bother with other issues. This leaves a whole series of problems that can only be dealt with through public spending or channeling. No one profits from nothing. Any gains have to come from somewhere. It's easier to get rich if the others don't take a piece of the pie. And these austerity policies in the US and Europe are a conjoined initiative by dominant business to not be responsible for that cost, and a desperate attempt to get ahead while the bulk of society suffers the effect of the historical failure of western (neoliberal) economics.