Learning from Europe while it is , in effect, on a gold standard

[EdwardBaiamonte]

When there was a gold standard the government artificially fixed the price of the gold to control its effect on the paper currency.

as a liberal you miss the point completely!! A gold standard is not really a gold standard if politicians can manipulate it.

Read OP for comprehension. Greece has no control of the amount of money in circulation. It can't print money to pay its debts. It really has to pay them or have Europe pay them instead. Either way the Euro gold standard puts an end to irresponsible liberal welfare state behavior.

 

[Flopper]

Unless Europe adopts a unified government that can control every countries budget, their financial system will collapse possibly as soon as Monday morning.

I tend to agree. Unlike the US government, the EU makes up a budget then assess the member states for revenue after the budget year ends, so the member states don't seem have much control of the EU budget. Most of the member states have no balanced budget requirement so they can run their budgets in the red. The EU attempts to set fiscal policy but so do the member states and they don't necessarily agree. Maybe there is something I'm missing but this sounds like a receipt for disaster in times like these.

 

[Flopper]

Gold markets are notoriously volatile

True.... Gold isn't really good for much. It's extremely conductive, but there are replacement materials and the amount of gold required to benefit from its conductivity is extremely small. It's not "valuable" any more than the diamonds that are used to cut glass are valuable.

Gold is good for ornamentation because it's shiny and incredibly soft and durable.... they make great little statues with it and furthermore it has proved valuable for virtually all cultures and in every era, so it has staying power, that's for sure.

It's main use is to store wealth. The supply of gold probably won't be increasing any time soon. It can't really be manufactured in a practical way. It can't be counterfeited easily. It doesn't spoil. It isn't hard to keep.

It's value relative to other goods is extremely volatile and that's why it makes a poor basis for a currency. When there was a gold standard the government artificially fixed the price of the gold to control its effect on the paper currency.

Even if a gold standard could be implemented in today's world of electronic money, it still wouldn't be practical. You don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, you won't be able to stay on it very long anyway. The limitations on the government's ability to respond to fiscal crises, the necessity of defending against speculative attacks in times of crises, and the possibility of independent changes in the relative price of gold, make your economy more unstable. It's a terrible idea, which is why there are so few economists willing to raise their voices in support of it and there no countries that use the gold standard.

 

[samjones]

...The supply of gold probably won't be increasing any time soon. It can't really be manufactured...

The supply of gold we've mined doubles every 40 years or so, and can keep doing so for another ten thousand years with just the gold on the earth's surface. There's a lot of gold.

True, that was a clumsy statement. I intend to say that it is virtually impossible that any of the currently known techniques for creating gold out of less valuable materials will ever result in a commercially viable process.

I intend to say that it is exceedingly unlikely that an entirely new source of easily accessible gold will be found as has happened several times in history. The discovery of the new world, the California Gold Rush, etc.

Production of gold doesn't really seem to affect its price. If you own gold I wouldn't worry that someone's going to hit a motherlode and that's going to drop the value of your investment.

 

[likeabird03]

I was listening to a good discussing today about the European financial situation. It appears Europe will drift into a recession because they have chosen to do so.

Chosen because they want to go into recession to try and sort out imbalances or just as a side effect to the fact they haven't addressed so many of their issues? Just interested in knowing what the discussion said about it.

Basically Europe is moving toward fiscally tightening while the ECB is no longer aggressively pursuing credit easing. Banks are much more concerned with safety of assets than economic expansion, similar to what we saw in the Great Depression. Moving toward austerity when business is starting to slow down pretty well guarantees a recession. The question is not whether the economy will contract in Europe, but how severely.
...

So in other words they don't have much of a choice and need to take their medicine. We need a dose of that medicine too.

 

[samjones]

When there was a gold standard the government artificially fixed the price of the gold to control its effect on the paper currency.

as a liberal you miss the point completely!! A gold standard is not really a gold standard if politicians can manipulate it.

Read OP for comprehension. Greece has no control of the amount of money in circulation. It can't print money to pay its debts. It really has to pay them or have Europe pay them instead. Either way the Euro gold standard puts an end to irresponsible liberal welfare state behavior.

You don't understand the difference between a gold standard currency and a gold based currency. In a gold standard currency politicians manipulate the price of the gold that they're willing to redeem their notes for. They corner the gold market and manipulate the price. They put in bizarre schemes where multiple notes are issues for the same gold (i.e. Bretton Woods).

Liberals and conservatives alike manipulated the gold-backed currencies. THis $hit goes way back. Way, way back.

Greece certainly controls their own finances and they have many arrows in their quiver besides printing money.... read..... learn.

 

[expat_panama]

...One day, it will not be a time to own gold, just like it has not been the time to own stocks over the past decade...

LOL, this past decade I've doubled my money in stocks! Some people are always good at buying and selling metals just like others are good with stocks or real estate or currencies or used cars. Each market has it's own quirks and opportunities.

...FTR since the last vestiges of the gold standard was severed in August 1971, the return to owning gold has been slightly less than the return to owning stocks with dividends reinvested. If you spent your dividends instead of reinvesting the cash into stocks, gold has far outstripped equities since that time.

--accept that Americans buying gold in 1971 were arrested. A decade later buying gold was legal, and since then gold's price has tripled. S&P500 is up ten-fold.

 

[Toro]

LOL, this past decade I've doubled my money in stocks!

Good for you. You're an outstanding stock picker. However, you would have done better buying gold. In December 2001, gold was $280. Today it is $1750. And for most people, the past 10 years has been a lost decade for stocks. The S&P 500 was at 1150 in December 2001. Today it is 1260.

There is a time to buy any asset and there is a time to not. A decade ago, you should have bought gold and sold stocks. A time will come when you will want to own nothing but stocks and not an ounce of gold.

 

[expat_panama]

...Production of gold doesn't really seem to affect its price...

Not at first glance, but prices can spike overnight while big production increases take decades. So what happens---

--is a lag between the two plus a big difference in how fast each can change.

 

[expat_panama]

...You're an outstanding stock picker. However, you would have done better buying gold...

That's got to be high up on the 10 Stupidest Thread Post Statements List. I definitely would not have done better buying gold because I didn't; I'm not a gold trader. Don't feel bad, lot's of my comments on that list too. Maybe what you really intended to say was 'gold prices went up more this past decade than the S&P500. Everyone knows that, now; tomorrow's another story...

 

[Toro]

...You're an outstanding stock picker. However, you would have done better buying gold...

That's got to be high up on the 10 Stupidest Thread Post Statements List. I definitely would not have done better buying gold because I didn't; I'm not a gold trader. Don't feel bad, lot's of my comments on that list too. Maybe what you really intended to say was 'gold prices went up more this past decade than the S&P500. Everyone knows that, now; tomorrow's another story...

I didn't realize that calling you a good stock picker was one of the stupidest posts ever. I apologize for over-estimating your ability.

You didn't have to be a gold trader. You had to buy once, ten years ago. You could have taken the advice of a sharp financial adviser. You can sell now and lock in a 525% return.

 

[samjones]

Even if a gold standard could be implemented in today's world of electronic money, it still wouldn't be practical.... It's a terrible idea, which is why there are so few economists willing to raise their voices in support of it and there no countries that use the gold standard.

It's a great idea.

1. Peg the price of gold a $1000 per ounce and force everyone in the US to sell the gold they have to the government at that price.

2. Issue gold certificates promising to sell that gold back to bearer at that price but then don't actually deliver on that promise.

3. Print way more gold certificates than you have gold.

4. When it becomes apparent that the "gold standard" isn't working, blame the underlying metal for the failings of the system and switch to fiat.

5. Sell the gold to finance operations.

But don't do this all at once or people might feel like they're getting ripped off. Do it in stages over a period of 30 or 40 years and you'll get away with it. That's what happened between 1935 and 1975.

 

[Flopper]

Chosen because they want to go into recession to try and sort out imbalances or just as a side effect to the fact they haven't addressed so many of their issues? Just interested in knowing what the discussion said about it.

Basically Europe is moving toward fiscally tightening while the ECB is no longer aggressively pursuing credit easing. Banks are much more concerned with safety of assets than economic expansion, similar to what we saw in the Great Depression. Moving toward austerity when business is starting to slow down pretty well guarantees a recession. The question is not whether the economy will contract in Europe, but how severely.
...

So in other words they don't have much of a choice and need to take their medicine. We need a dose of that medicine too.

The US shares a lot of the same problems as the EU. The big difference is the US speaks with one voice with regard to fiscal policy. The EU speaks with 17. Both the US and most of the EU countries where running large deficits in 2008 when the recession began. Both dropped interest rates with little response. Both enacted large stimulus plans but because the depth of the recession was far deeper than either thought, the stimulus only stopped the recession without setting either on a path of strong growth. In both the US and Europe conservative forces pushed for austerity to bring deficits under control favoring a conservative fiscal policy over growth stimulus.

Europe is in for some ruff times over the next couple of years.

 

[likeabird03]

Basically Europe is moving toward fiscally tightening while the ECB is no longer aggressively pursuing credit easing. Banks are much more concerned with safety of assets than economic expansion, similar to what we saw in the Great Depression. Moving toward austerity when business is starting to slow down pretty well guarantees a recession. The question is not whether the economy will contract in Europe, but how severely.
...

So in other words they don't have much of a choice and need to take their medicine. We need a dose of that medicine too.

The US shares a lot of the same problems as the EU. The big difference is the US speaks with one voice with regard to fiscal policy. The EU speaks with 17. Both the US and most of the EU countries where running large deficits in 2008 when the recession began. Both dropped interest rates with little response. Both enacted large stimulus plans but because the depth of the recession was far deeper than either thought, the stimulus only stopped the recession without setting either on a path of strong growth. In both the US and Europe conservative forces pushed for austerity to bring deficits under control favoring a conservative fiscal policy over growth stimulus.

Europe is in for some ruff times over the next couple of years.

I don't think you're going to successfully make the argument that we're in this debt crises because we didn't spend enough.

 

[FireFly]

Physical Gold Price

1971 = $35

Today = $1,785

4400% increase

"Stocks" never did that well.

 

[Toro]

Physical Gold Price

1971 = $35

Today = $1,785

4400% increase

"Stocks" never did that well.

Actually, since that time, gold is up about 9% per year and stocks are up about 10% a year with dividends reinvested. Without dividends reinvested, stocks are up about 6% a year.

 

[FireFly]

Physical Gold Price

1971 = $35

Today = $1,785

4400% increase

"Stocks" never did that well.

Actually, since that time, gold is up about 9% per year and stocks are up about 10% a year with dividends reinvested. Without dividends reinvested, stocks are up about 6% a year.

That was likely not a buy & hold stock strategy, because a lot of those stocks went to zero.

 

[Toro]

Physical Gold Price

1971 = $35

Today = $1,785

4400% increase

"Stocks" never did that well.

Actually, since that time, gold is up about 9% per year and stocks are up about 10% a year with dividends reinvested. Without dividends reinvested, stocks are up about 6% a year.

That was likely not a buy & hold stock strategy, because a lot of those stocks went to zero.

That's the return of the S&P 500. It represents the broad market.

 

[expat_panama]

...didn't have to be a gold trader. You had to buy once, ten years ago. You could have taken the advice of a sharp financial adviser. You can sell now and lock in a 525% return.

LOL-- or taken the advice of an even sharper financial adviser and bought Apple ten years ago and locked in a 5,813% return plus dividends! What I was talking about is the fact that nobody makes any money from what they 'could' have done. We make money only from what we've done. It's a lot healthier and more useful to focus on what's going on and what we're doing now than to grouse about what we should have done years ago.

 

[Toro]

...didn't have to be a gold trader. You had to buy once, ten years ago. You could have taken the advice of a sharp financial adviser. You can sell now and lock in a 525% return.

LOL-- or taken the advice of an even sharper financial adviser and bought Apple ten years ago and locked in a 5,813% return plus dividends! What I was talking about is the fact that nobody makes any money from what they 'could' have done. We make money only from what we've done. It's a lot healthier and more useful to focus on what's going on and what we're doing now than to grouse about what we should have done years ago.

Sure. But that doesn't mean you don't learn about new things. Back then, stocks were - to me - an obviously shitty investment for the next decade, barring a few exceptions. I knew nothing about gold until I picked up an article in January 2002 on gold supply and how there hadn't been any new mines built since 1995. Within a year, I was the largest owner of gold stocks in the SE, or so I was told, and they represented 10% of my fund.

There is a time to be involved in any investment and a time not to be. That's the point.