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

[samjones]

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.

A good investment is a bad basis for a currency.

 

[Flopper]

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.

Had we spent more on the right kind of economic stimulus, we would still have a serious deficit problem, but we would have more growth and more revenue. Spending should be cut substantially from present levels, but only after GDP is growing at 4 to 5% a year. Cutting spending, raising taxes, or raising interest rates in a weak economy is likely to bring on another recession which would be an even bigger problem than the deficit.

 

[likeabird03]

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.

Had we spent more on the right kind of economic stimulus, we would still have a serious deficit problem, but we would have more growth and more revenue. Spending should be cut substantially from present levels, but only after GDP is growing at 4 to 5% a year. Cutting spending, raising taxes, or raising interest rates in a weak economy is likely to bring on another recession which would be an even bigger problem than the deficit.

That is true, I think if the 800 billion dollar stimulus money were to be used more efficiently and on better programs it would have been a better idea. So what now? I really don't think we're looking down the barrel of 4-5% gdp growth anytime soon, and I don't think we should let our debt reach 150% of GDP while we sit around waiting.

I think if we cut in the right places it won't have too much of a detrimental impact on growth, but we're getting to the stage where we might just have to cut anyway. Otherwise, once all is said and done with Europe the eyes will be focusing on us. The outcome would probably be worse than just a recession.

 

[expat_panama]

...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!...

...Back then, stocks were - to me - an obviously shitty investment for the next decade...

--and that's because investing in 'stocks' is like investing in 'precious metals'. Can't happen.

All that's possible is to either buy a metal like gold from a dealer or buy a stock like Apple from a broker. Sounds like you settled for a mere 525% return when you could have bought Apple for $6.68 per share and sold it for $426.70. A thousand bucks in Apple could have earned you $61,571.85 which means your limited understanding squandered and lost forever a $56,321.85 opportunity.

OK, that's all in the past but today we can review, stare at our miserable stupid blunders, ponder deeply how we could have ever been so pitifully blind, and resolve now and forever that we'll never again call every single stock 'an obviously shitty investment for the next decade'. Or not. Another choice is to understand what we're good at, decide if it's getting us what we want, and then go ahead and enjoy life. Personally I'll go with the second option.

 

[Toro]

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!...

...Back then, stocks were - to me - an obviously shitty investment for the next decade...

--and that's because investing in 'stocks' is like investing in 'precious metals'. Can't happen.

All that's possible is to either buy a metal like gold from a dealer or buy a stock like Apple from a broker. Sounds like you settled for a mere 525% return when you could have bought Apple for $6.68 per share and sold it for $426.70. A thousand bucks in Apple could have earned you $61,571.85 which means your limited understanding squandered and lost forever a $56,321.85 opportunity.

OK, that's all in the past but today we can review, stare at our miserable stupid blunders, ponder deeply how we could have ever been so pitifully blind, and resolve now and forever that we'll never again call every single stock 'an obviously shitty investment for the next decade'. Or not. Another choice is to understand what we're good at, decide if it's getting us what we want, and then go ahead and enjoy life. Personally I'll go with the second option.

I did own Apple. Pre-split, when Gil Amelio was still the CEO, it traded at $12 a share and had $15 in net cash. I made a lot of money and sold it, albeit much, much lower than here. I've traded stocks off and on throughout this decade, and have compounded my capital at 14% p.a. during that time. But I've traded, not invested.

Again, I will re-iterate. In the same way that you are isolating one stock, you are isolating what you - one person - did this decade. Good for you. But if you said in 2001 "stocks are a good investment for the next decade," that was wrong. If you said "there will be good opportunities in stocks at various times," that would have been correct. But most people have done very poorly investing in stocks over the past 10 years. There is a time and place for everything. Generally, stocks have been a poor investment, with a few exceptions. Stocks have been in a bear market. Gold, and most other commodities, have been in a bull market. It is much, much easier making money in a bull market than a bear market.

 

[Flopper]

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.

Had we spent more on the right kind of economic stimulus, we would still have a serious deficit problem, but we would have more growth and more revenue. Spending should be cut substantially from present levels, but only after GDP is growing at 4 to 5% a year. Cutting spending, raising taxes, or raising interest rates in a weak economy is likely to bring on another recession which would be an even bigger problem than the deficit.

That is true, I think if the 800 billion dollar stimulus money were to be used more efficiently and on better programs it would have been a better idea. So what now? I really don't think we're looking down the barrel of 4-5% gdp growth anytime soon, and I don't think we should let our debt reach 150% of GDP while we sit around waiting.

I think if we cut in the right places it won't have too much of a detrimental impact on growth, but we're getting to the stage where we might just have to cut anyway. Otherwise, once all is said and done with Europe the eyes will be focusing on us. The outcome would probably be worse than just a recession.

Although I think a 4% GDP for 2012 is very unlike, it is certainly possible. Economists are predicting a 2.6% increase. The low expectations for GDP growth in 2012 are based on two factors. There will not be a resolution to the European debt crisis and there will be no compromise reached in the US mandatory spending cuts scheduled for 2013. Either is certainly possible. Even it takes 5 years or more to get GDP growth back to more traditional levels, no one is going to foreclose on the US government and there will no default. In fact, following the downgrade in US debt, demand for US treasuries has increased. It’s not that the US is in such great shape but as one economist pointed out, we’re the best horse in the glue factory.

 

[Paulie]

...On a gold standard you cant print money either because only the amount of gold, not politicians, determine the amount of money...

Lots of people believe that. Lots of poeple also believe that hot water freezes faster than cold water too. Let's look at how things really are. This is what US currency looked like when money used a gold standard:

The US government just printed it, and the money supply was not limited by the amount of gold. The year after it was printed the inflation rate peaked over 15% one month and the next month deflation was -7%. Wildly unstable prices was typical with the gold standard. In fact, 1920 had 16% inflation for the year and 1921 had -11% deflation.

The more we look at it the more we see that the gold standard was crazy and stupid.

This isn't a real gold standard. A real gold standard would consist of a money supply specifically relative to an amount of gold in existence. There would be no collapse due to a bank run because everyone's deposits would be accounted for and available for redemption.

 

[likeabird03]

Had we spent more on the right kind of economic stimulus, we would still have a serious deficit problem, but we would have more growth and more revenue. Spending should be cut substantially from present levels, but only after GDP is growing at 4 to 5% a year. Cutting spending, raising taxes, or raising interest rates in a weak economy is likely to bring on another recession which would be an even bigger problem than the deficit.

That is true, I think if the 800 billion dollar stimulus money were to be used more efficiently and on better programs it would have been a better idea. So what now? I really don't think we're looking down the barrel of 4-5% gdp growth anytime soon, and I don't think we should let our debt reach 150% of GDP while we sit around waiting.

I think if we cut in the right places it won't have too much of a detrimental impact on growth, but we're getting to the stage where we might just have to cut anyway. Otherwise, once all is said and done with Europe the eyes will be focusing on us. The outcome would probably be worse than just a recession.

Although I think a 4% GDP for 2012 is very unlike, it is certainly possible. Economists are predicting a 2.6% increase. The low expectations for GDP growth in 2012 are based on two factors. There will not be a resolution to the European debt crisis and there will be no compromise reached in the US mandatory spending cuts scheduled for 2013. Either is certainly possible. Even it takes 5 years or more to get GDP growth back to more traditional levels, no one is going to foreclose on the US government and there will no default. In fact, following the downgrade in US debt, demand for US treasuries has increased. It’s not that the US is in such great shape but as one economist pointed out, we’re the best horse in the glue factory.

Foreign purchases of US govt debt have decreased considerably since the Summer, rates of remaining low due to feds actions to buy Treasuries with printed money, the latest being operation twist to keep rates low.

While we are far less likely to get "foreclosed" on as a nation, there's other negative impacts of letting debt get up too high when compared to the size of our economy, such as economic stagnation. It would be awful to get to a point where a large percentage of our budget is allocated just to interest payments, that would have quite a choking effect.

I hope you're right about GDP growth returning to 4% soon, but I wouldn't hold my breath. We haven't had growth like that in 12 years. Even in the midst of a housing bubble we topped out at only 3.5% in 2004.

 

[expat_panama]

...1920 had 16% inflation for the year and 1921 had -11% deflation. The more we look at it the more we see that the gold standard was crazy and stupid.

...A real gold standard would consist of a money supply specifically relative to an amount of gold in existence...

It's an interesting thought, and something that's never happened and can't happen in real life, so instead of being crazy and stupid it's only pointless and useless.

 

[Paulie]

...1920 had 16% inflation for the year and 1921 had -11% deflation. The more we look at it the more we see that the gold standard was crazy and stupid.

...A real gold standard would consist of a money supply specifically relative to an amount of gold in existence...

It's an interesting thought, and something that's never happened and can't happen in real life, so instead of being crazy and stupid it's only pointless and useless.

With congress having the power to coin money, regulate the value thereof, and fix the standards of weights and measures, how is it not possible to have a gold standard in the true sense?

It's the tunnel vision of looking at it in terms of a limited amount of gold in existence and assuming there is no way to have enough of a money supply to sustain prosperity and growth. But this ignores congress' authorization to regulate the value of money. In reality, the actual physical amount of gold in existence is irrelevant.

 

[expat_panama]

...a limited amount of gold in existence and assuming there is no way to have enough of a money supply to sustain prosperity and growth. But this ignores congress' authorization to regulate the value of money....

Even if congress held a dollar equal to 1/20 troy oz. gold, the mechanism that creates most money is still banks loaning out depositor's money.

 

[Flopper]

That is true, I think if the 800 billion dollar stimulus money were to be used more efficiently and on better programs it would have been a better idea. So what now? I really don't think we're looking down the barrel of 4-5% gdp growth anytime soon, and I don't think we should let our debt reach 150% of GDP while we sit around waiting.

I think if we cut in the right places it won't have too much of a detrimental impact on growth, but we're getting to the stage where we might just have to cut anyway. Otherwise, once all is said and done with Europe the eyes will be focusing on us. The outcome would probably be worse than just a recession.

Although I think a 4% GDP for 2012 is very unlike, it is certainly possible. Economists are predicting a 2.6% increase. The low expectations for GDP growth in 2012 are based on two factors. There will not be a resolution to the European debt crisis and there will be no compromise reached in the US mandatory spending cuts scheduled for 2013. Either is certainly possible. Even it takes 5 years or more to get GDP growth back to more traditional levels, no one is going to foreclose on the US government and there will no default. In fact, following the downgrade in US debt, demand for US treasuries has increased. It’s not that the US is in such great shape but as one economist pointed out, we’re the best horse in the glue factory.

Foreign purchases of US govt debt have decreased considerably since the Summer, rates of remaining low due to feds actions to buy Treasuries with printed money, the latest being operation twist to keep rates low.

While we are far less likely to get "foreclosed" on as a nation, there's other negative impacts of letting debt get up too high when compared to the size of our economy, such as economic stagnation. It would be awful to get to a point where a large percentage of our budget is allocated just to interest payments, that would have quite a choking effect.

I hope you're right about GDP growth returning to 4% soon, but I wouldn't hold my breath. We haven't had growth like that in 12 years. Even in the midst of a housing bubble we topped out at only 3.5% in 2004.

2000 was last year we had a 5% growth rate.

Currently interest payments are 5% of government spending. By contrast it is 40% in Greece. The UK is also about 5%. Japan it's 25%. We have a ways to go before interest payments become a real burden on the economy. I believe long before that happens we will bring the deficit under control probably by a combination of tax increase and some spending cuts. There is no way it will happen with just spending cuts. That type of austerity program would have to last for many years and that's not going to happen because voters will not go along with it.

 

[expat_panama]

...We have a ways to go before interest payments become a real burden on the economy...

Interest was an excessive burden back before '97--

--and after over a decade of low interest rates and fiscal restraint debt interest is finally heading back up again.

...we will bring the deficit under control probably by a combination of tax increase and some spending cuts...

Tax hikes may get votes but only economic expansion accelerates revenue and that happens after rate cuts.

 

[samjones]

This isn't a real gold standard. A real gold standard would consist of a money supply specifically relative to an amount of gold in existence. There would be no collapse due to a bank run because everyone's deposits would be accounted for and available for redemption.

Nope. A "real" gold standard is simply an agreement by the issuer to exchange a fixed amount of gold for defined unit of currency.

A 20, a 10 and a fiver will get you an ounce of gold if you feel like driving down to Kentucky to pick it up.

 

[Paulie]

...a limited amount of gold in existence and assuming there is no way to have enough of a money supply to sustain prosperity and growth. But this ignores congress' authorization to regulate the value of money....

Even if congress held a dollar equal to 1/20 troy oz. gold, the mechanism that creates most money is still banks loaning out depositor's money.

Yeah fractional reserve lending...always one big bank run away from a collapse.

My favorite part of fractional lending is virtually mandatory taxpayer bailouts to sustain the system during times of economic distress.

 

[expat_panama]

...fractional lending is virtually mandatory taxpayer bailouts to sustain the system during times of economic distress.

Yeah, just like virtually mandatory taxpayer bailouts during a massive hurricane. Or an earth quake. Or, don't you just hate it the way the taxpayers had to foot the bill for WWII when a bunch of Hawaiians got bombed in 1941? OK, I'm being facetious, but helpless whining sucks. Propose your alternative and tell us where have you ever seen money handled, stored, and created better than with the American banking industry.

 

[EdwardBaiamonte]

Yeah fractional reserve lending...always one big bank run away from a collapse.

banks go under all the time. Usually the deposits are insured and the government merely transfers ownership to another bank.

The big banks are a problem though in that may be too big to bail. This is why Huntsman wants to break them up; especially now that they are bigger and more concentrated than ever.

 

[likeabird03]

Although I think a 4% GDP for 2012 is very unlike, it is certainly possible. Economists are predicting a 2.6% increase. The low expectations for GDP growth in 2012 are based on two factors. There will not be a resolution to the European debt crisis and there will be no compromise reached in the US mandatory spending cuts scheduled for 2013. Either is certainly possible. Even it takes 5 years or more to get GDP growth back to more traditional levels, no one is going to foreclose on the US government and there will no default. In fact, following the downgrade in US debt, demand for US treasuries has increased. It’s not that the US is in such great shape but as one economist pointed out, we’re the best horse in the glue factory.

Foreign purchases of US govt debt have decreased considerably since the Summer, rates of remaining low due to feds actions to buy Treasuries with printed money, the latest being operation twist to keep rates low.

While we are far less likely to get "foreclosed" on as a nation, there's other negative impacts of letting debt get up too high when compared to the size of our economy, such as economic stagnation. It would be awful to get to a point where a large percentage of our budget is allocated just to interest payments, that would have quite a choking effect.

I hope you're right about GDP growth returning to 4% soon, but I wouldn't hold my breath. We haven't had growth like that in 12 years. Even in the midst of a housing bubble we topped out at only 3.5% in 2004.

2000 was last year we had a 5% growth rate.

Currently interest payments are 5% of government spending. By contrast it is 40% in Greece. The UK is also about 5%. Japan it's 25%. We have a ways to go before interest payments become a real burden on the economy. I believe long before that happens we will bring the deficit under control probably by a combination of tax increase and some spending cuts. There is no way it will happen with just spending cuts. That type of austerity program would have to last for many years and that's not going to happen because voters will not go along with it.

That's because rates are artificially low. Those rates can skyrocket in the event we have to roll over old debt at a higher rate of interest. And it's actually nearly 10% of govt revenues, we just spend a lot more than we take in.

GDP growth in 2000 was 4%, and most of that was burn-off from 1999.

 

[expat_panama]

Yeah fractional reserve lending...always one big bank run away from a collapse.

banks go under all the time. Usually the deposits are insured and the government merely transfers ownership to another bank. The big banks are a problem though in that may be too big to bail. This is why Huntsman wants to break them up; especially now that they are bigger and more concentrated than ever.

That's a very important point, that the FDIC is a 'bailout' for the depositors and not the banks.

 

[editec]

...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.

Okay you gold bugs cannot have both ways.

If GOLD is the only unit of value that is REAL?

Then the " returns" one makes buying and then selling gold are illusionary.

Why?

Because the gold really didn't change its value while you owned it, all that changed was the exchange rate with dollars.

So make up your minds.

Either you own gold and it has the value of gold as long as you own it (and everything else is FIAT) or gold is just another commodity with fluxuating values depending on the market for gold.

It cannot be BOTH.

If gold is the unit of measure then gold cannot rise in value.

If gold is just another commodity then one CAN make or lose money on its price in comparison to FIAT specie.

I KNOW you gold bugs will NOT get the above.

Your concept of what money really is is too clouded for you to understand why gold is just another commodity.