Gold is a real thing. The value of gold and willingness to trade it for food and shelter is a figment of our collective beliefs. We can assign that belief to any other thing we want, the US dollar, Bitcoin, whatever.
There is an interesting twist here that relates to the reflexivity (reflexivity, that thing Soros likes to talk about) of the value of gold. Precious metals may start off being precious because they are rare and beautiful materials that are easily crafted into decorative shapes. Girls like it. Guys like it. But then, because it doesn't decay it's value increases because it starts to be used as a standard trading commodity! Because that pile of gold can be converted into a house or food for a year or a farm, etc. that pile of gold increases in value. Indeed, pretty quickly this reflexive value eclipses intrinsic value, to the point where the gold itself doesn't matter except as a placeholder.
We can then jump to fiat currency. The key question is: how much real wealth can that pile of fiat money be converted into? The details vary (e.g. you can negotiate a better price) but fundamentally the real-world convertibility of a currency requires a functional, working market: the US dollar is powerful because you can easily and stably convert it into a basket of real goods. Indeed, the sheer size of the US economy means that this basket is unusually independent of demand, and can meet essentially unlimited demand in real goods. I mean, you could probably buy $100M of US corn today and not have any real effect on the supply. (Yes, you could overwhelm almost any single commodity market with $36B. Luckily Bill Gates did not decide to blow it all on bottled Coke, otherwise the world would be totally without Coke for probably a good two weeks!)
It is the physical, political, social, and legal environment that defines the machinery with which money is converted into real goods. Indeed, one could even justify US geopolitical goals (which pretty much boil down to "become invulnerable") as making possible the ultimately stable marketplace, which further strengthens the currency.
The problems arise, of course, when the machinery itself becomes perverted. We can define market perversion as "adversely affecting the machinery that converts money into real goods". There are a wide variety of such perversions, ranging from patent trolling (which perverts the R&D market), to the increase in size and complexity of the legal system to the point where prosecution is itself punishment (which also dampens innovation and reduces risk taking). This is partly why it is important to have a healthy middle class and not have too much concentration of wealth: if wealth is concentrated enough, then the wealthy wed with the machinery, and the perversion becomes systematic. We already see that with telecom and the FCC, banks and the SEC.
That's the problem with all currencies, even precious metals: they depend on the acceptance of people, on belief that they have some sort of value, when in fact they're just a fantasy. It's not real! If an epic catastrophe hit tomorrow, and one had Gold bars, they'd be utterly worthless: nobody would willingly trade their food and uncontaminated water reserves for currency (and if they did, they'd soon die of hunger or thirst); you can't eat or drink Gold, nor can you eat or drink money.
The market for gold's practical use pales in comparison to the market for its monetary use. Remember that central banks still hoard billions of dollars of gold bars in safes guarded by soldiers. Gold is a $12 trillion dollar market cap, and not because people love using it in electronics or showing off bracelets.
All value is human made. A painting is not worth $800m until someone decides to pay that much for it. Fiat dollars are only worth anything because we trust that other humans will take it from us in exchange for stuff we want. When we stop trusting this system, it ceases to have value. This happens for example in hyperinflation events where whole currencies die.
It is truly painful to read some of the misinformed posts on economic issues here.
Here is all you need to know:
- Gold is money, and has been considered money by all civilizations on earth for thousands of years.
- Gold does not decay, rust, degrade, or decompose in any way over time.
- Gold cannot be printed, duplicated, or fabricated in any way.
- Gold, because of it's unique color and atomic weight is almost impossible to imitate.
Gold is real money that holds it's value over time. It is not in a bubble. What is happening is that the bubble of fiat currency is deflating against gold. Gold holds it's value in a remarkable manner over time. You will find, for example, that a fine tailored men's suit has cost about one ounce of gold for hundreds of years.
When you figure out the fiat currency is the real "stupid" you will probably wish you had some gold. But, by then, it will probably be too late.
So if you hate fiat currency without any underlying value, why are you willing to defend any "currency" without any underlying value?
You could proclaim "GOLD STANDARD" I guess, and it might be better, or probably even worse. The big problem is that God filed all the gold under NOT USA. If South Africa wanted to devalue our currency then, they could mine a whole bunch of gold and put it on the market.
If you're going to have a currency valued on something tangible, it needs to exist only in the US, something we can control.
Also if you want to own gold, BUY GOLD! No one's stopping you! It has an intrinsic value in both jewelry and electronics! No need for this crypto nonsense!
In some ways, gold is the only real money. Governments have been secretly taxing their citizens by forcing them to use the gov't issued currency while printing more of it. Savers lose value in this process to finance short term needs.
You can't print gold. Even when gold prices wildly fluctuate, gold production doesn't b/c it's already so hard. In times like now, we're going to print lots of USD in one way or another.
Is there a gov't issued currency that's held its price better than gold?
All money is fiat money, in the sense that value is based entirely on social negotiation and agreement, not inherent use value.
Anyone who doesn't understand this should try eating gold. Or an ETF. Or a dollar bill.
Of course gold does have some use value, but so do plenty of other metals. The only special thing about it is that it has a history of being valuable - already a social agreement - and it gives a very clear agreed social signal when used in jewellery.
Violence underpins fiat currency as well. USG will take away everything you own and put you in jail unless you pay your taxes in USD.
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