Have you acted on these convictions you seem to feel so strongly? Have you e.g. bought options to buy gold in the future at a price much higher than the present one?

Yes, I have. I have placed certain bets against the dollar. There is not a single doubt in my mind that the dollar will keep loosing it's value - with some minor exceptions in the short term.

With all the billions of fresh created money (created out of thin air) being pumped into the US economy at the moment, the real devaluation of the dollar will pick up speed.

Interesting; what kind of bets?

Next to buying small amounts of gold and silver, I have made a couple of lucrative forex transaction. Since I receive my income in euros in Europe and live in Thailand (baht rate is connected to the dollar), I have been able to increase my income quite a bit when the dollar hits new lows.

I'm probably missing something. If the dollar is worthless because it isn't backed by real goods, why are gold and silver valuable? Just because of common consent, i.e. most throughout history have considered gold and silver to be exchangeable for goods? If that's your reasoning, then the same applies to the dollar, except on a lesser scale.

Here's some good information from an old thread (there's more links and information within the thread):

Source: http://news.ycombinator.com/item?id=410830

1. It is needed for industrial/electronics purposes.

2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each.

3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself.

4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.

Only items 1 and 2 represent sources of gold's 'value'.

Item 3 is simply a property of gold (which you may or may not find advantageous). For instance, the same thing can be said about granite. It does not rot like paper, but that has nothing to do with it's value as a currency.

Item 4 is simply an extension of item 2. The reason a single government cannot control the value of gold is because all the other government's of the world don't go along with it. This is great if your government is somewhat careless with it's money supply, but doesn't have anything to do with 'intrinsic value'.

Regarding 1, using gold as a currency drives up the costs of using it for industrial/electronics purposes, just like using granite as a currency would drive up the price of countertops. But the fact that gold has a practical use does impart it with some value.

However, the value of gold as a currency is entirely due to Item 2. Gold is worth something because everyone agrees it is worth something. It would be interesting to see how this came about. I'm willing to bet gold's value originated in it's scarcity (and the exclusivity of showing it off), but obviously it has nothing to do with anything 'intrinsic' to gold. It's just as likely that an accident of history would have revealed some other rare metal that royalty desired to show off, which would have imparted 'value' on this metal instead of gold.

The reason gold holds value today is entirely historical. People value it precisely because people have always valued it.

Well, quite. Tell that to Gordon Brown who flogged off the UK's gold reserves at 1/3 of the current price (he even announced weeks in advance that he was planning to dump a load of gold on the market which further drove down the price).

Common consent doesn't have much to do with the real value of precious metals.

The reason why gold and silver are "valuable" and the dollar is not, lies in the fact that gold and silver can not be created "out of thin air". This was exactly the reason why, in better days, currency was backed by gold or silver, thus transferring the intrinsic value of precious metals onto the currency.

No, the reason they have "value" is by common consent. The scarcity issue determines what options are available to manage the money supply, but gold/silver is still only valuable to me if someone else wants it.

If I were starving on an island, I'd much rather have a sandwich than a bar of gold. Gold is worthless without someone else around who wants it, just like fiat money.

The dollar cannot be created out of thin air either. The constraints are not physical, sure, but they are there.

Really? Care to name a few?

The US government has "outsourced" control of the money supply to a cartel of private banks who have, as far as I know, no restrictions on the amount of money that they're allowed to create.

This is where it really get's odd, banks pretend to have money but they don't. When the big banks lend 1 billion they did not create 1 Billion even if it looks like they did. The secret is there is more money in circulation than there is cash. So when you write a check, it just get's deposited in another account somewhere. So your bank can then borrow that money back if it needs to.

In the end there is more debt than there is money. So there is a lot of people who are constantly looking for money and they can't all get it at the same time. The actual amount of money is less important than the amount of debt out there. If Debt > money then there is demand.

PS: It's far less harmful for society to mess with the value of pretend money, than to take a useful thing like gold, and prevent people from using it for useful things. And because people don't have gold debt it's value is far more flexible. I don't think gold is worth much, and I don't own any, but I don't want to get into gold trading because guessing when the bubble pops is risk I don't need.

I really like how you communicated your point by repeating it in 5 different ways, including an if statement.

So, you're saying the government won't do anything to stop banks printing off reams and reams of money indiscriminately? Sure, like all things, power can be abused. But no power is absolute. It is all dependent, at least to some degree.

"Money is created through forms of credit and debt, i.e., when banks make loans and debtors accept them, the money instantly exists. Only a fiat system can allow this form of money creation." http://www.theoildrum.com/node/4611

Ok, I stand corrected, then. I didn't realize banks can make money whenever they want. Thus, money is really a form of speculation.

EDIT

I reverse my position. Sure, banks have the prerogative create money, but their ability to do so is based on people using the banks. Once banks no longer provide value for people, they lose their money creation ability. So, even banks are limited in their printing of money.

There goes the HN spam filter.

'What you just said means absolutely nothing: "backed by the taxing power of the US government".'

Money is recursive. The US government's acceptance of dollars is the base case. The US Military, Police, and various other force-directing agencies are the induction step.

It isn't entirely worthless, nor is its worth entirely intrinsic. It lives in the middle. Glib generalizations that put it on one end or the other are wrong.

I never stated that the dollar would be completely worthless, I only stated that it's backed by absolutely nothing.

For all the same reasons, it does not matter that the US government accepts dollars. It matters what you will get back for those dollars. When, if ever, people will come to collect en masse, the US government will have no means what so ever to pay of those creditors, in other words, the government becomes insolvent and the dollar plunges.

When the creditors come, they will get back what they have borrowed: Dollars. Why should that be a problem?

Remember: The US is indebted primarily in Dollars. Not in cars, gold or Euros. They can not go bankrupt for lack of their their own currency.

It's not backed by nothing. That's empirically, objectively false. You just don't like what's backed by. In another comment of yours,

"In my world, goods and services I purchase are the final goods, not the money I need to purchase them."

This is also objectively wrong. Sorry, the dollar is backed by the US government and I'm afraid those things are derived, not fundamental.

You are mistaking what you want to be for what actually is. And because of money's recursive nature, regardless of what you think about that, the fact that a dollar can be used to pay off Uncle Sam means it's usable to pay for a loaf of bread, too.

Furthermore, it doesn't matter what you base a currency on, it will always work this way. Base it on something like gold and the currency will still have higher order effects that aren't directly connected to gold. That's the entire purpose of money, to reduce the problem of trade to a single universal currency and thereby enable an economy to develop, instead of being stuck on barter. Barter may be concrete, but that's just about the only positive thing going for it.

(Even a barter-based economy will still prove vulnerable to bubbles and all the other problems of a money-based economy, it just won't also generate enough wealth to survive such things. Some things like economic cycles are fundamental to economies themselves and can be seen in economies where Man has no participation at all. Ecology can be seen as a degenerate case of Economics with no intelligent participation.)

Currencies do not need to be backed by anything. They are simply intermediary goods, valuable because of a coordination game. There is no "collecting in mass". The dollar is the final good. The U.S. has no debts outstanding in anything other than dollars ( which is quite a nice situation to be in).

In my world, goods and services I purchase are the final goods, not the money I need to purchase them.

About "collecting en masse", I guess time will tell. You might be right, for those holding large amounts of dollars (China for example) a "run on the US government" would be a bad thing, they're better off unloading their less valuable currency gradually and exchanging them for something with intrinsic value such as gold and silver. And in the mean time, the dollar will keep on loosing it's value.

Is gold really any less arbitrary than paper money?

Couldn't advances in technology create cheap alternatives to gold that would destroy its value?

Indeed. This is the point that gold-standard people don't seem to get. Gold is just as arbitrary as anything else. More so, even, because it is absolutely /useless/ in any aspect except as a valuable. It's too soft to do anything with. Furthermore, it has issues with being a finite supply that is occasionally moved around (no control over the monetary supply).

Steel. Now /that's/ what we should back our money with. Everybody needs steel. At least until carbon nanotubes get popular...

Another thing is control.

Having a gold standard means that gold mining companies can manipulate your currency. Suddenly find a huge new vein? Inflation! Go for a decade without any new discoveries? Deflation!

Ask someone who supports a gold-backed currency if they would be willing to back their currency with oil, and they look at you like you are crazy... as they should. But it's no more crazy than gold. Oil producing countries just have a more visible bad rap, so the problem with that particular commodity is more obvious.

I'd rather be in control of my own money supply thank you very much. Why you would want to leave it up to fate and potentially hostile entities is beyond me.

That's not true tho'; it's resistance to corrosion makes gold industrially valuable.

Currencies should be backed by something pretty fundamental. Eventually it has to be the Joule.

High entropy joules are 'intrinsically' worthless and easy to come by.

It is actually its finite amounts that make it valuable. Anything that can be produced at will not hold up as a currency.

Actually it's the demand that makes it valuable. (And the demand stems from everyone agreeing that it is valuable.)

There is a finite amount of uranium on earth too, but the only reason it's considered valuable is because there is demand for nuclear applications.

Only a little over 10% of gold is used for industrial applications. Without the demand provided by people agreeing that gold has value as a currency, the price of gold would plummet. The high value of gold is self-fulfilling... it's based on people's faith that everyone else thinks it is valuable.

But we do create more of it (or dig it out of the ground and refine it, as it were), there's simply a practically finite rate at which we can grow the gold supply.

So the value of gold should in fact deflate over time, as we produce more and more of it.

No, we mine it. We may discover more of it. But in ground reserve quantities are generally factored into the price of the stock of gold mining companies. So it is rather finite, and the more we explore and mine, the less likely we would be to discover more of it. Until someone invents the Philosopher's Stone.

No, we don't. No matter how you look at this, gold is not "created". Cold is extracted from gold mines, the only thing humans can do it try to find, but they simply can not create it.

Key here is that the total amount of gold on this planet is finite - not the production or extraction rate - making it truly valuable. Same thing applies to other natural resources such as oil, natural gas and diamonds.

>but they simply can not create it.

I seem to remember reading that that's not the case anymore. As in, we actually can make gold through transmutation. The amount of energy required to do so is bigger than the "value" of the resultant gold tough.

Wait, you can grow diamonds in a laboratory.

But Carbon is finite, too. (And on the same note, Dollars are finite, too. We have to store the bits somewhere.)

>We have to store the bits somewhere.

+1 for the fine, fine irony. Intended or otherwise as it might have been.

Actually, the real bottom line is work transfer, which can be measured in energy. Energy can produce material goods. If I give you 1MJ in exchange for work, you could do something with it.

  The only law money needs to follow is conservation, which energy fits. OTOH, the US government does screw around with the conservation law a lot, but it does apply to normal people.

http://news.ycombinator.com/item?id=424877 http://news.ycombinator.com/item?id=426142

12 points by demallien 20 days ago | link

Hey! Put some carriage returns in there! You're screwing up the page rendering...

I know this is off-topic, but every time I see a post like this, I feel like I'm back on /. during the 90's, why does this site feel the need to make the page wider than screen whenever pre-formatted text has long lines. (Other sites solve this by inserting scroll bars or forcing line wraps, but not this one.)

Depends on your browser. From what I remember, the pre's do properly size and have scrollbars in FF2, but not in FF3. The problem has to do with td cells expanding to fit their content I think.

There is a GM script that fixes this in FF3: http://userscripts.org/scripts/show/25039

Energy comes in a lot of grades. Low-entropy energy is useful (e.g. electricity). High-entropy energy is useless (e.g. the oceans at their normal temperature).

Sorry about that guys!

Thanks for telling me how to not do that in the future. In this case, for some reason the edit button has disappeared... possibly because it was posted a while ago.

Fix the bug!

Well you can carry around gold chips which have a lot of value. A gold coin is worth quiet a bit. Can't say the same for a steel coin. Have to carry around a lot more silver (in volume) to get the same value.

I suggest Germanium. (ducks)

Gold arose as a monetary standard through the decentralized choice of the marketplace. Metallic standards have been in use for more than two millenia.

In contrast, a pure fiat system has only been in place since the 1970s, and all previous examples of fiat systems in history ended with disaster. This one might be the first stable fiat system, who knows?

But it is a lack of perspective to deem a gold standard as kooky, strange, and new and consider fiat as proven, reliable, and stable. Our system is a bold new experiment.

Unlike fiat money, gold cannot be manufactured cheaply. This limits government's power to obtain it. Think of Zimbabwe. If you were a wage earner in Zimbabwe, would you rather keep your retirement fund in Zimbabwean dollars or gold? These are two extremes along a continuum of ways to store wealth.

Gold is a good way to store wealth because it is durable, of limited supply, dense in space and value, portable, fungible, dividable, identifiable, and universally valued now and for the foreseeable future.

Zimbabwean paper money is portable, fungible, dividable, and identifiable, but its performance on the other characteristics makes it it an overall poor way to store value.

All forms of government-created fiat money are in danger of going the way of Zimbabwean dollar. The issuing government can just decide to print more, thus devaluing the existing money.

Other ways of storing value have their own problems. Some people use land, but while land is potentially very valuable, it's not portable, fungible, or universally valuable. Businesses organized as corporations can be used to store value, and many people save for their retirement this way (by buying stocks). This has the benefit that in good times, the value of your investment can grow by itself. Unfortunately, it can also shrink by itself in bad times. Also, shares of corporations are not easily dividable.

My point is that forms of money (stored wealth) are not arbitrary.

Actually what he described is the basis for Fiat money systems everywhere. As long as the government demands that all entities doing business pay a tax in dollars, the dollars will be worth something to those entities. (It's worth freedom to do business.)

From Wikipedia: http://en.wikipedia.org/wiki/Fiat_currency

The unifying feature of all fiat money is its (typically exclusive) acceptability to the government for payment of taxes.

And yet again: http://www.absoluteastronomy.com/topics/Fiat_currency

Therefore the integrity of the financial system requires that there be a different ultimate form of backing, such as the acceptability of the fiat currency in payment of tax.

You missed my point: US citizens will always accept your dollars because they want to stay out of jail. This means they will give up whatever they have and give it to you. The entire sum of non-dollar poessions(goods and labor) of all US citizens are backing US dollar.