Home Forums Hunting & Shooting Hunter's Campfire Dollar vs Ruble... The gold-bug perspective

antelope sniper posted:

�Gold and Silver have been worth nothing. There we considered of no value to the American Indian. Specifically the Sioux called it "The rock that makes white men crazy".

Gold and Silver are also subject to inflation and deflation, and can also be debased or recalled. It happened in this country during the 1930's.�




It is also true that gold has used as a store of wealth and a vehicle of commerce for over 2500 years. Much of the world was on a �gold standard� until the 30�s. Gold was convertible to fiat currencies until Nixon went off in the early 70�s. An ounce of gold could been had for about 42 greenbacks. Today, it takes 1200 greenbacks to buy an ounce of gold. Does this mean that gold went up or that the dollar went down?

If gold is seen as stable, the dollar has lost 95% of its value in those 42 years. Takes 28 times more greenbacks to buy that ounce.

Now let�s look at how the dollar fared against oil. When Nixon disconnected the dollar and gold, oil was about $2 a barrel. It takes $56 dollars to buy a barrel today. Has the true �value� of oil gone up from $2 to $56 or has the value of the dollar, the number of dollars required to buy a barrel of oil risen as the dollar lost value? We all know the answer to this; the dollar has been degraded and has lost value. It has lost about 95% of its value.

Here is the point. It now takes 28 times more dollars to buy that ounce of gold and it now takes 28 times more dollars to buy that barrel of oil. Coincidence? I think not. Let�s look at it another way: a barrel of oil is worth a barrel of oil and an ounce of gold is an ounce of gold. They are commodities that have intrinsic use and in turn value to mankind.

Sorry to be boring but let�s look at this another way. Before the Nixon theft, it took 21 barrels of oil to buy an ounce of gold. That is at $42 and oil at $2. Today it takes 21 barrels of oil to buy an ounce of gold. Gold at $1200 and oil at $56�. 1200/56 = 21.4

The point is that both oil and gold have enduring value to the world and the fiat currencies they are measured in always� always� devalue and deteriorate.

Gold does indeed have enduring value, as does oil or an ounce of silver or an acre of farmland. The fiat currency has value but will ALWAYS be devalued. Want to give something to your kids or grandkids that will have value? Which do you give greenbacks or gold or silver?

My prediction? The dollar will collapse and gold, silver, land etc will �sky rocket� in terms of their �greenback� valuation. Gold may be $4800, oil may be at $224. The DOW may go up or down depending upon how some financial cataclysm develops. Could be DOW at 7000 but it could also be DOW at 50,000. When folks start to lose confidence in value of US debt obligations, those �dollars� will come out of the bond/T bill markets and rush into anything that can be perceived to be an inflation hedge or to have enduring value. Then here comes the �New Dollar.�

FDR confiscated wealth from the US citizenry once. He called gold in at $20.67 then devalued the dollar when he set gold at $32. Clear confiscatory practice. Stole gold and stole purchasing power from the public. This can of course happen again. While gold will almost certainly be part of the SDR basket, that does not mean that gold ownership could not be outlawed. Could mean a worldwide ban on gold mining. BUT, given how gov�ts work around the world, I don�t see this as effective or even likely. Most likely there will be a variety of excessive taxation measures. BTW, I have read that only the dumb sheep turned in their gold at $20.67. Much gold made it to Canada, Mexico and beyond.

So, gold has been �money� for 2500 years and I expect it will continue to be. In fact, one could argue gold has been of enduring value in all cultures engaged in �business� and �commerce� for the past 2500 years. But yes, not with the American Indians and Neanderthals and other primitive cultures. Who among thinks there won�t be a gold market alive and well in 10, 50 or 100 years?

To each his own, you pay your money and take your choice.

TF

When Brenton Woods collapsed oil was at $3.56 a barrel, so your perfect correlation is lost. As for your understanding of Brenton Woods, it's also lacking. Fiat currencies could be converted into the Gold Backed dollar, and the dollar could be exchanged for gold at the "gold window". In August 1971 Nixon closed the gold window to eliminate the arbitrage opportunity, because, lets face it, $35.00 were not worth an ounce of gold at the time. As for changes in values of currencies, fiat or otherwise, that was Economist speak in terms of "constant dollars" and "purchasing power parity" to deal with these differences. As for FDR's gold grab, most of it was turned in at 20.67 an ounce. Over half of the 1.22 billion in gold outstanding was in certificate form. After the cut off date, 287 million in coin remained unaccounted for, indicating almost 80% was actually turned in. (Friedman, A Monetary History of the United States 1865-1960, 9th paperback edition, footnotes page 463-464.)

The relationship you express between Gold and Oil is nothing new. The Saudi's for along time have at some level unofficially thought of their price targets for oil in terms of gold. We can also see this in the econometric model I posted earlier where X(1) is the CRB commodities index. This index is heavily weighted to the price of oil.

As for Fiat currencies ALWAYS being devalued, let me as you this. HOW MUCH OF YOUR WEALTH IS ACTUALLY IN DOLLARS? If you were to look at the personal balance sheet of most americans, our assets are not in dollars. Sure you may have a few months worth of expenses in a plain savings account, but most of your assets are in equities, real-estate, bonds, and other real property such as pianos, antiques, guns and ammo. Some will have a position in precious metals, and may even have a position in foreign currencies.


As for what's considered currency during a true EOTW collapse, look at the Chinese famine of 1941. By and large, those most affected by the famine did not accept precious metals for barter, the two mediums of exchange quickly became gain and daughters.

If you are truly worried about a collapse, you might want to put aside a few Koku of rice (the Koku is an ancient Japanese currency equal to the amount of rice required to feed a man for a year), and have a few daughters.

One of the benefits of our current system is it allows the American participants the freedom to own a diversified set of assets to hedge the impacts of inflation, or for some profit from them.

As for what will our currency look like in 2500 years?
I suspect with will be virtually all digital, or we will be back to gain and daughters.

As for your predicted collapse, when do you expect it to happen?

AS,

As usual you miss the point and then choose to purposely mischaracterize re-define my opinion in order to advance your agenda.

First let�s look at the FDR theft. You state � ...Over half of the 1.22 billion in gold outstanding was in certificate form. After the cut off date, 287 million in coin remained unaccounted for, indicating almost 80% was actually turned in�.� Of course gold in certificate form is not gold bullion. So, your point was what? Gold certificates were turned in but bullion not so much? So you be ok being required to turn in gold in certificate form and then have that same �certificate gold� revalued upward to $32?

Second, let�s look at your �issue� with Bretton Woods. Fact is, I never mentioned Bretton Woods and somehow you allege that I do not understand it???? Where are you coming from? �.and it is well known that the �collapse� of Bretton Woods was not a one time or spur of the moment happening. What did happen was Nixon closed the gold window because (the French in particular) were drawing down US gold reserves. The dollar was under attack. You picked $3.56 and linked that with Bretton Woods and somehow think I have made an erroneous statement. No, it is you obfuscating. You have only an agenda and no facts. No, you chose �Bretton Woods� so you could plug in a different price of oil. The result is the same NO MATTER what dates you choose. YOU even state that when you made mention of the Saudis and the long term relationship with oil ...... YOU agree with the premise!

So now let�s look at your statement about �fiat.� Here is what you posted: �....As for Fiat currencies ALWAYS being devalued, let me as you this. HOW MUCH OF YOUR WEALTH IS ACTUALLY IN DOLLARS? �.� So, what does my portfolio have to do with the statements about fiat and how it ALWAYS depreciates in value? What point are you trying to make? Let me help you along here by asking a question: If I have $10,000 in Chevron is that an investment in �fiat dollars� or in �oil.�

Now regarding your comment about the EOTW. So, American Indians and some but not all Chinese in 1941 had no use for gold. Is that it? How about American Indians today? Or the Chinese in 1942? Did you know that 5 gold coins got a Vietnamaese on to a US helicopter at the fall of Saigon? But, I tell you what, why don�t you do an internet search and see if Yap Islanders had any use for gold in the 18th century???? Let me ask you another question. Do you think that the OP�s question was �gold or not gold?� Is the question gold or fiat? Is that YOUR point? You seem to be saying that gold has no value or no place. Odd, gold has held value for centuries but you seem to think it is worthless as either an investment vehicle or even as a �doomsday� barter item.

Now let�s look at this statement you made: � �..If you are truly worried about a collapse, you might want to put aside a few Koku of rice ��.� Why would you allege that I have not done this? Here you go again, you do not have any idea if I have �rice� put away but you try to make an issue out of it. You do not know whereof you speak.

Here is another statement you make: � ...One of the benefits of our current system is it allows the American participants the freedom to own a diversified set of assets to hedge the impacts of inflation, or for some profit from them. �� Well hell, who would quibble with that? Did you include that statement because you think I disagree with it? WTH?

Now, as for MY predicted collapse. Ah yes�. MY collapse � oh boy...anyway, I have stated before that I do not know when but it is in the future. Who knows? How would I know that? My guess? Two to eight years if we do not have significant armed conflicts.

TF

It's a demonstration of the natural way we diversify our assets to protect against the evils of inflation.



Neither. It is a dollar denominated equity of an oil producer.



I've said no such think. I just don't believe gold is the panacea that some people make it out to be. In addition, if you read closely, you will notice I qualified my statement to "those most affected by the famine", i.e. those who were starving to death. Gold still retained it value among those members of the aristocracy with a full belly.


That is your question, not mine.
Look at my original statement. I paraphrase, "gold goes down in a bull market". It was a simple statement regarding the simple truth that econometric modeling shows gold and equity prices are negatively correlated. The general rule is not to own gold in a bull market, but as you so aptly pointed out there are times when other variables may have a greater influence over the price of gold. In the above model, these include the size of M1 (or the running of the printing press as you call it), and commodity prices (which includes the price of oil).


Actually, I intended to put in a disclaimer (that I missed), ...if you haven't, or a few more if you have....
My apology.

[quot]Did you include that statement because you think I disagree with it? WTH?[/quote]
Why would I only include statements I thought you would disagree with? I thought we were having a conversation?



I give you credit for making such a bold prediction.

How severe do you think it will be. Are we talking 2008, 1929, or people in this country starving to death in the streets?

All,

FWIW for those still interested, I have links to three graphs.

The first graph shows how gold took off in 1972 when Nixon closed the gold window.

http://goldsilverworlds.com/gold-and-silver-prices-over-200-years-long-term-gold-and-silver-charts/

The second shows oil taking off in 1972.

http://en.wikipedia.org/wiki/Price_of_oil#mediaviewer/File:Crude_oil_prices_since_1861.png

The third shows a longer term look at how gold and oil move together. As I had posted earlier, the ratio varies quite bit. It has been as low as ten or so and up in the ranges about 21 where it is now. If one looks at these graphs and thinks a bit, one can conclude that the dollar has lost 95% of its value since 1972. I expect this trend to continue in the coming years.

http://www.marketoracle.co.uk/Article38141.html

Oops, double post.

If you use the price deflator, between 1971 and 2011 the dollar lost 77.5% of it's value.
It would take $4.44 in 2011 to buy the same goods and services you could buy in 1971. However if we extend you example and go back another 40 years, the would take $2.79 1971 dollars to purchase the same good and services as you could in 1931. During this 40 year period, the dollar lost 64% of it's value, much most of which we were on your coveted Gold Standard.

If you use the price deflator, between 1971 and 2011 the dollar lost 77.5% of it's value.
It would take $4.44 in 2011 to buy the same goods and services you could buy in 1971. However if we extend you example and go back another 40 years, the would take $2.79 1971 dollars to purchase the same good and services as you could in 1931. During this 40 year period, the dollar lost 64% of it's value, much most of which we were on your coveted Gold Standard.


AS,

There you go again, majoring in minors. Also, you again are trying to put words in my mouth. How do you conclude that I "covet ... a Gold Standard?"

TF

_________________________

You like to talk about the devaluation of fiat currencies, but ignore how asset back currencies can still devalue, as evidenced in my example.

So, how severe is the collapse going to be?

AS,

I do like to talk about about fiat currency devaluation as that is a "today" issue for the US. Folks will be better equipped to deal with the financial issues of the day if they understand what is going on.

btw, why would one want to talk about "asset backed currencies?" Is that relevant to today or not?

I already commented on the possible outcomes of financial calamity.

Why do you think I "covet" a Gold Standard?

TF

TF, Gold backed is a subset of asset back currencies. I just used the broader term. As for their relevance today, the only currency still partially backed by an assets is the Swiss Franc, with is 40% gold backed.

As for the severity of the calamity, I'm asking about your vision of the severity less in terms of financial numbers (you commented on a possible $240 a barrel oil), but in terms of suffering. 10% unemployment? maybe 25%? Will inflation devalue the welfare checks to the point the underclass riots?

How does Republican control of both the House and Senate affect your timeline?

Are you assuming QE will not be reversed, an if it is, like I predict, how will that affect your model regarding the timing and severity of the calamity?

Long term perspective of oil prices:
Note, this is in 2004 constant dollars.

[quote=antelope_sniper]TF, Gold backed is a subset of asset back currencies. I just used the broader term. As for their relevance today, the only currency still partially backed by an assets is the Swiss Franc, with is 40% gold backed.

As for the severity of the calamity, I'm asking about your vision of the severity less in terms of financial numbers (you commented on a possible $240 a barrel oil), but in terms of suffering. 10% unemployment? maybe 25%? Will inflation devalue the welfare checks to the point the underclass riots?

How does Republican control of both the House and Senate affect your timeline?

Are you assuming QE will not be reversed, an if it is, like I predict, how will that affect your model regarding the timing and severity of the calamity? [/quote

AS,

OK, here are some thoughts:

1. - I do not "know" and my thoughts amount to only views and are certainly subject to change as parameters change. All thoughts will change if we see a �shooting war� of significant magnitude.

2. - I would not be surprised to see the DOW head up to 21,000 - 25,000 as the dollar appreciates, being the best currency amongst a host of other weaker currencies. This may happen in the next 18-24 months. Money begins to leave US bonds/t-bills. The world continues to see a gradual reduction in business activity as the QE, in its various forms, around the world does not yield economic growth. Yes, QE continues. Money begins to flow from other countries to the US. This movement of money takes place as folks become more and more concerned about the lack of growth in anything but debt. A gradual crisis of confidence builds and the smart money moves first. We will see "inflation" in asset prices as "money" loses confidence in financial instruments. This is why the stock market goes up. Money searches for any type of hard asset that is not someone else's "promise to pay." Gold moves up with the DOW and the dollar. Other commodities languish.

3. - A Republican Congress means little as far as �solutions.� Congress and the Federal govt� continue in a state of deadlock with recriminations and blame abounding.

4. - The situation with Russia and the ME seems to improve and politicians declare victory and vow to work on world economic growth. However, ME oil production is plagued by continuing political issues within the ME. They continue to fight amongst themselves.

4. - Unemployment continues to rise and the middle class is further pressed. US gov�t increases all types of benefits so as to reduce pressure on the populace. Taxes are increased in attempts to cut deficits. Much political unrest ensues. Divisive issues such as race relations get much worse. Weak government begins more class demonization. I would not be surprised to see riots of significant magnitude. Police responses are insufficient. Vigilante action is not uncommon in many areas. Some areas are peaceful and some are not. As always, avoid the big cities and the coasts.

4, - The chickens come home to roost on the immigration issue. Illegal aliens are on the voting rosters and their impact is huge. He who robs Peter to pay Paul can always count on the vote of Paul.

5A. - The economic situation does not improve and then money begins to move in ways that are sudden and disturbing. Oil and gold fluctuate madly. Currencies wobble and there is great media coverage of a worldwide financial calamity. World leaders get together and proclaim a new economic order must begin. We find that large corporation and countries have been settling business debts/payments using SDRs and this has been going on for a couple of years. World leaders pledge to support the �new currency� and most people are glad and believe in it because they are weary of the impoverishment, crime and trouble. Countries yield sovereignty to this �new economic order.� The USD remains in some form but may only be used in North America�and only by the peasantry.... the euro will be used in Europe and Africa and the �yuan� used in Asia. The SDR currency is valued by a basket of ever changing commodities and by the $, Euro and Yuan. This seems to work well for a while. Precious metals do well as they are large components of the SDR basket. The new economic order does not work well in many areas of the world and barter economies emerge. Some bartering will be on a very large scale. This happens in 5-15 years.

5B - The economic situation does not improve and then money begins to move in ways that are sudden and disturbing. Oil and gold fluctuate madly. Currencies wobble and there is great media coverage of a worldwide financial calamity. Somebody..? Russia perhaps does not make debt payments to their European banks. Banks begin to fail. Confidence is lost VERY quickly. Other nations and banks repudiate their debt and confiscate assets of depositors. Capital controls have been implemented. Gold� and other hard assets rise dramatically in price and nervous money searches for safe harbor. Commerce begins to break down as nobody can figure out how to get paid. Food deliveries stop ...etc� police are overwhelmed and have walked off the job in some areas. Martial law was declared at some point. We get a Mussolini type in power and the American populace are initially happy as some promise of order has come. We get a �new dollar.� Indonesia and Peru are two great examples of currency devaluation and replacement with some new monetary instrument. This happens in 5-10 years.

Better not ask me what I think ever again.

TF

antelope sniper wrote<As for your predicted collapse, when do you expect it to happen?> End of quoted text

I am of the opinion that the government has already collapsed. Look at the situations that exist today among the corruption known as government.

CS,

Perhaps. It seems to be like watching a boxing match. Our guy in the red,white and blue did pretty good for a couple of rounds but it is now the 12th round and he is getting badly beat up. We watch and wonder if the next punch will put him out� or maybe it will be a TKO � or maybe he will last all 15 rounds and there will be a decision. We think our man has lost, we just don�t know if by KO, TKO or decision. If the KO comes soon or he is out by TKO in 2017 or by decision in 2020, we don�t know, but this isn�t Hollywood and our man is not Rocky.

TF