Author Topic: Precious Metals  (Read 23338 times)

vand

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Re: Precious Metals
« Reply #250 on: November 01, 2019, 03:35:00 AM »
Gold has a very long history of increasing purchasing power, roughly in line with economic expansion.  If you understand the nature of gold as money this makes complete sense; one of the definitions of good money is as a store of wealth. As real productivity and overall wealth increases then money itself becomes more valuable. That is to say for the same amout of real money you can now exchange it for more goods and services.  What other vehicle has there been, historically, to enable to the common man to save and transfer his wealth down through generations in, say feudal times, if not in real money?


Good Money Appreciates:

https://www.youtube.com/watch?v=GnCHmLsV6Ro
https://www.youtube.com/watch?v=l8_wqmsjrsY
https://www.youtube.com/watch?v=Lwnowt6p5O0


However, the fly in the ointment is its long cyclical nature and its volatility. Even the value of real money relative to other assets can change by a factor of multiples over the medium and longer terms.
« Last Edit: November 01, 2019, 03:41:37 AM by vand »

RWD

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Re: Precious Metals
« Reply #251 on: November 01, 2019, 07:06:18 AM »
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?
If you assume your investments will only match inflation you will need ~60x your annual expenses invested instead of 25x to retire early (without pensions/social security/etc.). For Mustachians saving 70% of their income that investment decision is the difference between working 26 years versus 8.5 years. For a mildly financially ambitious person saving 20% that is the difference between working 240 years versus 37 years.
The older generation has screwed the younger generation.  They have succeeded in pricing assets so high that future returns will be much lower.
The current PE ratio is 22.61. That corresponds to a 4.4% return. Or if you want to use the Shiller PE it's 30 which corresponds to 3.3%. Even if it isn't as good as the past (6-7%) it's still going to beat inflation which is the whole point we were discussing here. Saying "Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?" is very different than "future returns will be much lower." Don't move the goalposts.
« Last Edit: November 01, 2019, 07:08:06 AM by RWD »

waltworks

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Re: Precious Metals
« Reply #252 on: November 01, 2019, 08:20:30 AM »
For crap's sake, stop reading Hussman. The prophets of doom have predicted 15 of the last 2 recessions...

In fact, if you're going to read anything, read this:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Here's the money quote if you don't want to bother: "If you are going to make investment mistakes, make sure you are biased towards optimism and not pessimism. Long-term thinking has been rewarded in the past and unless you think the world or innovation is coming to an end it should be rewarded in the future. As Winston Churchill once said, “I am an optimist.  It does not seem too much use being anything else.”

-W
« Last Edit: November 01, 2019, 08:23:29 AM by waltworks »

ChpBstrd

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Re: Precious Metals
« Reply #253 on: November 01, 2019, 09:50:43 AM »
Everyone’s doing their “research” in social media bubbles. In the Boglehead / MMM forums, one is advised to buy an aggressive allocation of index funds. Then you have YouTubers and bloggers promoting gold. Seeking Alpha promotes stock picking / timing. And in the margins of these sites/apps you see people selling annuities.

I wonder if one’s investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

It’s a terrifying thought.

Classical_Liberal

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Re: Precious Metals
« Reply #254 on: November 01, 2019, 01:06:02 PM »
I wonder if one’s investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

Chicken or egg. People look for confirmation bias.

waltworks

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Re: Precious Metals
« Reply #255 on: November 01, 2019, 01:51:28 PM »
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

In terms of your regular 'merican, assuming they invest at all, it's definitely tied to their age/social status/political leanings and what they are entertained by. Old and grouchy? The Fox anchors are on all those gold commercials! Young and hip? The e-trade baby is hilarious and my co-workers all like bitcoin and tesla! Unsure new parent? An Edward Jones door to door jackoff in a cheap suit will hold your hand and take your money.

Here in UT our preference is for faith and/or nutrition-based ponzi schemes. My blessed essential oils business has really taken off but I need a new round of funding - you and your friends and family can get in now and make a guaranteed 20%!

-W

nancyfrank232

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Re: Precious Metals
« Reply #256 on: November 01, 2019, 02:42:11 PM »
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

Soooo true

When I can’t sleep, I visit bogleheads

TomTX

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Re: Precious Metals
« Reply #257 on: November 01, 2019, 07:19:19 PM »
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?

You may have two decades of real estate experience, but it appears to be quite shallow.

Escrow is very common. Rolled into the mortgage payment. Thus the $810 monthly mortgage payment is probably PITI, not just PI. Your calculation appears to be just based on PI.

Monthly @ 2% of purchase price is darn high. Obviously very profitable if you can find it - Old school rule of thumb for likely cash flowing a property was just 1% - in a much higher interest rate time.

Radagast

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Re: Precious Metals
« Reply #258 on: November 01, 2019, 09:42:15 PM »
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.

The 1% rule is what is commonly used around here. 2% has at best been rare and only in questionable places, and likely impossible now. You don't need a real estate professional to tell you what cash flow will be. You can use any online real estate site to get your estimated mortgage payment, add some maintenance and management fees, and then look at comparable rents.

Telecaster

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Re: Precious Metals
« Reply #259 on: November 02, 2019, 10:32:39 AM »
Since there have been many comments in these pages on long-term investment returns spanning multiple decades, I assume many readers here are familiar with the work of John Hussman (see hussmanfunds.com). He publishes a free monthly commentary (they are fairly repetitive, so once you read a few it's like having read them all). He's considered by many in the investment community to be the "smart money".  Based on historical evidence, he is currently projecting negative returns on a 10 year investment horizon, and that's in nominal terms, not real terms.

If you read Hussman, he certainly sounds like a smart guy.  He doesn't come across as a kook or conspiracy theorist or anything.  That said, he started his flagship
Strategic Growth Fund (HSGFX) right in the dot com melt down, so perfect time to start a bear/defensive portfolio.  We've been through a couple economic cycles since then, and the fund has a CAGR of -0.91% since Jan 2001.

You can play all the defense you want, but you've gotta score some point a long the way.  Had you invested in a nice index fund back then, your investment would have more than tripled.  Had you gone with Hussman, you'd be down 20%. 


Orthodox Investor

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Re: Precious Metals
« Reply #260 on: November 03, 2019, 06:52:32 PM »
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price. Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears. Arguably, it's already happening, given that home prices have doubled or tripled in many places in a few short years. On the other hand, if you look at Hong Kong, you wonder why people are still hanging on to their million dollar apartments given that China will be able to legally turn the city into an Orweillian nightmare in 2047.

If you live near an Albertson's you can buy a dozen eggs for twelve cents this week and there are numerous other deals where you can buy groceries at extreme discounts. This happens as a result of a variety of factors, including price-insensitive buyers who use your tax money to purchase overpriced food items with their EBT (food stamps) cards (thereby giving supermarkets the flexibility to pursue a high-low pricing strategy, meaning they sell both overpriced and underpriced items). This type of thing has been going on for decades and for frugal shoppers makes it seem like we live in a deflationary world.

What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.

Mathematically, it is obvious that the only way you get richer is by making others get poorer. Given that the wealth in the world is mostly controlled by the top 1%, every time the value of conventional asset portfolios goes up for the bottom 95%, they are actually getting poorer. This is because the wealth gap keeps widening as asset values rise. I think the actual inflation rate in the world is the rate by which the combined value of all investment assets in the world increases. Since the ECB, SNB, and the Japanese Central Bank are already in the process of monetizing corporate bonds and stocks, and Yellen has already hinted at the possibility that the Fed may do so in the future, it's not unreasonable to consider all investment assets (other than derivative instruments) to be money good.

Radagast

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Re: Precious Metals
« Reply #261 on: November 03, 2019, 08:48:31 PM »
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price.
Sorry I did phrase that poorly.

Quote
Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears.
I do not understand. Nearly no people are both willing and able to do that. What price differential?

Quote
What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.
I just checked and that area has several multi family homes which if anything seem to be getting better rates of return than I get (I went by gut when I bought the house, having not discovered personal finance yet). It was not a one off opportunity and those types of deals exist in many parts of the US.

Different people have different objectives and time frames. I'm not a sucker if I pay $100 for a hotel or an Air BnB, I'm just a person who wants a decent place to crash and shower for a night. Now I am renting again, while still owning the house. I observe based on the high rent and overall cheapness that the owner is almost certainly making bank, but I'm not a sucker for choosing to rent here for a year or two. On my time frame it makes the most sense, and I joyously call someone else to fix the dishwasher. My tenants are not getting screwed by paying me, in fact they were pretty happy to be there instead of their previous digs. Eventually (I presume, probably with cause as I noticed one gets Vanguard statements) they will move onto bigger and better things.

Quote
Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.

RWD

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Re: Precious Metals
« Reply #262 on: November 03, 2019, 08:54:20 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

Not only is this not obvious, it is actually wrong. Wealth is not a zero sum game.

maizeman

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Re: Precious Metals
« Reply #263 on: November 03, 2019, 08:54:46 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.

+1 to this point by Radagast. It's possible to grow the total pie of wealth, not only to take from someone else to give to yourself.

If wealth was constant, people would have have a much higher standard of living 400 years ago than today, as the same amount of wealth would be spread much more thinly across a much larger population.

js82

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Re: Precious Metals
« Reply #264 on: November 04, 2019, 07:28:29 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

On paper, perhaps.  In practice, nonsense.

Most of the energy we use on our planet comes from the sun, either directly(solar energy) or indirectly(growing plants, hydroelectric power, technically even fossil fuels).  In the end, harnessing that energy to do work, be it by growing crops or generating electricity to do/make useful things, makes someone richer.  If done in the right way, it makes that person richer without generating negative externalities for others.

Furthermore, productivity/efficiency gains are a direct refutation of your assertion.

Paul990

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Re: Precious Metals
« Reply #265 on: November 28, 2019, 01:01:02 AM »
I agree that is likely true over some very long time period.  Question: who keeps a $100 bill in their pocket for decades?  If you simply put the $100 bill in the bank and collect interest the calculus changes a lot. 
What interest Telecaster?
Not everybody lives in the USA

If you put the $100 in a diversified basket of stocks then there is no question who comes out ahead.
... unless you choose the wrong timing and/or the wrong basket of stocks...


As we constantly compare gold's and stock's performance, let's expand for a moment on the subject Why stocks have performed so good.
What will happen to the stock markets when the central banks stop pumping trillions in the financial markets?
Because this is the dilemma the central banks are in: It's not weather lowering or not interest rates but weather keeping pushing up the financial markets or not.
Well, actually it's no dilemma. They will keep sustaining the financial markets, but the result of that is not only currency debasement but also increasing wealth inequality: those inside the financial markets profit from it, those outside of it don't.

This is Peter Shiff:
Quote
When you buy an asset and you incur debt, inflation makes you rich because it wipes out the value of the money you borrowed and now you’re left with the real asset that you purchased. But who gets wiped out? The savers. Who are the savers? The average guy who’s got a 401K or a pension. He’s got an annuity. He’s got cash value in life insurance. He’s got bonds. He’s got some savings — he’s getting wiped out.
And so the people who levered up to buy assets, which are generally richer people, have gotten richer, and the people who haven’t done that, who aren’t as sophisticated, don’t have the incomes or the assets to do that, you know, they’re just trying to save their money. Well, they’re getting eviscerated.


Two pages ago I already quoted Blackrock mentioning that a Gold Standard would prevent the Central Banks from producing currency at will.
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.


Paul990

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Re: Precious Metals
« Reply #266 on: November 28, 2019, 01:27:51 AM »
Cash is just a tool. It's not an investment, and it's not useful or interesting to talk about the value of gold vs the value of fiat currency unless you're literally stuffing your mattress with $5 bills.
@Walt, you are right in that talking about gold here doesn't distinguish between its currency and its investment side.
Gold is both. (Silver too)
Gold is the only thing being at the same time currency (money, means of payment) and asset (investment, commodity).

As you say, there is no point in comparing a currency with an asset, but in this case, we were comparing gold as currency and fiat.
In general, gold-currency stores value (purchasing power) better than fiat-currency.
Don't forget that unlike many here, for me fiat-currency is not a synonym for $


All in all, I believe that any situation is different and planning for it is complicated if not impossible and this is why having diversification (gold AND currencies in a safe AND stocks, ...) is the key.
I agree.
Thanks for your testimony.


What this says to me is 2 things.
1) How goes the US, so goes the world...
... as long as the $ is the world reserve currency.
A role that it's quickly losing


2. Assets that track with inflation *AND* offer a return on investment independent of inflation are superior investments to vehicles merely designed to track inflation.
Yes but they are riskier.
"You don't want to own gold, you want to own gold mines".
Why either or? How about both?

3. Although Stocks are high-risk over short time horizons, over longer time horizons(decades) a diversified stock portfolio is really not that risky.
I agree, particularly when you have central banks pumping trillions into the financial markets.
The BOJ is one of the 10 biggest stockholders I think.

TomTX

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Re: Precious Metals
« Reply #267 on: November 28, 2019, 05:41:05 AM »

@Walt, you are right in that talking about gold here doesn't distinguish between its currency and its investment side.
Gold is both. (Silver too)
Gold is the only thing being at the same time currency (money, means of payment) and asset (investment, commodity).


It's pretty telling that you contradict yourself so quickly, and are unaware of prior examples of something being both currency and asset. In addition, I'm not aware of any country where raw gold is legal tender. Precious metals enthusiasts don't tend to do critical analysis and research.

Gold is in no way unique the way you claim (even leaving aside your contradiction with silver, which also works for platinum, etc)

I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.

maizeman

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Re: Precious Metals
« Reply #268 on: November 28, 2019, 07:37:50 PM »
I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.

Today I Learned.

Very cool, thank you TomTX.

TomTX

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Re: Precious Metals
« Reply #269 on: November 29, 2019, 08:27:34 AM »
I think my favorite counterexample would be rice. In feudal Japan, rice was currency, asset and (obviously) food source. The standard unit was the koku - enough to feed one peasant for a year. Value of land was measured in expected koku of taxes to be collected. Samurai were paid in koku. In another use, the koku was the standard for measuring the cargo capacity of ships.

So: Currency, asset, food source, measure of taxable value of land, measure of ship capacity.

Today I Learned.

Very cool, thank you TomTX.

Happy to help!

Amusingly, while gold was also used in Feudal Japan in the higher levels of society it was basically in the role of fiat currency - gold's value was defined by koku.

bacchi

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Re: Precious Metals
« Reply #270 on: November 29, 2019, 11:46:05 AM »
Salt was also used as currency, especially in Africa.

Paul990

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Re: Precious Metals
« Reply #271 on: November 30, 2019, 01:27:35 AM »
Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing. As a bonus, the house is a real and productive asset and as its owner I am not required to exchange its space for dollars. I could barter it for services, or chickens, or silver coins, or Euros, or yoghurts, or whatever I and the tenants agree on. Ownership of publicly traded companies is very similar to my situation, and I can and (outside retirement accounts) do reference actual real estate opportunities to what I think is available in the stock market. Yes the numbers beat inflation! You should not accept and do not need to accept bad returns.

How would another house market crash affect your situation?


             

waltworks

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Re: Precious Metals
« Reply #272 on: November 30, 2019, 03:00:53 PM »
How would another house market crash affect your situation?         

Every economic downturn is different, but rents did not really fall during the 2007 housing crash. In many markets they actually increased. In that situation (rents stable, prices crash) Radagast would most likely be able to buy several more such units - many RE investors made their fortunes in the housing crash, and can't wait for another one.

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MoneyQuirk

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Re: Precious Metals
« Reply #273 on: December 01, 2019, 11:52:40 PM »
5% isn't unreasonable to put into metals.

I wouldn't, though.

That's simply missing on extra earning potentials of being in stocks/bonds. Warren Buffet noted the main problem with gold - if you bought a ton of gold back in 1700, today you would have... a ton of gold. If you bought companies back then, they have been consistently making items (and in turn paying dividends) and you have an absolutely huge sum that is available to you.

That said, with such a small sum of your money, I'd say feel free to do whatever you like with it :)

Cheers!

robartsd

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Re: Precious Metals
« Reply #274 on: December 02, 2019, 10:39:44 AM »
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.


It's a bit disingenuous to label 1971 as the end of the gold standard. The US departure from the gold standard started decades earlier. I find the graph interesting in that it indicates that middle and low incomes grew steadily under Bretton-Woods, but were relatively flat both before and after. I am a bit curious what caused high incomes to start growing rapidly in the mid 80's.

bwall

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Re: Precious Metals
« Reply #275 on: December 02, 2019, 10:47:17 AM »

Two pages ago I already quoted Blackrock mentioning that a Gold Standard would prevent the Central Banks from producing currency at will.
It's no coincidence that this increase of wealth inequality has been boosted after the GS was abandoned by the USA.



We should all be very thankful that the central banks can (and do!) produce currency at will. It has lead to increased standards of living for just about everyone on the planet, including everyone reading this post. Economic growth should not depend on a country's ability to dig shiny metals out of the ground, which is what the gold standard requires.

The chart that you provide does not show how abandoning the gold standard leads to wealth inequality. Correlation is not causation.


bwall

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Re: Precious Metals
« Reply #276 on: December 02, 2019, 10:53:29 AM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

ChpBstrd

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Re: Precious Metals
« Reply #277 on: December 02, 2019, 11:35:26 AM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

I am reminded of the cartoon where one table is selling difficult truths and the other, with a long line of customers, is selling comforting lies.

The “moral weight and responsibility” that we can’t handle is how we manage to waste and squander during these unprecedentedly wonderful times of low unemployment, stable currencies, long lives, steady economic growth, plentiful food, booming investment markets, and general prosperity. We live in a world where everyone has a car but almost half of retirement-age people have zero saved for retirement, and a tiny minority have ever run the numbers on retirement.

Those who, through lack of self-discipline, managed to miss the greatest wealth-building opportunity the human species has ever had the luck to experience may be tempted to declare the game was rigged and that their jewelry and collectible coins will someday make them rich. Meanwhile the economic winners in the modern economy will eventually be stripped of their trophies, because fiat money was a scam all along and they just weren’t smart enough (that is, smart as me) to realize it. Saying “just wait, you’ll see” provides satisfaction year after year for those whose financial numbers are unsatisfying.

https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page

vand

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Re: Precious Metals
« Reply #278 on: December 02, 2019, 01:16:17 PM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

bwall

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Re: Precious Metals
« Reply #279 on: December 02, 2019, 02:09:07 PM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

hmmm..... It's not just a constraint on government spending, it's also a constraint on economic growth, living standards and trade for the sole benefit of the wealthy at the expense of the people. Right? Existing holders of the currency = wealthy, doesn't it?

So, by constraining every economic metric possible, you achieve the 'goal' of low government spending. Lower living standards, less trade, less economic growth, but the scourge of reckless spending on roads, bridges, police and universities is seen off!

But, you still didn't answer the original question of 'why all countries eventually left the gold standard if it was the ideal economic underpinning?'. My premise being that the gold standard isn't the ideal underpinning (fiat is) since no country has been on the gold standard in ages. Since leaving the gold standard living standards across the world have increased greatly, so clearly leaving the gold standard didn't result in lower living standards. Perhaps fiat actually precipitated unrivaled living standards worldwide?

Telecaster

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Re: Precious Metals
« Reply #280 on: December 02, 2019, 02:51:53 PM »
There was plenty of inflation back when we were on the gold standard.  There was plenty of deflation too.   Unstable pricing under the gold standard meant recessions occurred every one to three years.  No thanks. 

bwall

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Re: Precious Metals
« Reply #281 on: December 02, 2019, 03:50:59 PM »
There was plenty of inflation back when we were on the gold standard.  There was plenty of deflation too.   Unstable pricing under the gold standard meant recessions occurred every one to three years.  No thanks.

Very good point.

Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'

Telecaster

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Re: Precious Metals
« Reply #282 on: December 02, 2019, 05:25:04 PM »
Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'

I'm dyin'!  Those are great observations. 


ChpBstrd

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Re: Precious Metals
« Reply #283 on: December 02, 2019, 07:35:19 PM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

If that were true, wouldn't the US have been mired in hyperinflation for the past several years? Why did inflationary pressures actually drop over the past decade or so, and why was inflation a problem during the 1970s, an era of relatively low deficits? Is this theory consistent with observation?

Radagast

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Re: Precious Metals
« Reply #284 on: December 02, 2019, 07:36:25 PM »
Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing. As a bonus, the house is a real and productive asset and as its owner I am not required to exchange its space for dollars. I could barter it for services, or chickens, or silver coins, or Euros, or yoghurts, or whatever I and the tenants agree on. Ownership of publicly traded companies is very similar to my situation, and I can and (outside retirement accounts) do reference actual real estate opportunities to what I think is available in the stock market. Yes the numbers beat inflation! You should not accept and do not need to accept bad returns.

How would another house market crash affect your situation?


             
As waltworks says, that is a graph of nationwide home prices, not of rents. Rents were minimally impacted and in many cases rose as people were foreclosed on and had to go back to renting. Also, note the quoted text made no mention of price, so that graph is not relevant to my numbers in any case. This does seem to be the mentality that would lead an investor to gold though: income doesn't matter, only price matters. I'm more the "total return matters" type.

My particular house is in an area you might say is not well correlated with the national economy, and 2011-2013 were actually very strong years, in fact real home prices there have essentially plateaued since then. So that graph is even less relevant in my case than the general case.

Radagast

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Re: Precious Metals
« Reply #285 on: December 02, 2019, 07:42:45 PM »
Just think about if we'd been on the gold standard during WWII. Roosevelt would've been giving speeches like 'we've got to help Europe ward off aggression. So we're going to resume prospecting for gold. Then after we've pulled a few tons of gold out of the ground, we'll have the monetary base to begin building warships and airplanes. There isn't a moment to lose!'

Or a phone call with Churchill; 'love to help you, Chap, but we can't seem to find any gold and if we don't have more gold we can't increase spending on weapons and such. Keep holding out, we're bound to get some soon!'

I'm dyin'!  Those are great observations.
You're killin me bwalls.

Heck, the Roman empire was on the gold standard and they had no problem introducing some lesser metals into their coins in time of need, as long as the coin had the emperor's face on it, it was law. Abraham Lincoln was on the gold standard, that's how greenbacks came about. Governments obviously never cared much for the standard anyway.

vand

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Re: Precious Metals
« Reply #286 on: December 03, 2019, 03:43:58 AM »
Can someone please explain to me:

If the gold standard is the ideal economic underpinning then why did all countries eventually leave the gold standard?

Were they tired of ideal economic fundamentals?
Were they annoyed at all the prosperity they enjoyed as a result of the gold standard, so they sought to set their entire nation back a few pegs?
Could they just not handle the moral weight and responsibility of owning all that gold?

I'm always shocked about people who want a return to the gold standard who have absolutely no idea what that would imply. Fortunately today, one need not be informed to have an opinion.

Governments were keen to abandon the GS because it acts as a constraint on government spending. With fiat money they can just print however much currency they require to fulfill whatever promises have been made, and socialise the cost via the inflation tax which robs existing holders of the currency of its purchasing power.

hmmm..... It's not just a constraint on government spending, it's also a constraint on economic growth, living standards and trade for the sole benefit of the wealthy at the expense of the people. Right? Existing holders of the currency = wealthy, doesn't it?

So, by constraining every economic metric possible, you achieve the 'goal' of low government spending. Lower living standards, less trade, less economic growth, but the scourge of reckless spending on roads, bridges, police and universities is seen off!


No, you're getting it the wrong way around. More currency doesn't change anything except the purchasing power of a unit of that currency. Why is Zimbabwe or Venezuela not prosperous nations despite the enourmous expansion of their money supply? Because there are no real resources behind those currency units. Government spending cannot create wealth - all it does it redistribute resources, creating hand-picked winners and losers rather than market-determined winners and losers. This is how socialism destroys economies.

With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.




bwall

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Re: Precious Metals
« Reply #287 on: December 03, 2019, 04:57:46 AM »
No, you're getting it the wrong way around. More currency doesn't change anything except the purchasing power of a unit of that currency. Why is Zimbabwe or Venezuela not prosperous nations despite the enourmous expansion of their money supply? Because there are no real resources behind those currency units. Government spending cannot create wealth - all it does it redistribute resources, creating hand-picked winners and losers rather than market-determined winners and losers. This is how socialism destroys economies.

With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Do you live in Zimbabwe? Venezuela? Neither do I. So, let's not use these basket cases as examples of 'fiat gone wrong' when everyone knows it should be 'dictators in the dock'. They don't have socialism, btw, they have kleptocracies. Zimbabwe hasn't had responsible rule since Ian Smith.

How can an economy expand if the money supply is inelastic? Are you seriously suggesting that if China still had the same money supply today as in 1990, they would still be in the same place economically as they are today?

And do I really read this right; you are suggesting that the pre-industrial revolution monetary policy is better than what we have today? An era of extreme poverty, no middle class, when ordinary people would die of hunger and malnutrition was also one where these same 'ordinary people' had money to put into asset classes?

bwall

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Re: Precious Metals
« Reply #288 on: December 03, 2019, 05:43:31 AM »
The “moral weight and responsibility” that we can’t handle is how we manage to waste and squander during these unprecedentedly wonderful times of low unemployment, stable currencies, long lives, steady economic growth, plentiful food, booming investment markets, and general prosperity. We live in a world where everyone has a car but almost half of retirement-age people have zero saved for retirement, and a tiny minority have ever run the numbers on retirement.

Those who, through lack of self-discipline, managed to miss the greatest wealth-building opportunity the human species has ever had the luck to experience may be tempted to declare the game was rigged and that their jewelry and collectible coins will someday make them rich. Meanwhile the economic winners in the modern economy will eventually be stripped of their trophies, because fiat money was a scam all along and they just weren’t smart enough (that is, smart as me) to realize it. Saying “just wait, you’ll see” provides satisfaction year after year for those whose financial numbers are unsatisfying.

https://www.marketwatch.com/story/baby-boomers-commit-the-7-deadly-sins-of-retirement-planning-2019-04-09?mod=home-page

Great point. We live in amazing times. The best that the world has seen. Ever.

Modern society gives us access the best products, unavailable to kings in the 19th Century, or even the worlds richest men in the first half of the 20th Century. And available to the masses.

But, somehow, it would all be even better if our forefathers hadn't had the moral failure of printing money not backed by a shiny metal stored in a vault somewhere.

Telecaster

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Re: Precious Metals
« Reply #289 on: December 03, 2019, 08:47:33 AM »
With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Another name for increasing purchasing power of money is deflation.  One of the most recent examples of deflation was called the Great Depression.  Another example was the Long Depression.   When the value of money increases, prices fall. Which might seem like a good thing, but it isn't.  Deflation discourages spending because prices will be cheaper in the future.   Lack of spending causes prices to fall further.   Falling demand means job cuts, which reduces demand further, which in turn means more job cuts.  Deflation also discourages borrowing because you must pay back the loan in more expensive dollars.  Lack of borrowing means lack of capital investment.  This cycle is extremely difficult to break once it gets started.  The Long Depression for example lasted about 13 years.   The Great Depression lasted about 10 years (depending on how you count).  Deflation is Not Good. 

Don't confuse falling prices with deflation.  If I can find a way to manufacture and sell widgets cheaper than my competitors, then consumers can afford to buy more widgets.  That's a good thing.  But that's not the same as my dollars become more valuable. 

vand

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Re: Precious Metals
« Reply #290 on: December 03, 2019, 09:08:09 AM »
With an inelastic supply of money all that happens in an expanding economy is that the purchasing power of the currency goes up. This is what happened in many periods before the current paradigm, including the industrial revolution. Ordinary people benefit from increased purchasing power of their money instead of being forced to fling it into risk-on assets classes.

Another name for increasing purchasing power of money is deflation.  One of the most recent examples of deflation was called the Great Depression.  Another example was the Long Depression.   When the value of money increases, prices fall. Which might seem like a good thing, but it isn't.  Deflation discourages spending because prices will be cheaper in the future.   Lack of spending causes prices to fall further.   Falling demand means job cuts, which reduces demand further, which in turn means more job cuts.  Deflation also discourages borrowing because you must pay back the loan in more expensive dollars.  Lack of borrowing means lack of capital investment.  This cycle is extremely difficult to break once it gets started.  The Long Depression for example lasted about 13 years.   The Great Depression lasted about 10 years (depending on how you count).  Deflation is Not Good. 

Don't confuse falling prices with deflation.  If I can find a way to manufacture and sell widgets cheaper than my competitors, then consumers can afford to buy more widgets.  That's a good thing.  But that's not the same as my dollars become more valuable.

A debate about the depression could fill an entire forum by itself. 
Mistakes were made by both the Fed (contracting the money supply) and by the Government (New Deal) which together prevented market to be able to clear.

The reason why I subscribe to the Austrian economics model which is sympathetic to sound money principles is because to me it makes the most consistent logical sense and is therefore the most intellectually honest of all the arguments. Excess eventually leads to bust. The solution to debt is repayment. Supply and demand determine market price... basic economic truisms. By contrast the Keynesian and other models seem to obfuscate these behind all these macro aggregates to conclude polar opposite solutions; the way to deal with debt is with more & cheaper debt... if markets are going down then it is a failure of the market and therefore its the moral obligation of the goverment to intervene; all this nonsense that if you try them on an individual level you know instinctively that it's wrong. The USSR had great macro aggregates, y'know. right up until it fell apart. Just saying.
« Last Edit: December 03, 2019, 09:09:41 AM by vand »

waltworks

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Re: Precious Metals
« Reply #291 on: December 03, 2019, 09:26:30 AM »
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years. When we were on the gold standard, we have lots of evidence that the business cycle was much more disruptive/exaggerated. That's bad. Central banking and fiat currency might not be perfect but that doesn't mean gold is better.

-W

bwall

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Re: Precious Metals
« Reply #292 on: December 03, 2019, 09:31:43 AM »
@Telecaster ; you are correct in your example of deflation. This is exactly what China would have had if they hadn't greatly expanded their money supply since 1990 in tandem with economic growth.

The gold standard would have prevented economic China's growth (and subsequent rise since 1990), as it would have pushed up the value of money, making debts incurred in 1990 more difficult to repay each year, asking workers to accept annual pay cuts for the same work and decreasing price levels. The only reason someone would subscribe to the Austrian school is if they saw debt as a moral failing, something to be avoided at all costs. By making debt very onerous and restrictive, this moral failing would be limited and saving rewarded. Never mind that it also limits growth, living standards, quality of life, innovation, etc.

vand

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Re: Precious Metals
« Reply #293 on: December 03, 2019, 10:22:37 AM »
Look, you still gotta explain why the US economy would have done better if we'd been on the gold standard for the last ~50 years. When we were on the gold standard, we have lots of evidence that the business cycle was much more disruptive/exaggerated. That's bad. Central banking and fiat currency might not be perfect but that doesn't mean gold is better.

-W

Firstly, I am not US based, so it matters much less to me than if I were.

Economics is a social science. I cannot "prove" that an economy would have done better under different principles, that is not how social sciences work. All I can do is to present a coherent argument explaining with logic and reason what the relative strengths and weaknesses of other systems.

As I say, if you want the answer to your question then look into history, and you will find many examples of economies that flourish under sound money principles.

Instead of a country of 350 million people, imagine an island of 35 people and instead of USA let's call it USB. Each islander has their own specific trade; one fishes, one builds shelter, one farms, one produces garments etc.  They use sea shells or some other naturally occuring commodity to trade, and they trade with each other to exploit the law of comparative advantage in order to reach the maximum point on the production frontier.  How does the economy grow? It doesn't grow because one day a storm brings in a flood of new sea shells which doubles the money supply. The supply of real resources is still fixed.

The only way the islanders can increase their individual prosperity is first by underconsumption of what they produce; this allows them to accumulate capital to become available for plant and machinery to be built which ultimately boosts productivity.


Then this allows one of the islanders to then recognise that he can improve his level of output if he can coordinate all the accumulated capital that other islanders have been storing away. We'll call him Mr Entrepreneur. Mr Entrepreneur's used to be a fisherman but he's also got a good business brain. He borrows all the bits and bobs from other islanders, promising to pay them an agreed rate of return to access their capital. He then incorporates all the widgets and creates a machine that can produce 5 times the amount of fish daily that he used to be able to catch. One of the side effects of this that he puts his neighbouring fisherman out of business, or more precisely his labor is now freed up in order to go and do something else that wasn't being done before. ex-Fisherman B becomes Mr Social Media Manager. Or something. Mr fisherman has grown his business 5-folder, all the investors get the promised return on their money - everyone's happy. Society as a whole in the Great Republic of USB is better off on the whole because of Mr Fisherman-cum-entrepreneur.

maizeman

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Re: Precious Metals
« Reply #294 on: December 03, 2019, 10:40:39 AM »
Economics is a social science. I cannot "prove" that an economy would have done better under different principles, that is not how social sciences work. All I can do is to present a coherent argument explaining with logic and reason what the relative strengths and weaknesses of other systems.

This is a very dangerous view as one can tell lots of stories that, at first glance, make a lot of logical sense, but have some underlying flaw.

In order to have confidence in an idea, it is important to be able to make testable predictions from that model and see how well they match reality. This is why we need experimental physicists, not just theoretical physicists.

It is also why it's so exciting to see the shift in economics from pure math models based around utility optimizing agents to both behavioral and experimental economic approaches that embrace the fact that humans are irrational actors and use both experiments created the economists (for microeconomic questions) and natural experiments (for macroeconomic questions) to test which theories and models do a good job of predicting outcomes in the real world and which do not.

I wish more of the social sciences were on the same exciting trajectory we see in economics today.

waltworks

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Re: Precious Metals
« Reply #295 on: December 03, 2019, 11:13:32 AM »
I don't think that example is relevant. In a situation, just as you described, where there's more money available, there are no harmful consequences at all - things are just repriced as needed and the islanders continue on doing what they do and improving their productivity.

In other words, what does your example have to do with fiat currency?

I think the thing that fundamentally is hard to understand here is why some people want *money* (a tool) to also be a store of value. The last thing I want is a pile of cash. That's not productive at all. I only want enough cash to transact. Furthermore, I don't want my friends and neighbors just sitting on cash - I want that stuff flowing around through the economy. It's just a medium of exchange.

-W

bwall

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Re: Precious Metals
« Reply #296 on: December 03, 2019, 12:37:05 PM »
@vand: everyone knows (or should know) that it takes capital, in the form of savings, in order to invest and boost productivity. The gold (or seashell) standard doesn't encourage that any more (or less) than fiat does.

What your example has failed to explain is how the process of capital accumulation is not possible in a fiat system but is possible on a gold standard system. I'd love to learn more about this if you would be so kind.

However, I've already given two examples (WWII and China's post-1990 rise) of why the gold standard would have hindered progress and I've yet to hear a rebuttal.

Don't get me wrong: I miss horse drawn carriages, non-unionized sweatshops and colonialism just as much as the next guy, but I don't see how reverting to the monetary system that was in place during those times is an improvement on fiat.


ChpBstrd

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Re: Precious Metals
« Reply #297 on: December 03, 2019, 08:47:31 PM »
How does the economy grow? It doesn't grow because one day a storm brings in a flood of new sea shells which doubles the money supply. The supply of real resources is still fixed.

The supply of natural resources also stays the same in an economy where money is created by fiat rather than supplied by accidents. The difference is if the population of 35 people expands to 70, or if the amount of economic activity doubles, the islanders will have to hope a storm comes along to double the money supply or else there will be a shortage of money (deflation) which will result in hoarding and desperate price-cutting (depression). It may sound like fun to live in an economy with falling prices, where one gets relatively richer than one's neighbors just by hoarding money, but people who lived through such episodes will disagree. When everyone is hoarding during a money shortage, there's no way to make a living. It's a game of chicken with starvation, where people get to decide how long they can hold out before they spend their last dollar / gold chain link on food.

In the U.S. in 1960, MI (cash, traveller's checks, etc.) was about $140 billion. We are now at $3,930 billion. This is like the storm hit the island and multiplied the number of trading shells 28x. Also in that timeframe, real (inflation-adjusted) GDP per capita increased from about $18k to about $58k. Meanwhile, the population increased from about 178M to about 330M.

https://fred.stlouisfed.org/series/M1NS
https://fred.stlouisfed.org/series/A939RX0Q048SBEA
https://fred.stlouisfed.org/series/POPTHM

So, more people producing more economic output with more money. What would have happened if a law was passed in 1960 saying the US had to maintain M1 at $140 billion forever, and could never expand the amount of cash in circulation? I'm guessing something similar as would have happen if the food supply were arbitrarily frozen at a 1960 quota - disaster!

Here's a second point. The supply of gold is expanding too. Thousands of tons of the stuff are produced every year, and production has accelerated over time. The price of gold in fiat money would crater due to oversupply if it were not for an expanding world population and GDP - i.e. more people with fiat money buying engagement rings, computer processors, and whatnot. The supply is highly cyclical because mining investment lags and attempts to predict demand by many years (see chart below). But my question is, how is it more "sound" to constrict money supply based on these fluctuations in industrial commodity supply, rather than the more data-responsive approach that is possible with fiat currencies?



That is, how would the economy be more stable and prosperous if the expansion of the money supply looked like the gold production chart instead of the smooth line chart for M1?

Third question. In a gold based economy. What is the ideal percentage of economic activity devoted to digging up gold? 0.5%? 1%? 20%? 68%? I suspect it would be much higher than we have today, which raises the question: If a large percentage of the population had to labor in mines just to maintain the growth of a monetary system, wouldn't a competing economy that could expand the monetary base effortlessly and employ all those miners in more productive pursuits experience higher growth and living standards? This is a play on Keynes' question about whether paying people to dig holes and fill them back in should be considered economic growth. A gold-based economy would have to occupy lots of people and resources doing exactly that.

Telecaster

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Re: Precious Metals
« Reply #298 on: December 03, 2019, 10:34:40 PM »
A debate about the depression could fill an entire forum by itself. 
Mistakes were made by both the Fed (contracting the money supply) and by the Government (New Deal) which together prevented market to be able to clear.

The reason why I subscribe to the Austrian economics model which is sympathetic to sound money principles is because to me it makes the most consistent logical sense and is therefore the most intellectually honest of all the arguments. Excess eventually leads to bust. The solution to debt is repayment. Supply and demand determine market price... basic economic truisms. By contrast the Keynesian and other models seem to obfuscate these behind all these macro aggregates to conclude polar opposite solutions; the way to deal with debt is with more & cheaper debt... if markets are going down then it is a failure of the market and therefore its the moral obligation of the goverment to intervene; all this nonsense that if you try them on an individual level you know instinctively that it's wrong. The USSR had great macro aggregates, y'know. right up until it fell apart. Just saying.

I don't want to rehash the Great Depression either,  just pointing out that the notion that deflation is good because you get richer by hording cash is nonsense.   Deflation is a symptom of disastrous economic conditions.    Since the Federal Reserve system was founded, inflation has been very slightly higher than previous, but price volatility has been much, much lower.  In other words, the gold standard does not provide price stability.  The opposite, in fact.  That's simply the historical record. 

The part in bold has me scratching my head a little bit.  I've never, ever heard anyone say that.  But even if someone had said that, it has nothing to do with the gold standard vs fiat currency.  Markets could still be bailed out under the gold standard, and have been many times in the past. 

Paul990

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Re: Precious Metals
« Reply #299 on: December 04, 2019, 08:11:27 AM »
How would another house market crash affect your situation?         

Every economic downturn is different, but rents did not really fall during the 2007 housing crash. In many markets they actually increased. In that situation (rents stable, prices crash) Radagast would most likely be able to buy several more such units - many RE investors made their fortunes in the housing crash, and can't wait for another one.

-W
@W, @ Radagast, I thought if someone buys a house with a loan, if the house's value sinks the bank will ask for more security, with eventual foreclose.
As Radagast was stressing the upwards of his investment vs. gold, in particular the fact that renting gives some form of yield ("Yes the numbers beat inflation!"), I was wandering about the possible downwards.
"Rents were minimally impacted and in many cases rose as people were foreclosed on and had to go back to renting."
Ok, during a house market crash, rents don't sink. But how about the principal?

This line of your post stroke me "You do the math, feel free to neglect growth of principal."
It seemed to me that your post was neglecting the other direction.
I'm not saying that you should had invested in gold instead of RE.