Jim Rickards Tweet "Get ready for new German-Russian currency backed by gold & oil"

[Zippyjuan]

Those phrases get thrown around a lot but seriously, how would you go about establishing a competiting currency- assuming that law did allow it? What benefits would it have over the dollar we use today?
To be a successful competing currency, it must "win" against the dollar.

 

[ctiger2]

http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg

Hmm, this chart seems to suggest we're going to have Inflation and then deflation. Interesting. Look how it's been mostly inflation inflation inflation since the Fed was established.

 

[Travlyr]

What I have revealed is that gold's value relative to all things produced in the world is so small that we would divert so many resources in the economy to produce a CURRENCY.

If you look at the math you'd realize that even after collecting all the gold the world has ever seen from top to bottom, a gram of it would be worth $357 or about 49 hours of manual labor. That's assuming we can gather all of it.

At $357 it would probably be economically efficient to start skimming sea water just to find tiny amounts of gold. Real productive resources would be diverted from actually producing things that we consume/need for sustaining life to create a CURRENCY. Fishing boats would be stop chasing fish and start chasing floating currency. At that price, I could probably hire people to sit on the shore, suck seawater through a straw to then spit it into a container over an open fire and STILL make a profit. It's laughable.

In 2007, the average cost of producing an ounce of gold was roughly $300. A movement to gold as currency would create a transfer of wealth of a magnitude never before seen. You can't deny it. The math doesn't lie. No conspiracy theory or desire for some fraudulent plot can destroy the reality of the situation.

Nothing is more fraudulent than a transfer of wealth from those who own the productive assets of a real physical economy to the people who own some yellow metal.

Paper, on the other hand, does not require such a vast use of resources. To produce $1000 of currency today costs just .02 in productivity. That's peanuts when you compare it to gold, which would require such a massive shift in productivity away from the physical economy to create nothing more than a lubricant for free enterprise.

In a free market, it is not just gold that is valuable. Corn, beans, silver, coal, land, oil, copper, cars, and on and on and on. Gold, silver, copper and other PM's generally win the name of money because of their intrinsic values. Paper would work too in a free market if it is backed by a commodity. For example, if you own a grain bin full of beans that I want, then I could take your paper promise to deliver your beans to me at some later date. Then I could give your paper promise to my neighbor because he needs the beans more than me, and he has a shiny new truck that I want.

But if you deliver the beans to someone else in the middle of the night, then your paper backed by nothing gets you in trouble. Big trouble too I'm sayin. Big trouble.

 

[Jordan]

Even if you abolished legal tender laws you couldn't have a metals standard.

 

[Zippyjuan]

Barter is too cumbersome- that is why we use electronic money.

 

[Jordan]

In a free market, it is not just gold that is valuable. Corn, beans, silver, coal, land, oil, copper, cars, and on and on and on. Gold, silver, copper and other PM's generally win the name of money because of their intrinsic values. Paper would work too in a free market if it is backed by a commodity. For example, if you own a grain bin full of beans that I want, then I could take your paper promise to deliver your beans to me at some later date. Then I could give your paper promise to my neighbor because he needs the beans more than me, and he has a shiny new truck that I want.

But if you deliver the beans to someone else in the middle of the night, then your paper backed by nothing gets you in trouble. Big trouble too I'm sayin. Big trouble.

Corn, beans, silver, coal, land, oil, copper, cars rise and fall in value based on a gazillion factors. As for corn, do you really want a currency backed by the weather?

Plus, as I mentioned earlier, the price of anything used as a currency would earn a premium, especially metals. I don't care how much "intrinsic" value you may say they have, they don't have enough "intrinsic value" if they come at a premium to their value-added in production.

 

[Jordan]

Barter is too cumbersome- that is why we use electronic money.

..

 

[Travlyr]

Even if you abolished legal tender laws you couldn't have a metals standard.

Right. You must allow competing currencies.

 

[Travlyr]

Corn, beans, silver, coal, land, oil, copper, cars rise and fall in value based on a gazillion factors. As for corn, do you really want a currency backed by the weather?

I wouldn't take it. I would take your corn if I needed it, but I would not take your paper promise that it was going to be sunny and warm next Tuesday. So, no I do not see how weather could be a currency.

 

[Zippyjuan]

Right. You must allow competing currencies.

Let me ask you again- how would you establish a successful competiting currency to the dollar? You keep repeating that phrase. What properties would it have which would make it better than the dollar? How would you maintain its value? What would it be made of or backed by? How would you produce it?

Adding a currency will increase costs to businesses so you will have to give them an additional financial benefit to using it.

 

[Travlyr]

Barter is too cumbersome- that is why we use electronic money.

And electronic money is fine, if and only if, it is backed by something of value.

 

[Jordan]

I wouldn't take it. I would take your corn if I needed it, but I would not take your paper promise that it was going to be sunny and warm next Tuesday. So, no I do not see how weather could be a currency.

The supply (and ultimately price) of corn depends on the weather and how conducive it is to growing. Look at the price of corn, it's volatile as all hell. That volatility would have to be priced into all goods as a form of insurance.

Also, how are you going to sustain today's complex economy on barter. Really?

You show up at a Walmart checkout with 50 items. The cashier then says, "the total comes up to 300 bushels of corn notes, 57 cans of cheese-wiz, a tuba, or a scubadiving suit."

 

[Fox McCloud]

Those phrases get thrown around a lot but seriously, how would you go about establishing a competiting currency- assuming that law did allow it? What benefits would it have over the dollar we use today?
To be a successful competing currency, it must "win" against the dollar.

by having a more stable store of value than the dollar, for one--if a bank or a consortium of banks adopted a certain voluntary standard for a new currency, then it could directly compete against the dollar. Sure, it'd be slow at first, but where there is demand, a product will fill the gap.

 

[Zippyjuan]

by having a more stable store of value than the dollar, for one--if a bank or a consortium of banks adopted a certain voluntary standard for a new currency, then it could directly compete against the dollar. Sure, it'd be slow at first, but where there is demand, a product will fill the gap.

SO how do you give it value? Where does the value come from? How do you maintain its value? Is it backed by something as Travlyr suggests? If so, by what?

 

[Travlyr]

Plus, as I mentioned earlier, the price of anything used as a currency would earn a premium, especially metals. I don't care how much "intrinsic" value you may say they have, they don't have enough "intrinsic value" if they come at a premium to their value-added in production.

You do not understand free markets, Jordan. Free markets do not close at 5:00 PM on Friday and take Memorial Day off; those are controlled markets by laws and power.
We have not experienced free markets in our lifetimes. We may get free markets soon, because free markets are stronger than controlled markets.

The Law of Supply and Demand is a law.

 

[Travlyr]

The supply (and ultimately price) of corn depends on the weather and how conducive it is to growing. Look at the price of corn, it's volatile as all hell. That volatility would have to be priced into all goods as a form of insurance.

Also, how are you going to sustain today's complex economy on barter. Really?

You show up at a Walmart checkout with 50 items. The cashier then says, "the total comes up to 300 bushels of corn notes, 57 cans of cheese-wiz, a tuba, or a scubadiving suit."

Again, you are talking about a barter system not competing currencies. The check out lady might say, and we also take silver, that'll be two ounces please.

 

[Fox McCloud]

SO how do you give it value? Where does the value come from? How do you maintain its value?

like everything else--supply and demand; just like dollars. Have you read The Mystery of Banking or What as the Government Done to Our Money? (And the Case for the 100% Gold Dollar) yet?

Even fiat currencies don't have value in and of themselves; they only have value because their former versions of themselves had actual value (ie: commodity). Once you make the transition from commodity to fiat though, this relationship becomes blurred because you can issue new currencies based upon other, or previous fiat currencies...that said, when you trace it back all fiat currencies are ultimate derived form some commodity currency--they don't spring up on their own (and really can't).

and yes, it'd have to be backed by something to ultimately compete against the dollar, or else people would just stick with the original dollar. What should it be backed by? I have no idea--given that gold has been used as money for centuries, I'm tempted to say that, but, at the same time too, our economy is so much more advanced now, another commodity might end up "winning" the currency war. Whatever it is, it has to be of a relatively small supply, relatively stable in value, easily transportable, and relatively easily divisible (not necessarily on the spot), and has a relatively high value pure unit weight; lead could theoretically work as money but its filthy and would require a lot to pay for a unit (low value per unit weight). Likewise you can go to the other extreme; you could pick some extremely rare element as money, but this goes to the other extreme; it has way too high a value per unit weight (for this latter reason, if we ever see gold develop as money again, I could possibly see, in the very very distant future, it being abandoned or used as a unit of account, in favor of silver, as it could develop too high a value per unit weight).

 

[Jordan]

You do not understand free markets, Jordan. Free markets do not close at 5:00 PM on Friday and take Memorial Day off; those are controlled markets by laws and power.
We have not experienced free markets in our lifetimes. We may get free markets soon, because free markets are stronger than controlled markets.

The Law of Supply and Demand is a law.

I understand free markets, thank you very much.

Your idea of a free market is one where everyone barters. Barter doesn't work very well, it isn't very liquid.

Let's say I'm a retail clerk and I have a broken toilet that needs fixing. How do I go about bartering my services for someone elses? I can't very well, can I?

I can, however, work 10 hours to make $75 at which point I can hire a plumber for $75 to fix my toilet. He now has $75 that he can trade for something else.

Currency improves liquidity and trade. Basic bartering limits trade.

Often I hear Liberals say how Libertarians want to take American back to the 18th century by removing regulation. I disagree with them. However, if they were to say that Libertarians wanted to return to 12th century finance, I might agree.

 

[krazy kaju]

I think a good free market currency would be copper. It's the cheapest of the monetary metals and it has been used before as currency in Europe before the advent of national, fiat currencies.

As for using an oil exchange standard, that's just a stupid idea. Even politicians know that handing over the control of the money supply to OPEC is a bad idea.

If I was a national leader trying to create a stable currency, a gold exchange standard wouldn't be an all bad idea, though I'd personally prefer a "commodity basket" standard a la Irving Fisher. A "commodity basket" standard could include gold, silver, copper, and other commodities. This would ensure that nobody could easily control the country's money supply.

 

[Travlyr]

SO how do you give it value? Where does the value come from? How do you maintain its value? Is it backed by something as Travlyr suggests? If so, by what?

The value is determined much like an auction; me willing to pay more for your car than my neighbor... a free market.