Why Gold? By : TheBrutalTruth (2009-07-21 16:09:56)

So, here's an interesting question, and my attempts to answer it. Why use gold as the commodity to benchmark inflation against? What is the properties of gold that make this course of action so attractive?

It is a very simple question, but the answer is of course complex. First, there's the question of why Gold makes such an excellent benchmark. The answer to that of course is the fact that it was the original basis for the dollar. That is the US Dollar was at one point in time fixed at approximately 1/20th of an oz. So this gives a reasonable benchmark to compare the dollar to, because this figure of 1/20th of an oz of gold gives a definite value to where the dollar should be based on current gold prices.

With a known base value for Gold it is then possible to adjust inflation against the Gold Standard which was half-killed in the 30s and then completely abolished in the 60s.

Since then Gold Prices (despite the claims of central bankers who believed that they would fall) have soared to new highs almost every decade.

In 1980 Real Gold Prices topped $2,000/troy oz in 2007 Dollars. Gold then crashed as high interest rates lead to an increased demand for the fiat money supply of paper dollars. This brought Gold out of the stratosphere and down to a more reasonable figure of $100 - $200/troy oz.

In the 90s Gold soared to $300 - $400/troy oz. Once again it made the buffoons at the central bank look like monkeys showing that their belief that Gold had value based on its connection to the dollar was inaccurate and nothing but idiotic posturing.

In this most recent decade Gold has climbed from $400 - $600/troy oz in the beginning part of the decade to $800 - $1,000/troy oz. This recent price hike has been a result of government's negligence of maintaining the value of the US Currency.

The central bankers consistently argue that inflation is a necessity, but the truth is otherwise. Inflation is not a necessity. Inflation is an unnatural state for any economy, because Inflation only occurs when the quantity of goods available is declining.

In a normal, growing economy the natural tendency is towards deflation as labor becomes cheaper due to greater availability, and through greater automation and other productivity gains.

No, inflation is not a sign of a healthy vibrant economy. Inflation is the sign of a dying economy.

Regardless, let us look at what a dollar would be worth if it was still as good as Gold.

First, there's the Silver Eagle (1 oz of Silver) which was worth $1 while it was being minted at the turn of the century, and consisted of 1 oz of silver. The value of the silver content would now be $13.55. That is the value of the dollar has declined over 92.7% against silver.

Against gold the dollar has slipped further. A Gold Double Eagle ($20) which was approximately one ounce of gold would be worth $947 at current market rates for gold, giving a value per dollar of $47.35 at the original rate of 1/20th troy oz of gold per dollar.

Against gold the dollar has lost 97.9% of its value. Through the artificial tool of inflation the central bank (Federal Reserve) of the United States has stolen over 90% of the population's wealth from them.

This trend will accelerate and will continue due to the continued expansion of the federal deficit and the continued expansion of government's attempts to dictate every aspect of an individual's life. It is only due to the welfare state that the government is running continuous deficits, and its attempts to correct for these problems is the immoral theft of the savings of individuals through the unnatural immoral practice of debasement of the money supply.

Not only has gold maintained its value relative to its original costs (1 oz of gold bought a nice suit in 1913, and 1 oz of gold would still buy a nice suit today.) but it has proven that the people that were attempting to argue that it would lose its value (as opposed to the dollar losing its value) once the dollar was unpegged from it as having no true knowledge of economics. Ironically, the people that were predicting gold's demise were Keynesians.

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Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis

i hate when bud is the price of gold per ounce. y dont we use bud to judge inflation costs

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I grow only tomatoes and for my personal use. Any inference otherwise from my posts is completely false.

Lack of reliable data.

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Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis

Pish posh! We'll just print more money! LMAO

Good post.

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"If you wanna win, CHEAT! If you lose, start a FIGHT!" - very wise man

-What happens if a poor country hits a huge vein of gold and instantly becomes super wealthy. It is interesting because it would allow for poor countries to become wealthy (like the middle east and oil), but would that be an interesting conundrum since it would help to expode some African countries into among the most wealthy. I kind of like that idea if the country was able to handle it, but most wouldn't and their new found wealth would be wasted.

-In terms of employment becoming cheaper, wages have historically been sticky in the negative. But maybe this would work if people could understand Real wage vs wage.

-Banks provide such a powerful tool for the economy and gold would affect it's ability to quickly move money from savers to borrowers that are expanding or openning their businesses and need the loans. The way it would have to work is if the banks didn't actually move the gold to other bank accounts, but then we are back to what is essentially used today.

Small fix, it gets cheaper to a point, then it will start to become more expensive in opportunity costs.

If gold is not regulated (as I think from most your posts you would be very opposed to) then as more gold was dug up the value of it would continue to drop until eventually it would be worthless, much like a dollar is today (it is what it represents that is worth anything). So you would still get inflation and not deflation.

I am not sure about this so I will ask you what you think since you have put some time into looking at this, what do you think would happen in regards to wages across countries? If countries where to use the gold at their disposal would a place like Johannesburg, South Africa. See wages far exceed ours here in the states. Also how about countries with very little gold? It would be interesting to see how the balance of power would shit if we went back to gold.

Countries that have had very little gold have been able to prosper under the Gold Standard. Japan from Admiral Perry's visit in the 1850s or 1860s to World War II. It emerged from isolation to secure a place of power through industriousness, perseverance and a desire to produce real wealth.

The same three traits thats served Japan so well also served the United States during the era from 1800 - 1950. Culminating in the status of the United States as the world's greatest creditor nation. A status that has since been frittered away by the welfare state and its inability to stop trying to fuck with something that is not broken.

Of course, now that it is broken they are trying to break it even more.

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Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis

Throughout history there is an extremely sad example of how important lending money out through middlemen. The history of the jews. Their religion was the only one that allowed getting a return on lending out money. And they were the banks of the past people would store money with them and they would lend it out to get interest. Which is worth it because the people that get that money would be able to open businesses and make far more money than they paid in return.

(fyi this is not for you since you likely know this, but others may not)

When the jews would finally lend out enough money to the society they were in and the hierarchy owed them money it would revolt on them and kill and/or them out of their country. At what point it the economy the jewish people left would come crashing down leaving it decimated.

Throughout history the rise and falls of european cities/countries could be a history of the autrocities the jewish people faced.

The problem with selling bonds directly is space and time. As an individual investor I would 1. not have the time or knowhow to check every business to find the best place to invest. 2. I would not be protected from complete ruin if that company went out of business, or if they stole my gold. 3. The amount of money most people have to invest would not do much good. 4. If a small business was able to get 30-40 investors to open up it would almost be a fulltime job figuring out how much goes where creating inefficencies in that business. 5. Someone living in one state would have almost no way to monitor the money in a different one to be sure the money was being spent wisely.


Not if the later portions of labor are better suited for a different job, the opportunity costs would increase since they would be better used in another job. I was being nitpicky though sorry not trying to crap on your idea.


The planet being as large as it is there are unknown quantities out there, and they already are keeping much of it out of circulation and shutting down mines due to wanting to keep the price high. But! I do think that this idea has some merit for one reason.

This would allow for one global currency (funny enough some people say Obama is trying to do this). That would allow (if the financial markets where able to still operate) for much better globalization.


OH! Question not to derail a good thread, but wouldn't a universal earth government (I heard on the right wing radio going crazy over this) that they say Obama is all for be better for individual rights. Since it would be so far removed that micromanaging its 'people' would not be possible. Having one currency would be a step towards this with the way our society works. Similar to when the church was the main form of government (about 0 ad, to 1800bc). Just a thought.

See above, and actually the church was never the main form of government, it just had an extensive say in the governing of nations.

Actually the date range is more like 200 ad - 450 ad (End of the Empire) and then from 800 ad - 1,400 ad (beginning of the Enlightenment/Renaissance).

During the time period from 450 ad - 800 ad Europe was a chaotic realm that was busy taking on its current forms. The church may have had power in Rome and the major population areas, but it was still trying to make inroads in the pagan (rural) areas of Europe.

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Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis

You got me there, I guess I am lost on what you mean and missed that part.

Cool I love books! I usually trade myself (made a killing off the banks). But there is so much information most people won't have a clue or the time to research it properly.

And mutual funds hardly ever break the buck (go under $1 per $1 invested if anyone reading this is not quite sure what that means) even the ones in this little depression we just had hardly went under 90 cents per dollar. But nothing is perfect, we can only hope for the last best way to do things since something better should always be coming.

Nice work, and sorry about the dental work. The sticking point (that may get cleared up when you explain fractional banking to me) is that without the banks ability to move money or some middle businesses doing the same direct investing is hard to do unless you buy bonds directly, and even then most companies won't deal with the small amounts that the average person could spend while diversifying.

But in absence of a truely liquid financial market getting that many investors would be tough. But again I may be missing part of the equation.

And with the Auto workers, most hardly have high school diplomas and would fast go bankrupt. And even if a few engineers would join up the amount of money it would take to build on such a small scale would never allow them to compete with the large auto companies. But that being said it is a good idea that the unions tried to do by buying the bonds of the companies in order to have some power to negotiate (too bad they completely lost touch with reality the last couple decades and are now just draining the average workers).

Good point.

I agree this is basically what my careers will be and even though it hurts my brain at times, I am fully in agreement with that. But this fractional thing is really hampering my ability to spar this, I feel like someone with a hand behind my back and am taking body shots.

Squirmish people suck when investing. And what really sucks is that they are usually scared off by the super funds manipulating the market with big coordinated sell offs only to buy when it drops.

You had to toss in "average" with college student, I would have had fun with that if you didn't. Maybe something about dental work from someone without a degree, but damn it you took it away!

Damn now I have to research Fiat currency........

"Fiat money is money declared by a government to be legal tender.[1] The term derives from the Latin fiat, meaning "let it be done". Fiat money achieves value because a government accepts it in payment of taxes and says it can be used within the country as a "tender" (offering) to pay all debts. In effect, this allows it to be used to buy goods and services and to pay tax. Where fiat money is used as currency, the term fiat currency is used. The most widely-held reserve currency, the US dollar, is a fiat currency."

It looks like it is already the case then since the US dollar is the fiat currency.

I think that it would be much worse if we were smaller though (especially population) but we may (and most likely)never know.

And in order to fit all the countries in the laws would have to encompass so many different beilefs that it would have to be more accomidating/hands off.

I am kind of a non-religion kind of guy so I hope I don't offend with this but:

What do you call a institution that collect money from the people that come through its doors, gives them laws to follow (that if they don't they get punished for all eternity ((And no I don't mean listening to Glenn Beck or that chick that always chirps about missing children on .. Nancy Grace)), and they have someone watching over them all the time so they better not mess up or he will know.

Not to mention all the attempts to keep the power from slipping like declairing war on ............ We should make a religious thread that might provide an intense debate. (btw it was a crusades remark).

Eh, You have to remember that it was the Muslims that attacked the Byzantine Empire first, and then continued through to threaten Austria-Hungary and even Spain, Sicily, Macedonia, and the list of minor powers with strong ties to the church continues.

Do I think religion is a viable excuse for starting a war. Not so much, but if some group is attempting for forceably convert the world through conquest than people have a right to defend themselves. Organized Religion has done bad things, but it also routinely does good things.

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Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis