Posted on 12/09/2005 6:01:51 AM PST by DebtAndDelusion
The price of gold has continued to rise in Asian trading, climbing to its highest level since 1981. Gains came despite concerns that the market may be set for a correction and some analysts are now predicting that prices have even higher to go.
Precious metals have been given a boost as investors look to protect themselves against higher inflation and weakening currencies such as the Japanese yen.
Gold climbed as high as $522.70 an ounce, before falling back.
It was hovering around the $521 mark during afternoon trading in Asia.
'Dizzy high'
"There's some profit-taking now, but look at where we are," said Darren Heathcote of NM Rothschild.
"It's broken $520, the target we had yesterday... and it looks like $525 is the next target."
One broker in Tokyo said that: "Gold has been drawing very strong interest from Japanese investors, and I don't think this boom will subside in the near term."
There are a number of factors pushing the price of gold higher.
Gold is seen as a haven from inflation and weakening currencies, although historically, once inflation is taken into account, gold has not proven to be a good investment.
There is also speculation that Asian and European central banks may cut US dollar holdings in favour of gold.
There also is the year-end increase in demand for jewellery, analysts said.
The price of gold has climbed almost 19% this year and has nearly doubled during the past five.
"It's a dizzy high," said Rothschild's Mr Heathcote, but warned that "we are looking at a very overbought market".
"We're looking for a correction. It has to come at some point," he said.
Another factor might be oil money is going to the UAE not the USA. It's a sleeper, but it might become a big factor...
Actually, this is not a problem at all and no moeny has been created in your scenario. Only, no, your money is longer in the bank, it is out on loan and due back at a certain date. You cannot retrieve your money until that date. This is 100% asset backed banking.
What happens today goes more like this....I deposit the $100. Due to fractional reserve laws, the bank can use my 100 to loan out 10 times as much (actually up to 100 times or more now). So I still think my 100 is there, but actually the bank has loaned out 1000 backed by only my 100. Then that thousand gets deposited somewhere else and is used to create loans for 10 times that amount. This multiplier effect is what causes the massive money supply growth.
It is my contention that this is immoral and fraudulent and should be illegal. This is what caused the inflation/deflation spike that you see in the pre-WWI times. It is not a standard part of the system. Neither is govt usuring its power to create fiat monies to finance war. An economy based upon a 100% gold backed monetary system is not a panacea, it is however, the most honest and market driven and provides for the most efficient growth of real wealth.
I went over some of this in posts 192 and 194 above.
Most people would say that when we see a stack of $20 bills on the table, then we're all willing to call it money. Anyone who says it isn't --fractional reserves notwithstanding-- is not believable. In fact, if I offered you this stack of bills, I honestly believe that you would consider it every bit as valuable as money-- especially after you used it to purchase gold.
When I talk about morality I prefer to give consistency a higher priority than convenience. Your views appear to be convenient and not consistent. I'm sure that you consider yourself to be very moral. Your posts seem to infer that you consider your views more moral than mine. I must be missing something --please let me know what it is.
Great. All you're asking for is average income adjusted for inflation. If you want, we can even limit this to income after taxes while we're at it -- disposable real income (fwiw, we're talking BEA not BLS here). This means that since real per capita disposable income has been consistently making new highs for decades, that you're finally willing to rethink this entire goofy gold schtick you've spouting off about.
I'm afraid that I don't understand your question. Earlier I stated that under your deposit and loan scenario, no new money was created. $100 was deposited and $100 was borrowed. Thre was no creation of money happening in what you described.
I then proceeded to describe what actually happens today. Thru the magic of fraction reserve banking, the multiplier effect allows the banks to lend out money that they do not have on account. It is this practice that I believe to be immoral and fraudulent. Banks today have the ability to extend loans in excess of 10 times (or more) their on hand deposits. They basically have a license to steal. This is what caused the banking runs during the 1800's.
Great post-- and thanks for the link.
You showed that from '93 to now, average debt service has gone from 11% disposable income to almost 14%. You seem to be saying that this suggests that people are poorer, which in turn suggests that the BEA is wrong in saying that real disposable income is up.
It doesn't, because what matters is that real total family wealth has increased over this same period by more than half. This means that it's OK if we're paying 14, 15 or 16% of our income on debt service, as long as we also get an increase in our net worth (assets - debt) that's even greater --namely an inflation adjusted increase of over 50 %.
Some people object to debt on religious grounds, and that's their choice. For example, orthodox Moslems believe that it's a sin to borrow and pay interest. They would rather starve to death (their kids too) than pay any interest at all. I hope you're not saying that any increase in debt service is bad no matter how much wealth is created. I like my net worth increased --if I take out a loan to do it that's fine with me --as long as when I'm done I can pay off the loan and find that my bottom line has improved by more than half. This is exactly what's happened.
These are two different points-- they're both important but maybe we should just talk money supply first and then get to bank regs after.
Sometimes it takes effort to get a handle on money supply-- I got an "F" on my first exam in Econ 101 although I got better later. If you're willing to give it another chance, I think I can explain how money is created, so long as we can first agree on just what money is. We need to talk about money and wealth as two different things --after all, someone can borrow $100, thus getting money, even though he also gets a debt in the process. Wealth is the assets that are left over when all the debts are paid off -- but right now let's focus on just money. Let's say that money is that stuff that can buy something --say, five $20 bills that I can use to buy a new stereo.
OK, suppose I'm the only guy in town that's got money, and I go put all my money ($100) in the bank. The banker will hurry up and loan it out to some guy on the next block because that's what bankers do. Now, if you have some religious convictions that prohibit loaning or borrowing money then we can stop here. If you don't, then let's agree that the banker is an OK guy because we're not getting into fractional reserves yet. Let's say maybe the borrower is mortgaging a house with equity up the yingyang.
That guy on the next block now has $100 (in five $20 bills) that he can use to buy a stereo, but maybe you still want to buy a stereo too. You can go to the bank and borrow $100 if you want. You can use your account as collateral. If you do, then you'll have five $20 bills that you can take to Circuit City. The town now has $200, even though it began the day with just $100.
If you're worried about who printed up those $20 bills then we can talk about the Bureau of Engraving-- but bear in mind that currency is a tiny fraction of the total money supply. If you're worried that the newly created money will cause inflation then we can talk about how the fed tends to make borrowing difficult whenever prices need to go back to normal.
So are we together on how money is created?
We're good here. No problems yet.
That guy on the next block now has $100 (in five $20 bills) that he can use to buy a stereo, but maybe you still want to buy a stereo too. You can go to the bank and borrow $100 if you want. You can use your account as collateral.
This is where I have a problem. You deposited the only $100 in town in your account. The bank loaned it to the other guy for whatever reason. The bank no longer has the only $100 in it's vault. How can they loan me $100 that they do not have? That is fractional reserves. The banks is now earning interest on $200 when they only had "title" to $100. That is what I consider immoral.
Lets assume for a minute that physical gold was the only permissible currency. You deposit 100 gold coins. The bank then loans 100 gold coins to the stereo buyer. The bank's vault is now empty. It has no more gold to lend. It can only earn interest on the coins lent.
Under fractional reserve rules, bankers profits are expanded greatly by allowing them to earn interest on money that it doe not have title to. Money that didn't even exist until they made the loan.
I don't know if you're familiar with "total family wealth" or not, but it has nothing to do with gov't land, although if you want to wander over to that subject too then I'm game. I figure if I didn't enjoy chatting with people who's thoughts wandered all over the place, then I got no business messing with the Freerepublic. Then again, maybe this wandering all over the place is getting too sloppy for your tastes too-- if so then this is what we've been working on:
Gold prices surge past $522 level 138 no guarantee of deflation as gold would be mined every year 150 Real wages haven't gone up since 1975. Inflation is just a hidden tax. 210 real per capita disposable income has been consistently making new highs for decades 211 if people were gaining real income, I think they would pay their debt down. 213 from '93 to now, average debt service has gone from 11% disposable income to almost 14%. ...real total family wealth has increased over this same period by more than half.
Taking it from there, IMHO the bottom line (all we need to know about whether dropping the gold standard hurt us) is that American family's real incomes (after correcting for inflation) are and have been growing for decades, just as average family wealth (not including government land-- just the current value of privately held assets) is increasing and has been for a long time. BEA, Census, and BLS links available for the asking.
Excellent post-- thanks for pointing out the overlap with money creation and fractional reserves that's been muddying things up. We'll stay together by (hypothetically) saying we're under the gold standard and reserve requirements are 100%. Then we can agree that money supply is independent of the amount of gold.
I see our key point is the role of collateral, and how it can do what reserves do. I suggested that it's OK if the First National Bank of Gold loans $100 to the guy down the street because he lives in a solid gold eight story 4,000sf.house with a gold mine in the basement -- the terms of the loan require bank to hold complete title to the place until the loan is paid in full (this is what is meant by "equity up the yingyang"). The bank figures that they don't have any place to store the guy's house --and why not take the guy's deed; after all, they're just giving the clown a bank draft in return anyway. Next, I said that the bank could also loan me my $100 using my account as collateral. You said "The banks is now earning interest on $200 when they only had "title" to $100. That is what I consider immoral." So it's moral for the bank to accept my five $20 gold pieces as 100% reserves, but it's not moral to accept the deed to a multi-billion dollar solid gold house that the banker can watch from his office window because that's somehow fractional.
Perhaps a 'live and let live' view of the rest of us could be in order-- I'm hoping you could possibly see your way to maybe retracting your condemnation of my hapless banker to the eternal flames. Also, maybe we can even go back to post 200 that started this whole thing with the chaos/order comparison that showed how a Fed adjusted money supply gave us a better chance of knowing what the hell is going on from day to day. I honestly see the switch from chaos to order that occurred simultaneously with dropping the gold standard as not having been caused by all the bankers suddenly getting religion.
It does not matter what your collateral is. What matters is where that additional $100 came from. If the bank has already loaned out the only $100 in town, where does it get the second $100 to loan? Collateral is not money.
We're together with the idea that the words "collateral" and "money" have two different definitions. We're also both aware that borrowing money is the process of turning collateral into money. What I'm not sure of is whether your question was rhetorical (like you're scolding me for the sins of the banker), or you were actually seeking information (like you can't figure out how the bank draft get's prepared in our hypothetical First National Bank of Gold). Which ever it is, please bear in mind that the processes I describe are what actually happen in everyday life, are understood and approved by the overwhelming majority of the population, and represent an advance of civilization to level higher than ever seen before in the history of mankind.
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