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Now We Know Why.
Sep 4th, 2017 at 10:45pm
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On April 27th I asked the question "Why?" regarding China's acquisition of substantial amounts of gold. On May 31st I proposed a theory that China would propose the use of their Yuan with gold backing to replace the dollar as the reserve currency used to buy oil. That has now been announced. What happens now you ask? One future is the dollar will lose its status as the reserve currency and will sink to its true value, nearly nothing. The excess dollars printed will return to the US and hyperinflation will break out.

What options are available to the US Government? Accept the status quo?  Or Maybe China is running a very high debt load. Putting sanctions on their banks that have been trading with North Korea and blocking the import of goods from China might be enough to throw them off the cliff. This, however, is playing with fire while having your hands soaked in gasoline. Opening a trade war is dangerous stuff. Blocking trade with China would have severe repercussions on retail sale here until or rather unless we were to restart our own manufacturing.

Like dealing with North Korea, there are few good choices.

  

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Re: Now We Know Why.
Reply #1 - Sep 7th, 2017 at 2:52pm
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When it comes to macroeconomics, I'm like Ralphy on the Simpsons..."My cat's breath smells like cat food". So I can't answer you question. But can you explain how having stockpiles of gold somehow makes a country's currency more valuable or stable or whatever it makes it. Why gold? Why not Copper? Milk and cookies?
  
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Re: Now We Know Why.
Reply #2 - Sep 7th, 2017 at 9:25pm
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Gold and other precious metals have been considered money for thousands of years. Gold backed or rather redeamable with goldm paper money is considered superior to fiat paper, money backed by a promise only. At present, gold is valued at $1354.40 per ounce. You cannot redeme a Federal reserve note for that or any portion thereof. You can purchase an ounce of gold at whatever the current quoted price is with Federal Reserve noter.

Given a choice of selling your product for fiat dollars or some other money backed by gold what would your choice be? I know what mine would be.
  

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Re: Now We Know Why.
Reply #3 - Sep 8th, 2017 at 1:21pm
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I still don't get it. Why gold? You can't eat gold. You can't protect yourself with a bar of gold. I can't go into the autoshop and say here's some gold dust, fix my car.
  
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Re: Now We Know Why.
Reply #4 - Sep 8th, 2017 at 2:06pm
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It is a question of choice. Would countries making massive purchases of oil prefer to deal with money backed by a precious metal or by a promise? We owe nearly $20 Trillion dollars and continue to borrow about $1 for every three our government spends. When the poo hits the fan and we can't pay the investors, they'll end up with worthless paper money.

If the world switches to some other currency backed with gold, they can exchange that paper for gold and sell it to someone else. When and if the world makes that complete switch from the petrol dollars to some other currency the dollar will become nearly worthless. Prices will soar here because there is no inherent value to the dollar at that time. At the current level of debt, I doubt we'll ever be able to pay it back let alone adding more debt. Only the faith in the US Government is holding things together.

You ought to investigate how Iran was able to buy oil while it was under US sanctions. Gold was being used to buy oil. People find gold desirable.
  

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Re: Now We Know Why.
Reply #5 - Sep 9th, 2017 at 3:28am
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Muckster wrote on Sep 8th, 2017 at 1:21pm:
I still don't get it. Why gold? You can't eat gold.


Quote:
Why did gold become the standard for money? Why not copper or platinum or argon? A chemical engineer explains.

An element must meet four qualities to stand alone as a premium currency, Sanat Kumar, the chair of the chemical engineering department at Columbia University told NPR. First, it can't be a gas — gases simply are not practical for currency exchange. That knocks out a bunch of contenders from the right side of the periodic table, including the Noble gases, which would meet the other three qualifications.

Second, it can't be corrosive or reactive — pure lithium, for example, ignites when exposed to water or air. Iron rusts. This qualification knocks out 38 elements.

Third, it can't be radioactive. For one thing, your money would eventually radiate away to nothing . For another, Kumar pointed out, the radiation would eventually kill you . This eliminates the two rows that are separate from table, the elements known as actinides and lanthanides.

Any of the 30 or so remaining elements would make nice, stable forms of currency if they met the fourth qualification: They must be rare enough to be valuable, but not so rare that it's impossible to find .

That brings us to five elements, according to Kumar: rhodium, palladium, platinum, silver and gold.

Although silver has been used for currency, it tarnishes easily, so it's out. Rhodium and palladium were discovered only in the 1800s, so they'd have been of no use to early civilizations. That leaves gold and platinum. Platinum, however, has a melting point around 3,000 degrees Fahrenheit (about 1,600 degrees Celsius), which, Kumar noted, could only be attained in a modern furnace, so early civilizations would not have been able to conveniently shape it into uniform units.

That leaves gold, which is solid but malleable, doesn't react, and won't kill you. It is truly the gold standard.

https://www.livescience.com/32863-gold-best-element-money.html

  

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." J M Keynes

"In the first place, the dichotomy between "theoretical" and "practical" is a false one. In economics, all arguments are theoretical. And, since economics discusses the real world, these theoretical arguments are by their nature "practical" ones as well." M Rothbard
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Re: Now We Know Why.
Reply #6 - Sep 13th, 2017 at 1:28pm
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So it seems arbitrary as long as everyone agrees. It could be salt, as long as everyone agreed salt was valuable.
  
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Re: Now We Know Why.
Reply #7 - Sep 13th, 2017 at 1:44pm
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Muckster wrote on Sep 13th, 2017 at 1:28pm:
So it seems arbitrary as long as everyone agrees. It could be salt, as long as everyone agreed salt was valuable.

I don't believe salt has the durability gold has.

And salt is not as rare.

There are legit physical reasons why gold and silver have been chosen as money.

But it is true that there is an arbitrary element involved here, and that is that all value is ultimately subjective.
  

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." J M Keynes

"In the first place, the dichotomy between "theoretical" and "practical" is a false one. In economics, all arguments are theoretical. And, since economics discusses the real world, these theoretical arguments are by their nature "practical" ones as well." M Rothbard
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