Happy Beginning of the week Scholars!
Regarding money, I have been thinking about gold lately. I did invest in “gold” companies but presently, I do not. I had a fascination with gold for various reasons and I invested in things or even people that interested me! One company really didn’t do so great but thankfully it didn’t tank. That was the ONE company I invested in on the advice of someone else (that Kramer guy from CNBC:/) and it was my worst performing ever:( Lesson from that: I am my best stock advisor armed with my research which may or may not include the opinions of others! So as of today CNBC writes that gold has fallen about 1/3 in value since January and looks to continue to plunge. Hmmmm.
Anyhoo, I still like Gold! I like silver too! and I have been thinking of whether or not I want to diversify with real bars. But what’s it all REALLY worth nowadays?
I have been doing a little homework and I came across this article I want to share (this is only a portion the rest of the article can be found by clicking on the following highlighted title:
Freegold: Why gold is not money
Frank Knopers 7 februari 2014 English 9 Reacties
Quite often we hear ‘gold bugs’ saying “gold is money”. Or that it should be money again, for example by linking the value of money to a certain amount of gold. These sentiments are characteristic for a time in which central banks provide almost unlimited amounts of liquidity to the banking system and in which banks are saved by taxpayers for billions of dollars. Yet gold bugs should understand that the monetary problems are not solved with a return to gold money.
The idea of linking money to a fixed amount of gold has some prominent supporters. People like Ron Paul, Mike Maloney, Peter Schiff and many others are very popular among the goldbugs for their view on gold. Inspired by the Austrian school of economics they oppose the Keynesian view and plead for a return to ‘sound money’, that is money with intrinsic value. According to many gold bugs we could limit the power of the banks and governments with a return to money backed by the precious metal.
By imposing a gold-exchange standard we could end the fractional reserve banking, forcing governments to live within their means. Expensive wars would be limited in scope and duration, because governments would not be able to finance it. A gold exchange standard would discipline both banks and governments, according to the proponents of a return to a gold-backed currency.
The failure of the Bretton Woods system proves that linking money to a specific amount of gold will end sooner or later. The Americans promised a dollar ‘as good as gold’ after the second World War, promising foreign countries to exchange dollars for gold at a fixed rate of $35/oz. The world started accepting Treasuries from the United States government as a central bank reserve equal to gold. As long as those dollar reserves could be exchanged for physical yellow metal at a fixed rate, those dollar reserves would indeed be as valuable as the gold itself.
However, the gold exchange standard of Bretton Woods did not impose a limit on credit expansion in the United States. The US could keep on living beyond their means, because other countries saw no other purpose for their dollars other than lending them back to the US. Exporting countries put dollar denominated debt on their balance sheet as backing for their own currency, like if it was a gold reserve. The US debt piled up in the rest of the world, while the dollar was still valued as if it were physical gold. It was a remarkable exorbitant privilege, which was threatened for the first time during the sixties.
France, the Netherlands and other European countries started exchanging their dollar reserves (euro dollars) for gold at the US Treasury. Within a few years it was abundantly clear to everyone that the US couldn’t keep it’s promise to deliver gold at $35 per troy ounce. The dollar for gold exchange window had to be closed in 1971, to prevent the US running out of it’s remaining ~8100 tonnes of metal.
Depleting US gold reserves during Bretton Woods
Depleting US gold reserves during Bretton Woods (Source: Sunshineprofits)
I know this article represents national and international gold usage and value but it is these very usages that dictate the value of the gold which affects personal investment! As a note relating to the article, I am a little old school and see the value of having the currency completely backed by Gold:/ but, I do see how, well…
Once upon a time buying/securing gold would have been a no brainer and a great privilege! It’s interesting how things change. Looks like I have quite a bit of homework ahead of me.
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Light, Love and Gold,