Archive for March, 2013

If gold is such a good value, then why are people selling it for dollars?

Most of those pushing gold never answer this simple question. There are a lot of people who push hyperinflation in order to paint a picture of economic collapse so they can sell you gold. But in who’s interest are they pushing for? Theirs our yours?

The common statement that “Gold in fact has not been value for thousands of years everywhere” is misleading. If anything it is silver that might be able to make that claim but even that is a stretch. However, there are some areas of the world that have used this in one form or another for a long time, but it always has varied from place to place.

For the most part of world history people have traded on lines of credit, domestically, in local villages. However, Gold and silver allow these markets to expand new lines of trade and with more people whom they did not know and did not trust, over greater distances. It was a form of credit that could be carried from market to market in ones pocket. Of course they carried other commodities, but this was simpler to handle and account for.

If you believe in hyper inflation, then ask yourself what happened to the soviet union? And why is North Korea not inflating away? If anything, goods and services in such places are shrinking. In fact, the problem in the soviet union was that there were nothing to spend your money on. People has less choices. It suffered a form of deflation.

But creating a “gold standard” today is not the same as free trade. It only means that the current debt gets replaced by gold. And this would mean that the same banks who are inflating the economy would now own the gold. In other words it is not a liberator but a wealth concentration tool.

Even so, there would still be a desire to leverage their gold reserves as they have done before on countless times. Just like today with the money supply and current lines of credit, banks would still sell more notes than gold in existence. Why? Because despite the rhetoric, without inflating the money supply, the worlds current nations would not be able to exist nor could they pay benefits. And people care more about benefits. Leveraged (inflating) the money supply allows for higher tax revenue collections and thus more spending.

People confused money with production. Money is nothing more than a medium of exchange and a accounting mechanism for government collected taxes. But in the absent of government regulations, it can be anything that two or more people decide upon. Legal tender laws levy property in order to force people to use the government approved currency, by having to pay taxes. even today, you can buy gold, but you must still pay the taxes in dollars.

Now, I not saying that gold is worthless. And it is certainly better than what we have now. But to assume that Gold gains value because of hyperinflation, is simply wrong. It could and probably will is some markets, but not all. People that say this do not understand banking or free trade. Money’s value is subjective and determined by those whom trade it, not by governments. Government can set artificial prices and force assets to be valued in legal tender, but that only distorts its true value for those who are willing to trade things with it.

But instead of trading, most people want it to rise in value in terms of dollars. They want the price of gold to inflate so that they can get a return. They see it not as currency but as a means to acquire more dollars; hence making a profit. And this is speculation, not a wealth hedge. They don’t realize that if Gold did get that valuable, then it would be because of nations that are declaring default in one way or another. And this would change the everything that most people thought they knew. It would mean that a lot of governments would go away and banks too. And it would take away markets with it. But this claim of hyperinflation is nonsense. The problem currently, is that not enough people are borrowing enough money to support the current economy. The money multiplier is dropping; hence deflation. Of course this will not always be the case.

But what would this mean to the local markets? How many people have gold to spend? How many can provide the change? Some do, but not many. And unless the community produced things themselves, how would they have a market, assuming that the banking went under and the deliveries stopped. And what would happen to large corporations and those that depend on some type of government subsidy. For them it would be end game in such a scenario. Because hyperinflation not only destroys governments but destroys banks, which is why it is not going to happen.

There will be government default long before this. And without finance, everyone would be accountable for diminishing returns. Everyone would have to live within their means, including large businesses and governments, which many cannot do and as such would end. But this would mean that many global distributions centers would shut down as well as no more welfare checks or food stamps. So, what happens to these people who have have nothing to buy anything with. How will they get out. After all what do they produce? Even warlords in Somalia must have a market for their plunder. If not, they disappear too.

And even if a state decides to accepts gold and silver as legal tender for taxes, what does this really mean? It means that they now the state will have the gold and silver. Will these states pay people in gold and silver? No. Why? Because these people are believe in mercantile economies that depend on inflating the money supply. And more importantly, they lose political clout and an endless supply of money to spend on their campaigns. So, this would not be in their best interest, politically.

Realize also, that if a state did decide to pay in gold and silver, then there is no way to make sure that gold and silver stay within the state. This is the reason why nations were created in the first place. They were created in order to keep money within borders. They were created in the west when various land barrens realized that people were buying silk from china taking gold out of there kingdoms. But they had nothing that foreign markets wanted. So, gold was leaving and not returning. Remember Robin hood? They could not collect enough taxes.

A nation exists solely for the concentration of wealth for political power, not for a common good as so often quoted. And it keeps competition out from friends and allies and those it deems not worthy through regulations. In this way it can collect larger tax revenues from fewer people and enrich themselves in the process. And it keeps people money from leaving even if they go from place to place. Domestic currencies only change ownership but never leave the country. It is liken to a lock and key. Us dollars allows others to buy US goods and vice versa.

Currently, there is about 10.4 trillion dollars in the money supply with over $56.3 trillion in lines of credit according to federal reserve estimates which is fueling the economy. And this does not include over $220 trillion dollars in unfunded, unaccountable obligations, as Professor Lawrence Kotlikoff of Boston University points out. How can any of this exist or even get paid. it is an impossibility unless the base money supply grows, not the money multiplier, which grows upon loans.

Economist refer to this type of default as a collapse of the division of labor. And by the way, I mean individual production (individual labor), which is more diversified than by large corporations. Corporations would not exist if it were not for the way money is created ether. But this is a different matter. And labor not as physical labor but as a good or service created, which offers choice. Companies, industries, economies that would otherwise not exist, cannot after the great default occurs.

Today, everyone knows everyone and the same system is everywhere. And new ideas spread like wildflower through the internet. So, to assume that gold currency will be the natural outcome of all of this is naïve. At one time tobacco was the currency of choice in the early colonies, not gold. Gold is often desired by mercantile economies. But the mercantile economies are collapsing.


People do not realize that living under a strict “gold standard” will force people to live within their means. And most people have no idea of what this means. Nor, do they want to do this. Thus, the money problem is really a political problem. It is a problem of theft as it legalizes the plunder in order to pay for another person’s benefits. Without inflation, there are many people whom would not get their benefits. The world economy is all artificial.

What people really need is to find an alternative source of income. They need to be able to own and define their own labor and compensation. In this way they could charge for gold or whatever they deem worthy, not others. And people need to understand that in a deflationary times, the value of gold as well as assets will reduce in terms of dollars, not inflate as so many commonly believe.

The inflation that you see today is the result of the ending of various subsidies and shutting down of markets which had, up to this point, artificially reduce prices. They are not a result of more money in circulation. It is the result of diminishing returns and natural cost that rise over time. Without regulations, new products would emerge that would reduce costs. And at some point the economy will get better. Then, people will start to borrow which can lead to massive, but not hyperinflation. But there are so many people burned, who knows how many. But it the borrowing would return. But this still will not be enough to fund government obligations.

In order to fix this, Governments should not declare legal tender laws nor levy property, but only accept the form of money from the population for things like taxes.

And banking reform only needs this:

1) mandate 100% banking reserves so that banks cannot loan own more money than they have.
2) mandate ownership rights are granted to deposits so that banks cannot lend out other people money
3) mandate that banks that act as loan intermediaries only so that people, who want to speculate, can decide to whom to loan their for profit.

Everything else will fall into place in time. It is that simple.

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Many people confuse money with production. They fail to understand that money is only a medium of exchange, not the reason why you have an economy.   It is nothing more that a Universal Barter Card.

Free trade is what creates economies. The more individuals are able to trade freely the more prosperity in terms of choices that they have which creates more satisfaction. The more restrictive upon free trade, fewer choices that they have which creates less satisfaction. You can clearly see this in central run economies.

Economies come from people making things that other people would like to trade their possessions for. Money only helps to facilitate that trade and helps to better make more goods and services.   However, it is innovation and creativity that create new goods and services and is how markets can overcome diminishing returns (rising cost)  and limitations of the land.

If one were to increase or decrease the money in circulation, it would only means that more people have more or less of it to buy things with.   But the things that they buy are independent.  Of course more money means more things, but inflated money also means  more ways of creating restrictions which limits production in few hands.  Unless of course, you have access to easy created in which you temperately overcome restrictions.

But restriction on trade (regulations) also restrictions innovation and creativity which diminishes production.  Historically, this is why central run governments depend on inflating the money supply.  Because they do not produce wealth but consume it,  they cannot overcome diminishing returns.  So, over time wealth is concentrated in few and fewer hands as competition is restricted.  Both Government and corporate entities face this dilemma as over time as bureaucratic layers are created which is costly and stifles innovation and creativity.

So, Banks are encouraged to inflate the money supply, creating artificial booms and lots of new revenue that is often confused with prosperity.  For example, new money interjected into the money supply means that a lot more people can afford steak dinners. But eventually it all ends the same as cost rise and those people whom could not afford it before cannot afford it now.  And all of those new people who the restaurant hired to take care of artificial demand have to be let go and equipment sold. Instead of reducing cost and causing a natural boom so more people have the money, money was inflated and in this way, bureaucrats can keep their jobs too.

The real economic driver is individual production, not production based upon loose loan standards and money created out of thin air. All that does is to create things, that otherwise would not exist, and things that cannot exist when the correction occurs leaving loss jobs, loss wages, empty building, and spiritual destruction in its wake. Again, there is always a natural limitation of money due to the limitations of the land and diminishing returns.

The current problem is wealth concentration. There are too many restrictions placed upon people whom produce and too many consumers who do not produce.   So artificial money fills in the vacuum for a while offering false hope, until the bust, the result of which creates a lot of people who do not have the skills to produce anything. What is needed is the decentralization of wealth and the ending of lots and lots of government restrictions.

However, this is what governments exist for. Government exists to concentration money, and thus production. This is why we have national currencies and borders. It keeps money and wealth from leaving nations. IF this were not the case, people could go to other places with their money leaving national coffers dry.

Domestic currency forces people and nations to spend their money domestically and allows for the government collect to levy property and collect taxes. It keeps people from competing with political friends and allies by placing various rules and restrictions. And allows for more things to come from fewer companies which is good for tax collections.

This is what mercantile economies are all about. inflate the domestic currency, restrict the domestic production, and export to another nations so that those things that people need can be imported, leaving resources in the hands of the ever-increasing size of the state.  The Egyptians population riots because they do not export to the US and gain American dollars which means that they cannot buy American food to feed their population.  Farmers only take US dollars.  And America does feed most of the world.

What is really needed is for people to determine their own from of money based upon private contracts. There should be no monopoly upon money.  And for a government that only decide what form of money it can collect, and not levy private property for taxes. How else do you hold a government in check in which it can print, borrow, and take an unlimited amount of money?  What is not needed is for the common “we” to decide what money is as if they how the power.

Today, people are buying gold not as a currency hedge but as an investment alternative. But, if governments would mandate a return to gold, it would be the end for them and almost all international distributions channels. It would also be death for a lot of people whom live in inner cities which is why they keep printing money. The world would change overnight as shelves go bare, until enough people have access to gold. But of course would just go locally for their needs assuming that there are people producing things. OF course, fiat money and the thinks that you propose only create more people that produce less and less leaving them with no alternative to violence. This is how little Somalia are created.  But even a Somalian  must steal from someone who has money, otherwise without producing,  they cannot sustain themself.

But if you really wanted to fix everything and put the country on the right path then all you need are three things.

1) 100% banking reserves so that banks cannot lend out more money than they have.
2) ownership rights over deposits so that banks cannot speculate with other people money
3) and banks that only act as intermediaries with those people who want to speculate with their own money and who money is tied directly to the loan.

Implement this and everything else will come together. Eventually you will have sound money, low if any interest, and money that buys more things, not less (inflation) over time

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