Why Governments Hate Gold

[masonkiller]

Gold act as a currency of exchange and as commodity to be purchased. Gold's value as a currency of exchange is dependent upon the avaliability of goods just like any other currency. In that regard, it can change its value.

Yes, it can increase value as it's buying power increases. That is unless the world is faced with nuclear war and all the world's capital is destroyed. Then it would lose buying power.

 

[the makeout hobo]

I've never understood what intrinsic value gold has. I mean, it is one of the most useless substances out there: other than a few isolated industrial uses, and that it makes pretty jewelry, gold has no inherent utility. Yes, it was used by ancient cultures because it was rare so the state could control it easily, and because it's malleable, but inherently, it lacks any real utility. Why is it so important as a benchmark for money, then?

I know that in a governmental collapse, people say gold will be valuable, but I doubt this too. In a barter economy, its lack of utility, as I see it, would doom it to being a shiny rock and not much else. Just my thoughts

 

[PeteEU]

I've never understood what intrinsic value gold has. I mean, it is one of the most useless substances out there: other than a few isolated industrial uses, and that it makes pretty jewelry, gold has no inherent utility. Yes, it was used by ancient cultures because it was rare so the state could control it easily, and because it's malleable, but inherently, it lacks any real utility. Why is it so important as a benchmark for money, then?

I know that in a governmental collapse, people say gold will be valuable, but I doubt this too. In a barter economy, its lack of utility, as I see it, would doom it to being a shiny rock and not much else. Just my thoughts

It is shiny... bling bling .. nothing more nothing less.

 

[Lord Tammerlain]

I've never understood what intrinsic value gold has. I mean, it is one of the most useless substances out there: other than a few isolated industrial uses, and that it makes pretty jewelry, gold has no inherent utility. Yes, it was used by ancient cultures because it was rare so the state could control it easily, and because it's malleable, but inherently, it lacks any real utility. Why is it so important as a benchmark for money, then?

I know that in a governmental collapse, people say gold will be valuable, but I doubt this too. In a barter economy, its lack of utility, as I see it, would doom it to being a shiny rock and not much else. Just my thoughts

Gold does not corrode, it permanent once purified. Making it the ultimate store of wealth

 

[masonkiller]

Also, it is devisable, relatively light, and scarce enough to function well as a medium of exchange which gives it value in of itself, especially future value if you expect the dollar to collapse at some point

 

[phattonez]

I've never understood what intrinsic value gold has. I mean, it is one of the most useless substances out there: other than a few isolated industrial uses, and that it makes pretty jewelry, gold has no inherent utility. Yes, it was used by ancient cultures because it was rare so the state could control it easily, and because it's malleable, but inherently, it lacks any real utility. Why is it so important as a benchmark for money, then?

I know that in a governmental collapse, people say gold will be valuable, but I doubt this too. In a barter economy, its lack of utility, as I see it, would doom it to being a shiny rock and not much else. Just my thoughts

Gold and silver is what naturally developed as the major currencies from primitive barter economies. There must have been a reason for that.

 

[imagep]

Gold and silver is what naturally developed as the major currencies from primitive barter economies. There must have been a reason for that.

I think that Lord Tammerlain and masonkiller did a great job of describing why gold developed as a currency in the past, but it is no longer the best option for fulfilling the properties needed for something to become currencies.

I have an old XT computer in my attic. It works today just as good as it did 22+ years ago when I bought it, however it is now obsolete due to better options. It is fair to compare gold to my old XT computer. Gold still looks purdy, but it is not nearly as functional as currency as modern alternatives.

 

[rathi]

Gold and silver is what naturally developed as the major currencies from primitive barter economies. There must have been a reason for that.

Sure. Gold is rare enough that it your everyday Joe can't go mine it, making it fairly easy to control currency. It doesn't corrode, which was an extremely rare property among early metallurgy. It can easily be shaped with primitive tools, making it simple to create gold coins. Its distinctive properties are relatively hard to fake. In pre-industrial society, it was the best available substance for creating money. With decentralized kingdoms, idiotic monarchs and no coherent economic policy to speak of, commodities were a better bet than fiat currency.

 

[masonkiller]

With decentralized kingdoms, idiotic monarchs and no coherent economic policy to speak of,

Ummm.... You mean like today?

 

[imagep]

Ummm.... You mean like today?

Had to chuckle about that one!

 

[phattonez]

I think that Lord Tammerlain and masonkiller did a great job of describing why gold developed as a currency in the past, but it is no longer the best option for fulfilling the properties needed for something to become currencies.

I have an old XT computer in my attic. It works today just as good as it did 22+ years ago when I bought it, however it is now obsolete due to better options. It is fair to compare gold to my old XT computer. Gold still looks purdy, but it is not nearly as functional as currency as modern alternatives.

So then what would you choose for today?

 

[rathi]

The advantage of fiat currency is that it can be loosely controlled in order to make economic sense. Our credit-consumer economy is based on fairly slow and predictable inflation in order to function. Gold is entirely market based, and can't reliably deliver what our economy needs. When the price of gold more than doubled overnight in 1980, it would have obliterated the economy if it was our sole currency. Extreme deflation is a disaster. While I have little love for the jokers who print our money, they are better than complete uncontrolled chaos.

 

[imagep]

So then what would you choose for today?

Da, my new computer and our new non-commodity based money.

I think that rathi hit the nail dead on.

 

[phattonez]

You want a currency that is easily manipulated? Why?

 

[rathi]

You want a currency that is easily manipulated? Why?

Because the people manipulating it have an incentive to insure that our economy is healthy. As bad as the federal reserve system is, they put a half-assed effort into controlling the money supply to our economic benefit. The Fed's know they would be burned at the stake if they caused massive deflation or inflation in a single year. Meanwhile, the people with the most control of gold prices have a financial incentive to cause the biggest price swings as possible in order to maximum returns on their investment. The various personalities promoting gold on television have managed to significantly deflate the value of gold for profit. That would be a serious problem if gold was our currency.

Simply put, I would rather have my currency manipulated by someone who has an incentive to do the right thing than somebody who can profit from screwing everyone else over.

 

[phattonez]

Because the people manipulating it have an incentive to insure that our economy is healthy. As bad as the federal reserve system is, they put a half-assed effort into controlling the money supply to our economic benefit. The Fed's know they would be burned at the stake if they caused massive deflation or inflation in a single year. Meanwhile, the people with the most control of gold prices have a financial incentive to cause the biggest price swings as possible in order to maximum returns on their investment. The various personalities promoting gold on television have managed to significantly deflate the value of gold for profit. That would be a serious problem if gold was our currency.

Simply put, I would rather have my currency manipulated by someone who has an incentive to do the right thing than somebody who can profit from screwing everyone else over.

Wait what? Why is this a problem that's exclusive to gold? The same thing can be done with the dollar, oil, etc. This isn't a critique of gold. In fact, I'd say fiat currency is even more dangerous because you can change more than one's confidence in it, you can change the total supply of it. That's the more dangerous action.

 

[rathi]

Wait what? Why is this a problem that's exclusive to gold? The same thing can be done with the dollar, oil, etc. This isn't a critique of gold. In fact, I'd say fiat currency is even more dangerous because you can change more than one's confidence in it, you can change the total supply of it. That's the more dangerous action.

You are completely missing the point. Fiat Currency is nominally controlled by the government, which has an incentive to properly manage to economy as part of its role. Gold is controlled by the market, who is only out for profit. Oftentimes, the most profitable strategy involves drastically raising or lowering the price of gold, which would be terrible for the economy. If the Fed Chairman inflated the currency by 50% in a year, he would be fired from the resulting economic disaster. If a gold mining company hit a huge vein and inflated the value of gold by 50%, they would make a fortune. Fiat Currency is easier to manipulate than gold, but the people doing the manipulating have a reason not to screw us all over.

 

[phattonez]

You have a picture of this benevolent government which would never do anything bad to us. It's a terrible notion and I'm not even going to explain why. That said, how is there no temptation within government to not use the power to manipulate currency for their own selfish interests? For instance, it's kind of easy to get a lot of spending done when you're in control of the currency. You can promise the sky and use the printing press to buy it. It's easy to ignore the negative consequences when you have the power of inflation right in your hands.

 

[drz-400]

You have a picture of this benevolent government which would never do anything bad to us. It's a terrible notion and I'm not even going to explain why. That said, how is there no temptation within government to not use the power to manipulate currency for their own selfish interests? For instance, it's kind of easy to get a lot of spending done when you're in control of the currency. You can promise the sky and use the printing press to buy it. It's easy to ignore the negative consequences when you have the power of inflation right in your hands.

Which is exactly why the federal reserve is independent of congress. What you suggest has never happened in the history of the federal reserve system.

 

[phattonez]

Which is exactly why the federal reserve is independent of congress. What you suggest has never happened in the history of the federal reserve system.

The Federal Reserve hasn't allowed us to spent more money than ever before?

 

[drz-400]

The Federal Reserve hasn't allowed us to spent more money than ever before?

The federal reserve has never bought government debt directly from the treasury, so no.

Remember, answering in this context:

"You have a picture of this benevolent government which would never do anything bad to us. It's a terrible notion and I'm not even going to explain why. That said, how is there no temptation within government to not use the power to manipulate currency for their own selfish interests? For instance, it's kind of easy to get a lot of spending done when you're in control of the currency. You can promise the sky and use the printing press to buy it. It's easy to ignore the negative consequences when you have the power of inflation right in your hands."

 

[rathi]

You have a picture of this benevolent government which would never do anything bad to us. It's a terrible notion and I'm not even going to explain why. That said, how is there no temptation within government to not use the power to manipulate currency for their own selfish interests? For instance, it's kind of easy to get a lot of spending done when you're in control of the currency. You can promise the sky and use the printing press to buy it. It's easy to ignore the negative consequences when you have the power of inflation right in your hands.

The government tends to like to spend money, inevitably racking up debt, and then inflate the currency to lessen the debt. Since mild inflation is what is good for the economy, the system more or less works out. Politicians are also held accountable for the state of economy, and will get voted out if they screw it up with bad monetary policy. The gold market is made up of investors who have no stake in the economy, and stand to profit from economically damaging price swings. I freely admit that the government will abuse its power to print money, but that they have incentives to limit the damage that gold doesn't have. The FED would never authorize cutting the money supply in half, which is what would have happened in 1980 is gold was our currency. I am more willing to trust people with incentives to make the right choice than people who don't.

I should also note that I am talking about the U.S. government in this context. In Zimbabwe, the government is so abusive with fiat currency, that gold would be a better option.

 

[imagep]

The federal reserve has never bought government debt directly from the treasury, so no.

Remember, answering in this context:

"You have a picture of this benevolent government which would never do anything bad to us. It's a terrible notion and I'm not even going to explain why. That said, how is there no temptation within government to not use the power to manipulate currency for their own selfish interests? For instance, it's kind of easy to get a lot of spending done when you're in control of the currency. You can promise the sky and use the printing press to buy it. It's easy to ignore the negative consequences when you have the power of inflation right in your hands."

Maybe I am wrong about this, but I am under the impression that the fed has loaned the treasury something like $4 trillion (much of it within the past couple of years). But regardless of that, we currently have little if any inflation so no harm has (so far) been done by the fed. If inflation does become terrible, in theory the treasure could repay the fed, who would then dissapear the excess money curbing inflation and FORCING the treasury to stop spending so much.

 

[Kushinator]

Maybe I am wrong about this, but I am under the impression that the fed has loaned the treasury something like $4 trillion (much of it within the past couple of years). But regardless of that, we currently have little if any inflation so no harm has (so far) been done by the fed. If inflation does become terrible, in theory the treasure could repay the fed, who would then dissapear the excess money curbing inflation and FORCING the treasury to stop spending so much.

The Fed purchases treasuries via open market operations.