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I have read each and every post (Summer73 excepted) and the gist seems to be that gold is rare which is somewhat true, and has a great track record but very few have either attempted or have come close to demonstrating the as a commodity for exchange has any intrinsic value. What makes an ounce of gold worth whatever dollar amount placed upon it?
Folks argue that the dollar isn't worth anything, but it has no less or nor more value than what people place on it. A Ferrari dealer values a car as being worth $350,000, if you hand over $350,000 you drive off the lot with the car because the $350,000 represents a measure of value not that the dollar itself has any intrinsic value in and of itself. Gold is no different. Absent paper money, the same Ferrari dealer values his car at some measure of value, and then exchanges a portion of that metal on down the line only because it represent some arbitrary measure of value.
Now as for the rarity of gold... well that is questionable. Gold is not finite and its supply is rather tightly controlled with certainly distorts the market value of gold which seems to lay outside of normal concepts of supply and demand. So, I would be curious to look for correlations between supply and price.
Either way, the speculation on the price of gold seem to me to be no more based on rational than investment in junk bonds, credit default swaps or any other instrument of exchange that derives its value in such an arbitrary manner.
One of issue that has piqued my curiosity is how the total reserve value of gold correlates to the size of the economy. For example if let's say the total amount of goal is only a fraction of GDP, then the question becomes how can an economy rise to a certain dollar value if that dollar is pegged to set price in gold. This isn't just about printing money (which like gold a exchange commodity that can be made rare or abundant at will) but is there enough gold to back an expansive global economy?
No there isn't enough gold to back an expansive world economy and that is why the decision was made to abandon the gold standard.
Also economic crises like the Panic of 1837 here in the United States were caused by not having enough specie i.e. gold and/or silver to back the currency circulating in the economy.
You are right in respect to any financial instrument or commodity is valued purely based on how it's perceived in terms of supply, demand, how it's used in the economy and other economic variables.
It's the PERCEPTION OF VALUE THAT DETERMINES PRICE.
The only reason the federal reserve exists, is to allow endless spending by the federal government, otherwise known as Keynesian economics. Can you imagine what would happen if the federal government couldn't just print money as it needed it? It would be going broke like California, having to cut its size drastically to keep from insolvency. But what does the federal government do now when its going broke? It passes stimulus packages, while you have Krugman cheerleading that America should spend its way out into economic prosperity.
Totally incorrect, the FED exist to provide economic stability and to set monetary policy. The entire reason that the United States Dollar is the world's current reserve currency is credibility of the Federal Reserve Board has established in maintaining the economic stability of the United States. The FED also serves as clearing house for check based transactions and provides liquidity to the banking system.
Every developed nation on the planet has a central banking system as do many undeveloped nation. This whole anti-FED rhetoric circulated by the likes of Ron Paul and other Neanderthals is based on fear and more importantly an amazing amount of ignorance.
Right now about 1/3rd of all government spending is financed by debt through the Federal reserve system. Without the Federal reserve, you would see an instant 1/3rd drop of the system of the Federal government. Instead of incomes increasing during the recession in Washington D.C., you would see a desperate government scrambling to shrink itself and to lower costs.
Without the Federal reserve, our government as it is could not function. Its just too large and expensive. The Federal Reserve was necessary for the progressives/socialists like Woodrow Wilson and Franklin Roosevelt to implement their far-reaching social programs.
Most government debt is sold on the open market in the form of Treasury Bills and Treasury bonds. The FED is currently buying government Treasury Bills and Bonds to stabilize and to stimulate the economy. This is NOT something the FED normally does.
Most FED activities don't have anything to do with financing the government. They are far more concerned with setting monetary policy, acting as a clearing house for banking transactions and providing liquidity to banks, all activities vital to an efficient modern economy.
People who want to get rid of the FED want to send the United States back to the dark ages in terms of economic development.
Actually there were MORE boom and bust cycles prior to the creation of the Federal Reserve Banks than before. In the 19th century the American economy was riddled with a serious of economic and monetary crises.
There are more factors to those panics than just monetary but in the panics and depressions that were monetary induced it was still done by central bankers, either national or a hodgepodge of them.
It is the amount of currency in the system that controls things. Look at the time after the Civil War when debt free Greenbacks were taken out of the system. The contraction act in 1866 caused two thirds of our currency to be removed from circulation between 1866 and 1876.
It is not what backs our currency but who controls the quantity.
Most government debt is sold on the open market in the form of Treasury Bills and Treasury bonds. The FED is currently buying government Treasury Bills and Bonds to stabilize and to stimulate the economy. This is NOT something the FED normally does.
Most FED activities don't have anything to do with financing the government. They are far more concerned with setting monetary policy, acting as a clearing house for banking transactions and providing liquidity to banks, all activities vital to an efficient modern economy.
People who want to get rid of the FED want to send the United States back to the dark ages in terms of economic development.
Why do we need to have a debt based currency if liquidity is the goal? Not all of us who want to end the Fed want gold, I want debt free, government controlled currency and an end to fractional reserve banking.
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