Again, platinum group metals are priced largely on demand driven by utility value, and supply. That's a pretty normal product except that supply is so very tight and it's essential to making cars. When demand drops, the bottom drops out from under the price. That's exactly what economic theory and rational behavior would predict.
Mass hysteria. d8-)
-- Ed Huntress
Larry Jaques wrote: (...)
Yes Jacqueline,
Chapter 2 _The Fallacy of Supply and Demand_ _Why the price of Pearls - and Everything Else - Is Up in the Air_
My takeaway: Price ain't determined by 'Supply and Demand' it's determined by Perception. If it weren't for manipulated delusions, we wouldn't believe much in the value of anything at all.
See, for example: Baseball Cards Beanie Babies Pogs Tulips Franklin / Danbury Mint.....Items Currency Organized Religion etc. etc.
--Winniepoo
On Sun, 30 Nov 2008 07:47:26 -0700, the infamous Lew Hartswick scrawled the following:
That's it's pretty and SWMBO likes it instantly doubles the intrinsic value. Don't you know that by now, lew? ;)
-- In all affairs it's a healthy thing now and then to hang a question mark on the things you have long taken for granted. -- Bertrand Russell
snip-----
That, and the fact that gold is the only element that is commonly considered a metal, aside from copper, that isn't white in color. The fact that it does not degrade (tarnish) doesn't hurt the cause, either. It simply has many properties that are desirable----I can see why it has been revered for so long. Call it what you prefer, it is one substance that is still valuable to man. Sea shells fell out of favor long ago.
Harold
Oh, that adds two or three hundred dollars an ounce, right there.
Another two hundred...
Not particularly. Man just *thinks* it is. It's too soft and heavy to be useful for anything structural. Maybe it would make good bullets.
It's interesting to think about what its price would be if it weren't for all of the nuttiness. Here's a guess: $100/pound.
But they were more sensible than gold. No Indians claimed that discarded seashells have "intrinsic value." Quahog shells make quaint ashtrays, however. They're very Jersey Shore chic, circa 1955. You just glue them to a piece of driftwood. Eat the clams first. d8-)
-- Ed Huntress
Let's cut to this, which is the essence of the gold bugs' argument:
No, it doesn't, and this is the fallacy of using gold to back currencies in today's financial markets. There are several ways to game the gold exchanges, legally, even with fixed rates of exchange, some of which are very complex. Here is one way that's very simple:
Since you're involved with the subject, I'm going to assume I don't have to explain the gold carry trade. There is no way that countries today are going to sit on their piles of gold without gaining interest on it, which is what the gold carry trade is all about.
So I'm a big player in the carry trade and I own a small bank that can make the exchanges without paying fees. The dollar (and the franc, the mark, etc.) all have fixed rates in relation to gold. I'm getting my gold from your treasury at fixed rates of interest.
But there's a real economy out there, and the rates at which I'm lending out that gold are *not* fixed. I have a fixed rate and a variable rate -- and it's varying all the time -- and I can freely trade the gold for currency. I have a license to make money, by arbitrage between the two. I'll trade bonds made out of the loan contracts, or even futures on them, and I'll shave a little bit of your gold, or your currency, each time I make a successful transaction. (this is in addition to the small spread I get by loaning out the gold in the first place, which the treasuries accept and expect. That isn't enough to give them trouble. Trouble comes from making fast arbitrage swaps.)
If I'm George Soros, I'll eventually own your treasury. d8-) Unlike gold traders of a century ago, I can make the swaps in seconds.
To stop it, you'll have to regulate the hell out of markets. You might have to create government currency exchanges, like we had decades ago and which some countries (China) still have, and eliminate free trade in currency and some kinds of securities. You can do that, but we were assuming that we kept free markets and that fixed gold/currency exchange rates would...ah, "automatically prevent such things" as manipulation of your money.
You can't have both. You can have an all-government-run institution and gold-backed currency, or you can allow free markets. And if it's the latter, you can't have fixed rates backing your currency or you'll get raped.
That's the reality. That's why gold-backed currency is a very bad idea in today's economy and today's electronic marketplace.
And, as I said, that's only one simple example. If you want to get creative, there are more exotic ways to pull it off.
-- Ed Huntress
Wasn't that happening to the US before they legalized ownership of gold? They had an official value, which was something greater than $41/ounce, yet the free market price was much higher. Foreign countries were demanding settlement of debt with gold at the official US valuation.
Am I delusional, or does this make sense?
Harold
It was true up until the end of Bretton Woods in the Nixon era (1971).
Can't say that I follow such things in detail, but I have heard of carry trades from my wife, who is in the finance world (specifically, muni bonds). But carry trade is the least of it. There must be 10,000 schemes, most of which we civilians never heard of.
I don't recall that that was how George did it. He shorted a currency, and it turned out he was correct.
The only regulation required is to eliminate the leverage exceeding say
20:1, which is a good idea in general. More generally, there are lots of bad things that happen if money is too cheap.
If it isn't perfect we must just give up? There is nothing between the extremes? Hard to believe. We've done very well over the decades, even when you include the explosion every ten or twenty years. Wouldn't want to outlaw all those profits for the sake of quiet.
Sure there are, but the problem is more general than gold, as mentioned above.
Joe Gwinn
"Harold and Susan Vordos" wrote in news:xuLYk.94$ snipped-for-privacy@newsreading01.news.tds.net:
From 1934 until the early 1970s, gold was valued at $35/oz but US citizens were prohibited from buying any significant amounts of it.
Prior to 1934 - when FDR's administration got into the act - gold was $20/oz and gold coinage was common.
When Nixon further devalued the currency by breaking away from the "Gold Standard", gold that had been selling for $135/oz [Krugerrands] jumped to $900/oz in a matter of months and has seemed to settle to around $350/oz.
The Nixon Devaluation was just another attempt to reduce imports and expand exports. This devaluation of the Dollar was the reason for the OPEC Boycots that took place shortly thereafter.
The hyper-inflation of the '60s was also welcomed by the Congress for this same reason.
Exactly. Which is why it's a fantasy to think that a gold standard "automatically prevents such things." Are you beginning to argue with yourself?
Jeez. The point is that someone like Soros, who can muster tens of billions at a time to make big plays, and who has the balls to bet against the bank of a major country with it, could work those opportunities for arbitrage against gold until he's chipped your economy down to a flint mine and a spear manufacturer. He knows plenty of tricks.
And there are lots of bad things that can happen if money is too dear, like the Great Depression after 1936. The gold standard was one of the initial contributors to the Depression, in the view of many mainstream economists. It's inherently deflationary.
If you're stuck on a gold standard, you can't do a damned thing about it, either way. You're in a self-imposed straightjacket.
Note that all of our depressions (1867; 1873; 1893; 1907; 1920; 1929) occurred while we were on a gold standard. (I'm not sure about 1867; we may have temporarily dropped it then, but I'm not going to look it up.)
In other words, it doesn't provide the stability you're talking about. All it is, in fact, is a form of tokenism that always get you into trouble when an economy turns sour.
Well, considering the way you're diverting away from the gold issue as we go along, I'm not going ask you what you think the other problems are. In the context of your original point, suffice to say that the gold standard is a loser in a modern economy. And gold convertability would be impossible today.
-- Ed Huntress
You're combining several questions there, Harold, and I think that others have answered the questions about what the official policies were.
What is it you're suggesting? That you can have a free market for gold and still have gold convertibility?
The two can't work at the same time. If you do, you'll have hourly speculation on the price of gold versus currency, with gold and currency swapping back and forth out of your reserves like a computer game -- which is exactly what it will be. And your treasury will lose money on every trade. That's a basic form of arbitrage. Your treasury, as I said, will get raped.
-- Ed Huntress
No, I was implying that the very fact that the US treasury was being raped is the reason government made a clean break from gold as a backing for our currency. gold became a commodity and was (and is) traded much the same as a bushel of wheat.
The harsh reality is that gold price varies by the minute.
Harold
Well, yeah, like all other commodities. When you have a gold standard with convertibility, you have to fix an official exchange rate, or it doesn't work. (Today, it probably wouldn't work no matter what rate you fix, for reasons we've discussed elsewhere.) Somebody will clean you out of gold, either quickly, if your rate is unrealistic, or more slowly, if they play arbitrage games with you. It would be the same if US currency was backed with pork bellies. We be out of bacon, mon, in no time.
The history of gold standards and convertibility is very complex. We really only had a full, official convertibility regime (a "gold specie" regime) for
29 years, from 1900 to 1929, and it was based on a fixed exchange rate. We never had a market-set rate and guaranteed convertibility. When it didn't work in the treasury's favor, they suspended convertibility. And the 1900-1929 regime only worked because we were on the winning side in WWI, without suffering any damage to our industry.In the realm of real-world economics, this discussion really is an old joke. The reasons it won't work are many, and they're well-known. The reason it keeps coming up is twofold: Right-wing book authors, and now websites, have taken the Austrian School of economics to their bosoms, mostly because it's a useful tool in their argument against anything that isn't a throwback to their imagined glory days that never were. The second reason is that the libertarians of recent decades have come to think that it sounds like a swell thing for a libertarian to believe in, for reasons similar to those of the right-wingers. You'll notice that the people who promote it, sometimes with the full academic arguments, usually have no understanding at all of mainstream economics. They've focused on this one thing, and it's all they know. It's like knowing all about making adjustable boring bars for turning machines, but without knowing a thing about how a lathe works.
The fact is that there is only one significant coven of Austrian School economists left in the world, and they're on the staff of George Mason University in Virginia. The Chicago minarchist school has long abandoned Austrian School orthodoxy. When gold standards are mentioned among serious economists it's with a kind of wistfulness about simpler times, or as an anchor against which to measure other ideas. And here's a key point: When they talk about it, they aren't talking about gold convertibility for ordinary citizens. They're talking about a tokenized system like the one we had under Bretton Woods, when only state treasuries or central banks could actually trade gold without a jeweler's trading license.
In many ways, what we have now is a lot freer and more market-oriented than any gold-based system you could imagine. You're free to buy and trade gold all you want, and you can use any currency to pay for it. We have greater freedom in that regard than we had with a gold standard, and, in fact, we have a more stable economy than we ever had when gold was convertible at fixed rates.
-- Ed Huntress
The problem of governance including currency in a nut shell.
With honest systems and people anything works, without honest systems and people nothing works.
A closely allied problem is that the bigger the systems are, the harder it is to keep them honest, find enough honest people to administer them, and the longer it takes for then to self destruct, and thus the more damage they can do overall.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
If what we have today is stable, I'd hate to think what it might have been like when things were worse.
The one thing that bothers me is that we are in the mess we see today because of modern day economists.
If they're right, why aren't we seeing better times? Frankly, in spite of all you've said, I'm damned happy to have some precious metals socked away in the local bank.
Harold
You have a lot of company but this isn't a position that has ever made sense to me. I sent off a quote for four eighty pound Nickel 200 open die forgings yesterday. The last order I purchased in February was $8,300.00 per piece. It will be interesting to see what the deal is today.
JC
1937. 1932. 1920. 1873 (a hellbender) etc.
Huh? We're in this mess because somebody thought it would be a good idea to bring back 19th-century style (non)regulation of business and finance, after which a whole series of his followers piled on. I think his name was Ronald Reagan. He wasn't an economist, but he may have played one in the movies. Then he hired Alan Greenspan. They both liked the same books, especially those written by Milton Friedman.
As for The Maestro (Greenspan), we should have listened to Joseph Stiglitz or Paul Krugman, two Nobel Prize-winning economists who thought Greenspan was out of his mind.
But it really was a perfect storm driven by politics. Bush, Congress, Greenspan...they all had political reasons, even if they were different ones, to try to keep the game rolling in the same direction. Plenty of economists saw the cliff up ahead but nobody listened. Even Greenspan tried to warn Congress in 2005 that the housing boom was a disaster waiting to happen. Unfortunately, Greenspan tended to call economic disasters "market adjustments," and everybody thought he was talking about the price of bananas.
Because we picked the wrong economists. d8-)
It's a reliable hedge. It's a lousy investment over time, but hedge bets aren't supposed to be investments. They're just supposed to cover your butt when business heads south.
Gold is reliable because it works exactly like evangelical religion. You don't have to worry about rationality getting in the way because everyone is having a mental orgasm over their object of worship.
-- Ed Huntress
Heh!
Call it what you will, while my minor investment has lost ground, I've doubled my net worth thanks to precious metals. Nice thing about them is they don't eat anything.
For the record, I am likely the world's leading authority on buying and selling. You want good advice? Do exactly opposite that which I do. I held gold tightly when gold hit $875 back in '80, then sold more ounces than I care to mention when it went down to $300. Being broke does strange things to a guy, eh?
Harold
There's nothing unusual about that. Most investors in everything buy high and sell low. They either chase yesterday's hot returns, or they get caught up in the same downturns that are affecting everyone else and have to sell when prices are already depressed.
Your reaction was perfectly normal, and by far the most common behavior in markets of all kinds, from soybeans to investment real estate.
-- Ed Huntress
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