Article

2010-06-21 Europe

Gold reclaims its currency status as the global system unravels

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Posted by tipper 2010-06-21 07:53|| || Front Page|| [5 views ] Top

#1 Currency status? Neither my local gas station nor my local grocery will accept gold, they only accept Federal Reserve Notes, checks for the same, debit & credit cards.

Posted by Anguper Hupomosing9418 2010-06-21 14:26|| 2010-06-21 14:26|| Front Page Top

#2 When they DO accept gold, there won't be any petrol.

As bad as the federal reserve is do we want the money supply controlled by mining conglomerates?

Posted by Bright Pebbles 2010-06-21 18:32|| 2010-06-21 18:32|| Front Page Top

#3 federal reserve is do we want the money supply controlled by mining conglomerates

Bright Pebbles, excellent one sentence summary of the fierce debate that is raging throughout the economic and finance community worldwide.
To get the gold issue out of the way, lets just say that gold supply has no effect on the price of gold, unlike other commodities where supply and demand determine price.
So why is the price of gold going up?
well to paraphrase Marx:
"A spectre is haunting Europe the spectre of deflation. All the powers of old Europe have entered into a holy alliance to exorcise this spectre: Pope and Tsar, Metternich and Guizot, French Radicals and German police-spies."

At issue is, how does the money supply come into existence?
The classical response is that the money supply is created exogenously via the central bank. This is the view of most economists, but there is a radical element which says this this is nonsense, that money supply is created endogenously via the banks and credit creation. They make loans and only then look for reserves to back those loans.
I sorry to say that I have joined that camp.
From the article:
"It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.

Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction."

Basically whats happening, if you accept the view that that money supply is created endogenously, is that banks are not lending to those who want loans and those who could have loans are not borrowing but paying down existing loans, so nothing but deflation ahead.

Posted by tipper 2010-06-21 21:29|| 2010-06-21 21:29|| Front Page Top

#4 Au is at an all time high per Oz. Go for it.

Posted by Asymmetrical 2010-06-21 23:11|| 2010-06-21 23:11|| Front Page Top

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