Believe those who are seeking the truth. Doubt those who find it. Andre Gide


Wednesday, February 2, 2011

Is gold money?

You've seen the advertisements on TV. They come in two forms:

[1] We will buy your gold!!!
[2] We will sell you gold !!!

Ad type [1] argues that with gold prices at an all time high, now is a good time to cash out of your inventory of gold (jewelry, coins, etc.). All you have to do is put your gold in an envelope and mail it to them; they will mail you back cash. They promise to reverse the transaction if you are not happy.

Ad type [2] argues that with gold prices going higher, now is a good time to turn your cash into gold. This type of ad typically stresses the virtue of gold as money, something that will retain its value even as the world comes to an end.

Maybe the rational-agent hypothesis is indeed taking things a step too far.

Let us settle on a (loose) definition of money. Let me say that money is an object that circulates widely as a means of payment. This is to say, money is liquid; it is not discounted (severely, at least) in quid-pro-quo trades. Something like that.

In today's world, gold (whatever form it may take) is not liquid. Try paying for your morning coffee with bullion and be prepare to be astounded at the discount you are offered (on your gold, not the coffee!).

In ad type [1], people are trying to buy your gold...that is, buy it with cash (money). This ad appeals to people who want cash now. They want to buy things, now. So, if gold is money, why don't they just use the gold to buy the things they want now? Answer: gold is not money.

In ad type [2], people are trying to buy your money...that is, buy it with gold. If gold is in fact money, why would they want to sell it for paper? This ad appeals to people who want to make provisions for the end of the world. When society collapses, no one will want to hold fiat money; but everyone will hunger for gold.

These people are delusional. Think of  Mad Max. People will hunger for food, water, and fuel -- not gold. Which is to say, not only is gold not money in a disaster scenario -- it is not even wealth!

I wonder whether the people who fall for ad type [2] ever ask themselves why these prognosticators of future financial turmoil appear so willing to buy their paper money for gold? Yep, they must be mighty fine folks to be willing to dispose of their gold supplies in exchange for your fiat paper.

So there you have my little rant of the day. But I am snowed in. And maybe watching too much TV (CNBC -- First in Business Worldwide).

PS. Subsequently came across this related link: Is Gold Money?

63 comments:

  1. Y'all got the nasty weather, that's for sure, but that's no reason to commit mental suicide and start watching CNBC.

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  2. Replace the word "gold" with "U.S. dollars", and place the wider context in Brazil in the early 1990's:

    U.S. dollars in Brazil were not "money" by your definition. They had to be exchanged for local currency to effect the vast majority of payments. However, most Brazilians with any wealth (middle class and up) stored that wealth in U.S. dollars. Further, most stores used the daily dollar exchange rate to determine the local currency price of products.

    So the U.S. currency was not "money" in Brazil in the 1990's. It was obviously closer to "money" than gold, but it still did not meet your definition. So if it wasn't money, what was it?

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  3. Prof J:

    The guest "analysts/experts" that CNBC employs are almost always outrageously stupid. But Erin Burnett makes up for it. ;)

    David Pearson:

    Simple. USD in Brazil was a store of value. Likewise, gold is a store of value; I was not trying to claim otherwise. But money is more than a store of value. (Any durable capital good is a store of value too, for example, but most capital goods are not considered money...and this includes capital in the form of metal).

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  4. ACCORDING TO ME, MONEY IS ANY THING WHICH IS ACCEPTABLE FOR THE SETTLEMENT OF DEBT.

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  5. Ashish Barua: So, if you do not pay your restaurant bill after finishing your meal because you have no money, you will be asked to settle your debt by washing dishes in the kitchen. By your definition then, your own labor constitutes money. I don't think so.

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  6. Well I liked the post!

    Sometimes I think that the "medium of exchange" definition of money applies to poor folk, and the "store of value" definition applies to rich folk. That's a bit crude, no doubt. But for people who can't afford to save, "store of value" means little. And for those who can save significant amounts (relative to their consumption expenditure), "medium of exchange" means little.

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  7. Seems the whole article is just simple semantics - is gold money? No. Is gold a store of value? Yes. So if you want to preserve your wealth, buy gold. Later you can exchange it back into whatever form of money you want - USD, UK pounds, Chinese Renimbi - with the way the USD is being printed, even with transaction costs, it makes sense to buy gold - like the Chinese are carefully doing with all their USDollars.

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  8. David,

    So, to my humble understanding, you are stating that something which is being exchanged for/into USD is neither money nor store of value?
    Recently I happened to see an exchange kiosk at an airport. They did quirky business of exchanging EUR for/into USD.... Did it mean that EUR is neither money nor store of value? Or USD???... Now i am completely lost.....

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  9. Anonymous @12:18 It's not just semantics, unless you believe there is no economic difference between money and a store of value. You could preserve your wealth buy purchasing peanuts too...so what?

    Anonymous @12:20 I said that gold will not be the store of value people think it might be in the event of a Mad Max regime. Understand now?

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  10. Anonymous @12:20 I said that gold will not be the store of value people think it might be in the event of a Mad Max regime. Understand now?

    Got it, thanks!!! So, under Mad Max regime (and, certainly, under 2012 scenario) gold fails miserably..... What about something just little bit less apocalyptic? Something like WW2 situation? Gold worked extremely well back then....

    But what about the first part of my misunderstanding - money/medium of exchange? EUR/USD exchange kiosk example still works here. And, using your narrative, when I come to my local Starbucks with some EUR, they will kick me out.

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  11. Those Asian Central Banks who have been buying Gold by the ton ... imagine how silly they are going to feel when they wake up and realize that Gold is not money. Bunch of dopes.

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  12. Anon: Not sure what you're asking (sorry).

    sumo: I think you have missed the point of this post. And, in particular, you'll note that nowhere do I assert that people should not invest in gold.

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  13. Let's get it straight. What we use as a medium of exchange for everyday transactions of goods and services is NOT "money". It IS currency! We just erroneously call it money.

    Not only IS gold money, it IS the basis for ALL currencies. Otherwise central banks would not want it on their books.

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  14. David- Gold is money.

    See http://www.youtube.com/watch?v=7ubJp6rmUYM

    It is a store of value and a medium of exchange because it is easily recognizable, does not corrode, divisible, and portable.

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  15. Most of these ads are presumably sponsored by gold dealers. The ones that are not in the business of fleecing strapped jewelry owners or selling high-premium, low-value "collectibles" are matching buyers and sellers in what some older Fed officials may quaintly refer to as "a market." The ads will tend to be of type 2 because the dealers mostly intermediate between the mints and retail investors, and because existing owners of bullion already know how to sell it.

    As for the Mad Max scenario, the case for oil, water and lead is uncontroversial among the gold bugs, but if there's ever a civilization again, history is pretty clear about what the basis for money will be. And don't let your institutional affiliation blind you to the possibility that many parts of the world will be just fine while we suffer a localized apocalypse. A sackful of Gold Eagles could be just the thing that gets you that last ticket out of Dodge. The world isn't going to devolve instantaneously, and that gold will be quite useful in the eventual prequel to Mad Max.

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  16. The U.S. dollar is money, but it is not a store of value. Gold is a store of value, but it is not money.

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  17. Gold is money. ISO 4217 is the international standard describing the names of currencies established by the International Organization for Standardization (ISO). Here is the site
    http://www.iso.org/iso/support/faqs/faqs_widely_used_standards/widely_used_standards_other/currency_codes/currency_codes_list-1.htm

    It is important to note that you will find all countries, all precious metals (gold, silver, palladium, platinum) and the Special Drawing Rights (SDR) listed as currency with their three letter code structure which is needed to conduct banking operations.

    csarichardo@gmail.com

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  18. Gold is money, fiat is a zero duration, zero coupon bond.

    Mr. Honest Money

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  19. What a joke.
    No wonder the country is in such deep shit when our money system is handled by people of such caliber.

    I am now in HK, I can't use USD to buy a cup of coffee here, so it's not money? Or when I am in Japan, nothing is money except Yen? You can't even make the simpliest distinction between money and currency. You have made a stupid claim that anything that is not IMMEDIATELY EXCHANGABLE IS NOT MONEY. What a JOKE. Tell any common folk who's buying gold and silver and ask them if Gold is money or not. Whether Gold is money or not is not determined by your definition of money but by the MASS PUBLIC BEHAVIOUR. It's guys like you with ivory-tower economists vision that have distorted our country.

    As for fuel/food being more important than money in extreme situation, my friend, check out Zimbabwe, what do people use?

    And when your former big boss told you so, you should listen:
    "Fiat money, in extremis, is accepted by nobody. Gold is always accepted." - Alan Greenspan, 1998 Congress

    The level of understanding presented are astoundingly low.

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  20. Yes sir , my labor constitutes money in that case , coz whatever i do to settle my debt must have all the features that a currency note has or a dolar bill has, like like store of value , medium of exchange , unit of account and thats how people used to exchange in old days.

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  21. Anybody watch Bernanke today? Quite successful. Dollar to 1/1355 oz gold and the 10 year to 3.55%. I am not kidding. Exactly what he wants. Food riots? Make my day, punk. Revalue your currency.

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  22. (With the word "money", in this comment, I mean the thing to be used as a token of the abstract concept money really is).

    "Try paying for your morning coffee with bullion and be prepare to be astounded at the discount you are offered (on your gold, not the coffee!)."

    Try paying with JPY, SEK, EUR. Same thing. Are those currencies not money? (Of course, some argue that fiat is currency and gold is money but we won't here for now). You exchange to the local currency before shopping, right? Same with gold.

    Also, consider the US saying to to world that it now wants to pay for its imports of oil, consumergoods et.c with physical gold, instead of USD. Do you think the world would go, "oh no"? Hahahaha. Why did Nixon close the goldwindow? Hahaha...

    "So, if gold is money, why don't they just use the gold to buy the things they want now?"

    Why does the forex market exist at all? Why are people selling USD for EUR, and INR for NOK. Why do not Indians just buy the things they want from Norway with INR? Is not INR money?

    "When society collapses, no one will want to hold fiat money; but everyone will hunger for gold. These people are delusional. Think of Mad Max. People will hunger for food, water, and fuel -- not gold. Which is to say, not only is gold not money in a disaster scenario -- it is not even wealth!"

    True, if you have NO economic activity what so ever, then no money (including gold) would have no value - you couldn't even barter. But that won't happen. If you have a surplus to barter with, however, then it is better to use money. Peple will "hunger for gold" no more than they "hunger for usd" today. It is a means of exchange that is more practical, to BUY you fuel, food et.c. If you have an economic activity, that is. Look at "Gold For Bread - Zimbabwe" on You tube, it is a BBC documentary about Zimbabwe. And you will see you are wrong. People used gold to buy bread, when no one accepter the Z$.

    "I wonder whether the people who fall for ad type [2] ever ask themselves why these prognosticators of future financial turmoil appear so willing to buy their paper money for gold? Yep, they must be mighty fine folks to be willing to dispose of their gold supplies in exchange for your fiat paper."

    Sigh. They make money from the spread of buy and sell. What is the mystery? You need leverage in a local currency to increase your turnover and then you need cash flow in that particular currency to repay debt.

    I' not going to ask you why are central banks holding gold if it not monetary asset, and why the word "money" on many languages, both in Europe (Latin) and in Asia, is the same as silver. Also consider the thousands of years of history gold has been used as money, did Nixon really erase that in one second?

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  23. What I don't get is why Central Banks have gold as part of their reserves. It's not money, as Vice President Andolfatto points out, and further "in today's world, gold (whatever form it may take) is not liquid".

    It's time for Central Banks to dump gold. This is a perfect opportunity for the US Treasury to show global leadership, and sell it's entire Fort Knox holdings.

    With an illiquid, useless asset like gold, Treasury might have to sell at a discount to market. Maybe those dumb Asian Central Banks, and Russia, and Saudi Arabia, etc. could be pursuaded to buy. Maybe swap gold for something usefull, like oil or real estate for military bases.

    Come on Treasury, come on Fed, show the world who are the smartest guys in the room. Throw this barbaric relic under the bus.

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  24. Anon: Not sure what you're asking (sorry).

    David,

    Sorry I was not clear enough. Hope the other commentators were more understandable to you.

    On my part, your post and our short conversation are of great importance. It is extremely useful for me to understand your views on gold. Could you also comment, what are the views on gold of your colleagues (on anecdotal basis, of course).

    Sincerely,
    Anonymous.

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  25. "Maybe the rational-agent hypothesis is indeed taking things a step too far."

    Hah! This post and the one on Binky C. are good examples of the problems the rational-agent hypothesis runs into the moment it encounters living and breathing financial market participants. Good post, gold is always a touchy subject on the blogosphere. In regards to the question of gold being money or not. I'd say this is entirely dependent on the context in which the evaluating individual finds him or herself. There is no "objective" answer.

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  26. 'Gold is money, everything else is credit'
    JPMorgan, 1912

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  27. What is it about gold that brings out the loonies?

    I offer a definition of money. I then ask whether gold satisfies this definition. I suggest that it does not in a lot of circumstances, like in the U.S. today, for example (I am not talking about the past, or Zimbabwe, etc.)

    One property of money, according to my definition (which one may legitimately quibble with) is that it is not discounted when making a quick purchase. This is the essence of liquidity.

    If you really think that gold is money in the US right now, then let's try a little experiment. You take your $100 of gold and I'll take my $100 of USD to any grocery store. Let's wee which of us will leave with more groceries.

    The answer is obvious. Not sure why everyone wants to wet their pants over a truthful statement. I meant to poke fun at some silly commercials. Get a grip, people.

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  28. David,

    I noticed the nut-job factor myself, with some stuff about money I posted once. One of the perils of blogging, I suppose.

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  29. take some time to view " Treasure of the sierra madre" with Bogie and the fever associated with gold...I'm with your Dr Dave, gold is no longer money..cheers
    P-Ando

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  30. David:
    I offer a definition of money. I then ask whether gold satisfies this definition. I suggest that it does not in a lot of circumstances, like in the U.S. today, for example (I am not talking about the past, or Zimbabwe, etc.)

    Where in your article have you specified US only? Or only because you found out how stupid you are then you reverted to a narrower scope? You said this:
    In today's world, gold (whatever form it may take) is not liquid.
    So your world is US ONLY? Or maybe only St. Louis?

    David:
    If you really think that gold is money in the US right now, then let's try a little experiment. You take your $100 of gold and I'll take my $100 of USD to any grocery store. Let's wee which of us will leave with more groceries

    You really don't get it do you?
    What your example shows is Gold is not a CURRENCY / LEGAL TENDER today in US but it DOES NOT show it is not money. I am very surprised that you can't even make that simpliest distinction, as a VP in St Louis Fed and you run the research division.

    OR, put it this way. According to your definition of money:
    "One property of money, according to my definition (which one may legitimately quibble with) is that it is not discounted when making a quick purchase. This is the essence of liquidity."

    That definition is simply WRONG. Are your balances in a checking account money? I can't buy groceries with it, so they are not money by your definition? But I thought they are included in the money supply data as given by your own institution, no? How about certificates of deposits? Not money? Only fantasy banana created from Monkey Ben? Still can't see the difference between money and currency?

    Before calling someone lonies, make sure you are not acting like a clown, get a grip, VP.

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  31. Geez, David, not only have gotten the loons, you've got the prickly mean ones who can't sustain an argument without being insulting.

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  32. Anonymous @12:54AM

    You are right that my post was less explicit than it could have been. I just took it to be obvious that gold, in various forms, has circulated as a monetary instrument in the past, and possibly in some locations today. But, the same statement could be made with virtually any commodity, like cigarettes, shells, playing cards, etc. Sorry that this was not clear to you.

    You also raise a good point that there are several definitions of money out there. That is why I was careful to provide my own defintion, one that I think is reasonable, and one that is based on the theory of money literature. There are also other operational definitions of money that are more mechanical, like M1, M2, etc.

    But just labeling an asset M2, or legal tender, does not make it money, the way I have defined the term. Economic characteristics overide legal characteristics. For example, some drugs are illegal, but this does not mean that there is no market for drugs. I would venture to guess, though I do not know for sure, that removing legal tender status from the USD would not eliminate its liquid properties. US treasuries are not legal tender, for example, but they remain highly valued as collateral instruments.

    By the way, the electronic credits that exist in your checking account balances do fit the definition of money in the U.S. It is easy to buy groceries with your debit card, in particular. It is not easy to buy groceries with a sack of gold coins.

    Gold jewelry, coins, bullion, whatever, is not easily recognizable in every day transactions. It is not as liquid as fiat currency (speaking of how things stand right now...just to make things crystal clear for you).

    There is no need to SHOUT at me; though, I have to admit that the insults hurled forth bravely from behind your cloak of anonymity are quite amusing.

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  33. "...you've got the prickly mean ones who can't sustain an argument without being insulting."

    People tend to become "prickly" about such things when they realize that the blogger's employer has destroyed 95.5% of the dollar's value since the 1913 when the Federal Reserve was established.

    http://www.usinflationcalculator.com/

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  34. Oh man..we are screwed big time in this country when the VP of the consortium who controls the currency doesn't understand money. All we have to do is remove the monopoly this consortium has on currency..legal tender laws... enforced at the point of a gun and you will understand quickly what is money and what isn't. And the US dollar with its funny pictures of dead guys defaced with "in god we trust" will not even be used as toilet paper.

    Now I see why you like Erin Burnett...that women couldn't debate her way out of a wet paper bag. I lament for the people of this country. Its going to end badly for too many who believe the ponzi scheme of the FED.

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  35. "Let me say that money is an object that circulates widely as a means of payment. "

    Normal money is both a store of value and widely used as a means of payment. During hyperinflation a currency is still used for payment but not as a store of value. After hyperinflation it is neither a store of value nor used for payment.

    Is it a Freudian slip that you left out "store of value" from your definition of money? If the US Dollar is no longer a reasonable store of value then we are headed for hyperinflation.

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  36. Anon @7:57PM Do you not understand the difference between real and nominal values? Yes, the price level has risen, but so have all nominal values (like nominal wages, nominal land prices, etc.). People care about the purchasing power of their nominal wages; not about the price-level per se.

    Anon @8:27PM I always marvel at the courage displayed by anonymous posters like you. Isn't it time for your diaper change?

    Vincent Cate: I just took it as obvious that all money is a store of value. Money is held from one period to the next. If it was not a store of value, it would not be held; it's value would be zero. Different assets are different in their store of value properties. Money is typically a very poor store of value over a long horizon. On the other hand, money is a very good store of value over short horizons, where quick purchases are made. A house has a terrible rate of return if it has to be liquidated quickly, or shares in the house used to pay for (say) a cup of coffee.

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  37. "If it was not a store of value, it would not be held; it's value would be zero. "

    During hyperinflation a currency may lose half its value in a month, week, or even day, yet people may still use it for transactions. People still hold it, though for as short a time as they can. The value is not zero, though headed that way. Part of the reason people keep using the currency is "legal tender laws" where you get locked up for conducting trade in any other currency. But once the store of value function is compromised a currency seems to be on its way out.

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  38. Vincent Cate:

    I do not disagree with anything in your last post. In fact, I think it's bang on. But it is not inconsistent with I said too. Money is--has to be--a store of value. It may be a bad store of value. In a hyperinflation, it is a terrible store of value, and is not likely to remain one for long. But as long as money circulates, it is a store of value. It was no Freudian slip to omit this as part of my original definition. Thanks.

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  39. "People care about the purchasing power of their nominal wages; not about the price-level per se."

    Well, people *do* care about the nominal price levels. When I save some of my paycheck to pay for things I want to buy in the future, then I definitely care about nominal price levels. That is particularly true when we talk about long-terms savings, like for retirement.

    In a properly designed monetary and banking system, there is no reason why money that is stored in your mattress would not retain its purchasing power 20 or 30 years from now.

    The current system obviously does not meet this standard, and that is why we need reform and why we will actually have reform--during your lifetime no less--and possibly in the next 2-5 years!

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  40. Anon:

    I'm sure that people do care about nominal price levels in the sense that money illusion is a real phenomenon. But let's ignore money illusion for the moment.

    Sure, one should care about the future price level when holding on to non-interest-bearing cash. But no one saves for retirement by holding onto non-interest-bearing cash. They will save it in an interest-bearing asset. And if one believes that the Fisher relation holds, at least approximately over long horizons, then the nominal interest rate will rise step in step with inflation rate. This will leave the real rate of return unchanged.

    People seem to think that if inflation was brought down to zero, their nominal wages would continue to grow at the same rate. In fact, one would observe a corresponding decline in nominal wage growth, leaving the growth in real wages virtually unchanged (at least, to a first approximation).

    To the extent that people do not understand this, I think they suffer from money illusion (look it up, if you do not know what this term means).

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  41. "Anon @8:27PM I always marvel at the courage displayed by anonymous posters like you. Isn't it time for your diaper change?"

    haha..I didn't feel like registering is why I posted under anonymous. My name is Cornell Robertson. And yes you are right about one thing..I do have lots of courage...more than the cowardly lions at the FED. I am not afraid to show anyone my balance sheet...how about you guys? How about we audit the FED? What are you afraid of, the Truth? How about Gold? How is it that the PEOPLE can't see the gold you are supposed to be holding for the PEOPLE? Why is that David? You know as well as anyone that without FORCE or the threat of FORCE, the US dollar would be worth..well a Continental...or a Greenback. You guys at the FED and your friends in "The Den of Thieves" - Congress-, just don't see what is happening right before your eyes. There are millions of folks like me...and we are growing everyday. Time and history are on our side. And Time is just about up. And here is the best part David..baring some disastrous ailment, you will be alive to watch it all crumble. In fact, you will have a front row seat. It is not going to end well.

    And except Santelli, Erin Burnett and the rest of the clowns at CNBS are nothing but Bubble Vision puppets. Do you ever listen to the completely ridiculous comments they make..gosh one would think they worked for well...The FED. I stand by all my comments.

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  42. Cornell Robertson:

    Well, that's better. It's good to know who one is exchanging barbs with.

    I am going to make an honest effort to reach out to you.

    First, I wonder what makes you claim that the Fed is afraid to show its balance sheet? Our balance sheet is in the public domain. Indeed, its size and composition is what everyone is talking about. So please clarify what you mean by this.

    Second, as for the gold being held by the Fed, you can consult Wikipedia:

    The United States Bullion Depository (Fort Knox) holds 4,603 tons (4,176 metric tonnes) of gold bullion (147.4 million troy ounces[1]). It is second in the United States to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds 5,000 metric tonnes of gold in trust for foreign nations, central banks and official international organizations.

    Third, as for the element of coercion, well, there has always been some of this, hasn't there? No amount of reform will ever eliminate it. This has been true since the Sumerians issued scrip representing claims against centrally held grain stores.

    Fourth, as for your prediction of impending doom, what can I say? Even a broken clock is correct twice a day. I suppose the world will end one day, just as doomsayers since Isaiah have been predicting for millenia now.

    Take care, dude.

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  43. David:

    Yes you are right, your balance sheet is transparent. A balance sheet full of MBS, which are essentially worthless. I should have been clearer. However, your Boss, and his friends in Congress are afraid of being audited...true or false? Is your Boss not on record as opposing an audit of the FED? Why? Is their something to hide?

    I also forgot to bring this up: How come a Gold or Silver US eagle coin is considered legal tender, Government money, but yet you claim Gold is not money?

    As for the FED holdings in Gold. So you hold the German peoples gold..ok..what happens when they want it back?

    You misunderstand one thing. I don't expect a "mad max" scenario. The impending collapse is the collapse of the banking system. Well, its bankrupt now as you well know. Of course if the people could live their lives by marking their assets to fantasy, well, we would all be rich. When Americans revolted against the British, the world didn't end. When we end the FED, the world won't end either. The people will just have their liberty returned to them. Frankly the doom and gloom has been going on for 100 years as liberty has been stolen from the people. The collapse of the FED will be a time to rejoice as we rebuild ourselves bigger, stronger and free.

    Old Hickory had it right.

    "Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

    or Jefferson:

    "If the American people ever allow private banks
    to control the issue of their money,
    first by inflation and then by deflation,
    the banks and corporations that will
    grow up around them (around the banks),
    will deprive the people of their property
    until their children will wake up homeless
    on the continent their fathers conquered."

    Americans have had about 10 years of zero, if not negative returns on their savings and realistically will go through the next 10 years the same way. How long do you think this can go on before there is a reaction?

    And yes, you are right. Coercion is necessary. In fact, that has been the battle in this country since day one..for control of the Money supply. Hamilton, Clay, Wilson, and the American Lenin, FDR, all proved that.

    I realize your Boss and his friends at J. P. Morgue and Lord "I am doing Gods work" Blankcheck think they are above the rest of us, but we both know that is only true as long as they can keep the fraud going. And it is fraud. In fact your previous boss said as much. Watch this clip as he tells the truth and your current boss hangs his head, probably thinking, 'shut up Greenspan, don't tell the truth'. The irony is the Conference where he admitted this was in Jekyll Island.

    here:

    http://www.youtube.com/watch?v=RM1wRcr7XeY

    and then this here:

    http://www.youtube.com/watch?v=JBiw8Dh0dkI

    Regards;

    Cornell

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  44. When JPM starts accepting physical for settlements, to me the question is not "Is gold money?", but rather what larger statement does this make on the state of the US Dollar?

    I'd like to think that absent the Fed's expansionist policies of the preceding 2 years, JPM would not be accepting bullion for settlement. JMHO.

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  45. let me amend that to say 'accept as collateral', just in the name of accuracy.

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  46. Cornell:

    There are many legitimate complaints one could make against the Fed, so it is important not to get side-tracked with illegitimate allegations.

    You originally claimed that the Fed was "afraid" to show its balance sheet. You now accept that it does make its balance sheet public. Good.

    You now suggest that the Fed is afraid of being audited. This is simply not true. If fact, the Fed (including its 12 regional balances) are audited up the wazoo. For more information, consult my earlier post:

    http://andolfatto.blogspot.com/2010/04/information-disclosure-policy-for-fed.html

    You may also want to consult this:
    http://andolfatto.blogspot.com/2010/12/feds-bailout-list-disclosed.html

    What Bernanke does not want is Congress breathing down the Fed's neck when the Fed conducts monetary policy. The Fed is willing to disclose everything, but not necessarily right away (if such disclosure would disrupt financial markets). Bernanke believes that monetary policy should be conducted, as far as it is possible to do so, free of political pressure. Indeed, this is what Congress believed as well when it created the Fed in 1913. If the Fed cannot be independent from Congress, then what is the point of having the Fed at all?

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  47. Anonymous @9:33

    What do you believe is the significance of accepting gold as collateral?

    In the commercial paper market, inventory is accepted as collateral.

    In the mortgage market, residential capital is accepted as collateral.

    When I go to the pawn shop, my guitar is accepted as collateral.

    So what?

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  48. My only point is that there seems to be a more intrinsic acceptance of gold (as of late), or perhaps perception that it's liquidity (again, for physical) has increased, as a medium of exchange, not just as a store of value, as QE and other Fed monetary efforts have provided the perception of a gradual devaluation of the dollar over time. Reserve currncey status probably tends to mute the negative effects by overstating demand, even absent of Fed and PD invervention. Perhaps correlation does not equate causation, but I can't see them being totally disconnected, no?

    Caveat - opinion of a J6PK, not a trained economic analyst, YMMV, so sorry if this post is a hot mess.

    PS - I would question the priorities of a man that would tender his guitar as collateral. Surely there could be other things like clothes or shoes you could tender first.

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  49. Anon: You are right. A man should never tender his Fender! Stayed tuned. I'll be making another gold post soon. Thanks for your comments.

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  50. Thanks for the response David...but...


    Alan Grayson: Right, but you’re the Inspector General. My question specifically is do you know who received that $1 trillion-plus that the Fed extended and put on its balance sheet since last September. Do you know the identity of the recipients?

    Elizabeth A. Coleman: I do not know. We have not looked at that specific area at this particular point on those reviews.

    Alan Grayson: What about Bloomberg’s report that there are trillions of dollars in off-balance sheet transactions that the Federal Reserve has entered into since last September? Are you familiar with those off-balance sheet transactions?

    Elizabeth A. Coleman: You know, I think it may be important at this point to, just to bring up a certain aspect related to our jurisdiction and just to clarify perhaps some of my earlier comments. We are the Inspector General for the Board of Governors and we have direct oversight over Board programs and operations and we’re also able to look at Board-delegated functions to the Reserve Banks, as well as the Board’s oversight and supervision of the Reserve Bank.

    We do not have jurisdiction to directly go out and audit Reserve Bank activities specifically. Nevertheless, in our lending facility projects, for example, we are looking at the Board’s oversight over the programs and to the extent that it extends out to the Federal Reserve Bank of New York.

    Alan Grayson: Well, I have a copy of the Inspector General Act here in front of me and it says among other things that if you’re responsible, you can conduct and supervise audits and investigations relating to the programs and operations of your agency.

    Elizabeth A. Coleman: That’s correct.

    Alan Grayson: So I’m asking you if your agency has in fact, according to Bloomberg, extended $9 trillion in credit, which by the way works out to $30,000 for every single men, women, and child in this country. I’d like to know if you’re not responsible for investigating that, who is?

    Elizabeth A. Coleman: We, actually… we have responsibility for the Federal Reserve’s programs and operations, to conduct audits and investigations in that area. In terms of who is responsible for investigating… would you mind repeating the question one more time?

    Alan Grayson: What have you done to investigate the off-balance sheet transactions conducted by the Federal Reserve, which according to Bloomberg now total $9 trillion in the last eight months.

    Elizabeth A. Coleman: I’ll have to look specifically at that Bloomberg article. I’m not… I don’t know if I have actually seen that particular one.

    Alan Grayson: That’s not the point. The question is have you done any investigation or auditing of off-balance sheet transactions conducted by the Federal Reserve? "


    Ok I think Alan Grayson made my point didn't he..just like Ron Paul has as well. or actually Elizabeth Coleman made the point when she said.

    "We do not have jurisdiction to directly go out and audit Reserve Bank activities specifically."

    Of course she was just protecting the FED Governors..but that's another story.

    See HR1207 as to what the people want. Just because Congress abdicated its responsibilities 100 years ago, doesn't mean you FED guys get a free pass forever. your guy Barney Fife..I mean Frank...isn't the Chairman anymore. That Bill had over 300 sponsors..until the bankster/fraudsters bought enough of them off to kill it..for now.

    part 2 below

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  51. Part 2

    So no response to Gold/Silver Eagles as legal tender government money? You can read the 1985 legislation.( or maybe it was 1983, I forget the exact date) Doesn't that prove that Gold is money?

    Did you also know that one can exchange private FRN's for Eagles and back again when they rise in price, making a profit in FRN's and not have to pay tax?

    No response to Old Hickory..was he right? if not why not?

    No response to Jefferson quote, which has been proven correct.

    You only responded to something I previously conceded I made a mistake on...boy you fed heads are good...you can fool some of the people......

    Cornell

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  52. David wrote: "If the Fed cannot be independent from Congress, then what is the point of having the Fed at all?"

    exactly..what is the point? I am all for abolishing the FED and legal tender laws as well. But I am sure you concluded that by my posts.

    Cornell

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  53. Hey David...last post...you're a good sport..really I mean it. I am sure I wouldn't wouldn't be too fond of someone calling for and wishing for the abolition of my job.

    BTW..I visit the St. Louis FED site often..looking for little nuggets to help in my trading. Don't fight the FED and all. About the only thing I really want to know and have never been able find is what kind of gold swaps you CB's are doing with each other.

    Cornell

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  54. Cornell:

    Forgive me for being slow in replying...but I do have a day job, you know!

    I'm not sure what to say about politicians who grand stand like that. I doubt whether there is content to their accusations and innuendo, but I would have to dig deeper to check.

    OK, gold/silver eagles are legal tender. Now, go and buy your groceries with them and see what happens. Report back to me.

    On old hickory and Jefferson, will have to get back to you.

    There is a very good point for having the Fed separate from Congress. Think, man. Think Zimbabwe, for example. Goodness gracious.

    And I have no problem with the Fed being legislated out of existence. This is a decision that the American people must make. End the Fed just means that David moves back to Canada or into the private sector. :)

    Oh, and I've put out a call to my colleagues concerning your request about information on gold swaps. Will keep you posted. (I am off for a while to a conference).

    PS. On End the Fed. Be careful what you wish for.

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  55. http://123etfportfolio.blogspot.com/

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  56. ...The Canadian Currency Act lists 4 things as money:

    15. Notwithstanding any other law, where any law of Canada or any treaty, convention, contract or agreement to which Canada is a party makes reference to
    (a) a currency of a country other than Canada,
    (b) a unit of account that is defined in terms of currencies of two or more countries,
    (c) gold, or
    (d) a combination of any of the things mentioned in paragraphs (a) to (c),
    the Governor in Council may make regulations specifying, or specifying the means or method of ascertaining, determining or calculating, the equivalent dollar value of that currency, unit of account, gold or combination thereof.


    AS AN ECONOMIST YOU HAVE NO UNDERSTANDING AT ALL ABOUT MONEY THAT IS SAD>

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  57. Anonymous above:

    Thank you for pointing that out. I am defining money as "an object that circulates widely as a medium of exchange." This is an economic definition; not a legal one.

    When was the last time you used gold to buy your morning coffee?

    PS. I can think of sadder things than that.

    ReplyDelete
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