C
CPA2
Guest
Gold is the ultimate asset. It is the purest form of money, and the oldest, most durable wealth-preserving asset on the planet. Governments can’t debase it. It has no debts … no board of directors … no politicians or central bankers that can mess with its value. That’s why gold has survived every economy history has ever witnessed, and preserved investors’ purchasing power over a span of some 5,000 years.
The Price of a Dollar
It sounds strange to say that a dollar has a price. However, it is true. Supply and demand determine the dollar’s price. “…The value of currencies in the foreign exchange market is determined by market forces. Just as the forces of supply and demand determine other prices, so do they determine the exchange-rate value of currencies in the absence of government intervention (Gwartney, Stroup, Sobel).”
When looking at the foreign exchange rates, we can say that the dollar price of the pound is $1.50. The inverse is also true, the pound price of the dollar is 0.67 pounds.
The American dollar is the reserve currency of the world; therefore, the price of gold is in terms of American dollars. If gold was the reserve currency of the world, a financial commentator might say, “Today the price of the dollar dropped by 1/10 of a dwt.” It all depends on what you are use to hearing.
“Why gold has been accepted as money for several thousand years cannot be appreciated without looking at the unique role performed by gold as money and the alternatives to gold….Ancient gold coins were widely accepted in primitive times because of the weight of gold they were known to contain. It was the physical qualities of gold, the known content of gold of a particular fineness, the fact the coinage could not easily be expanded in supply or debased and counterfeited, the durability of gold, that made gold universally accepted (Sutton).”
Milton Friedman, Nobel Prize-winning economist, had this to say about the American dollar: “…each accepts them because he is confident others will. The pieces of green paper have value because everybody thinks they have value, and everybody thinks they have value because in his experience they have had value. Paper money “is a social convention which owes it very existence to the mutual acceptance of what from one point of view is a fiction.”
I return to CON2 and the qualitative characteristic of accounting information, reliability. Does the monetary unit, the American dollar, “faithfully represent what it purports to represent?” My answer is no. The American dollar changes in value everyday. It is not a store of value. On the other hand, gold is a store of value. “Even in ancient times, with primitive communications among vastly different peoples and customs, gold coins generated worldwide confidence…Recognizing the essential requirement of confidence, ancient empires kept the value of their money constant for long periods without debasement (Sutton).” Gold is a reliable monetary unit. Governments cannot create more gold by fiat.
References
Friedman, M. & Schwartz, A. (1963). A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press.
One World Currency
One world government is predicted in the Book of Revelations, so I am on safe ground there. Additionally, “you shall not buy or sell without the mark of the beast.” That sounds like a one-world currency to me. It looks like to me that we are well down that road. Once the dollar is replaced as the reserve currency of the world, we will become a third world power overnight.
Now for a little speculation. We are not going to go to a one world currency in a straight line. Perhaps the G20 nations will follow the example of FDR by raising the price of gold to $5,000 to devalue fiat currencies? Perhaps we will get a basket of currencies to replace the dollar as the reserve currency of the world sooner than we think?
Watch the debt crisis in Spain, Portugal, Greece and now the UK. I think that the U.S. is next. Debt is going to be eliminated one way or another. Trying to pay off the debt is now impossible.
These are some of my favorite quotes from Ludwig von Mises. He is known as the head of the “Austrian school” of economics. He was a Professor of Economics at the University of Vienna from 1934 to 1940
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
“The whole system is the acme of the short-run principle.”
“The credit expansion boom is built on the sands of banknotes and deposits. It must collapse.”
“If one wants to avoid the recurrence of periods of economic depression, one must start by preventing the emergence of artificial booms. One must prevent the governments from embarking upon a policy of cheap interest rates, deficit spending, and borrowing from the commercial banks. This is, of course, a very difficult task. Governments are in this regard very obstinate. They long for the popularity that booming business conditions seldom fail to win for the party in power. The unavoidable crash, they think, will appear only later; then the other party will be in power and will have to account to the voters for the evils which their predecessors have sown.”
Do you agree that we are at the end of an era?
The Price of a Dollar
It sounds strange to say that a dollar has a price. However, it is true. Supply and demand determine the dollar’s price. “…The value of currencies in the foreign exchange market is determined by market forces. Just as the forces of supply and demand determine other prices, so do they determine the exchange-rate value of currencies in the absence of government intervention (Gwartney, Stroup, Sobel).”
When looking at the foreign exchange rates, we can say that the dollar price of the pound is $1.50. The inverse is also true, the pound price of the dollar is 0.67 pounds.
The American dollar is the reserve currency of the world; therefore, the price of gold is in terms of American dollars. If gold was the reserve currency of the world, a financial commentator might say, “Today the price of the dollar dropped by 1/10 of a dwt.” It all depends on what you are use to hearing.
“Why gold has been accepted as money for several thousand years cannot be appreciated without looking at the unique role performed by gold as money and the alternatives to gold….Ancient gold coins were widely accepted in primitive times because of the weight of gold they were known to contain. It was the physical qualities of gold, the known content of gold of a particular fineness, the fact the coinage could not easily be expanded in supply or debased and counterfeited, the durability of gold, that made gold universally accepted (Sutton).”
Milton Friedman, Nobel Prize-winning economist, had this to say about the American dollar: “…each accepts them because he is confident others will. The pieces of green paper have value because everybody thinks they have value, and everybody thinks they have value because in his experience they have had value. Paper money “is a social convention which owes it very existence to the mutual acceptance of what from one point of view is a fiction.”
I return to CON2 and the qualitative characteristic of accounting information, reliability. Does the monetary unit, the American dollar, “faithfully represent what it purports to represent?” My answer is no. The American dollar changes in value everyday. It is not a store of value. On the other hand, gold is a store of value. “Even in ancient times, with primitive communications among vastly different peoples and customs, gold coins generated worldwide confidence…Recognizing the essential requirement of confidence, ancient empires kept the value of their money constant for long periods without debasement (Sutton).” Gold is a reliable monetary unit. Governments cannot create more gold by fiat.
References
Friedman, M. & Schwartz, A. (1963). A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press.
One World Currency
One world government is predicted in the Book of Revelations, so I am on safe ground there. Additionally, “you shall not buy or sell without the mark of the beast.” That sounds like a one-world currency to me. It looks like to me that we are well down that road. Once the dollar is replaced as the reserve currency of the world, we will become a third world power overnight.
Now for a little speculation. We are not going to go to a one world currency in a straight line. Perhaps the G20 nations will follow the example of FDR by raising the price of gold to $5,000 to devalue fiat currencies? Perhaps we will get a basket of currencies to replace the dollar as the reserve currency of the world sooner than we think?
Watch the debt crisis in Spain, Portugal, Greece and now the UK. I think that the U.S. is next. Debt is going to be eliminated one way or another. Trying to pay off the debt is now impossible.
These are some of my favorite quotes from Ludwig von Mises. He is known as the head of the “Austrian school” of economics. He was a Professor of Economics at the University of Vienna from 1934 to 1940
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
“The whole system is the acme of the short-run principle.”
“The credit expansion boom is built on the sands of banknotes and deposits. It must collapse.”
“If one wants to avoid the recurrence of periods of economic depression, one must start by preventing the emergence of artificial booms. One must prevent the governments from embarking upon a policy of cheap interest rates, deficit spending, and borrowing from the commercial banks. This is, of course, a very difficult task. Governments are in this regard very obstinate. They long for the popularity that booming business conditions seldom fail to win for the party in power. The unavoidable crash, they think, will appear only later; then the other party will be in power and will have to account to the voters for the evils which their predecessors have sown.”
Do you agree that we are at the end of an era?