Help me understand what the new "Gold System" will look like.

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gcruwitme's picture
gcruwitme
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Help me understand what the new "Gold System" will look like.

 

One of the things I have been unable to wrap my head around, and as such, has kept me from getting on the gold train, is how will our new world look post financial armageddon.
 
Let's say I have a stash of American Eagles hidden in a safe place.  (Let's also assume I have taken care of 3 months worth of food, water, self-defense, etc.)
 
What am I doing with my Gold post dollar collapse?  Am I trading them in for the New Dollar; am I trading thim on the Old Dollar, but at some higher rate, am I scraping off a few grams to pay my local farmer for some eggs, or am I trading them for the farm itself.
 
If they aren't actually being directly traded for goods, what will the demand for gold be post collapse?
 
 What will this picture look like in a global collapse.  The scenarios people always point to is Argentina and the like, but the rest of the world was operating as normal.  What happens in a global collapse?  
 
I am feeling like the proverbial deer in the headlights, but part of it is not being able to picture how exactly stashing my wealth in gold will work.  If it's just to buy low and sell high, it feels more like speculation, not wealth preservation.
 
Am I better off transferring my wealth to a new way of life ie. land I can farm in an area where my family can survive without much need for oil or resources not available locally?
Thomas Hedin's picture
Thomas Hedin
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Why would it crash?

I don't think it's going to all out crash.  I just think it will merely get tougher and tougher for the bulk of the people until the people decide to change the system to a sustainable one with an open and honest monetary policy and trash this debt money system once and for all.

 

That aside, I doubt that gold will ever be used as money in this country again by the mere fact that there isn't enough of it to make it work as a medium of exchange.

DurangoKid's picture
DurangoKid
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Ah, Gold.

There are three things to do with gold. Decorate stuff such as your body or your onion shaped roof. Speculate in it. Hold it as a hedge against currency collapse. The first two are of little interest, so let's concentrate on the third.

The first thing to know is that gold is not legal tender for all debts public and private. It must be converted into currency before its value can be realized. During a depression no one has cash and that pushes the price of everything lower, including gold. If you enter a depression cash rich and unencumbered by debt, you stand a good chance of having your gold preserve its value through the crisis. During inflation, you sell your gold in small increments and spend the cash straight away. The price of gold will continue to rise along with everything else. Being cash rich in an inflation has very little staying power. If you manage to survive with your gold until prices stabilize, you've done well.

There's some talk about returning to a gold standard. It's rubbish for the most part. First, there isn't enough gold in the world to back the stock of US dollars at current gold prices. Second, if gold were used as reserves, there could still be ten to twenty times as many dollars in circulation as gold. That money is just wishful thinking money. So long as debts are serviced, it exists. Should something happen and many people and corporations (and governments?) go bankrupt, that money is gone. So, even as a reserve, it is not possible for it to back dollars. Third, using gold to limit the stock of money won't work so long as the reserve requirements can be changed. Imagine bankers going crazy and raising the reserve requirements to 50:1? Wouldn't that be just as inflationary as fiat currency?

Forth, and this is the most important, there is nothing intrinsically wrong with fiat currency. Where the fiat currency fails is in the value of the promises we make to each other. As long a the big players can make trillion dollar bets on fraudulent financial instruments and force the rest of us to make good on their gambling debts, any currency, fiat or otherwise, is in trouble. The elite capitalists are always happy to point out the “moral hazards” of welfare, Medicare, Social Security, Food Stamps, etc. The situation is quite the reverse when by rights they should be called to account for their profligacy. Money and the value thereof are moral issues. Greed destroys monetary systems as effectively as adultery destroys marriage, abuse destroys childhood, addiction destroys personhood. The possibility to acquire wealth without work has dogged the institution of money since its inception. Ultimately, when those in positions of power and policy refuse to act with restraint, the majority shall suffer.

jturbo68's picture
jturbo68
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Seems like it could

Why couldnt the amount of gold in this country or world be backed by gold?

A dollar would be backed by a very small amount of gold. And the value of an ounce of gold would be very high.

While we are at it, maybe we dont need fractional reserve ratios either.

 

 

rhare's picture
rhare
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Confusion between gold stanard and fiat
DurangoKid wrote:

So long as debts are serviced, it exists. Should something happen and many people and corporations (and governments?) go bankrupt, that money is gone.

Bankruptcy and default are inflationary!  The loan has been made, the money has been created and spent into the Economy.  Bankruptcy and default mean the money is not destroyed because we bail out the depositors at the bank that made the bad loans (FDIC).

DurangoKid wrote:

There's some talk about returning to a gold standard. It's rubbish for the most part. First, there isn't enough gold in the world to back the stock of US dollars at current gold prices. Second, if gold were used as reserves, there could still be ten to twenty times as many dollars in circulation as gold.

Not at current gold prices, but you can absolutely have a gold standard and set the value of the dollar to the number of gold ounces held by the Fed divided by the number of dollars that currently exist. However, you have to not encourage bad behavior of the banks (and citizens) by bailing out the banks and their depositors when loans go bad.

Right now we say banks create money, but that is not true.  Banks lend money created by the Fed.  The difference is that when you deposit money with a Bank,  you are lending your currency to a bank and hoping they will eventually return your pricipal and interest by making loans.  If you choose poorly, you may loose.  However, in a gold standard you have the option to simply hold your money yourself, not lend it, and not loose value.  It's only when the base currency is being devalued by the Federal Reserve that that is not an option.  Being a depositor at a bank that will lend your money to others means you are subject to risk.  In our current system we have transferred that risk from the depositors to all holders of dollars - That is the root of the problem.  Remove the inflationary capability of the Federal Reserve and it will cause risk to be rightfully placed - back to those making loans.

 

gcruwitme's picture
gcruwitme
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Still having a hard time grasping the gold concept

So, when the system fails, be it hyper-inflation, deflation, systemic banking failure, dollar collapse, fiat currency collapse, anarchy in the streets, what-ever form(s) it takes...

What am I doing with my stash of gold afterward?  (and when is afterward?)

Who am I trading it in to? The bank, the gold dealer, the government, the Chinese ???

And for what exactly?  Am I cashing in my gold for New World Order bucks, the New and Improved US Dollar, or the old dollar, just a truck-load full?

What will the system look like for those (family, friends, neighbors) who didn't buy gold?

I am having a hard time conceptualizing how my stash of gold will protect my savings,  and such have a hard time acting on it.

Thanks to all for the helping me understand and I apologize if this is a simple concept that I should be easily grasping.

 

Johnny Oxygen's picture
Johnny Oxygen
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gcruwitme This article may

gcruwitme

This article may give you a more clear idea.

How to Return to the Gold Standard

http://www.thefreemanonline.org/featured/how-to-return-to-the-gold-stand...

 

The goal of returning to a gold standard must be (1) to reintroduce gold and gold coins as money, without producing deflation and without causing the economy to go into shock, while permitting the fulfillment of outstanding contracts, including those of the U.S. government to its bondholders, and (2) to arrange for the transfer of gold from the government’s holdings into private hands, so that gold coins would be in circulation daily. As pointed out above, before this can happen, there must be a major ideological shift in the climate of opinion. The voters must be willing to be more self-reliant and accept personal responsibility for their actions. And the politicians must refrain from asking for more government spending at every turn. If this ideological stumbling block to establishing a gold standard could be overcome, if the people were willing to forgo welfare state spending and were determined to reform their monetary standard and introduce gold money once more in the United States, and if politicians would cooperate, then a shift from our paper and credit monetary system could be accomplished without radically disrupting the market, prices, and production.

Advocates of the gold standard should not be deterred by the three reasons given by critics who believe a gold standard could not work: that there isn’t enough gold to serve the needs of the world, with its increasing population and its expanding production and trade; that gold would be an unstable money; and that a gold standard would be expensive.

rhare's picture
rhare
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Joined: Mar 30 2009
Posts: 1323
Gold is money
gcruwitme wrote:

What am I doing with my stash of gold afterward?  (and when is afterward?)

Who am I trading it in to? The bank, the gold dealer, the government, the Chinese ???

If we do not have a total collapse, then you are using gold to preserve your purchasing power and will trade it when you need currency to purchase things you want/need.  Gold and other PMs are simply a way to preserve your purchasing power while minimizing the need to speculate (equities).  If we have a total collapse, it may or may not be immediately traded for goods and services.  We may go through a barter system for a short while, but as CM points out, barter is cumbersome and a new monetary system will pop up (probably several). The idea is that gold has been money off and on for thousands of years.  In the event of a collapse, it will be the most easily used, particularly for international trade.

gcruwitme wrote:

And for what exactly?  Am I cashing in my gold for New World Order bucks, the New and Improved US Dollar, or the old dollar, just a truck-load full?

Could be any of the above, or none.  It depends on if PMs become the currency used by the public.  If not, you would trade your gold as needed for currency.  It's not a cashing it all in phase, in fact, depending on how much you have you may want to hold it forever.  You could have been holding gold for the last 100 years and retained your purchasing power.  So gold is not necessarily just for bad times, it's for anytime that you have monetary malfeasance.

gcruwitme wrote:

What will the system look like for those (family, friends, neighbors) who didn't buy gold?

They will be poor.  They will watch their savings evaporate.  People who have metals or other hard assets will do better.  Remember, buy things you can use first, then excess reserves you place in metals.  There is one other reason to own gold, it is portable.  If things turn really bad, you can flee with gold, not so easy with farmland.

The way to think about it: gold is money.  It may not be directly spendable currently, but it can easily been traded for any currency you desire.  It is compact, can not be created from thin air, and recognized.globally. 

 

 

Grover's picture
Grover
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Joined: Feb 16 2011
Posts: 800
Not a complete answer
gcruwitme wrote:

So, when the system fails, be it hyper-inflation, deflation, systemic banking failure, dollar collapse, fiat currency collapse, anarchy in the streets, what-ever form(s) it takes...

In each case it will be different. Hyperinflation will mean that you can pay off your mortgage with a gold coin or less. Deflation will mean that gold will go down, but at a smaller percentage than needed commodities. I'm not sure what will happen with gold and a systemic banking failure. Fiat currency collapse is similar to hyperinflation. Anarchy is why you have a well rounded portfolio of food, water, and protection. Anarchy will quickly exhaust itself.

gcruwitme wrote:

What am I doing with my stash of gold afterward?  (and when is afterward?)

What would you do with cash afterward? Which would you rather have in hand? I think gold will maintain/increase its value relative to cash in any of your situations. As a single ounce of gold will be worth quite a bit, it should be kept for major purchases (e.g. farm, equipment, etc.) Silver is a better bet for day to day transactions. A pre 1965 dime contains 0.0715 ounces of silver or about 14 dimes to the troy ounce. You should have a stash of these to be well rounded. People will quickly learn the value of these and trade for small items will resume with these as a barter proxy.

gcruwitme wrote:

Who am I trading it in to? The bank, the gold dealer, the government, the Chinese ???

That depends on the situation.

gcruwitme wrote:

And for what exactly?  Am I cashing in my gold for New World Order bucks, the New and Improved US Dollar, or the old dollar, just a truck-load full?

If there isn't a functioning fiat currency, gold will be used directly for expensive items and silver will be used for day to day purchases. If there is a functioning currency, gold can be sold to anyone interested in it for a given quantity of fiat.

gcruwitme wrote:

What will the system look like for those (family, friends, neighbors) who didn't buy gold?

I am having a hard time conceptualizing how my stash of gold will protect my savings,  and such have a hard time acting on it.

Thanks to all for the helping me understand and I apologize if this is a simple concept that I should be easily grasping.

Gold isn't a panacea in all circumstances. If you have an ounce of gold and are dying of thirst, you'll gladly exchange the gold for a glass of water. If you have no gold, you may get lucky and find a good samaritan willing to share a glass with you. If the system collapses, there will be mayhem and carnage in the streets until the local population reaches a point of sustainability with local resources. Depending where you are living, the population drop may be insignificant or nearly 100%. A small midwestern town may be able to produce more than enough for the population whereas Las Vegas sustained less than 5,000 before Hoover Dam was built. If electricity fails, the nearly 600,000 residents will have a very tough row to hoe. I'd expect less than 10% to survive a year. (Neighboring towns will not be likely to welcome escapees unless they possess something that the local community needs. I doubt gold would buy much in this case.)

Those who don't have tradeable resources will have to scramble to find water, food, shelter, and safety. Those who have gold/silver may be able to trade for these necessities. Then again, gold may paint a bright target on you for all to see. You'll have to keep your wits and common sense at hand.

Look at your scenarios and ask yourself where you should keep extra cash. If you had something to sell in each situation and someone offered FRNs and someone else offered an equivalent value of gold or silver, which would you prefer?

Grover

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