ugh. I honestly don't enjoy delving into the deep fundamentals of money and currency but unfortunately for me I always feel obligated to respond in order to encourage a correction of misunderstood topics.
Alright, now this is going to require some critical thinking and patience in reading what is sure to be a semi lengthy post. I’ll try to provide real world examples in order to help illustrate what I say.
This is not correct. Your wealth is never determined or measured by terms
you choose. It’s measured against what everyone else around you desires to have. The larger this population is that desires what you have, the wealthier you become.
The point you’re trying to make is that value is not determined by any specific asset or financial instrument but rather by people’s desire to possess that asset. This is true to a degree. An object’s value is in fact determined by the amount of desire people have to own said object. Here are some examples:
Example 1: Okay, lets say I have a baseball card collection. That baseball card collection holds an enormous amount of value to me and some of my friends. Does that mean that these baseball cards can be money? Possibly, but only if the people I wish to do business with value baseball cards as much as I do. I know there are a lot of people that do value baseball cards (just look at eBay). Unfortunately for baseball card collectors, this pool of people is vastly too small in order for baseball cards to realistically be used as money.
Example 2: I have a super cute picture of my 2 year old son. That photo is extremely valuable to me and worth more than any amount of USD or AG. Does this mean I can fire up my printer and start printing hundreds of these photos and go pay my bills?
Are you starting to see the pattern? In order for an object to be used as a medium of trade, it has to have value to people collectively. There is a difference between value and economic value. An object needs to have extreme economic value (among other factors) to qualify as a medium of exchange. The greater the amount of people who deem the object valuable the more secure your wealth will be by owning it. Sovereign governments can designate a fiat currency as the medium of trade but that currency realistically is only desired by people of that country. That is because only the government of that country can make good on the promise that currency represents (more on this later). Just like baseball cards can be money among a select group of people, so goes fiat currencies. I live in the USA so I can’t go pay my bills in Euros just like I can’t pay my bills in baseball cards. That is why the ultimate asset to hold is that which the MOST people consistently want. That asset has been defined since the dawn of civilization and has been more than adequately tested through every single economic crisis ever known to mankind. There shouldn’t be any confusion about it.
Oh yes they have. Many many times and each time they have failed. Never one success. This is however the first time to this magnitude and with this large of a population.
Your point is well taken but let’s flip it over for a moment. You’re saying that an asset is only worth what you can buy with it. That’s understandable but just because I can’t buy land in Wyoming or groceries at Wal-Mart with Euros, that does mean Euros have no value? No, because they are highly desired from people within the European Union. The problem with your point is that right now, everything in our economy is currently paired against the dollar. So when you want to buy something with AU, you have to convert to USD in order to buy those things. The paper markets with the massive margins vs actual physical inventories wont let real price discovery of PMs take place and as such distorts the real value of PMs.
Also, just because you can’t use AG and AU at the self-checkout does not mean they’re not valuable. The thing is, I may not be able to use AU at the super market but in actuality I can buy anything I want in the world with it. The reach of PMs is global and the desire to possess PMs is virtually equal across the board regardless of nationality or religion. That’s the power of PMs and why they are the ultimate store of value.
Okay now to the fun stuff! Let’s talk about The United States Dollar. I don’t know if many here even understand what a dollar bill is or represents since many of you see the dollar as an asset of wealth. In actually it’s a liability. Lets begin;
As you ALL should know, before 1933 the USD was backed by PMs. You often find the blue seal silver certificate bills. By 1964 you could no longer redeem silver certificates for AG from the treasury. Don’t you ever wonder about the fundamentals between our dollar then and our dollar now?
The most fundamental principle you need to understand is that the dollar bill is a mere representation of an asset and not an asset itself. The dollar bill is to facilitate trade and make transactions simpler but not to replace the asset itself. What people didn’t understand back then (or maybe they did) is that when they bought a gallon of milk for say $1, although they would hand over a $1 bill, they were actually paying in silver! If you’ve ever read what the US Government stated on the Silver Certificates you’ll understand.
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It states that “This certifies that there is on deposit in the Treasury…” continued by “..Dollars in Silver payable to the BEARER on DEMAND.”
So to clarify, the silver certificate bills were only representations of AG kept on deposit in the treasury that guaranteed to be redeemed when the holder of the dollar bill presented it for redemption. So PMs have always been the asset on deposit, or in other words, PM were and are the real money being used even in light of the people buying and selling in “Dollars”. The dollar represents a DEBT that the government owes to the holder of the dollar bill.
Lets draw another real world example. I assume many of you have purchased and sold homes and cars before. A car and a house are physical assets of common value. As you know, your car as well as your home have a “Title” or “Deed” that represents them. Just like the holder of a silver certificate was entitled to ownership of silver on deposit at the treasury, so is the holder of the Title entitled to ownership of the car or house it represents.
Lets go a little further. I mentioned the dollar being a debt and I understand this may be extremely confusing for some but it is very much true. When the US government printed the silver certificates, those certificates were an IOU to the holder (You and I). The government would pay us the silver whenever we demanded it.
Lets bring in the Title to your car and Deed to your house example once again. There are two objects in play here. The actual physical asset (ie car/house) and a representative asset (ie title/deed). So lets say I sell my car. I give sign and give the title of my car to the buyer once I’ve been paid.
Let me ask you this, just because I signed over the title and gave it to the buyer, does that mean the buyer now physically possesses my car also? No. I could simply not give him my car even after giving him the title. Whoa! But wait Statch! If he owns the title of your car then that means he owns your car!
YES! But only because the Title of my car is backed by laws and local courts. What the title does is guarantee that the buyer can present possession of the title to the court and redeem ownership of my vehicle. The same goes with the US Dollar. The Federal Government assures that the holder of the bill is guaranteed ownership of the silver on deposit.
Now that all works fine and dandy. But you see, that’s no longer how the government works. When we were taken off the gold standard, the Dollar remained a debt but now is not backed by any asset. It does not matter if you have $100,000,000, it cannot be redeemed for anything from the treasury.
This would be the same as if I were selling Titles to cars and Deeds to houses but I don’t have any cars or houses to sell… The people buying my cars and houses THINK that because they own the titles to these assets that they have wealth. The problem is, they cannot and will never be able to redeem those titles and deeds for anything. If those deeds cannot be redeemed for anything, then what does that make them? It doesn’t take a genius to know that they’d be worthless. Don’t believe me? Ask the Treasury.
“Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933. The notes have no value for themselves, but for what they will buy.”
https://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx
This is exactly the current circumstance of our fiat currency system today. The government is giving us IOUs but these are IOUs (Titles / Deeds) that can never be redeemed. The only reason many people, including many of you here, think that they are still valuable is because the majority of people are still behind the curve. It takes a while for big changes like this to come full swing. When enough people realize that they’ve been duped, the whole system will collapse. This false system succeeds only as long as the buyers of the titles and deeds (you and I) are too stupid to know.
This is because we operate in a market where we never redeem the physical assets because we’ve never needed to. It would be like me buying and selling deeds to houses without ever physically taking possession of the houses. I simply trust that the houses exist and that the deeds are valid. This is also how the commodity future markets work. You buy and sell on the paper markets but you can also take delivery of the goods if you so choose. Most people don’t take delivery but just want the dividends of holding the paper certificates, just like people today aren’t trying to redeem their paper dollars with the Treasury.
Just like in the example of selling houses and cars. The buyer relies on the full faith of the court system in order to redeem his title for the asset. What happens if the court disappeared? Your title becomes worthless as now it offers no guarantee of ownership. The same goes with the current US dollar. It’s backed by nothing but the Federal Government. What happens when this government, who might I say has over $18 trillion dollars in debt and climbing fast, can’t sustain itself any longer? What happens when most of the global economies are in the same or worse circumstance? What assets will the entire population of the world want when each of their fiat currencies systematically collapse? What then happens to your United States IOUs?
In the past people who sold their physical AG for silver certificates were simply swapping the same thing. Apples for Apples. There was no point in doing it other than the silver certificates were lighter to carry. But now, when you sell your AG for dollar bills, you are trading it for literally nothing. You’re gambling on the hope that the next guy you do business with still thinks dollar bills are valuable.
It’s like playing musical chairs as a kid. The people holding the dollar bills when the system collapses will be the ones who will lose their wealth. The system doesn’t even need to collapse. The global fiat currency system right now and all the global sovereign debt will call for huge financial and economic reforms at the least. These things do not spell well for people holding nonredeemable IOUs.
Mark my words. The greatest devaluation of the dollar will not happen from inflation but rather from people realizing that they’ve been conned into trading real assets for phony Titles (aka Dollar bills). All it takes is for enough people to wise up and with rising costs of inflation and most importantly if we lose our Reserve Currency status, it’s only a matter of time.
I agree 100% and I have always advocated this if societal collapse were to occur. This again has to do with what people desire MOST and in that type of scenario, it would be food, water, and protection.
But i find it sad that more people aren't looking into history more of how precious metals have really been the only real money for 1000's of years. Yep nobody knows whats going to happen. But why are we the only central bank that is not accumulating PM's, why is the value being suppressed, why is the propaganda machine anti PM's... There are a lot of confusing signals out there, and yes you cant eat it, shoot it, or drink it. And yes if your at all a casual observer like middle America is becoming, then you feel a need to prepare...Because guess why. this zero sum game is to belly up This great country so they can do away with that pesky document we affectionately call the constitution. Just like Joseph Stalin said" Doesn't matter who is voting but who is counting the votes" The price of PM's are completely manipulated and if you don't believe that then you should sell and go collect stocks as these are not the droids you are looking for ....
