Still time to buy gold imo. - Page 106 - Economics -- Two Plus Two Poker Forums

couple things:

--putting your money where your mouth is only really means 'i can afford to put this money into an investment where i believe i'll make out long-term'.

--in silver, yeah, sae's and their comparables (maples, phils, etc.) will always have a premium in buying AND selling.

--honestly, if i were just starting, i'd buy eagles here and there, but i think i'd be buying as much 90% that i can. easily the lowest premium relative to spot, and will be the easiest to liquidate if need be.

like anything, you should diversify, but if you're just starting and have $500 to spend only on silver, i'd look something like this:

4 sae's @ $24ish (hopefully, probably more like $25)
random 10-ounce bar @ spot
rest in 90% @ 16x face (you should be able to find it at this price even though technically it's 16.7..too many people selling on the peak to pay actual melt price)

so basically: 4 oz sae's, 10oz bar, $10 face 90%. that'd be an awesome start to a silver stash.

be careful though, it's extremely addicting.

10-09-2010 , 09:32 AM

#2627

Nonfiction

Carpal \'Tunnel

Join Date: Aug 2006 Posts: 12,498

Why would 90% be easier to liquidate?

10-09-2010 , 04:56 PM

#2628

AlbertoKnox

Pooh-Bah

Join Date: Oct 2007 Posts: 3,676

Quote:

Originally Posted by Nonfiction

Why would 90% be easier to liquidate?

It says right on it what it is worth!

10-09-2010 , 04:59 PM

#2629

BurningSquirrel

Pooh-Bah

Join Date: Jun 2008 Posts: 3,785

fyi in Germany you have to pay 20% tax on silver bullion and 7% on coins.

I however do not have to.

10-09-2010 , 05:25 PM

#2630

Mrmusicrecorder

veteran

Join Date: Oct 2009 Posts: 3,361

Quote:

Originally Posted by Nonfiction

Why would 90% be easier to liquidate?

It isn't easier to liquidate 90%.

10-09-2010 , 05:26 PM

#2631

Mrmusicrecorder

veteran

Join Date: Oct 2009 Posts: 3,361

Quote:

Originally Posted by AlbertoKnox

It says right on it what it is worth!

I'll give you $1 for all the morgans and peace dollars you can bring me.

10-09-2010 , 07:07 PM

#2632

BurningSquirrel

Pooh-Bah

Join Date: Jun 2008 Posts: 3,785

silver eagles are also only worth $1

10-09-2010 , 07:10 PM

#2633

Mrmusicrecorder

veteran

Join Date: Oct 2009 Posts: 3,361

Quote:

Originally Posted by BurningSquirrel

silver eagles are also only worth $1

I'll give you $1.10.

10-09-2010 , 07:36 PM

#2634

BurningSquirrel

Pooh-Bah

Join Date: Jun 2008 Posts: 3,785

Quote:

Originally Posted by Mrmusicrecorder

I'll give you $1.10.

I keep them

sry for repost this thread need more pictures

(I have more of them now)

the coin on the very right bottom is worth around 220 € (5 Mark Eichendorff 1957) I gave it to my friend who is a coin dealer for 10 ounces because he almost sells me silver coins for spot which is exceptional here.

10-09-2010 , 09:59 PM

#2635

DonkeysAlwaysDrw

journeyman

Join Date: Jul 2005 Posts: 221

in a local coin ship if the ealer sells 1oz american eagle bullion but the year is 1986 is that coin worth more or less than regular bullion? Or does it pretty much operate as normal bullion on the market and if you can find a buyer a premium you take it? just wondering what the general consensus is since I went to buy some and a few of the coins he offered were 1986 in roman numerals.

10-09-2010 , 10:26 PM

#2636

wiper

still catching up

Join Date: Oct 2005 Posts: 42,897

Quote:

Originally Posted by Nonfiction

Why would 90% be easier to liquidate?

Quote:

Originally Posted by AlbertoKnox

It says right on it what it is worth!

LOL good job.

Quote:

Originally Posted by Mrmusicrecorder

It isn't easier to liquidate 90%.

i was talking more in a shtf scenario, but i guess i'll concede that 90% isn't more or less easier to sell than anything else. though i'll also sneak in that any US coin dated before 1964 = silver.

bull****ting at the coin shop the other day, guy bought a coin (and turned down another) from a low-life looking dude. first coin said '.999 gold' and was CLEARLY not gold.

the other one he bought as a 1oz silver round for $21.

so me, him and another regular sat there bull****ting about h.s. football, and he kept looking at the coin (lowlife had obv already bounced) and he starts flipping out, 'LOOK AT THAT, LOOK AT THAT, WHAT'S THAT SAY??'

coin said, .999% silver.

hahahahahaaaaa...we got a good kick out of that, and were clowning the guy to the point where the main owner told us to stfu because the shop just lost $21.

that's the point of 90%. ain't no sneaky low life trying to sell off a coin that's clad/plated as 999 pure with 90%. if the date is right, so is the coin.

i offered the guy a buck for the .999% coin b/t/w. he wasn't happy and declined.

10-10-2010 , 02:10 AM

#2637

Mrmusicrecorder

veteran

Join Date: Oct 2009 Posts: 3,361

Quote:

Originally Posted by BurningSquirrel

$35 for the lot.

Quote:

Originally Posted by wiper

Yes be very careful about who you get your metals from.

I have some bags of 90% but honestly you are taking a hit at resale based on it's weight. That old change is typically 1-2% lighter in total content from when it was minted so a morgan dollar might have .74 oz ASW instead of .77344 oz ASW. Dealing with a lot of coins, this makes a big difference. Also you tend to loose more during resale because it is less than desirable or "junk". You know that much already, but just clarifying that .999 bullion is more liquid than 90% junk silver right now. I like 90% coinage and in a shtf scenario yes it would be very reliable as a recognizable store of value.

10-11-2010 , 11:52 AM

#2638

wiper

still catching up

Join Date: Oct 2005 Posts: 42,897

well, I'll see your '999 is more liquid than 90%' and raise you a 'yeah but the premiums aren't even comparable right now'. you can usually get 90% below melt around here with the price surging the way it has.

Also, extremely good point regarding 90% and weight. second or third time I was fishing through the can at my local shop, the owner hipped me to all that, feeling the back of mercs to feel how much the bumps still stick out, etc.

I'll admit, at first I went for mercs because they were different and more easily identifiable to me as 90%. now I just grab the shiniest if I'm in a hurry or the most well defined (heaviest) if I'm in there a while..

Long post on my phone about buying metals + still no Internet/Cable in new home = trip to the shop today.

10-11-2010 , 08:27 PM

#2639

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

"What is a currency war? What they mean is each currency is trying to devalue against all of the others. They all want to devalue but they can’t, it is a zero sum game. Some people can devalue some of the time, but not everyone can devalue all of the time.

What is the solution? The solution is to identify a store of value that everyone can devalue against all at once. And there are two obvious candidates. First is gold, and second it is to invent a currency.

The preference of central banks is to invent a currency such as the SDR or the Bancor. But, the market’s preference seems to be for gold. So the currency war comes down to a race between gold and the new paper currency. Who will win?”

An interesting perspective attributed to Jim Rickards, although personally, I'm not so sure the endgame is really such an" either or" scenario.

10-12-2010 , 08:18 AM

#2640

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

....Even in light of all of this shifting by central banks into other currencies, the dollar still comprises 2/3 of global reserves and attempts to shift away from the dollar would destroy the value of central banks’ portfolios.

RS Comment: Although I should be well used to it by now, it still amazes me every time I see comments like the final remark here regarding any significant shift from dollars will lead to the destruction of central banks’ portfolios. It’s almost as if the commentator is trying to help indoctrinate a paralyzing fear as a means to prevent any such attempt on the part of the CBs, and to also create enough grass-roots doubt against such an attempt ever being made that we the people won’t perceive any benefit in trying to front-run with our own flight out of dollars and into gold.

Sure, on the surface the claim seems to have merit. That is, since the central banks hold such a disproportionately large percentage of dollars among reserve assets, and given the fact that the dollars have been largely propped up in value due to this arrangement, any attempt to trim the dollar’s position would erode an important foundation of its present value and would indeed consequently undermine the value of that disproportionately large dollar-based fraction of central banks’ reserve holdings.

It is an error in thought or judgement, however, to believe that a “destruction” of the dollar portion of the portfolio would therefore proportionately destroy the portfolio as a whole.That would only be the case if all other things remained unchanged, but life seldom works out so neatly as that. Sometimes an action can set forth an immediate chain reaction that literally changes EVERYTHING you thought you knew about the situation!

For this thought exercise, a simple analogy will be helpful.

To begin, image a central bank’s vault that contained the total mixture all the present components of its reserve assets — U.S. dollars, other foreign currency, U.S. bonds, other bonds, gold, SDRs, and some other odds and ends. And to help the central bank know the day-to-day value of the reserves in that vault, image there is a computer screen mounted on the vault door that displays the total portfolio value (the sum of the floating mark-to-market values of each of the various components) being held inside. And to help you picture this base on international averages, imagine that this is an average vault in which the U.S. dollar and U.S. bonds represent 67% of the total current value whereas gold provides just 10% of the total. Under the “old normal” circumstances, the international prices of everything inside fluctuate mildly relative to each other, but for the most part the total value (ideally measured in terms of the domestic currency unit) holds modestly steady within a comfortable range.

To help envision the sort of thing that could happen under the “new normal” circumstances, picture the vault as a box that, instead of being packed with a mixture of dollars and gold and other foreign assets, is tightly packed rather with a mixture of charcoal, sulfur and potassium nitrate. (That’s right… gunpowder.) And instead of a computer screen displaying mark-to-market prices of the components, in this analogy we shall evaluate the value of the total “portfolio” by measuring it through the passage of time — marking it to market price in terms of the “domestic currency” of heat, or pressure, or volume.

In the largely unilateral world of the “old normal”, nobody would even think of burning dollars because dollars were more or less what everyone thought they wanted or needed. More was better!

But in the globalized world of the “new normal”, dollars are really just one among many similar currencies — appropriately seen as a sometimes useful but always temporary means to another desired end.

In the world of the “new normal,” it is indeed possible (and someday soon desirable) to let the fuse be lit and allow the CB store of dollars be consumed. And to be sure, it is singularly the latent potential energy of the gold component that allows us to make this analogy with gunpowder. The natural chain reaction in the tiny open market for physical gold would immediately bring to bear massive “heat” and “pressure” upon its price… **POW** thus swelling the “volume” of its value relative to all other things. So even without radical changes to the quantity of physical holdings, a simple expansion in golden value will more than compensate the average portfolio of the central banks against the destruction of the dollar component.

Still can’t wrap your head around it? Bear in mind that the gold price is not a simple one-to-one inverse relationship with the dollar. There is a great leverage lurking in there, but it has been largely masked by the artificial abundance of paper gold which weighs down upon the equilibrium price. And even so, since 2002 the dollar value has decline by just 20% on a trade-weighted basis, whereas the gold price has responded with a 300% gain. And the moreso that the public and private parties of the world rightly gravitate toward physical gold instead of the illusion of paper derivative gold as the solid foundation of their savings and diversifications, the moreso you will see this price leverage grow in favor of larger multiples of gold price gains against modest dollar losses.

Bottom line: In this interim period between the “old normal” and the “new normal”, the central banks of the world are repositioning their portfolios for an adequate admixture of explosive mark-to-market gold to offset the eventuality of dollar-value-destruction (largely brought by the hands of the private capital markets) which the CBs will quietly bear and suffer upon their huge unsalable piles of U.S. dollars and U.S. bonds (unsold in the interest of not adding more fuel to the fire!)

Again, on average the central banks have 10% gold. The ones who have less are scrambling. How about you? Do you have enough gold to put a suitable *BANG!* in your portfolio?

R.

RS

=============

Quote:

...Meanwhile, the Bank of England said on Thursday it would expand its quantitative easing program by 25 billion pounds (US$41.5-billion) to help kick-start Britain’s recession-hit economy. The increase brings the central bank’s total asset-buying program to 200-billion pounds, the equivalent of more than 14% of Britain’s economic output.

The BoE also left interest rates unchanged at a record low of 0.5%, as expected…

The IMF sees 0.3% growth in 2010. One threat to that is the strength of the euro, which has risen 16% against the dollar in the last eight months and about 3.5% using the ECB’s preferred trade-weighted measure.

Economists said those gains could give the ECB another reason to hold off with exit hints, especially without any similar indication from the Fed, as this would put upward pressure on the euro.

RS Comment:: When you understand how it is that it is economically (and therefore politically) undesirable for other major currencies to appreciate against their peer currencies (which is exactly what would happen to any currency replacing the dollar’s reserve status), you will subsequently know why gold shall continue to emerge as the de facto solution to the international reserve question.

And here I emphasize de facto rather than de jure because this has become a global phenomenon driven by a natural evolution (survival and ascent of the fittest) and does not require any additional international treaty or enabling legislation as a prerequisite or for motivation.

The breeze is fair and the road ahead is clear for the ascent of gold.

R.

RS

===================

Quote:

...In the 19th century, bankers trusted gold precisely because they did not trust other bankers, or the paper that other bankers issued. They could hold gold in their own vaults; it would not be dependent on other people’s debts or on the printing of paper money…

Asian bankers know that the West, and particularly the US, has been creating new money in huge and unprecedented quantities…

The real struggle between gold and paper is a struggle for power. If paper money is the dominant form of currency, as it is at present, then the ultimate governors of the world economic system are the bankers who have the power to create money.

If, however, gold is regarded as the ultimate standard … then the market decides the valuation…

RS Comment: Central bankers will increasingly prefer gold reserves over the paper reserves created by other countries. Not only for the reasons of reliability/trust as cited in this article, but moreso because in choosing predominantly gold over foreign paper for central banking reserves will give those various national monetary officials an improved degree of latitude in their pursuit of an independent monetary policy.

WITH gold reserves, a central banker in a vibrant national economy can choose to enjoy a strong currency relative to gold, but, importantly, it can still alternatively choose to exercise loose monetary policy (for economic or political reasons) in which its currency is made weak as measured relative to gold. But regardless of choice for the relative strength or weakness of the national currency, the abiding benefit of choosing gold reserves is the superior stability — the systemic strength against procyclicality — that gold offers to the asset side central banking balance sheet.

WITHOUT gold reserves, pursuit of a national currency policy that is (according to their preference) generally strong OR generally weak is made less expedient either way because the health of the central bank’s balance sheet is subordinated to the quality of its foreign paper reserves which are themselves subordinated to the particular monetary policies being pursued by those foreign governments. Generally this structure of foreign paper reserves offers only the option for national monetary weakness built upon other international weaknesses, and worst of all it exposes the national monetary balance sheet to procyclical systemic failure — a domino whose fate is written largely in the hand of its neighbors.

10-12-2010 , 08:58 AM

#2641

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,304

For fun, I'm posting the daily chart of spot gold from the day Boro started this thread:

Spot gold as of 9AM EST is $1352/oz.

Still time to buy?

10-12-2010 , 09:06 AM

#2642

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

Originally Posted by Bigdaddydvo

Still time to buy?

Quote:

6 Oct 2010 (CNBC) — The recent rally in gold is driven by fear of currency fluctuations and not just the fear of inflation, Louis Gargour, chief investment officer at LNG Capital, told CNBC.com Wednesday.

Intervention from governments and central banks trying to reduce their relative currency values are adding to uncertainty in the market, he said.

… Such moves are driving investors to the precious metal as gold can offset global currency exchange fluctuations, according to Gargour.

“The great debate is, why am I buying gold… and the real answer is preservation of the value of your currency, it’s not just inflation,” he said.

Gold is acting like a reserve currency…

RS View: This phase transition (like the melting shift of ice into liquid water, or, better yet, the steaming shift of water into vapor) has been a long time in the making — essentially on the political stove and absorbing heat for decades. Now at last, this past decade (since introduction of the euro in 1999) has brought the elevation of that heat to the critical 212° Fahrenheit (100° Celsius) and gold is beginning to make the steaming leap — from its old position as part of the managed stew in the roiling kettle — up into the relative freedom of the vapor phase where it can finally move freely and efficiently (at much higher prices) as dictated by the economic jetstream and all other related winds of demand.

10-12-2010 , 10:27 AM

#2643

Nitrub

Pooh-Bah

Join Date: Mar 2008 Posts: 4,386

Quote:

Originally Posted by Bigdaddydvo

I still believe long term that the moon is the limit for gold

Quote:

Originally Posted by Bigdaddydvo

For fun, I'm posting the daily chart of spot gold from the day Boro started this thread:

Still time to buy?

dude....weak....have some faith

10-12-2010 , 11:27 AM

#2644

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Yale Ph.D., And Former Fed Member Tells Obama To Pull A "Gordon Brown" And Sell All Of America's Gold

Quote:

Edwin Truman, a senior fellow in the Peterson Institute, who is of course a former Fed member, and of course a Yale Ph.D., writes in the FT, suggesting the brilliant idea that it is high time for the US to sell its gold. In other words do precisely what Gordon Brown did a few thousand percent ago, and now has to defend against allegations he did so merely to protect the LBMA cartel which was on the verge of being margin called into oblivion. And even if one ignores the fact for a minute that there has not "really" been an audit of the US gold holdings in who knows how long, who is to say that Goldman, of all people, may not be right and gold will be at $1,700 in a year? Or Dylan Grice for that matter, and it will be about 10 times higher. One thing is certain: converting real hard asset value into paper to patch up 2.25% of government debt as a % of GDP is easily the dumbest idea we have ever heard. Especially, since as we disclosed yesterday, the Fed will have to force Congress to increase its deficit, and thus debt funding needs, simply so that there are enough Treasuries for the Fed to monetize. We hope Mr. Truman is in the contention for next year's economic and peace Nobel prizes, because with articles such as this he has certainly proven he belongs to that unique category of brilliant economists that only Princeton, Yale and Harvard can produce.

From the article:

Quote:

Gold is back in the news. Its price is soaring in what some analysts say is a reflection of a weak economy and a lack of confidence in government policies. Naturally, investors are looking at a new sure thing in the expectation that prices will continue upward. My advice to the US government, however, is that this may be the best time – to sell. Doing so would help President Barack Obama and Congress reduce indebtedness, at little cost.

It is an article of faith in bullion markets that the US will be the last country to dispose of its gold stock. For 30 years it has had a no-net-sales policy for reasons ranging from resistance by US gold-producing interests to concerns about the international monetary system. That assumption may remain plausible. Yet the administration has an obligation to re-examine its policy.

And now for kicker #1: gold is up due to "fraud and misinformation" - oddly there is no mention of the fraud accompanying the Keynesian ponzinomics that the world is fighting tooth and nail to preserve:

Quote:

The market price of gold has risen for more than a decade propelled by low interest rates, the hype of the bullion dealers (holding large inventories) and no doubt the normal amount of fraud and misinformation accompanying asset price bubbles. The Financial Times has reported that the precious metals industry expects the price to increase by a further 11 per cent over the next year.

So here is Truman's modest proposal: take the gold, convert it to linen, and use it to patch up just over 2% of US debt. Brilliant

Quote:

Meanwhile, the US Treasury holds 621.5m fine troy ounces of gold. The government has been sitting on that gold since the Great Depression, receiving no return. At the current market price of $1,300 per ounce, the US gold stock is worth $340bn. The Treasury secretary, with the approval of the president, has the power to sell (and buy) gold on terms that the secretary considers most beneficial to the public interest. Revenues from sales must be used to reduce the national debt.

If the US were to sell its entire gold stock at the current market price, it would reduce the gross government debt by 2¼ per cent of gross domestic product. Based on the average interest cost from 2005 to 2008, this reduction in debt would trim the budget deficit by $15bn annually. Thus, the Obama administration would be doing something about the US fiscal debt and deficit without reducing near-term support for the ailing economy.

...

Who knows what is "most beneficial to the public interest"? He does:

10-12-2010 , 11:32 AM

#2645

Zygote

Pooh-Bah

Join Date: Jan 2005 Posts: 5,740

i bet you'll start to see a lot of countries sell gold to help them with financing and budget problems just like the imf has done. expect italy, a major gold holder to be an example of this.

10-12-2010 , 11:52 AM

#2646

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

Originally Posted by Zygote

i bet you'll start to see a lot of countries sell gold to help them with financing and budget problems just like the imf has done. expect italy, a major gold holder to be an example of this.

I 'd be shocked.

Italy joined a currency union in 1999 that was designed to survive the debt crisis through MTM accounting of gold. The Euro was designed to inflate away the debt and be able to survive, unlike the Dollar.

AKA they joined a currency premised on the fact that gold is gonna go way higher.

Maybe they changed their minds or maybe new idiots are gonna take over the politics, but they already pledged most of their gold to the euro based on an understanding that selling it now would be ridiculous.

So short of the breakup of the Euro currency its not gonna materially happen. They may have other gold but almost all of their official stock is pledged to the Euro.

The IMF is the dollar faction, they are the antithesis in many ways to the EURO faction on the international currency stage. They are the two big opposing currency camps - the anti gold IMF and the pro gold Euro faction.

10-12-2010 , 11:55 AM

#2647

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

from here - http://forumserver.twoplustwo.com/sh...postcount=2539

Quote:

RS View: As the ECB grows the size of the Eurosystem’s balance sheet through domestic bond purchases, a rising price of gold is a natural and welcome means for the value of their reserves to keep pace as a proportion of the total… As it is, whomever said that rising gold prices were antithetical to a central banker’s operational purview is simply woefully out of step with the modern era (i.e., these recent 10 years) of mark-to-market accounting of reserve assets. In this field, gold still has a very very long way to freely and comfortably run. You can count on it; the various international central banks surely are.

10-12-2010 , 06:13 PM

#2648

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Triffin’s Dilemma, Reserve Currencies, and Gold

Lots of astonishing (or in another way of looking at it, not astonishing) ignorance about the Euro and gold, but otherwise, the article does a good job of explaining the Triffin paradox and how gold is the obvious answer to this dilemma (without acknowledging that the second most widely used international trade currency was designed for the express purpose of dealing with the Triffin paradox presented herein):

Quote:

Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960). Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large trade deficits in order to provide the rest of the world with the liquidity required for functioning of the global trading system.

Unfortunately, Triffin wrote, U.S. trade deficits eventually would undermine the foreign exchange value of the dollar because foreign accounts would hold an increasing quantity of dollars. Restating Triffin's argument in contemporary terms, as the proportion of dollar claims held abroad versus U.S. gross domestic product (GDP) increases, the foreign exchange value of the dollar must decline if dollar interest rates do not increase at about the same rate as the foreign dollar claims.

Quote:

Issuing the reserve currency gives domestic policy makers an advantage by making it easier to finance either domestic budget deficits or foreign trade deficits because there always is a ready bidders' market for any financing instruments from that issuer. Issuing the reserve currency enables the domestic population to consume more goods and services from whatever source than otherwise would be feasible. And issuing the reserve currency gives foreign policy officials of that nation the upper hand in determining multilateral approaches to either diplomacy or military action.

This last reason probably is why U.S. policy makers clung to the original Bretton Woods format for about 10 years beyond the point at which it still was viable, with the whole apparatus finally collapsing in August 1971.

Quote:

Let us reconsider the effect of reserve currency issuance on domestic and foreign trade for a moment. Unless the issuing authorities can discover a way to allow their currency to depreciate more or less in proportion to the growing foreign trade deficits—by reducing interest rates or otherwise stimulating domestic inflation (J.R. adds - the US avoided domestic price inflation so far via the great moderation, aka the recycling of these new dollars into dollar denominated assets, most treasuries), for example—then a sustainable equilibrium becomes impossible.

Either the currency remains overvalued (good for the reserve currency status) and the trade deficits continue to increase, or the currency maintains fair external value (implicitly, a proportional devaluation, which is bad for the reserve currency status) and the trade deficits either stabilize or shrink. This latter proposition is what Professor Triffin was writing about in 1960, and it has been called Triffin's dilemma ever since.

Quote:

Lehrman and Mueller argue correctly that no country willingly should volunteer for the reserve currency role. (J.R. adds - this is arguable, clearly its true for neomerchantilist Asian countries) Such an endeavor necessarily leads to the same pattern of persistent overvaluation and trade deficits that plagued the United States since European currencies became generally convertible in 1959. Our abandonment of the international gold exchange standard in August 1971 accelerated and intensified our external deficits and the volatility of exchange rates. (J.R. adds - this is spot on)

Among advanced economies that were key members of the old Bretton Woods system, tolerating large amounts of external claims in their currencies always was a sore point because they wanted to avoid de facto reserve currency status and the curse (Triffin's dilemma) that accompanies it.

In the last two decades, roughly since the fall of the Berlin Wall in 1989, European countries have adopted the euro and allowed large external claims in euros to arise. (J.R. adds - LDO, because the euro is designed to avoid the Triffin dilemma through MTM reserve architecture and lots of gold in reserve, but who could expect any modern economist to speak openly about this obvious truth), The Japanese bubble of the 1980s finally burst and relieved the reserve currency pressure of large external claims there until the last couple of years. Recently prosperous nations like China, India, and Brazil linked their currencies to the dollar and managed exchange rates so as to avoid the accumulation of large external claims. Thus, none of the most likely candidates is volunteering for reserve currency status. (J.R. adds - except for the obvious one the article just mentioned that was designed expressly for this purpose)

Quote:

This state of affairs suggests that Lehrman and Mueller might be right. Gold might be the correct answer to Triffin's dilemma.

10-12-2010 , 06:21 PM

#2649

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

The Triffin dilemma described here is in many respects the sentiment expressed by Jim Rickards a few posts above - everybody needs to devalue, but if one currency is artificially propped up in value as a function of its use as the world reserve currency, that currency can't devalue (too bad Jim didn't recognize they already built a currency in anticipation of this need to devalue against a store of wealth that is separate from the currency being devalued) .

Quote:

"What is a currency war? What they mean is each currency is trying to devalue against all of the others. They all want to devalue but they can’t, it is a zero sum game. Some people can devalue some of the time, but not everyone can devalue all of the time.

What is the solution? The solution is to identify a store of value that everyone can devalue against all at once. And there are two obvious candidates. First is gold, and second it is to invent a currency.

The preference of central banks is to invent a currency such as the SDR or the Bancor. But, the market’s preference seems to be for gold. So the currency war comes down to a race between gold and the new paper currency. Who will win?”