UK watch....

[Little John]

Between them, the Germans, French and Italians have 8,200 tonnes of gold.

They're going to look a bit silly when they discover that all it's good for is baubles.

I'm amazed you still don't get this, Biff. In a world where the fiat money system has just imploded, 8,200 tonnes of gold buys you a seat at the table where the new system is designed. Last time such a table existed the US owned half the world's gold, and therefore the US decided how the new system would work. This gave the US a massive economic advantage that it has been benefiting from ever since...even now.

It's not the Germans, French and Italians who are going to end up looking (more than) a bit silly. It's going to be us.

Yep

In a post FIAT world, the only thing that has value is stuff. The problem with most stuff is that while it has high specific exchange value for the people who want it,, it doesn’t have much universal exchange value. Therefore, it is inevitable that people will look to stuff that can serve as a means of universal exchange. The kind of stuff that serves such a function will need to have the following qualities;

* limited supply (so as to not be rendered worthless by over-supply
* incapable of being manufactured (so as not to be rendered worthless by over-supply)
*non degradable (so as not to be rendered priceless and of limited use as a means of exchange by under-supply)
*portable (so as to be useful as a transportable and storable means of exchange
* easily divisible (so as to facilitate exchange of goods and services of any value)
*relatively useless as anything other than as a means of exchange (so as not to be rendered priceless and of limited use as a means of exchange by under-supply due to being used for other purposes)

No surprise, then, that gold, silver and copper have been re-invented many times as the primary means of storage and exchange of wealth since the dawn of civilisation.

Gold is the money of kings
Silver is the money of gentlemen
Copper is the money of peasants
Debt is the money of slaves

[JavaScriptDonkey]

Surely that inexorably leads to an accretion of gold with the most profitable venturers which reduces the money supply and so starves economic activity of it's life blood and in turn gives birth to a new fiat currency?

[Little John]

Surely that inexorably leads to an accretion of gold with the most profitable venturers which reduces the money supply and so starves economic activity of it's life blood and in turn gives birth to a new fiat currency?

Yes, that is a real problem from which two outcomes must ensue.

Either the hoarders must spend some of their gold otherwise it will suffer demand destruction (and consequent devaluation) as people begin to use another form of exchange.

Or, the hoarders get hold of the levers of power and introduce the ponzi scheme known as un-backed, state-enforced, debt-based FIAT.

Its a conundrum.

The only solution to the above would be to have a truly free market in money. That is to say, anybody could produce their own money supply and offer it to the world. Some of it would be commodity backed. some of it would be un-backed, debt-based money etc. There would be be no state backup of such money. If it was debt-based and default caused the debt (and consequent money supply) to be extinguished, then so be it. All of the above should, in principle, deal with the problem of hoarding as people would organically shift to forms of money that were more liquid. This, in turn would organically encourage hoarders to put their money back in circulation.

I would be willing to bet that most people would, in a tryly free market of money, put their exchange value into a commodity based or commodity backed form of money.

[biffvernon]

In a post FIAT world, the only thing that has value is stuff.

Maybe some stuff is more useful than others? Gold is good for baubles as you don't have to keep polishing it. Saves on Brasso.

[Little John]

In a post FIAT world, the only thing that has value is stuff.

Maybe some stuff is more useful than others? Gold is good for baubles as you don't have to keep polishing it. Saves on Brasso.

Of course some stuff is more useful than others. which is precisely why such useful stuff is useless at being money.

The very best kind of commodity based money is a commodity that is absolutely useless at being anything other than money for the reasons outlined in my immediately previous post.

Putting aside the modern limited use of gold in industry, the more common use of gold (apart from as money) is as jewellery. However, I would suggest that the very reason it has been seen as being attractive as jewellery is because of its high universal exchange value. In other words, if copper did not rust and was as rare as gold, people would declare that copper was at least as beautiful as gold.

I know its unromantic to say it, but the aesthetic follows the economic.

[adam2]

For a number of reasons, gold is not ideally suited to everyday use as currency, though it used to be done.

There is however a lot to be said for paper banknotes and base metal coins that are backed up by, and exchangable for actual physical gold.

In the good old day, there was an expression "as sound as a pound", when a bank of england note was exchangeable for gold.

All fiat currenicies tend to inflate, whereas the value of gold, or paper money backed by gold, remains very roughly constant in the very long term.

In ancient times, an ounce of gold was worth about 300 to 350 loaves of bread, and this has remained VERY ROUGHLY true for thousands of years.
At present, by this standard, either gold is somwhat overvalued, or bread is somwhat undervalued. Bread prices vary a lot according to size, weight, qaulity, and where purchased, but at present £2 is probably a fair average, or about 500 loaves to an ounce of gold.
Looking at the wheat price, I can forsee bread reverting to being about 300/350 loaves to an ounce of gold.

Historicly, an ounce of gold has been roughly equal in value to a resonable qaulity suit of clothes. Presuming hand tailoring, not mass production, this is true today.
A hand made suit can be obtained for as little as £300, or one can pay many thousands, but £1,000 is probably a rough average.
(mass produced machine made suits are far cheaper, but are not a fair comparision as the technology did not exist centuries ago)

A workers wage varies a lot according to skills, experience, whether or not accomadation or food is included, and the relative wealth of the country in which they reside.
From a few ounces of gold a year, up to a few dozen ounces of gold a year has been the going rate for centuries.

[Catweazle]

In a post FIAT world, the only thing that has value is stuff.

Maybe some stuff is more useful than others? Gold is good for baubles as you don't have to keep polishing it. Saves on Brasso.

That's the key isn't it ? Predicting which "stuff" will be useful.

Aside from the obvious "land with water and sunlight", I've stocked up on welding equipment, steel and aluminium alloy, engineering plastics, and the machinery to make them into something useful. These will keep indefinately.

The old machinery could be bought at bargain prices a few years ago, but is already starting to get scarce as more and more is exported, you've no doubt seen what's happened to the price of metals and plastics are mostly oil-derived. Get some in now.

Hosepipes and wheelbarrow wheels are next on my shoping list.

[mobbsey]

The gold figures quoted earlier don't mean a lot because they don't reflect the size of the economy or the national population. Taking figures from the IEA's Key Statistics dataset -- for GDP, total primary energy supply (TPES) and population -- we can scale the gold figure to reflect per capita values, and the amount of gold per unit of energy supply (assuming you had to buy energy with gold).

Taking an average of all those figures to produce a ranking (col.F below) gives a different picture --


No surprise, Britain is bottom of the industrialised nations.

[Little John]

The gold figures quoted earlier don't mean a lot because they don't reflect the size of the economy or the national population. Taking figures from the IEA's Key Statistics dataset -- for GDP, total primary energy supply (TPES) and population -- we can scale the gold figure to reflect per capita values, and the amount of gold per unit of energy supply (assuming you had to buy energy with gold).

Taking an average of all those figures to produce a ranking (col.F below) gives a different picture --


No surprise, Britain is bottom of the industrialised nations.

Nice work Mobsey. Thanks.

[UndercoverElephant]

In the good old day, there was an expression "as sound as a pound", when a bank of england note was exchangeable for gold.

Silver. One pound note got you one pound of sterling silver.

Maybe in the long-term we will end up going back to fiat money, but in the immediate aftermath of global fiat money implosion then gold will king. My own best guess is that eventually we will end up with a system of paper money backed by a selection of different commodities. We'd need an independent body which would determine, say, how many barrels of oil is equivalent to an ounce of gold. Then it doesn't matter so much which countries have got the gold and silver reserves, but it does matter which countries have got some sort of resource they can back their currency with.

Although it doesn't seem to matter which way you work it out, the UK always ends up bottom of the list of major western nations. Gordon Brown dumped half of our gold, the oil is gone and our financial sector is doomed. We're stuffed.

[biffvernon]

I would suggest that the very reason it has been seen as being attractive as jewellery is because of its high universal exchange value. In other words, if copper did not rust and was as rare as gold, people would declare that copper was at least as beautiful as gold.

I know its unromantic to say it, but the aesthetic follows the economic.

Cart before horse. Gold is used for jewellery because it stays shiny and doesn't turn your fingers green. If it was commoner we would wear more of it. If it wasn't used as money all the gold that is uselessly gathering dust in vaults could be used for jewellery. We could all have more baubles.

[Little John]

I would suggest that the very reason it has been seen as being attractive as jewellery is because of its high universal exchange value. In other words, if copper did not rust and was as rare as gold, people would declare that copper was at least as beautiful as gold.

I know its unromantic to say it, but the aesthetic follows the economic.

Cart before horse. Gold is used for jewellery because it stays shiny and doesn't turn your fingers green. If it was commoner we would wear more of it. If it wasn't used as money all the gold that is uselessly gathering dust in vaults could be used for jewellery. We could all have more baubles.

The wider population might wear more of it, but I would wager the elites would wear it less and but we would certainly value it less. In any event, this refers merely it is use as an item to be worn next to the skin. Gold is also prized as a more general ornamental metal. Again, this is linked to it's rarity, primarily. It's beauty is a bonus and only helps.

If you want an economic demonstration of the above, take a look at the price of platinum jewellery; an otherwise aesthetically uninteresting metal.

[biffvernon]

Gold is also prized as a more general ornamental metal. Again, this is linked to it's rarity, primarily. It's beauty is a bonus and only helps.

If you want an economic demonstration of the above, take a look at the price of platinum jewellery; an otherwise aesthetically uninteresting metal.

Nah. Gold is used cos it doesnt go rusty.

[UndercoverElephant]

Another possible scenario...

The UK may only have 300 tonnes of its own gold, but there are several multiples of that amount stored in the UK (4,500 tonnes at the Bank of England alone.) The question is "who owns it?" and in many cases there is not a simple answer. Some of that gold has been allocated to more than one holder of paper instruments, and this scam will have to be uncovered when TSHTF. That will lead to a lot of litigation which could take years to resolve, especially given that there is likely to even more litigation going on regarding the banks and their esoteric scams. If, for example, it turns out that Gordon Brown really did dump the UK's gold to rescue a US bank, then maybe the lawyers will try to claim that some of the gold stored in the UK is rightfully ours and tell the other "owners" to go and ask the Americans for it. This sort of scenario becomes much more likely if it also looks like the world is sliding towards WW3. If a major war breaks out, the only people likely to get their gold back would be countries on our side in that war (if we are involved in it.) Physical possession would be nine-tenths of the law.

[PS_RalphW]

In the event of total economic collapse posession and the means to retain possession (weapons) will be ten tenths of the law.