Welcome to illuminati silver, we tell you the truth about silver.
Today is Thursday 13th September 2018 and we are asking the question is Gold Money – Part
2 On Sunday we put forward the argument why
it is not – an argument normally proffered by the banking community. Today we shall look
at the reasons as to why it should be regarded as money.
But first we wish to clear up an issue of what is the difference between money and currency.
There are many definitions, but one which seems to be most widely held, especially among
the precious metal community is as follows: Currency is what most people think money is!
It is a medium of exchange. A unit of account. (it’s got numbers on
it!). It is portable.
It is durable. It is divisible. (you can make change from
it). It is fungible (interchangeable).
Currency though is simply paper. This paper money is a tool for trading your time.
And Currency has no intrinsic value! Another more general definition is that a
currency is a system of money (monetary units) in common use, especially in a nation. ... Currencies
can be classified into two monetary systems: fiat money and commodity money, depending
on what guarantees the value (the economy at large vs. the government's physical metal
reserves). So going back to Sunday’s video we ascertained
that the main functions of money are distinguished as: a medium of exchange, a unit of account,
a store of value and sometimes, a standard of deferred payment. Any item or verifiable
record that fulfils these functions can be considered as money.’
Now We also mentioned that the Financial elites state that gold is neither money nor should
it form part of our monetary system. They generally put forward the following arguments:
1. There is not enough gold in the world to support finance and commerce and therefore
it cannot be deemed to be money 2. The quantity of gold cannot grow fast enough
to cover an expanding economy; for when an economy expands, the money supply has to increase
to maintain price stability. 3. Gold has no yield e.g. Warren Buffet has
often said stocks give you dividends and Bonds give you interest, gold gives you nothing.
4. People like Paul Krugman have argued that when gold was classed as money, we witnessed
some of the world’s great depressions and financial crisis and therefore it can never
be returned as money. 5. Finally, it has been said that gold has
no intrinsic value and therefore it cannot be money its just a shiny metal.
So let’s deal with each of the 5 points in turn.
1. There is not enough gold in the world to support finance and commerce and therefore
it cannot be deemed to be money
a. Technically this is true at the moment. If we were to compare how much gold currently
exists in the world, and using the World Gold Council figures from 2017 which is estimated
at 187,200 Metric Tonnes mined (and in fairness others disagree but the broad consensus is
within 20% of this figure) with gold at $1200 per troy ounce (and for those who enjoy maths
there are 32,150 troy ounces in 1 metric tonne, which values a metric tonne at approximately
$38.6 million) then the value of gold in existence equals approximately $7.2 trillion.
Now when we compare this to the amount of money in circulation and if we look at narrow
money – which are notes, coins and savings and current accounts which stands at approximately
$37 trillion and broad money which stands at approximately $90 trillion this suggests
that narrow money is 5 times greater than the amount of gold and that broad money is
13 times greater than the amount of gold. So the argument goes that gold cannot support
the amount of money in existence.
What this argument forgets however are 2 key points:
1. To solve this problem gold could be revalued to either $6,000 an oz to cover narrow money
or $15,000 an oz to cover broad money. Now this is how most gold bug experts base their
arguments as to what the price of gold should really be.
2. Gold does not necessarily have to cover money 100% but could be a percentage – say
20%. This would then revalue gold at $1200, the price it is now,to cover narrow money
or $3,000 to cover broad money. 3.
So you can see from these figures that technically the amount of gold that exists in the world
is sufficient to cover narrow money on a 20% basis. However, this is slightly flawed because
not all of the gold in the world that has been mined is readily available for conversion
and after all one has to ask is 20% enough?
Within the Inner sanctum we discuss this in greater depth and will show that surprisingly
countries around the world do peg their currencies to gold, though not anywhere near enough as
they should.
2. The quantity of gold cannot grow fast enough to cover an expanding economy; for when an
economy expands, the money supply has to increase to maintain price stability.
With economies attempting to grow at an average of 2% - 3% and a consequent increase in the
money supply is required to prevent increasing of prices, with gold production rising by
0.5% - 1% per annum this suggests that currency nor money can be pegged to the price of gold.
This is further exacerbated by the concern that remaining extractable gold is based on
the fact that annual gold mining production is running at over 3200 tonnes per annum,
while various metal and geological consultancy estimates put the amount of remaining extractable
gold reserves worldwide in the region of 55,000 tonnes. In other words, at current rates of
extraction, according to these estimates, known gold reserves worldwide would be depleted
in about 17 years.
Given that about 192,000 tonnes of gold have been mined throughout history or 187,000 as
we suggested earlier, (according to the World Gold Council), with about half of that mined
gold extracted in the last 50 years, the figures of remaining gold reserves could look quite
low and potentially worrying. So how can you peg your money to this as it cannot grow fast
enough for an expanding economy and in any case will run out potentially in 17 years?
This is a very fair question and the immediate logical response is that gold prices will
rise in relation to the currency peg. However, this cannot go on indefinitely. So, one either
expects and anticipates lower growth or alternatively and possibly more logically, one uses just
a percentage of gold linked to money with other commodities and or indices making up
the remaining part, thereby enabling up to 2-3% growth without major disequilibrium’s
occurring. This is one of the topics we cover in more depth within the inner sanctum when
it is launched. 3. Gold has no yield e.g. Warren Buffet has
often said stocks give you dividends and Bonds give you interest, gold gives you nothing.
Well the answer to this one is simple. It should not give you an yield. It is money
or in some cases a currency – there is no yield on the US dollar or the British Pound
or the Euro, its what you do with it that gives you an yield.
4. People like Paul Krugman have argued that when gold was classed as money, we witnessed
some of the world’s great depressions and financial crisis and therefore it can never
be returned as money. This argument conveniently ignores the financial
crisis and collapses that have occurred since gold has no longer been classed as money – the
stockmarket Black Monday crash, the Dot Com Crash and most memorable of all the 2008 Global
Economic crash spring to mind. This is simply a non-argument argument.
5. It has been said that gold has no intrinsic value and therefore it cannot be money it’s
just a shiny metal. The debate about intrinsic value is a complex
one. There are many definitions. One easily obtainable via a google search is:
In finance, intrinsic value refers to the value of a company, stock, currency or product
determined through fundamental analysis without reference to its market value. It is also
frequently called fundamental value. Another definition is ‘Something has intrinsic
value when we value it simply for its own sake. For example, friendship or love, wisdom,
pleasure, beauty, or health.’ A further one is based on the inputs into
an item for example a suit of clothing has intrinsic value, not only for its physical
properties but also the labour properties put into it, the material plus the emotional
gain one obtains from it.
To be frank, if we are looking at the issue of gold supporting a currency, intrinsic value
is ultimately what one deems it to be. We mentioned in Part 1 that shells and tea books
were used as a currency, and to some extent their market value was greater than their
intrinsic value, - at least for a time. So once again we do not see this as being an
insurmountable issue. So, having overcome these objections, at least
in part, we have to ask ourselves why have Governments moved away from Gold and silver
when creating money or currency. Now again in the Inner sanctum we debate that
they haven’t totally done this, but in the main, and for the purposes of this video we
assume that they have. The reasons are simple – flexibility and power. The US has the
power to create as much money i.e. credit as it wishes and can print as much currency
as it desires. Now there are eventual repercussions of this, but we have seen since 2008 that
one of the more popular ways of preventing a deepening of the credit crisis was quantitative
easing, the creation of more credit money and currency which would not have been achievable
if these were pegged to gold holdings. With the US allegedly holding some 8,000 tonnes
of gold, valued at approximately $308 billion there is no way that it could possibly on
a 100% pegging allow approximately $1.67 trillion of currency in circulation as of June 2018.
This is without assessing broader money levels and we can forget the alleged quadzillions
of derivative values around the world. So, is Gold Money? Well it certainly has value
which is why central banks buy it, Governments buy it, Asia buys it in serious quantities
and the western world too buys it albeit on a relatively modest scale. It is not regarded
as a currency in most places as one rarely can go into a shop and spend it, but it can
be converted to one. So, what’s your opinion? Is gold money?
Should gold be money? If so at what percentage should the US dollar be pegged to gold if
at all? We would appreciate your thoughts and hope that we have given you some food
for thought here. We hope you have found this video interesting
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updates and offers. Disclaimer:
Illuminati Silver owners come from a background of Banking, International Wealth Management
and Economics. Having now retired from these worlds we are not qualified to give investment
advice. Therefore, this and other productions must not be deemed to be giving such advice
and merely represent the personal views of its owners.