Thread: To those that have read Atlas Shrugged

Thread here that might interest you about precious metals including gold:-

http://www.thefastlaneforum.com/gene...s-started.html

He is saying that paper money holds no value. It is created by governments as an 'I owe you' and its only value is the promise that the government will honor its debts.

Here he says that governments are 'legal looters' or thieves who have the legal right to steal because they have legalized their activities. Primarily he is talking (at least I think so) about the printing of money and the governments ability to slowly rob you of wealth over long periods of time through inflationary policies.

Eventually he says the account will be marked 'overdrawn' meaning the government will no longer be able to honor its debts.

Additionally (it seems to me) he is also saying that the ability to created various taxes to pay for government agendas is also the 'legal looting' he refers too.

In contrast, gold cannot be created out of thin air. It has served as a store of value for thousands of years. Only the past 40 years has the world seen a full fiat currency, prior to that there was always some type of gold backing for currency.

It is impossible to have inflationary policies if the currency is gold (or backed by gold to a lesser extent). You cannot print more gold to pay the bills. There have been some studies that have shown one ounce of gold buys approximately the same amount of 'stuff' today as it did 100 years ago, 200 years ago, etc.

Originally Posted by RyanDrake

[/B]Now I haven't any interest to start hoarding gold or anything, I'm simply trying to rap my head around this concept. Not even sure what I'm asking, just maybe if someone would like to elaborate on the topic as it relates to the book (more specifically the quote) that would be great.

Thanks!

I graduated with a BSBA from Kenan-Flagler Business School after taking years of courses on business, economics and other useful classes... and I have no fucking clue what money actually is. It just doesn't make that much sense when you start thinking about it. Even gold.... how the hell is that an objective standard? What if I decided that clay is the new gold? What happens to the system then?

Originally Posted by SHHDlove

Even gold.... how the hell is that an objective standard? What if I decided that clay is the new gold? What happens to the system then?

Huh ?

This stupid argument of paper money vs gold are so fcking flawed, it upsets me whenever someone mentions it. These same people saying that can't live without that paper money. Gold would have no real value if people didn't decide to put a value on it. The same goes for paper money. Last time I checked, you can't buy most things with a block of gold until someone decides to give paper money for it. You could in the ancient times, but a lot of things were backwards back then. Not a good model for doing business. Paper money is not going anywhere anytime soon. Don't listen to these nutcases.

Money is funny stuff. People have used stuff with inherent value as money -- food, horses, etc -- and lots of things with NO inherent value -- beads, huge rock disks weighing as much as 4 metric tons, even (if you can believe it!) pieces of paper with green pictures of dead politicians on it.

Gold has value only because people give it value. The difference with gold is that people DO give it value, and have done so at a fairly consistent value for many hundreds or thousands of years. Why? Beats me. Because they always have, I guess.

Paper money also has value because people give it value. Until about 50 yrs ago, paper money in the US was "backed by gold" -- meaning that you could take your dollar bills to the bank and exchange them for gold. That gave the paper money an intrinsic "hard" value beyond a government's IOU.

50 years go, the US govt's IOU was really worth something. People decided it was just as sound as gold and, at that time, maybe it was. Now, things have changed. The US govt has become a profligate debt addict, spending money it doesn't have and creating new money to feed its habit. That debases the value of the dollar. It's simple supply and demand; if lots more dollars start chasing the same pile of goods, the dollars become worth less and less. That's why $1 today only buys what $0.13 bought 50 years ago.

I have read that EVERY past experiment with fiat currency has failed, eventually resulting in inflation or hyperinflation that made the currency worthless. Governments can be trusted to eventually abuse their power to print money -- they promise bread-and-circuses to get re-elected, and then somebody has to pay for it. No problem, we've got this printing press here (or, these days, this computer) that makes money, that'll pay for it... and sooner or later the government debases the currency.

Gold-standard fans say that's why gold is a better basis for a currency. Politicians can't create it out of thin air. It prevents the politicians from debasing the currency. Unfortunately it also has the problem that you CAN'T create more of it if you really honestly need to. If your economy has healthy growth and needs to expand, you can't expand the money base to keep up. If you have an emergency (war, natural disaster), there's no way to create new money to pay for the emergency. Lack of ready money supplies created many recessions and panics back in the gold-standard days. That's why the European powers were so desperate to loot the Americas for all the gold and silver they could, back in the 1500-1700's. It gave them, literally, more money to spend.

So gold standards definitely have problems. But so do fiat-currency systems. Look up the history of hyperinflation in Weimar Germany, or Zimbabwe. Here's a fellow paying for his lunch in Zimbabwe:



Here is what THREE EGGS cost -- at the time the picture was taken, anyway...



If the US government keeps abusing its ability to create and spend money, there is a scary possibility that we could end up in that same situation. And that's why people want to hoard gold. Gold held its value while the Zim dollar went from roughly 1 Zim dollar == 1 US cent, to 10^30 Zim dollars == 1 US cent, in less than 10 years. 10^30 is 1000000000000000000000000000000 Zim dollars, 1 followed by 30 zeroes. That means the money lost 90% of its value EVERY FOUR MONTHS. That's why the guy had to bring a suitcase full of 100 billion dollar notes to pay for his lunch.

When you look at past results like that, and see the path the US (and much of the rest of the world) is on, holding a bit of gold doesn't sound quite so crazy...

Originally Posted by 911Carrera

This stupid argument of paper money vs gold are so fcking flawed, it upsets me whenever someone mentions it. These same people saying that can't live without that paper money. Gold would have no real value if people didn't decide to put a value on it. The same goes for paper money. Last time I checked, you can't buy most things with a block of gold until someone decides to give paper money for it. You could in the ancient times, but a lot of things were backwards back then. Not a good model for doing business. Paper money is not going anywhere anytime soon. Don't listen to these nutcases.

Have you read the book? Because I was asking for clarification (I'm not making any arguments for or against gold, I'm just trying to understand something I previously didn't understand). GlobalWealth's response was excellent.

Also, it was written 60 years ago and is a work of fiction... although I'm starting to see parallels with today's attitudes, etc.

Originally Posted by SHHDlove

Even gold.... how the hell is that an objective standard?

gold has been recognized as money for thousands of year. not so much for clay.

Originally Posted by 911Carrera

you can't buy most things with a block of gold until someone decides to give paper money for it.

You get a discount if you buy from me with gold bullion.

Originally Posted by 911Carrera

This stupid argument of paper money vs gold are so fcking flawed, it upsets me whenever someone mentions it.

It upsets me when someone makes comments such as this without understand economic history and the history of money.

There are many people with this same attitude today and many of them are very successful business people, but still don't understand that up until 40 years ago (1971) the US dollar was backed by gold, and nearly all world currencies were backed by the US dollar, thus effectively giving them gold backing.

The world has been in a debt fueled expansion since 1971 that would not have been possible without the decoupling of paper currency with gold. The ride has been nice, but eventually you have to pay the piper.

This isn't the first time in history where this has happened, and every time it has happened, it has resulted in complete debasement of the paper currency involved.

Will it happen this time? Without a doubt. It is completely unavoidable. It has been happening for many years. As garyfritz noted, the dollar has already lost 87% of its value over the past few decades.

This is no accident. You cannot hand politicians the checkbook and give them unlimited check writing ability without consequences and expect good things to happen.

The question is though, when does the last ball drop?

To quote my least favorite economist Keynes, "the markets can remain irrational longer than you can remain solvent".

Much of the comment has to do with how the world was at the time Ayn Rand grew up. Her family lost quite a bit during the Bolshevik Revolution and the rise of Communism. Her farther lost his pharmacy to Communism and their family was near starvation.

She has a lot of resentment toward Communism and similar views. She subsequently defected to the US (where the gold standard was still in place) and much of her philosophy/writings reflect pro democracy views based on the US politics (at least at that time).

Originally Posted by GlobalWealth

This isn't the first time in history where this has happened, and every time it has happened, it has resulted in complete debasement of the paper currency involved.

Will it happen this time? Without a doubt. It is completely unavoidable. It has been happening for many years.

Question 1. Where has this happened before? (I would like to read about it.)

Question 2. In your opinion, how long do you estimate the current monetary system has before we are forced to really pay the repercussions for the 'joy ride'?

Originally Posted by bateati

Question 1. Where has this happened before? (I would like to read about it.)

Ancient times - Rome.

Modern day - US (civil war), Great Britain (WW1), Germany (WW2), Russia (1998), Argentina (2001). There are others too but these are just a few.

Originally Posted by bateati

Question 2. In your opinion, how long do you estimate the current monetary system has before we are forced to really pay the repercussions for the 'joy ride'?

In my view, this has already started. Up until very recently the Swiss Franc has been considered the safest and best fiat currency on the planet. When I was in Zurich about a year ago, 1 usd was approximately equal to 1 swiss franc. And at that rate, it was very, very expensive in dollar terms.

For example, a beer at a pub cost about 7-8 francs. A Big Mac combo meal was about 12 francs. yikes.

Up until the Swiss put a cap on the franc a few weeks ago, 1 usd was only equal to .70 swiss francs. That is a 30% decline in one year of the usd.

Go back to the same example above. Now that beer a 7-8 francs is not 7-8 usd, but 9.1-10.4 usd. That Big Mac combo meal is now 15.6 usd.

Look at the price of gasoline over the past few years. Cost of milk. Nearly everything has gone up in real dollar terms. Obviously housing hasn't, but that is for completely different reasons and a completely different topic.

If you are looking to predict the doomsday future, good luck. Who knows what that day may look like if it ever comes. Maybe we continue for decades in this slow death scenario like the boiling frog (how do you boil a frog, put him in cold water and slowly heat the water).

The key is not to dwell on the negative, but be aware of it and position yourself to protect your wealth and prosper from it.

Originally Posted by bateati

Question 1. Where has this happened before? (I would like to read about it.)

Go read Hyperinflation - Wikipedia, the free encyclopedia for lots of recent examples.

GW, I've been aware of this risk for some time, but other than setting aside a bit of bullion and some emergency food stores, and lightening my exposure to the stock market, I really don't know how to protect myself -- let alone prosper from it. If all hell breaks loose, my food won't protect me from looters. I could buy an arsenal but there are more of them than there are of me. My emergency precautions would be very valuable in a minor upheaval, but not for a doomsday scenario. Short of moving to a deserted island in the middle of the Pacific, I'm not sure how you protect yourself from that.

Originally Posted by garyfritz

I really don't know how to protect myself -- let alone prosper from it.

I guess that's the million dollar (or trillion Zimbabwe dollar) question.

People like Jim Rogers suggest owning farmland. This gives you the ability to feed yourself and feed others, thus providing value. With a growing world population and a shrinking base of farming, this may not be an awful idea.

Stocking up on food, water, guns and ammo is what others suggest. Again, maybe not a terrible idea, but I would rather not focus on the doomsday scenario myself.

Personally, I trade the markets. I look for discrepancies and inefficiencies and profit from them.

I provide a valuable service to my clients, which I am paid for.

Ultimately for me, I think it really comes down to your ability to be valuable. If the world goes to hell in a handbasket, we will all still need the basics as well as some minimal luxuries.

Find the need. Fill it.

Unfortunately we've sold most of my mom's farmland in the last few years. It simplified her life but I'm not so sure it was a good idea...

Some great responses, thanks everyone!

Slightly off topic: I've been reading up on inflation, hedging, fiat money, etc. Is there any reason to buy silver if you can afford gold? Is silver something of a 'poor man's gold', or is it good to have a mixture of both gold and silver bullion/bars. Then there's palladium and platinum which don't seem to get nearly as much attention...

Gold is appealing to me as it's allot more expensive, but at the same time silver is equally appealing because I can buy a whole lot more for the same amount of money.

I'm going to start buying some up as a hobby if nothing else.

Originally Posted by RyanDrake

Is there any reason to buy silver if you can afford gold?

This would depend on your reason for owning precious metals. If you believe in the doomsday scenario, I would say own some of both. Silver for everyday purchases and gold for bigger items.

If you are looking at a store of value, gold makes the most sense because you can have more value tied up in smaller sizes.

If you are looking to trade the metals for cash profit, I would probably look at silver and platinum as they are both historically cheap relative to gold.