Topic: Gold is worse than fiat - page 4. (Read 5401 times)

The problem with the bitcoin community is it is biased toward people who know less about economics and more about technology.  This is changing though as bitcoin gets more noticed by the financial community.

Who cares if one person or two missed a couple wiki links? Yes, people should do homework to back up statements, but also mistakes are made, share the links, and move on.  I have no problem being wrong, and will change my mind about anything I state through reasoned discussion.  I hope others will do the same.  I'm treating this forum as a learning tool and to express my ideas. 


regardless of your or my view about the future of Bitcoin on this thread, its future is going to be determined by its supply and demand.  The supply is following a fixed formula.  Assuming the demand grows healthily, the problem is when the supply stops at 21 million BTC, it enters a deflationary spiral.  Demand up, supply fixed.  Real BTC values (how many apples can one BTC buy) enters a vicious spiral upward.  As this happens, people hoard BTC (why spend today when you could spend tomorrow, or next year).  Then transactions grind to a halt and the real market backed by BTC grinds to a halt.

The only way to stop this from happening in that century is with the fractional reserve system, which allows banks to control the multiplier for the BTC supply.  This is exactly what they do with the USD.  And the US central bank controls the multiplier and interest rate which dictate how the overall USD supply changes. 

I want the BTC to succeed.  It is better than gold because it's lighter and faster as a transactional unit.  It doesn't need a central authority to manage convertibility.  In a nuclear holocaust situation, people can use it to barter.  (instead of guns and gold, think guns and gpus)

I don't have answer to how to move it to a fractional reserve system.  We need entrepreneurs and governments to address this in the next century.  Once they do, BTC's long term potential will be cemented.

Having read through most of the posts in this thread, I have come to the following conclusion.

With the odd exception, most people on this thread, and therefore most people interested in Bitcoins, are fkn idiots, most of them passing of how they wish the world was as solid established fact, without even bothering to do a quick google to get some very easy to find data (such as on the USA's economic prominence throughout the 20th century which was cemented by the Bretton Woods system) in order that they avoid revealing themselves as an idiot who is content to splurge any old bollocks out on their keyboard and post it online.

This makes me worried for the future of Bitcoin

Whilst a bunch of idiots may collectively have luck on their side on certain occasions, luck tends not to be consistent and since a bunch of idiots can never actually hold a correct view on a complex matter with many nuances to consider, I suspect yet another rather rude reality check is still in line for all those economic experts who understand so much about how Bitcoin and how the world in general works.

I think that the mainstream of halfwits on this forum, are going to become another one pf my 'contrarian indicators'. i.e how y'all say the world is and how the world will be, is exactly how the world is not and how it won't be.

just learning

Thanks for clarifying my error, but I must clarify your error as well:

US became the top economy in around 1920s: "The United States has been the world's largest national economy since at least the 1920s"

http://en.wikipedia.org/wiki/Economy_of_the_United_States

US came off the gold standard in 1933: " On June 5, 1933, the United States went off the gold standard, a monetary system in which currency is backed by gold, when Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold."

http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard

So I was incorrect in saying that gold standard was stopped prior to US taking #1 globally.  Actually US took #1 a decade before. 

That being said, the main idea is that being off the gold standard has been optimal.

You might want to check your info. Dollars were convertible to gold until 1971.

You're using the wrong tool for the job. Try Gresham's Law instead.
Gold isn't used as money because there is shittier money being accepted.

To the OP; you are correct that Gold is not an investment. Investments are basically gambles with the intent that the return is far greater than the initial loss. Gold doesn't function that way (with some small temporary exceptions). It is however, a store of purchasing power. The idea being one can lock up excess funds into Gold and then when those funds are needed they still buy the same amount of goods and services regardless of which direction the original currency went in the meantime.

Finally, to the poor sap who can't buy or sell metal without losing his ass; it isn't the metals that suck it is you who sucks at moving in and out of metals.

That would be bad enough if the tax was just on increases in actual value, but don't forget that the tax is assessed on the nominal price difference in USD, so when they devalue the dollar you pay taxes on the relative "appreciation" of the gold even if its purchasing power hasn't changed.

Most of the issues in the OP seem to be slightly off, but the one about ease of use is right on. Trying to deal with small amounts of gold or silver in traditional bullion forms is significantly more difficult than paper notes. And trying to have the notes backed by gold will just lead to more corruption of the currency. The solution IMHO is Shire Silver (of course), which has the backing embedded in the note. No need to trust a central bank or government to redeem, and its as convenient as paper notes.

Of course bitcoins are still better for many use cases, but for in-person anonymous non-electronic transactions Shire Silver is currently the best thing out there.

Their have been numerous instances of a nations Fiat currency failing through either hyper inflation or an outright collapse of the issuing government.  In none of these case was Fiat money it's self abandoned and replaced with precious metal, the replacement money system was always a new Fiat rolled out to stabilizer the national economy after a period of bartering in common domestic consumables.

Using common domestic consumables (liquor, cigarettes etc) has several major advantages over gold.  First you CAN eat (or drink, or smoke) it, so it has very high use value in an economic collapse which makes short term drinking and smoking yourself to death very desirable for most of the out of work population (example post-Soviet Russia) and lawlessness makes wearing jewelery rather dangerous.  Second consumer products are nigh impossible to counterfeit because simple things like product packaging are almost as sophisticated as any printed paper money and would take a large industrial operation to create.  Likewise the quantity of most consumer goods is guaranteed to be identical and the ubiquitous tamper proof seal will prevent 'shaving' product.  Consumer products are also much closer to desired denominations for small transactions because these are the items that small denomination bills would have been bought with, precious metals are too valuable to be subdivided for small transactions.  Lastly consumer goods have a huge first mover advantage, everyone in a nation already has some, they are being produced and consumed locally in every community and they will emerge spontaneously as a medium of quasi-barter exchange without central authority dictating it.  Precious metal is just too rare, most is inside of a vault somewhere unlikely to circulate after a collapse and what little is held by the public is mostly in jewelry which is very hard to appraise due to the huge amount of costume jewelery out their with it.  This leaves only the smattering of privately held coins which are in hands of scattered ideologies who through the magic of the internet think themselves legion will find too few like minded folks in their locality to exchange it with physically after a collapse.

Another strong proof that gold is not rejected because of government suppression.  What community is the most heavily suppressed, in which authority figures actually outlaw all money and all commerce, in which the money that is used must be smuggled in at great difficulty, or made by hand.  Do they use gold, no they use consumer goods.  What is this strange community you ask, it should be obvious, its a Prison, about the most dystopian kind of society imaginable and which likely reflects what we can expect in a Mad-Max total collapse.

Both gold and silver have performed very well as speculative assets at times over the past decade although in the past two years a definite pull back has set in, but that doesn't change the fundamental premise for anyone holding either gold or silver. If you are buying physical hold in yer hand gold and silver, you are essentially storing wealth for the long long term. Perhaps even wealth that you will never sell.

If/when the USD crashes through hyperinflation, the value of all currencies will turn to dust. Especially Bitcoins, whose entire value is based upon the ability for people to readily turn them into local currencies around the world. In a situation such as this, nominal or notional wealth will mean nothing. All that will mean something is real raw materials and resources and who owns or controls them. If such a situation occurs, then anyone holding gold or silver will be thanking the heavens that they do. This explains why China, Russia, and various other central banks around the world are busy stocking up on as much gold reserves as they can get their hands on, and perhaps explains why their is increasing talk of 'gold repatriation'.

After the crash, it will not be a bunch of internet geeks who decide what the new global currency will be and what it will be based on. It will be those holding all the real resources who decide and I doubt Bitcoins will be flavour of the month with them. A return to a gold standard is unlikely, but the whole world will be demanding a currency backed by commodities as opposed to paper promises.

Yes, gold is horrible as an investment. It is a hedge against inflation and that's it. Gold also tends to do well when the economy is doing poorly because more people fear a collapse of society and buy gold, thus driving up demand.

If you know what you are doing, you buy and sell gold with a flat fee per ounce (like $20 or so). There is no reason to pay 3% or more, you are getting ripped off. Real gold dealers operate on very thin margins because there is a lot of competition.

My real problem with gold is the way it is taxed in the US. Gold is ALWAYS taxed as a collectable, so it is taxed at 28% if you are a middle income person. There is no 15% long term capital gains rate for gold! Most people don't seem to realize this. A lot of states have their own tax too. For example, where I live in Massachusetts, you pay short term capital gains ALWAYS on gold, which is 12%. That is horrible! So you pay 12% state plus 28% fed for any appreciation on the gold you own when you sell it, no matter how long you've owned it.

Also, I believe gold is in a bubble now and is due for a correction. Maybe around $1000/ounce is more reasonable than the $1400-$1600 it's been recently.

In short, only buy gold with bitcoins if you are looking for a quick way to cash out your bitcoins and don't have a the highest level of verified mt gox account. Or maybe if you are trying to evade taxes on your bitcions, not that I'd ever recommend doing that. And even then, sell your gold right away once you get it.

Dumping the gold standard was defaulting. The loans were denominated in dollars when a dollar meant a specific amount of gold. Going off the gold standard meant the payments were in redefined "dollars" worth far less than those originally promised. The loans were never actually repaid per the original terms.

The fiscally responsible choice would have been to not take out the loans in the first place. Short of that, admitting that they were in default would at least have had the virtue of honesty.

"great post" - thanks!

When Realpra said 'Banks are fiat again' I think he meant they go back to fractional reserve banking, ie issuing more receipts than they actually have gold 'backing'.

This is a major reason I love the concept of bitcoin. Even if Ron Paul were elected in the US and somehow got that nation onto a 'gold standard', you know it wouldn't last. Secretly or blatantly, they're produce more "money" than they had gold.

It's human nature, especially when you consider the nature of politicians. You simply can't give power-crazed thieves and bandits the keys to a printing press and then be surprised when they print, and print, and print some more.

With bitcoin you trust the math, not politicians or bankers.

You can't transmit gold. Sooner or later you end up with tokens or digits or paper or some such that is meant to 'represent' the gold - but never does, or not for long. A bitcoin is a bitcoin, just an entry in a ledger but the entry is the money. I see it as genius. The creator turned the whole thing on its head and said 'OK then, if modern money is just digits, let's make digital money'.

Love it, just love it 

You can't use this as an argument because you could use the same argument against dollars. It is a hassle to use cash every day. Gold is no worse than fiat in this case.


You simply don't understand the meaning of the word "fiat". Please look it up.


Gold is no longer used because governments are incapable of sound fiscal management. At the time, it was a simple choice of defaulting or dumping the gold standard. The best choice would have been to default, but governments chose to follow the long-standing tradition of fiscal irresponsibility and dump the gold standard instead.

I may actually buy like 1000$ of gold and silver for my son, just in case I get hit by a car and Bitcoin is replaced by a new crypto-currency. If you don't want to take risk at all and it won't move for 20 years, gold still makes a little sense to me.

(Maybe it would be 100% BTC if Bitcoin was fully fleshed out and near full adoption.)

PS: Great post BTW.

As I described, not all governments are doing this. The problem is with gold itself. I could buy gold any day and my government would not bother me at all or take a nickle.

You are correct that acquiring gold for savings and selling it again later would be easier if gold was the standard of exchange as even your neighbor would have some - HOWEVER as I outline later in my post it does not make sense for gold to be the standard because it is a hassle to use gold every day.

This is why it costs 3%, I assure you that cost would still be 0-25%-1% or so in the middle ages when metal money was prevalent and there was no government suppression - except you would pay it every time you paid for something - also instead of the acquisition cost being higher your security costs would be higher instead (I wonder what a swordsman would cost or bribing the local chief?).
Transportation costs may also have been vastly higher given you would have no car.

Even if gold was reintroduced we would still need government "Coinage" and banks (for digital payments) to allow easy everyday use. The banks are fiat all over again and the government coins would probably be diluted, as history has shown, which brings you back to just fiat OR miserably carving gold at the cashier.


The simple truth, Occam's razor, is that gold is bad money hence it is not used as money anymore.

If gold is so great, but just held back only by governments then why isn't the national currency of the Cayman islands or Las Vegas?


Until like 2 weeks ago I was kinda a goldbug, but now.. just accept it; "gold sucks" and stop being wrong.

I gave up with gold because the "spread" is ridiculous here in Malaysia.

Dunno about elsewhere but here it's 35%

That's plain robbery really. How is something that loses 35% of it's value the moment you buy it any kind of protection against inflation?

I could walk into a local gold store, and in the small town i live in there must be at least 20 of the things, buy $1000 of gold, walk out, walk into a different gold store - or even walk back into the same one - and only get $650 for that gold.

Pathetic.

The good thing about it was it's so hard to actually 'spend' gold that it did a great job of encouraging me to save, so I got the boat I was after. Would I do it again? NO! Not now I know how ludicrous the spread is!

It gets worse..

Silver. Rarer than gold, gonna explode any moment now.. Right?

So I tried buying some. Wandered into a few goldsmiths, none had any silver coins or bars, just some silver jewelry. Determined to get me some 'real' silvery money I ended up buying 10 little 1 OZ bars off Ebay of all places.

During the boat-buying and accessory-buying phase, decided to cash in my silver. No, it hadn't gone up any in price but holds it's value, right?

Right?

So I stroll into a goldsmith, just to check the current price, you know, the street price, the on-the-spot, at this moment price?

"No, we don't buy silver, sorry."

Next goldsmith.. "You wanna buy silver? Oh sell silver? No, we no buy silver, so sorry"

I tried around 6 goldsmiths and even a couple of jewelry stores selling silver jewelry - "No, we not buying silver, sorry."

No questioning the authenticity, or unsure about it being in bars rather than recognizable coins, they just don't want silver. Didn't even ask which coins or bars or anything. Didn't care.

It's somewhat ironic because the local Chinese here (around 40% of the population) are indeed very keen on buying gold as a long-term saving method, they buy it for wedding gifts, for baby's first birthdays and all that. It's BECAUSE it's so popular that the local stores can get away with such a huge spread.They know you're gonna buy it and at full market rate - but sell it? Then they'll kick you in the balls and offer 65%.

I'm sure in most Western countries there's a smaller spread but for it is NOT a simple matter of buy at $1000, cash it for $1000, plus as pointed out you need to secure it and no, you certainly cannot spend it as money.

("You can't eat gold!" - You can't eat Federal Reserve notes either. But at least you can spend them...)

To me bitcoin is digital gold, without the crazy spread and just as easy to transfer or store digitally as any other currency.

It's gold 2.0

Yes, there are fees involved when you're buying gold and the gold fixing makes it seem unfair nowadays, but you're not describing problems related to the monetary use of gold here.  What you're describing is a problem about how governments restrict other types of money: In most countries you have to pay employees in fiat money... (only a few companies are paying in Bitcoin or partly in Bitcoin so far)

So everyone seems to take for granted that gold is superior and people only use fiat because of government suppression.

But it occurred to me that this is blatantly false as someone mentioned "gold has already failed".

What backs up this statement? Well for one not a single country I know of uses gold or other metals for money. Is it really feasible that government suppression would be so powerful? Keep in mind quite a few non-oppressive and very peaceful countries with inflation STILL use fiat.

There is also lots of stories of countries using dollars instead of the sanctioned money.


So I think its safe to say that gold is not out because of suppression when you think about it.


Okay so whats the deal then, fiat clearly degrades at 1-5% (avg: 3%) a year in most countries - yet at some point the whole world decided to boot out the metals. Why?

Well a simple explanation would be that gold is simply worse in a free market.


Which turns out to be true when you run the numbers:
Lets say you are saving 20.000$, a decent chunk of savings for most people, considering how many are in debt instead these days and the poor of the world.

Well you will need to first buy the gold at a loss. You will probably have to drive to pick it up and you need to test it a bit to insure its good.
For this amount you will have to go to maybe two different guys found online to pick it up at least.
I think its safe to say buying and selling the gold will cost you at least 3% each time in transportation, offer-research, time used, risk of fraud and so on.

Okay not that bad, since you have value dense gold and not THAT much to store you now get a small safe at 200$ - quite cheap, yet that works out to another 1% cost. You skimp on alarms and other stuff.

So now you're set to go, after just a little more than 2 years you start to save money on inflation.


So on a 10 year basis it does okay - but if that is your time frame why not invest in something more productive like stocks, bonds etc., buy a car with better mileage, insulate your house? I mean gold will NEVER pay your day to day bills, gold does not climb in real value - its not a real investment!

This is supposed to be superior money and all that jazz right and this is a buffer savings so lets look at that instead. So lets say you loose your job and have to live off your savings a while after 2 years, now you pay that 3% again on at least some of your savings amount and you haven't made anything yet!

Keep in mind that you skimped on security and you safe is so small anyone could kinda just grab it and run so on a 10 year time frame what is the risk of burglary - 1% again in a nice neighborhood (that's an avg, could be 100% for YOU)?

So gold is a bad investment and bad as a buffer savings. Even during hyperinflation or the zombie apocalypse a few cigarettes will do you just as well or better.


So now the final one: Is gold good as MONEY and for EXCHANGE?
Not really: Imagine your local supermarket taking gold; total widespread acceptance. You stand there with your groceries and you have to lob like 3 grams off your "shopping nugget" and you brought your own weight to not get cheated...
I mean just play that out in your head and its obvious its a little funny.
Just to start with its a hassle to you AND the supermarket who will need more cashiers to deal with the slower transactions. They will also have a headache doing accounting with grams of gold and silver and all with different grades of purity.
They will have to move a lot of gold around the country every day from all their stores in trucks... its horrible.

But then you say "Realpra, that's not what the goldbugs mean! They mean a gold-BACKED currency you dunce, it can be digital and all!". Well then that is fiat. Fiat is kinda always backed by something (I have yet to hear of actual government "IOUs") but they always print more.
It is still fiat if its backed by gold and you hold the paper - that's how fiat started!

So clearly "barter < shells < gold/silver < fiat < crypto-currency" and NOT "shells < fiat < gold < crypto-currency". (turns out that is the historical order too!)

So what is gold good for? Well basing huge banks off of, backing fiat currencies or clearing rare debts between countries or other huge entities - which is exactly what we see today albeit not even that much (American Chinese debt is denoted in dollars for instance).


I will follow my own realization and prioritize gold/silver savings much less.
(I still need a safe for my paper wallets though...)

EDIT:
SHIT! I forgot my punch-line: "Notice how the gold cost works out to about the same as the cost of inflation for most fiat? Not coincidence! That is free market competition at work between gold and fiat!"

ta-ta-ta-daaaa......