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pacomartin
pacomartin
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June 23rd, 2011 at 12:41:58 AM permalink
BACKGROUND
I think most people are familiar with the concept of fiat money since most money now is fiat money. Fiat in Latin means let it be done and refers to the fact that most banknotes and coins are of little to no intrinsic value and are only of useful value because people believe them to be so. One by one we've seen countries adopt fiat currency. Some of us are old enough to remember when some dollars were "silver certificates" and at least theoretically could be exchanged for a dollar's worth of silver.

The ultimate new fiat currency is bit coins which are frankly nothing, except their quantities are controlled by algorithms and peer to peer networks instead of by governments. People are buying them, and the federal government has expressed their concern that drug dealers could use this new currency to launder money.

Digital Gold, the oldest of which is e-gold is based on a more familiar concept of gold backed representative money the value of which is controlled by a commodity market, although there are no certificates anymore.

There seems to be a nearly endless list of items to worry about. (1) The nearly 7 billion $100 notes in circulation which even at today's record gold prices could not be backed up by the stockpile of gold, (2) calls by many nations for a new world standard of currency, (3) electronic money which will allow the government to even further increase the money supply which can be zapped around by our mobile phones, (4) exchange rates that seem to resemble roulette outcomes at time, (5) garden variety counterfeiting and so called supernotes which seem to be circulating in small numbers but could be released by the truckload, (6) an unstable economy backing the money, and (7) the printing of a hundred billion dollars in so called $100 Kodachrome bills which have the brightest colors yet to appear on American currency and with the most anti-counterfeiting devices but are so full of defects that they have been sitting in a warehouse for as many as 16 months.

A MODEST PROPOSAL
The gold stockpiled in Fort Knox and Manhattan nominally adds to the wealth of the USA, but does not specifically back the currency in circulation. In theory if the price of gold on the open market rises to $2500 an ounce, then there should be enough gold to back the present supply of $100 bills. But that would simply be a coincidence, as the government is unlikely to agree to a link since they would have to remove $100 bills if the price goes down, and conversely could not print more unless the price goes up. And while gold probably won't go that high, it is very unlikley to go high enough to cover all the bills in circulation.

The modest proposal would be for the US government to issue a new set of purely electronic currency with one unit of currency per one ounce of gold in Fort Knox. I specifically say Fort Knox, because there is more gold in Manhattan, and I would not want to commit the entire nation's gold horde to this new currency. It would take some of the burden off the present money supply, and people would have a chance to buy into a currency that is not fiat money. Law enforcement would have some access to records so that it could not be used for illicit activity. Criminals would be forced to use garden variety physical currency.

If they ever get the problem fixed with printing the $100 Kodochrome note, we won'e need quite as many of them.
odiousgambit
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June 23rd, 2011 at 3:10:25 AM permalink
well, you've shown me something new with this e-money. I sort of get it, I mean with my own credit card use and money in banks I only see get transferred around electronically for payments and movement, I get the feel my own money is not real and is just out there in cyberspace. There's something odd about not writing a real check even. But this new thing, not sure how that really differs.

One thing though, if I was determined to do it, I could convert it all and get a big pile of paper money out of all my assets. Sounds like you can't do this with e-money.

As for your proposal, I am against tying US currency to *any* commodity, since a commodity is subject to speculation. This can wreck havoc IMO. How does it take the "burden" off the money to do what you propose? Sounds to me like instigating a burden.

IMO If you want the security of gold and you think it is a good bet, buy gold, or stocks in gold mines. There's even an ETF for that now.
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
FleaStiff
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June 23rd, 2011 at 4:13:27 AM permalink
The problem is that Bit Coin recently took a nose dive for some arcane reason unrelated to any economic events or gold supply issues.

I recall that young woman in NYC who advertised the availability of her body for some World of Warcraft gold. The gold didn't exist and ofcourse it was usuable only within the narrow sphere of a multi-player online game. Real prostitution for fake gold with limited uses.

Value?

Its like that guy in Washington DC who could write checks in restaurants and have them accepted. He wrote out a check and asked the waiter to bring him a recently issued twenty dollar bill. He simply pointed to his signature on the bill and his signature on the check and the waiter figured he might as well accept a check from the treasurer of the United States. We accept stores of value because it is convenient for us to do so.

When the USA finally renounces its foreign debt, then maybe BitCoin gold is all there will be.
s2dbaker
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June 23rd, 2011 at 4:20:54 AM permalink
Why would anyone want to tie the value of a currency to gold? Gold itself is fiat currency since it really has no industrial value. It's just kind of shiney. I don't have any, care to collect any or desire gold. In case of catastrophy, I can't eat gold. It has no value for me. Someone is going to have to do a little more work convincing me that gold is less fiat currency than US Dollars.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
pacomartin
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June 23rd, 2011 at 4:28:36 AM permalink
Quote: odiousgambit

This can wreck havoc IMO. How does it take the "burden" off the money to do what you propose? Sounds to me like instigating a burden.



Normally, when you print money, people say "That new $20 bill with the color looks newer", but they don't tell people they won't accept the old "uncolored" ones. The federal reserve gradually collects the old money and destroys it as it wears out, until the only old ones left are in collections.

As a policy the USA never says that once was money is no longer money. You can legally go out and spend a $10,000 bill tomorrow at face value. However, as a collector item it can be worth 5 to 16 times face value. So people don't go out and spend century old money. But it is the principal. In the UK, old money is no longer good for transactions after 2 years. But you can still turn it in at banks.

But the $100 bill is different. When it radically changed in 1996 there were roughly 2.4 billion hundred dollar notes circulating, most of them overseas. People immediately wanted the new bills with the big head because businesses stopped accepting the old notes. It was further complicated by the fact that people with large amounts of cash are often not doing something illegal. Or simply that they are in another country, which uses its own currency. They can't go to a bank and exchange American money. But the federal reserve was able to accomplish the switch by printing 1.2 billion big headed notes that year, and then slowly switching them out over a few years. By now (15 years later) it is virtually impossible to find a banknote with a small head.

Now you have the same problem but it is considerably worse. There are rumors of super counterfeit notes out there. You are now circulating 7 billion hundred dollar notes, and almost 5 billion are overseas. If you introduce a new Kodachrome bill, with elaborate anti-counterfeiting devices built in, people are not going to want to wait for several years to change out their old notes. I would call it a bank rush, but since people are hoarding them overseas, they will want to go to consulates, or any center where they can exchange notes. The situation is further complicated by the production issues. No one knows for sure if the billion or so notes already printed will ever be used. It might be more difficult to sort the good ones from the bad ones then to start over.

It doesn't help that we have presidential candidates calling for an audit of the gold in Fort Knox. It also doesn't help that the dollar is weak in exchange rate, and is being attacked constantly by Iranian and Chinese government official. If the rumors of counterfeits get very intense, people will start trying to turn in their American hundreds for Euro bills.

But many people (not I said "many" and not all) would be happy to turn in paper money for "electronic gold" backed by the US government, and the gold in Fort Knox. The gold in Fort Knox is worth over $200 billion at today's rates which would take care of some of the transactions.

A possible problem is that now the US government would not "own" the gold in Fort Knox, even if it is still physically there. If gold shoots up to $4K an ounce, then the new owners of the gold will reap the profit. Canada, for instance, sold almost all of their gold and replaced with a basked of dollars, yen, and euros. They sold it all when it was much lower priced than it is today. They were convinced that holding gold reserves was a stupid investment.
FleaStiff
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June 23rd, 2011 at 5:12:50 AM permalink
Quote: s2dbaker

Gold itself is fiat currency since it really has no industrial value. It's just kind of shiney.

True but men toil for that kind of shiney stuff and often die trying to find it. Often die after having found it too since men kill for gold. Even the Devil dances for gold. Men left Australia and China to make their way to the Klondike. Thousands trudging up snow covered trails. All for some of that shiney stuff.
s2dbaker
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June 23rd, 2011 at 6:15:28 AM permalink
Quote: FleaStiff

True but men toil for that kind of shiney stuff and often die trying to find it. Often die after having found it too since men kill for gold. Even the Devil dances for gold. Men left Australia and China to make their way to the Klondike. Thousands trudging up snow covered trails. All for some of that shiney stuff.

..which I totally don't get.
Someday, joor goin' to see the name of Googie Gomez in lights and joor goin' to say to joorself, "Was that her?" and then joor goin' to answer to joorself, "That was her!" But you know somethin' mister? I was always her yuss nobody knows it! - Googie Gomez
pacomartin
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June 23rd, 2011 at 6:24:15 AM permalink
Quote: s2dbaker

Why would anyone want to tie the value of a currency to gold? Gold itself is fiat currency since it really has no industrial value. It's just kind of shiney. I don't have any, care to collect any or desire gold. In case of catastrophy, I can't eat gold. It has no value for me. Someone is going to have to do a little more work convincing me that gold is less fiat currency than US Dollars.



All the gold mined in human history still amounts to 3/4 of ounce per human being alive today. The scarcity makes it perceived as precious to billions of people. Although it has many practical uses, it's symbolic value far overshadows it's industrial use.

Not everyone would be interested in buying an electronic chit tied to an ounce of gold in Fort Knox. But many people would. I am just saying we could run a secondary currency (electronic gold) that is backed by the gold in Fort Knox. It would be an alternative currency.

It is very unlikely that the government will go back to trying to back it's primary currency with any substance. Like I said, Switzerland was the last country to back it's currency with gold. The only reason they just changed ten years ago, was they had to pass a constitutional amendment to change the relationship. People around the world are very conservative with constitutional amendments.

In any case, this problem of replacing 7 billion banknotes worth $100 is a big one.

Because the Euro has much higher value notes, there problem is less daunting. Personally, I think that is a bad trade-off because of the criminal activity.
FleaStiff
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June 23rd, 2011 at 6:59:30 AM permalink
Worldwide the primary currency has been the US Dollar. The secondary currency? US cigarettes? Young women?

Turkey and Greece have been currency problems in Europe for generations. The Euro is now popular as a currency. I don't know if anything else is.

Gold is heavy and hard to take with you if you are forced to flee out the back door of the palace as mobs are breaking down the front door. The US dollar is the currency generally favored. I doubt Latin American narco-terrorists do business in Euros.
ZPP
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June 23rd, 2011 at 8:17:46 AM permalink
Quote: FleaStiff

Gold is heavy and hard to take with you if you are forced to flee out the back door of the palace as mobs are breaking down the front door.


Gold is currently worth about $50 per gram, while 100 dollar bills are worth about $100 per gram, so US currency does not have a huge advantage there. However, 500 Euro notes are worth about $700 per gram, which is significantly better.
pacomartin
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June 23rd, 2011 at 8:30:13 AM permalink
Quote: ZPP

Gold is currently worth about $50 per gram, while 100 dollar bills are worth about $100 per gram, so US currency does not have a huge advantage there. However, 500 Euro notes are worth about $700 per gram, which is significantly better.



There are significant advantages to having such a valuable banknote. If the European Central Bank has an emergency design ready, and they discover a super counterfeit note, they could print an entire replacement series for all of the 500 Euro notes in existence in only 60 days. They could call in all the old currency to be tested and replaced in banks in another 60 days. They would find all the counterfeits and avoid a crisis in a few months.

Given the same problem with US currency it would not be nearly that easy.

However, while I recognize the advantages, I still think it was immoral for the EU to create a note that is that valuable per weight. It makes too many illegal activities much easier to accomplish.

Canada has a $1000 dollar note, but testimony from the Royal Canadian Mounted Police forced the politicians to cancel it's production. The US considered reintroducing the $500 note when the European currency was announced, but decided against it.

However, this debacle with the new $100 bill may change their mind.

Canada, has decided to start issuing their new notes in polymer.
DGCmagazine
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June 23rd, 2011 at 9:30:16 AM permalink
The concept of Bitcoin is awesome, but the trading market has yet to work. I think there are only 5-6 companies buying and selling, that is "converting" to and from national currency. So when you see 6 months ago the value of one coin at like a penny and as recently, about $16-$18, the market is not yet trading properly. I could quietly set up Bitcoin-II, mine a million coins, then tell the world about the "new exciting" currency and sell them at $10 each. (this is essentially what has happened in Bitcoin) You really need 50 - 100 secondary agents providing liquidity in the marketplace before we will see the thing move up and down properly. E-gold back a few years ago had about 120 active agents buying and selling, creating a liquid secondary market and fees for the exchange averaged about 2% or less.

Digital gold currency has been around for over a decade now, which is privately issued digital units 100% backed by gold. (see www.goldmoney.com) So no matter how many more dollars are minted in the coming year, 1 Trillion, 2 Trillion, 5 Trillion??, the value you have in digital gold will be protected. You should not lose any purchasing power. The government would not have two currencies, one paper and one digital gold, because as shown with Gresham's law everyone would hoard the gold one, however, states are one by one writing US minted gold and silver coins into legislation making them legal tender in their state. (See Utah) Since no one is going to shop with a bag of gold or heavy silver coins, these coins can be deposited and digital units issued by private companies (not the state) So in effect you have a private digital gold currency that is accepted within the state, as legal tender because it is in actuality the digital version of U.S. gold coins. This is possible today, we are working on it, state per state. This does NOT replace the dollar, this is a voluntary option, should you wish to protect your value.

Digital currency, that is money circulating over the Internet as non-bank financial transactions, has been popular for over a decade. No bank account, credit card, credit rating or merchant account needed to accept payments. WebMoney (www.wmtransfer.com) emerged in 98 from a Russian bank collapse. They widely accept cash for deposit and most daily bills can be paid with WM, outside the bank. There are something like 38,000 places in the world where you can exchange national currency for digital WebMoney. I have not had a bank account for over 15 years (or PayPal), I use digital currency almost everyday.
DJTeddyBear
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June 23rd, 2011 at 10:16:05 AM permalink
Quote: pacomartin

Canada, has decided to start issuing their new notes in polymer.

That's nothing new. Just new to North America. Wasn't it New Zealand that first introduced them about 10 years ago?

The big question is, what's taking the USA so long to adopt them?

---

Edit: It was Austrailia in 1988! Source: http://en.wikipedia.org/wiki/Polymer_banknote
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
pacomartin
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June 23rd, 2011 at 10:36:26 AM permalink
Quote: DGCmagazine


The government would not have two currencies, one paper and one digital gold, because as shown with Gresham's law everyone would hoard the gold one, however, states are one by one writing US minted gold and silver coins into legislation making them legal tender in their state..



Thank you for weighing in on our discussion , sir.

I was thinking of two currencies with radical different units. The current one based on the dollar, with $100 max, and another one, a digital currency with units of 1 ounce of gold.

My point is the EU with fewer than 600 million "500 Euro" notes in circulation could respond to a counterfeit crisis in a matter of weeks. From what I can tell, they are capable of printing 600 million notes in as little as 3 weeks. It would take a while to circulate the currency into banks and institute an exchange, but they could have a replacement currency in place fairly quickly. In the interim most people would not accept any 500 Euro notes.

As near as I can tell, it would take the USA several years to work out their production issues, and exchange 7 billion $100 notes. If they did an experimental digital currency with a nominal 10 million ounces of gold, then in a crisis they could do a lot more very quickly. I am not suggesting that they could or would want to replace $100 notes permanently, but it would be enough to stop a global panic or a mass conversion to Euros.

The reality is that it has been 5.5 years since President Bush publicly complained about North Korea counterfeiting our currency (January 2006). In all that time we are still printing the same note, and we have a warehouse full of unusable new $100 banknotes with a production flaw.
pacomartin
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June 23rd, 2011 at 10:40:43 AM permalink
Quote: DJTeddyBear

That's nothing new. Just new to North America. Wasn't it New Zealand that first introduced them about 10 years ago? The big question is, what's taking the USA so long to adopt them?



Mexico has been using polymer notes since 30 September 2002. I hope your question is tongue in cheek. Over 20 years ago when nearly every developed country started replacing their smaller banknote with a coin, we started construction on a second location in Dallas to print all the $1 bills that we would need.

In regards to currency this question is ultra reactionary.
DJTeddyBear
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June 23rd, 2011 at 10:46:01 AM permalink
Tounge in cheek? Nope. My fuzzy memory brought up New Zealand and 10 years ago. Then I did a quick Google / Wikipedia search...

I didn't realize that Mexico was using them either.

I'm quickly getting the feeling that USA is one of the few countries that DON'T use them....
I invented a few casino games. Info: http://www.DaveMillerGaming.com/ ————————————————————————————————————— Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood? 😁
Nareed
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June 23rd, 2011 at 10:51:15 AM permalink
Quote: DJTeddyBear

I didn't realize that Mexico was using them either.



I liked them at first, but now I don't. For some reason they tear too easily, and that's a big headache. Too many Mexicans are reluctant to accept either torn notes or those repaired with clear tape. I've no idea why, as banks accept even notes with pieces missing. But these days I handle lots of low denomination notes, all made of plastic, and it's a constant series of problems.

Quote:

I'm quickly getting the feeling that USA is one of the few countries that DON'T use them....



And so? Americans don't like soccer, either.
Donald Trump is a fucking criminal
pacomartin
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June 23rd, 2011 at 11:50:49 AM permalink
Quote: DJTeddyBear

Tounge in cheek? Nope.



In general the USA is reluctant to adopt any change to currency, even if it is very logical. The retention of the dollar bill is probably the most ludicrious. The argument is that people like them. But that was probably true of every country. If you did a survey about changes in money most people don't want to change. I imagine that the majority of people in the UK in 1971 were perfectly happy with shillings and pence.

So we have a problem with people bleaching $5 bills and printing $100 bills on top. That's because the currency is all the same size. Blind people all around the world can tell what bills they have because they are different sizes, except in America. Yes, polymer notes have become popular especially in smaller heavily used denominations. It's a bold move of Canada to start at their top bill and work their way down. But Canada has had some counterfeiting crisis in the past. They must have decided it makes sense to start with a clean slate.

We were probably the last country in the world to use color. Our security threads are still way too subtle for easy identification. As we discussed earlier with security cameras, you should have some way to pick out fake bills from ten yards away.

Of course, the mint is in trouble. I saw an article complaining that the mint has been losing money for eight years. But they are saddled with making something that nobody wants. Last year they made 10,000 tonnes of pennies, and 10,000 tonnes of other coins. Pennies cost 1.4 cents apiece to make, and nickels cost 8 cents apiece to make. I don't know why they make 50 cent coins anymore. Admittedly they don't make many, but just the things die. They still make Sacagawea dollars despite the fact that nobody wants them. The presidential dollar coins are doing pretty well.

You would think that after making the Susan B Anthony dollar, and the Sacagawea dollar, they must have a huge brainstorming session for somebody to come up with the brilliant idea of putting dead presidents on coins. What a brainstorm! How would you think of putting a dead president on money in a million years.
thecesspit
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June 23rd, 2011 at 11:33:01 PM permalink
Quote: pacomartin

So we have a problem with people bleaching $5 bills and printing $100 bills on top. That's because the currency is all the same size. Blind people all around the world can tell what bills they have because they are different sizes, except in America. Yes, polymer notes have become popular especially in smaller heavily used denominations. It's a bold move of Canada to start at their top bill and work their way down. But Canada has had some counterfeiting crisis in the past. They must have decided it makes sense to start with a clean slate.



Well the feat of counterfeiting was why the Loony is the Loony....

I doubt I'll see a new $100 bill for a long while... every pretty much uses $20, as even $50's can be hard to change.

I also think the term "immoral" for the EU printing a 500 Euro note is a very strange way of putting it.
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
pacomartin
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June 24th, 2011 at 1:38:59 AM permalink
Quote: thecesspit

I also think the term "immoral" for the EU printing a 500 Euro note is a very strange way of putting it.



I don't think "immoral" is the wrong term.

The British government creates a currency that is safe and secure for small purchases. Since they only print three £50 notes per capita, their relative rareness means it is nearly impossible to counterfeit them. You couldn't set up a distribution system that would last very long. In the event of a "super counterfeit" £50 as a last resort you could simply call them all in. People would turn them into banks and some people would get stuck with bad bills. You simply force counterfeiters to work with the £20, and the relatively small amount makes it difficult for a careful person to get stuck with a lot of bad money. But, as I said earlier, the cautious approach in Britain is historically related to the counterfeit operation in WWII and the decision to rescind the circulation of all notes greater than £5. The UK government also circulates less than £1000 per capita, so it basically forces most of the large scale criminal operations to use other less convenient means of transferring value like diamonds, bearer bonds, foreign currency, etc.

In contrast, the European bank is running a very profitable operation in seignorage. To be fair, so is the US Treasury. They are printing large amounts of big bills which circulate guaranteeing security, transportability and privacy without any accountability. They are also circulating €1000 per capita in €200 and €500 notes. So they believe that a Euro-citizen needs as much cash per person in these two large denominations as a British citizen needs in all denominations.

To protect their citizens, there are elaborate anti-counterfeiting devices built into the €500 note. But that makes it much simpler for criminal use including terrorism, and overseas dictators. They can conduct their transactions without much difficulty. Even if you are using diamonds, you do have to assess their value.

The EU defends their decision as the culture was used to large value banknotes. It also decreased production costs dramatically to print €500 notes. Plus the bills almost always used in ATMs is the €50 which is considerably more valuable than the £20 or the $20.

The Bankof England is going ahead and issuing the new Boulton and Watt £50 note. It will be interesting to see if they print more of them.
thecesspit
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June 24th, 2011 at 10:53:05 AM permalink
What morality is the EU breaking? I understand the reasons you dislike the high value bills, but I don't understand why it's any more "immoral" than diamonds being cut, a contract for difference being issued or credit card being issued.
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
Ayecarumba
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June 24th, 2011 at 10:59:28 AM permalink
Quote: pacomartin

They still make Sacagawea dollars despite the fact that nobody wants them. The presidential dollar coins are doing pretty well.



What is the definition of success? I have only received change in dollar coins once, and that was only because the guy before me cracked open a roll to pay his bill, and the cashier was eager to get rid of them.

Unlike the 50 states quarters, I think most of the dollar coins are going into collections. or little kid's piggy banks.

As an aside, Why are pigs the vessel for storing money? I would have expected cows to be the natural choice. I'll start a new thread on this.
Simplicity is the ultimate sophistication - Leonardo da Vinci
Nareed
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June 24th, 2011 at 11:05:08 AM permalink
Quote: Ayecarumba

What is the definition of success? I have only received change in dollar coins once, and that was only because the guy before me cracked open a roll to pay his bill, and the cashier was eager to get rid of them.



I think the monorail gives change only in dollar coins. This should be helpful to coin collectors (because numismatists is such a long, scary word :P )
Donald Trump is a fucking criminal
Doc
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June 24th, 2011 at 11:15:51 AM permalink
I like the dollar coins. All of them. I receive them in change from the machines at the Post Office, but I don't think I have ever received one from any other source. I really hate it when I use a vending machine that accepts a $5 bill for a soft drink (priced maybe $1.25) and then makes change in quarters. That kind of change I really don't need.
pacomartin
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June 24th, 2011 at 11:48:48 AM permalink
Quote: thecesspit

What morality is the EU breaking? I understand the reasons you dislike the high value bills, but I don't understand why it's any more "immoral" than diamonds being cut, a contract for difference being issued or credit card being issued.



Buying and selling diamonds is a complex business, you have to hire experts to do appraisals. Credit cards leave electronic records which can be read by the police. High value bills are purely private. They can be used for any transaction without a trace.

When the bank made these notes, they knew full well that they would be used by organized crime. They did it anyway because it would be hugely profitable for the bank

Quote: The Telegraph

500 euro notes withdrawn over organised crime fears
13 May 2010

British bank wholesalers have withdrawn 500 euro notes from sale because they are fuelling organised crime.

The distinctive pink and purple note is a favourite with criminals

The decision to end trading was made after police found nine out of every 10 of the notes in circulation are linked to crime, tax evasion and terrorism.
It closed an annual 500 million euro (£424 million) trade in the distinctive largest denomination euro note among businesses across the country.

The Serious Organised Crime Agency (Soca), which coordinated the voluntary industry move, said there is ''no credible legitimate use'' for the note in Britain.
Officials have been watching the market for signs of criminals changing tactics since trading secretly stopped about one month ago.

They have been expecting to see drug smugglers, people traffickers and other top-level crime gangs struggling to launder their profits as a result.

The distinctive pink and purple note is a favourite with criminals because it takes up less space than other currencies and is accepted across the continent.

Tourists and other legitimate customers will not be affected by the changes and the 500 euro note remains legal tender.

Ian Cruxton, Soca deputy director, said: ''There is no doubt that the main UK demand for the euro 500 note comes from serious organised criminals.
''The banknote wholesalers have shown decisive leadership in withdrawing supply.

''This is a bold and welcome move which will cause substantial disruption to criminals' ability to move and launder large quantities of cash.''
One senior official at Soca's Financial Investigation Unit said an inquiry revealed 500 euro notes are inextricably tied to serious crime.

He said: ''As we developed a picture it became clear. What was previously only an anecdotal suggestion was borne out by the figures.
''Our analysis found that only about 10% of 500 euro notes sold in the UK retail market were used legitimately.''

...

The 500 euro note has long been a favourite of top-level criminals and vast quantities have turned up in raids on drugs gangs from London to Latin America.
Dubbed the ''bin Laden'' because everyone knows what it looks like but rarely sees one, crooks love its portability.


The same value in cash takes up only a tenth of its Sterling alternative, making it easier to smuggle across borders.

An adult male can stuff and swallow 150,000 euros and 20,000 euros can be hidden in a cigarette packet.

...

rest of article

thecesspit
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June 24th, 2011 at 12:28:59 PM permalink
Quote: pacomartin

Buying and selling diamonds is a complex business, you have to hire experts to do appraisals. Credit cards leave electronic records which can be read by the police. High value bills are purely private. They can be used for any transaction without a trace.

When the bank made these notes, they knew full well that they would be used by organized crime. They did it anyway because it would be hugely profitable for the bank



Again, what -morality- are they breaking by issuing an untraceable cash transaction? Do you consider a gun manufacturer immoral in that his gun can be used for a crime (after all, some guns are only made to shoot other people with)?
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
pacomartin
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June 24th, 2011 at 12:55:58 PM permalink
Quote: thecesspit

Again, what -morality- are they breaking by issuing an untraceable cash transaction? Do you consider a gun manufacturer immoral in that his gun can be used for a crime (after all, some guns are only made to shoot other people with)?



After eight months of rigorous analysis of currency trading in the UK, the Serious Organised Crime Agency (Soca) has established that the 500 euro note is at the heart of money laundering. The reason is simple: it's easier to shift.

I think you are being deliberately obstreperous. This is not a difficult concept! The bank is knowingly aiding and abetting violent criminals by making a vehicle by which they can more easily launder money without a trace. They are doing this because it is very profitable for the government. Canada, USA, United Kingdom, and Japan have chosen not to make this kind of currency. Only the EU and Switzerland have a banknote which can be moved around the world. Latvia also has a banknote worth 700 euros, but it is useless to criminals because it is only good inside Latvia.

I don't think the government needs to know about every used car sale, small construction project, or gambling win. Citizens are entitled to privacy in transactions or in transportation of value, but only up to a point. The US government defines that point as $10,000 for a series of closely related transactions or to get on an airplane. Above that level you are required to reveal yourself by law.

Yes, I do consider a gun manufacturer immoral for making inexpensive guns that cannot be used for any other purpose than shooting someone in the gut at close range.

High value banknotes do not cause crime any more than banking secrecy laws cause crime. They just make it easier to avoid capture.
thecesspit
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June 24th, 2011 at 2:29:27 PM permalink
Your last line is why I was pressing you on this. I don't see it as a moral issue at all, but wanted to understand why you did, and what moral code you were using to make that judgement.
"Then you can admire the real gambler, who has neither eaten, slept, thought nor lived, he has so smarted under the scourge of his martingale, so suffered on the rack of his desire for a coup at trente-et-quarante" - Honore de Balzac, 1829
pacomartin
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June 24th, 2011 at 8:10:58 PM permalink
Quote: thecesspit

Your last line is why I was pressing you on this. I don't see it as a moral issue at all, but wanted to understand why you did, and what moral code you were using to make that judgement.



Example 1
Well, let's look at the USA. In 1990 small banknotes (less than $100) circulated at a little over $500 per capita in the USA in 1990, and jumped up to $750 per capita by 2010. In the UK small banknotes (less than £50) circulated at £750 per capita in the UK in 2010.

In the USA in 1990, 1.4 billion $100 notes were circulating.

In 1991, a new $100 note with microprinting and a security thread were introduced. Over the next five years, the old notes were almost all burned, and replaced with 2.4 billion new $100 notes. During this time period, the new notes became a currency substitute for collapsing currencies notably in Russia, Argentina, and Mexico. Also in 1991 was more or less the start year for the new era of massive USA trade defecits.

Starting 25-Mar-1996, after a few months printing a supply of the new large portrait $100 banknote a total of 13 billion new notes are printed as of today. Some of them are used for replacements, but as of the end of 2010 a total of 7 billion are in circulation with an estimated 5 billion overseas.

The $100 banknote is rapidly becoming a symbol of a worldwide economy where labor and goods are paid for with paper.

The US Treasury says it is just meeting demand. Were any moral decisions made here?
AZDuffman
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June 25th, 2011 at 5:26:18 AM permalink
Quote: pacomartin

Of course, the mint is in trouble. I saw an article complaining that the mint has been losing money for eight years. But they are saddled with making something that nobody wants. Last year they made 10,000 tonnes of pennies, and 10,000 tonnes of other coins. Pennies cost 1.4 cents apiece to make, and nickels cost 8 cents apiece to make. I don't know why they make 50 cent coins anymore. Admittedly they don't make many, but just the things die. They still make Sacagawea dollars despite the fact that nobody wants them. The presidential dollar coins are doing pretty well.

You would think that after making the Susan B Anthony dollar, and the Sacagawea dollar, they must have a huge brainstorming session for somebody to come up with the brilliant idea of putting dead presidents on coins. What a brainstorm! How would you think of putting a dead president on money in a million years.




I have thought for years we need to revamp our coinage and currency. If I had my way I would:

Kill the penny and the nickel. Items could still be priced to pennies but the total would be rounded at the final checkout/cashout. This works fine for gasoline which you have been buying in tenths of a penny all of your life.

With the new room in the cash drawers reintroduce the half-dollar and a dollar coin. Use some other dead POTUS and make a law that any person on a coin must be dead for 100 years (sorry, JFK) so we don't get a rockstar-potus-on-coins phenomenon. Make time to look at history. If this means I will never see Reagan on a coin in my lifetime I can live with that.

The half and $1 coin need to be bigger than quarters, like the old ones were. Vending machines will have to be adapted, but they have had to adapt to things like clad coins in the past. It would take 10-15 years but they will survive.

The $1 bill is gone. And change the $20 to a $25. Why do we divide $1 in quarters but $100 in fifths? Keep Jackson on both. This change would take less than 2 years.


As to the statement of the USA being reluctant to make currency changes, that is a part of what keeps the dollar a reserve currency. If Austrailia changes its currency you will probably not know. Someone could say, "here, take the new Aussie $50" and it is made up. USD, OTOH, you have seen for years overseas and know and remember. It is not the biggest part, but is a big part.
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pacomartin
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June 25th, 2011 at 6:06:54 AM permalink
Quote: AZDuffman

And change the $20 to a $25. Why do we divide $1 in quarters but $100 in fifths? Keep Jackson on both. This change would take less than 2 years.


As to the statement of the USA being reluctant to make currency changes, that is a part of what keeps the dollar a reserve currency. If Austrailia changes its currency you will probably not know. Someone could say, "here, take the new Aussie $50" and it is made up. USD, OTOH, you have seen for years overseas and know and remember. It is not the biggest part, but is a big part.



Under the Obama administration, the quantity of $100 banknotes in circulation (7 billion) has finally passed the quantity of $20 banknotes (6.5 billion). Even if it is kind of dumb, I don't think anyone would go through the trouble of replacing $20 notes with $25. However, after 4 decades of Automated Teller Machines, it is about time we stepped up to the $50 banknote becoming the norm. It would cut production costs by a large amount at the BEP.

I realize that it is easier for Canada with $50 billion in banknotes to make a change than the USA with close to a trillion dollars. But the retention of the dollar bill for a quarter century longer than other equivalent currencies is really stupid.
AZDuffman
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June 25th, 2011 at 7:06:15 AM permalink
Quote: pacomartin

Under the Obama administration, the quantity of $100 banknotes in circulation (7 billion) has finally passed the quantity of $20 banknotes (6.5 billion). Even if it is kind of dumb, I don't think anyone would go through the trouble of replacing $20 notes with $25. However, after 4 decades of Automated Teller Machines, it is about time we stepped up to the $50 banknote becoming the norm. It would cut production costs by a large amount at the BEP.



The biggest problem I see here is "psycological inflation." Lots of stuff is priced just below $20 so people see it as just a "Jackson." If the $50 becomes the norm, that goes away. Personally I don't care to carry $50s as it is a weird size note for me. When I get a $100 from the cage in the poker room I "feel rich" and will avoid breaking it for some time. It is a sort of "reserve" for a mid size purchase later. A $50 OTOH to me anyways isn't big enough for that but is big enough that some places give a hassle to break it.

I know my $25 idea would do the same for psycological inflation, but to a lesser extent. I do remember reading in the "Imponderables" series of books that it was an issue for sodapop and other vending machines to go above $.50 as consumers did not want to put more than two coins into said vending machines and dollar bill changers at the time were still terrible.
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pacomartin
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June 25th, 2011 at 7:58:29 AM permalink
Quote: AZDuffman

Personally I don't care to carry $50s as it is a weird size note for me.



But you are conditioned that way after decades of ATMs. In Canada and the USA they issue 4 to 5 times as many $20 banknotes as either $10 or $50 banknotes. With Canada revamping their whole line of banknotes to polymer, I wonder if they will try and persuade people to stock the ATM with $50 banknotes?
Doc
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June 25th, 2011 at 8:04:56 AM permalink
Quote: AZDuffman

IItems could still be priced to pennies but the total would be rounded at the final checkout/cashout. This works fine for gasoline which you have been buying in tenths of a penny all of your life.


This reply is really off the topic of your post, but I disagree with this point. I don't think I have ever had a gasoline purchase rounded off more than a fraction of a cent. First a really minor issue -- I don't feel we really purchase at prices in tenths of a penny, since I have never seen a price stated at 4/10 or 7/10 cent. It's just a marketing gimmick to state the unit price 1/10 cent below even.

Second (and my real point), we don't make our purchases of gasoline in whole gallon units -- we adjust the quantity purchased each time to make the total amount to be paid equal to an even number of cents. This is quite different from calculating the total value of the items purchased and then rounding off the amount to be paid.

But I go along with your point that pennies are more nuisance than value in most transactions. Not too sure about nickels, since there might still be a fair number of very small purchases in which rounding off to the nearest dime could be a significant portion of the sale -- enough that there might be some resentment. As for the cost of producing a cent being greater than a cent, I don't know how much of the cost is represented by the material. I know that some countries went to aluminum for their lowest coin back in the 70s or 80s, and I don't know how that cost compares to the copper-zinc combo.
odiousgambit
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June 25th, 2011 at 8:07:37 AM permalink
something tells me the public would not like getting 50s at the ATM yet, most complaining they felt they needed to change them to smaller.

However, supposedly politicians have not gotten rid of the penny because the public is against it. Whatever that says about the kind of leadership we get these days, I think that reluctance has changed and they don't know it. I go into tons of places now where there is a little tray for pennies that says 'take one / leave one' and everybody does
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
gofaster87
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June 25th, 2011 at 8:21:07 AM permalink
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pacomartin
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June 25th, 2011 at 10:26:59 AM permalink
Quote: Doc

But I go along with your point that pennies are more nuisance than value in most transactions. Not too sure about nickels, since there might still be a fair number of very small purchases in which rounding off to the nearest dime could be a significant portion of the sale -- enough that there might be some resentment. As for the cost of producing a cent being greater than a cent, I don't know how much of the cost is represented by the material.



The material is still most of the cost. When pennies went to Zinc, they struggled hard to get them to weigh the same.
Nickels are 25% nickel, and 75% copper, so they cost about 8 cents apiece to make.

Hence the suggestion to make a coin that is exactly like a Lincoln penny but is stamped as being worth 5 cents. That would immediately bring most of the pennies out of the drawers and cans because now they would be worth 5 cents apiece. It would be a little confusing, but we would get used to it. There would be a small number of people who have 100,000 pennies, that would make $4000 just like that, but who cares. It would save billions of dollars in re-tooling the mint.

The 2010 production of both mints in metric tons
pennies 10,027
nickels 2,453
dimes 2,538
quarters 1,967
half dollars 40
dollar coins 3,258
total 20,283

Production is kind of low in quarters because so many have been made over the last few decades. Plus since they are effectively the only coin that most people care about, so they don't lose as many.

Think of the environmental degradation that you are doing. Mining 10,000 tons of zinc, making it into pennies, trucking them all around the country, just so people can throw them into a drawer. The dollar bills are not much better. They have made as many as 5,000 metric tons of dollar bills in one year. Not only do they have to be delivered, but they only last about a year and a half. They all have to be gathered up and returned to the Bureau to be chopped into little pieces and burned. I think the dollar bills do probably more damage to the environment than the pennies because of the need to constantly make new ones and destroy the old ones. At least the $20 bills last a little longer.
Doc
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June 25th, 2011 at 12:01:19 PM permalink
Quote: pacomartin

Production is kind of low in quarters because so many have been made over the last few decades.


Yes, that relative figure was surprising to me, but I was also surprised at the figure for dollar coins -- more mass produced last year than any other coin, and yet they still seem to be invisible in circulation.
odiousgambit
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June 25th, 2011 at 12:06:22 PM permalink
Quote: Doc

I was also surprised at the figure for dollar coins -- more mass produced last year than any other coin, and yet they still seem to be invisible in circulation.



Agreed. Of course, the Canadians realized how to do this right: eliminate the paper dollar if you want the public to use the dollar coin
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!”   She is, after all, stone deaf. ... Arnold Snyder
pacomartin
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June 25th, 2011 at 12:33:21 PM permalink
Quote: Doc

Yes, that relative figure was surprising to me, but I was also surprised at the figure for dollar coins -- more mass produced last year than any other coin, and yet they still seem to be invisible in circulation.



I agree, you would think you would see more dollar coins.

The mint has made 4 billion dollar coins since 1999 (not including the Susan B Anthony dollars). That compares with roughly 9 billion dollar bills in circulation. I hate to tell people that if they are dumping these coins into collections that having one of several billion things is not particularly valuable.

Actually the 10,000 tons of pennies made in 2010 was fairly small. The average for the previous 11 years was 21,500 tons of pennies. I guess the penny jars are working if they've been able to cut back production by that much.

2.2 billion presidential dollars and 1.7 billion Sacagawea
gofaster87
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June 25th, 2011 at 2:24:19 PM permalink
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pacomartin
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June 25th, 2011 at 3:01:14 PM permalink
Quote: gofaster87

Out of curiosity why do some countries have several coins and notes that are of the same denomination? An example would be Egypt.



Usually the value of the currency is falling, and it is no longer cost effective to make the same coin.

In Egypt the size of 5 piastre coins was reduced in 2004, 10 and 25 piastre coins - in 2008.The size of 50 piastre coins was reduced in 2007.

USA had an Eisenhower Dollar from 1971–1978. It weighed exactly 1/20 of a pound, and was twice the weight of Kennedy half dollar, four times the weight of a quarter, and ten times the weight of a dime. In theory if you weighed a bucket of these coins all mixed together, and divided the weight by 20, you would get the value of the coins in the bucket.

Since it made the half dollar and the dollar too heavy, the concept was abandoned. So the USA has two coins with the same face value.
AZDuffman
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June 25th, 2011 at 7:02:43 PM permalink
Quote: Doc

This reply is really off the topic of your post, but I disagree with this point. I don't think I have ever had a gasoline purchase rounded off more than a fraction of a cent. First a really minor issue -- I don't feel we really purchase at prices in tenths of a penny, since I have never seen a price stated at 4/10 or 7/10 cent. It's just a marketing gimmick to state the unit price 1/10 cent below even.

Second (and my real point), we don't make our purchases of gasoline in whole gallon units -- we adjust the quantity purchased each time to make the total amount to be paid equal to an even number of cents. This is quite different from calculating the total value of the items purchased and then rounding off the amount to be paid.



Every gallon of gasolinr you have ever bought is a fractional $.009. Old photos from the 1920s or so show gasoline sold in half-cent increments. In the late 1970s I remember seeing one or two stations selling at $0.008 as either marketing or government regulated prices. I only saw that once or twice. I also remember half-cent increments very briefly when the price went over $1 for the first time and stations sold gas by the half-gallon when their pumps could not handle the price. So it can happen.

But the point is this. If we went to dime increments in currency the local store could still sell in penny increments. Porduce sell at penny increments and by the pound you just get a final price. Sell anything that way and at the checkout you round up or down. Some laws might need to be changed and a few clowns would try to take advantage of it but it could easily work.
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pacomartin
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June 26th, 2011 at 1:19:18 AM permalink
This thread seemed to have steered at the minutia of currency. The pennies and dollar bills.

I was interested in the macroscopic view of currency and finance. For instance in this dated 24 Mar 2010, in the UK Gordon Brown is being pressed to explain why you sold Britain's gold . The British treasury pre-announced its plans to sell 395 tons of the 715 tons held by the Bank of England, which caused prices to fall.
The bullion was sold in 17 auctions between 1999 and 2002, with dealers paying between $256 and $296 an ounce.

So the gold was sold at roughly $3.3 billion. That much gold is now selling for $17 billion (£11 billion). Obviously that was a mistake, as was Canada selling all but 3.5 tons of their gold. But clearly Steve Wynn wouldn't have built the encore, or MGM wouldn't have built City Center, etc. etc.

Britain's remaining gold reserve is worth roughly £7.7 billion.

Britain is about to issue it's first new £50 note in 17 years. If the £50 note were required by law to be backed 100% by gold they could only issue 154 million of them. In 2008 they issued 151 million, but that number has since gone up over 180 million.

So British citizens would know that there £50 note was backed by gold. Additional notes could be issued if gold goes up in value, or some must be destroyed if gold goes down in value. No politician could make a decision to sell the nations gold. The £20 or less notes would be pure fiat currency.

I think it would make a difference. It would be possible to simply print extra £20 banknotes, but not to flood the market. If there are 1.5 billion in circulation, nobody can go crazy and print an extra billion.

Variations could be proposed for the USA.

It's not realy a new idea, but a partially revived notion that some part of the currency should be tied to something tangible. That way the supply can't be changed easily. At least the fiat money supply could be posted somewhere.
FleaStiff
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June 26th, 2011 at 5:27:29 AM permalink
Quote: pacomartin

The British treasury pre-announced its plans to sell 395 tons of the 715 tons held by the Bank of England, which caused prices to fall. So the gold was sold at roughly $3.3 billion. That much gold is now selling for $17 billion (£11 billion).

On the assumption that no great industrial use for gold was found in the intervening time period the sole reason for the increase in the price of gold is an increase in a demand for it which basically translates to an increased fear of a loss of value if the money is invested in Pounds instead of Gold. So why the fear?


> At least the fiat money supply could be posted somewhere.

Fiat. Every time I hear that word, I can't help but think of the pronouncing of a sentence of death upon someone accused of witchcraft: "Close the Book, Still the Bell, Quench the Candle. Fiat, Fiat, Fiat."

Somehow I don't think that international monetary matters and witchcraft are all that unrelated.
pacomartin
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June 26th, 2011 at 6:07:29 AM permalink
Quote: FleaStiff

On the assumption that no great industrial use for gold was found in the intervening time period the sole reason for the increase in the price of gold is an increase in a demand for it which basically translates to an increased fear of a loss of value if the money is invested in Pounds instead of Gold.



In addition to the jewelry business, and the personal fear business, the nations of the world have been re-acquiring gold. The biggest rumor is that China may buy $1 trillion in gold.

Canada sold nearly all the national gold in previous years, and UK sold half.
FleaStiff
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June 26th, 2011 at 6:38:00 AM permalink
Quote: pacomartin

the nations of the world have been re-acquiring gold. China may buy $1 trillion in gold...Canada sold nearly all the national gold in previous years, and UK sold half.


Okay. So why are some nations dumping their gold and others buying in massive amounts?
Rumors? Canada had a group of fundamentalist Christians who were told about two years ago that there was going to be some Arab-Israeli gold transaction for an amount that was three times the gold reserves in Fort Knox. They believed it. Rumors.
pacomartin
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June 26th, 2011 at 7:36:32 AM permalink
Quote: FleaStiff

Okay. So why are some nations dumping their gold and others buying in massive amounts?
Rumors? Canada had a group of fundamentalist Christians who were told about two years ago that there was going to be some Arab-Israeli gold transaction for an amount that was three times the gold reserves in Fort Knox. They believed it. Rumors.



In August 1971, U.S. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold; to defend the dollar against the speculators. By March 1973 the major currencies began to float against each other.

No nation is dumping their gold since the worldwide recession began in 2008. But many nations dumped gold in the preceding decades. Most notably, the principal nations of the British empire were the most aggressive in dumping gold.

United Kingdom had 710 tonnes in 1979, went down to 573 tonnes in 1997, back to 715 tonnes in 1998, and 310 tonnes today.
Australia had 247 tonnes in 1979 and has 79 tonnes today.
Canada had 690 tonnes in 1979, and is down to 3.4 tonnes.
New Zealand had 57 tonnes in 1925 and sold it all in WWII

USA had 8230 tonnes in 1979, and has 9200 tonnes today.
Japan had 754 tonnes in 1979, and has 765.2 tonnes today.
China had 398 tonnes in 1977m and has 1054 tonnes today.

Quote: What if?


If Canada had kept their 690 tonnes of gold, today it would be worth $33bn Canadian. That would cover their $29bn in $100 notes, but not their entire $58bn in banknotes. The money from the gold was invested in securities in the dollar, Euro, and Yen.

I wonder how the Bank of Canada did? They don't seem to be trying to nail some individual like the UK is doing.

pacomartin
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June 26th, 2011 at 12:07:13 PM permalink
While it is no surprise that no currency in the world has held up against the price of gold in the last five years, the amount that gold has gone up varies by a huge amount. It is not surprising that Switzerland has done the best, and Iceland the worst (given it's collapse), but in general why do you think most of Asia did better than most of Europe.

What is Australia doing right ? Or you may consider it wrong since if you are selling goods abroad you are screwed.


CHF Swiss 75%
JPY Japan 79%
AUD Australia 80%
NZD New Zealand 92%
SGD Singapore 100%
CNY China 109%
CAD Canada 126%
NOK Norway 126%
EUR Euro 128%
TWD Taiwan 129%
INR India 154%
USD USA 158%
RUB Russia 168%
MXN Mexico 169%
GBP U.K. 193%
ISK Iceland 292%
JimMorrison
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June 26th, 2011 at 6:45:28 PM permalink
Personally I'm against any coins so I do not favor going to a dollar coin or anything. Really don't want a ton of change in my pocket. Against $50 bills also since any gambler knows they are bad luck. I won't touch them.

And earlier in the thread there was a bunch of stuff about all the laws that were passed to make it tougher on criminals and how large banknotes helped criminals. That should be irrelevant. Criminals are already breaking the law, we don't need more laws for them to break. Stricter banking laws just harass and make things tougher for non-criminals like me. I think it would be great to have $500 currency and if it makes it easier for drug dealers I don't care.
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