[Page 5] Pertaining to the gold standard and the President Nixon discussion, is it clear as to what exactly the gold standard is and why its abandonment in 1971 has profoundly impacted our current economic condition on a global basis?
To be honest, I don't know exactly about gold standard since 1971 until today. After re-read again, it forced me to re-read again your book 'Increase Your Financial IQ'.. and you have highlighted to make more money and move from currency into real assets.
Gold standard were removed, because in 1971 US reached it's internal peak of oil production. US treasury run of gold. The president were forced to remove gold standard to facilitate the import of cheap oil from Saudi Arabia. Of course on the expense of Saudi Arabia people.
In year 2004 the whole world reached it's peak of oil.
In your recent update you mention no to buy gold based on roubini's predictions for 2010 and the gold and/or precious metals bubble..
Your stance with Mike Maloney was the opposite and I understand that "money" can change over night...
Can you post a updated stance on how you feel about Mike Maloney's predictions and Roubini's..
To me I am seeing that you are aligning with Roubini over Maloney at this time but I would like to hear it directly from you. I do not want to assume but rather hear from you, what you think about what Mike Maloney is saying and why you think Roubini is right.
The update you posted cleary states your posistion but I want to see why and what changed from your point of veiw on "money", b/c there were fundamentals that you and Maloney speak of that do not make sense to me now. If silver/gold are a gauge to the printing press, we are printing more money then ever.. So how is silver/gold in a buble if this is the part where we are not seeing the effects of all this extra money.
The Gold Standard is a measure of value as gold is a valuable commodity that is universal around the world. Money is a paper promise that can be printed as fast as we want to make promises to make good on the payments. Money has No real hard value that can be melted down and used for jewelry. If it burns up, it's gone. The value is ZERO.
Dear, Robert,
In your August 20, 2007 Yahoo finance article "A silver lining for nervous investors" you recomend Silver ETF's as good option for general public to own silver. Nevertheless Michael Maloney in his book "guide to investing in gold and silver" places ETF's in one line with precious metals pool accounts, certificates etc - what he calls "paper gold" and "paper silver". the main reason (as I understand) is because "paper gold & silver" are actualy securities not the real precious metals, they are part if financial system (which is in a mess not), so if real currency crisis comes, I won't be able to get phisical gold & silver "out of" them. Whom should I believe in this question - you or Michale Maloney?
Arturs
To my understanding the gold standard meant that there was enough gold to match the dollars. Now that we're off of that standard, the govn't can just print as many dollar bills as it wants, but there is nothing to back it up. As you stated in another "money is an agreement". Once there is no agreement that these pieces of paper have value, paper money is worthless. That is why the price of gold is so high, because the dollars aren't worth much
Are you willing to get out of all the competition?
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I understand that the USA had to back up the supply of currency with hard assets/commodities like gold & silver. This was to "guarantee" the solvency of the country to our creditors. By removing the standard, the governement could then print money without concern about having anything to back it up other than their word.
It is kind of like this. If I worked hard and earned money and saved it, eventually I could buy a home and make a substantial down payment say of 20%. This was what the mortgage companies required at one time because they wanted to limit their risk of exposure to me defaulting on my loan.
In todays market, most times we can buy homes for little or nothing down and not even anything more than a measly stream of income to back our purchase. This is essentially what the governement is doing and at some point in the future, this house of cards will crash down.
The section pertaining to the gold standard is clear to those of us who lived through it, witnessed it, and later studied about it, but it could use another example or two of the exchange of cash for gold that was going on. What's not so clear is why a standard existed at all, and what its absence means. What is meant by the "full faith and credit of the United States"? Do people undersand slavery, indenture, etc.?
Right now tulips, chocolate and lead nickles are looking pretty good.
This cannot be understated: Value is dictated by perception.
If you base your currency on any one resource, whether it's gold, silver, corn or oil it will fail. If you base it on a combination of resources it will also eventually fail. Resources are finite and difficult to control. Our currency would be finite if it were wholly dependent upon resources. But currency is really just a representation of value and managing value is managing perception. Fiat currency is just that, backed by PERCEPTION. It doesn't matter whether or not fed notes have real worth as long as everyone believes they do (At the least our trading partners). If you can manage information you can inform perception. Influence and authority (PERCEPTION) are the basis of "wealth". That's how con-artists exist. Yes, scarcity, productivity, inflation and consumption all affect value but perception and information management ALSO dictate all of these things. The problem is we still think of the dollar as representing something tangeable. Instead, think of it as a brand. And not just A brand, it is THE brand of America. The economy went bust because of poor brand management (CONGRESS!!!). Nixon, the fed, they're just brand managers. Be your own brand manager, get the information, use it carefully and remember, YOUR brand is always appreciating in value or depreciating in value. You can control this. :)
I know this is all supposed to be common sense, but I still don't get it. Why does gold have to be the standard? Why can't it be diamonds for example, or silver or platinum or fur or a piece of bread for that matter? After all, the only use of gold is to wear it as a piece of jewelery and some industrial use. (Silver and copper are more useful for industrial use, I hear).
Beyond the fact that it glitters and it's yellow, why is gold supposed to have an intrinsic value? Is it not the fact that everything has a contextual value? For example, if I am in the middle of a desert and dying of thirst, no amount of gold is going to help. Water at that time is more valuable to me than gold. Same thing with large populations.
One thing I know about it is that it's extremely tedious to manufacture. So it's scarce to come by, no matter how hard we try to make more if it. So its supply is self regulated. The other is that it has a psychological value as gold has been associated with prosperity for ages.
It seems that by taking the dollar off of the gold standard, it opened the door for our current credit crisis. How nice for uneducated americans to borrow at an aalrming right without consenquence. Just print more money it will fix everything
In 1968 I worked for a man with a degree in economics and he subscribed to Business Week. He had me read an article in one of them that said the dollar at that time was worth about 36 cents and was going down by about 3.9 cents each year. About the time the dollar was worth nothing we went off the gold standard. Amazing!!!
It seems to me what is more important is the relative value of the $USD against the major global curriencies, and to hard assets/commodities/metals.
If all other countries are being forced to undertake similar inflationary measures to prop up asset values in their countries, and keep the debt flowing to consumers so they can continue to purchase, then the $USD may hold its position RELATIVE to the other currencies.
This relative currency valuation will be adjusted via international trade, ie. if $USD gets too low relative to its trading partners, the trade balance will shift in favor of the $US, there by increasing GDP/GNP and bring more in income to pay off debt.
However, if a country has abundant natural resources that will be required over the next 50 years, and they are scarce, then these country currencies should increase in relative value to the $USD, assuming consumer demand in Asia and Emerging Markets fills the gaps left by the US and UK/EU consumer. No demand = no value, so someone has to fill the consumption gap left by the US or else commodities may not appreciate as much as Robert is speculating.
On the other hand, regardless of what the economic fundamentals are, if the masses suddenly precieve that oil, silver and gold are the only "safe" store of value, then those commodity prices inflate to bubbles and one could close the "hedge" position. Whi
Robert, if you are reading this, I would like your comments on the applicability for the average Rich Dad/ PD reader of an investment strategy consisting of owning high dividend paying equity in the highest quality (business model, managment, strategy, etc), debt free businesses that dominate the metals, oil, gas and agri-business, as well as holding them in $CND and $AUS or hedged against the $USD, combined with exposure Brazil, Korea, China, India, primarily in commodities, but also health care, real estate and banking. Obviously this could be leveraged, since the sustainable dividend yeild is about 6%-8%, which could be used to fund the debt costs.
Thanks
A Candian reader from the Calgary, Oil and Gas Center of Canada, and owner of Oil and Gas wells,
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I do not any more understand the standard and worth of gold than before. What i do understand is that as long as gold and paper are dependent on each other, their worth will be as much as the actual dollars the Federal Reserve physically holds in its account, which I understand is zero, hence one's ability to make its own money. Maybe I continue to see this incorrectly, yet Mr. K would not have this website to talk about this particular book.
Something funny that I often say to my friends and family regarding currency: "Back in the day, paper (dollars) was valuable because you could trade it in for gold; nowadays, gold is valuable because you can trade it in for paper!"
Take a handful of gold dollars and a handful of paper dollars and light them both on fire... where has the value gone when the smoke clears? What are they each worth now?
I sort of understand this and sort of don't. I understand that when Nixon separated paper money from gold that allowed the government to print paper willy nilly w/o really having good backing to it right? Otherwise, I am completely lost!
It is of supreme importance to understand that the first agency of the newly formed eighteenth century government of America was the bureau of weights and measures. The reason for this is simple; they had to know what money was going to be.
It didn't take long to realize that the standard had to be weight, purity and durability. That's why congress chose gold and silver coin, not paper!
Paper doesn;t meet the three criteria listed above. To put it simply a one hundred dollar bill cannot have the same value as one hundred single dollar bills according to the weight standard one hundred singles weigh more.
It is of supreme importance to understand that the first agency of the newly formed eighteenth century government of America was the bureau of weights and measures. The reason for this is simple; they had to know what money was going to be.
It didn't take long to realize that the standard had to be weight, purity and durability. That's why congress chose gold and silver coin, not paper!
Paper doesn;t meet the three criteria listed above. To put it simply a one hundred dollar bill cannot have the same value as one hundred single dollar bills according to the weight standard one hundred singles weigh more.
What do I know about the Gold Rush...and the gold game
You know Robert, I am already learning more about things than I learned in 70 years..."of fish, and ships and sealing wax, and if pigs really have wings"?
In my short years I remember that gold was artifically pegged at $20, then $35, and then I was counseled [in about 1961] to buy a St.Gauden's $20 gold piece for $61. Ouch!.
Subsequent to that, Ian Flemings' "Goldfinger" convinced me that there is no gold in Fort Knox. I think that is a writer's prophesy, explaning why the gold was to be rendered radioactive, as a reason to not handle it, count and weigh it, and that we guard it though it may not be "it" any longer.
Your teaching also reminded me that well before President Nixon, [in fact, prior to 1955], the S.F. Mint had stacks of gold bars [I saw them]. Thousands of bags of silver dollars; yet, people stood in line around the Mint to cash in thier silver paper certificates, gleening real silver.
Gold broke a thousand a few days ago, the St. Gauden's is easily worth a thousand dollars, and not because of its numismatic value, but because the Gold is as you say, not our standard; rather ink is our standard, and the rags it is printed on which we call Federal Reserve Notes.
You also taught me that there is no National Bank, and it certainly has no money. Scary, not unlike Germany devaluing the Mark.
I recall in the News Reels in the movies when I was a child, a Chinese woman going into a market with a wheel barrow full of paper money, in order to bring out a scant load of food.
My owner's manual tells of a time when it will take a day's wages to buy a loaf of bread. And that one World order will cause it to be necessary to be "marked" for identification.
With no standard, not much oil, no industry, and even our new Pesident printing money by the bushel, er, ah, pardon me, by the Billions and Trillions....
I am not sure we can blame Tricky Dick, however, since our coins don't even contain silver, and shortly the copper will continue to be replaced with a form of plastic, what do we have to offer the World?
Like yourself, I love this Country, worked for Uncle in the Pacific and the Atlantic, but I do not trust my Government as they are still practicing "Pork Barrel Politics", and as you have eloquently stated, "War is good business"; invest your son.
Let's not vilify the Federal Reserve nor glorify the gold standard.
There is one major problem in economics which has never been fully addressed and that is that: MONEY OR BETTER WEALTH CONCENTRATES OVER TIME IN THE HANDS OF THE MOST CAPABLE AND/OR THE MOST RUTHLESS!
Compounding of interest and debt expedites the problem. Once a monetary system goes exponential because of the compounding effect there will be a problem! This concentration of wealth has always caused big problems up to revolutions and wars. Under a gold standard and no central bank this concentration of wealth is very pronounced, very fast. Central banks and a fiat monetary system are a counterbalance to this concentration of wealth as the monetary base can be diluted to keep the system going. Inheritance taxes are also a regulatory instrument to level the playing field. That's why we came this far under a fiat monetary system. The real problem is mismanagement of the possibilities of a fiat monetary system. It lets politicians do what they could not get away with under a gold standard. Like war and a lot of waste! I think the following article (link provided) sums up many of the mistakes that were made but the Federal Reserve is not the real reason and a gold standard has only limited advantages in a very complex dynamic economic system! http://www.kitco.com/ind/Karn/sep032009.html
Greetings!!! Stefan
Its clear,by being on the gold standard the government could only print the dollars comparable to the gold reserves.Now being off the gold standard the government can print until their out of breathe thus creating a statist welfare society with those unbacked notes.
Is it that our dollar has no value? If it can't be measured against anything such as the Gold standard it just becomes printed currency that we've valued because the US has has the biggest economy which has truly been slipping away into the hands of China?
I'm not clear if you are saying that Nixon made a mistake in taking us off the gold standard or not. I've never heard the argument that it was a bad thing -- allowing private ownership of gold seems like a good thing to me.
Yes it is clear to me what exactly the gold standard is and the abandonment of it in 1971 has led to our current economic crisis. What is interesting that this event took place at the zenith of our nation. What I mean by this is that America was not only revered but respected by the rest of the world. Who would dare question such a economic policy move such a super power.
During the late sixties, I recall that the South African Rand was very strong against the US Dollar - probably because South Africa was a major producer of gold and could back up their (apartheid)debts against a solid asset.
My current understanding is that paper money was backed by gold. That is for every $1000 in paper money, there was $1000 worth of gold to back the paper money.
Because America can print as much money as it want to, to make payments without the backing of anything of value, the mindset of robbing Peter to pay Paul, this has contributed to the bankruptcy of America.
I'm no rocket scientist or Sherlock Holmes, but the financial crisis we are in today seems to been caused by this fact and allowed the banks to be more greedy than what they already were and now millions are jobless and hundreds of thousands are homeless.
Personally, I like what Robert says in his books: Money is what you want it to be.
There was a day when people bartered with goods, then someone decided certain minerals were worth something for whatever reason. Gold really isn't useful for anything, it's too soft. Somebody at some time waaaay back when must have decided since it was shiny and pretty that it would be used as currency. So now in America we are off the gold standard and just print money on paper which comes from wood that is more useful as it can be used to build things. If everyone decides to agree on paper as the currency, what's really any different than using a mineral? In futuristic sci-fi movies money is exchanged through computer connections through credits. The more credits on your account, the better. It just winds up being numbers at that point.
Do I understand why going off the gold standard is so important? All I can see is that we (as the USA) are saying one thing about money while others (the rest of the world) are saying another thing. There is no agreement and that causes confusion and hardship no matter who's disagreeing or what the disagreement is about, especially money (just look at the divorce rate). Once everyone is on the same page again as to what we will all agree money is, then things will move along better. Of course, we got to make sure everyone is educated on it - and make it a priority too.
Of course, I'm saying this all from ignorance not really having an education outside of Robert's books and other resources I've read over the last few years, so I probably don't really know what I'm talking about. But if we all agree on what money is, then it truly can be whatever we want it to be.
I know nothing of American economic history. However, it seems to make perfect self-interested sense to separate the gold standard from its symbol in paper money.
Gold, I guess, would have been chosen as the standard unit of value because of its universal exchange value in foreign trade over time. If the USA was in debt and had a war to finance, keeping the populace under the impression that the war was not effecting the US citizen's purse or public services detrimentally, would require such a slight of hand...
Then there is the international reputation of 'superpower' to uphold. Communism still had to be 'contained'. If the world saw the USA as poor as the Soviet Union (USSR back then!), well the choice of favourable system would have been less clear cut.
Of course, this is no doubt a simplistic analysis, but it certainly makes sense to have this act perpetrated behind closed doors, because whenever there is abuse of power, it is hushed up and kept private...away from scrutiny and judgement.
I have been making efforts to move away from my radicalised youth Robert, but all of my sceptical economic and political analysis is trickling back thinking about the subjects you raise. Where is all this leading I wonder...fascinating stuff.
I recentlly ran across an old video on the internet produced by a guy named Bill Still called The Money Masters, the video talks alot about the gold standard, how President Andrew Jackson defeted the bank and how in general there is a conspiracy of the rich, not sure if he's a conspiracy whack job but the video seems to have alot of the same ideas as Robert, I would love Roberts take on this video or if anyone knows if there is any valitity to it, thanks - Tim tim_turnipseed@hotmail.com
The U.S. dollar was pegged to gold at $35/oz. A few years prior, U.S. citizens had to cash in their gold because it became illegal to own them. The reason for this is because the government wanted people to get use to using the paper dollars as a medium of exchange.
Because of this, the U.S. dollar was in essence "as good as gold" because it was totally backed by it. With this fixed price at $35/oz the IMF created the Bretton Woods agreement so that other nations dollars would have an agreed upon fixed rate of exchange when compared to the U.S. dollar. Thus, the U.S. dollar became the most valuable in the world against any other, hence "the reserve dollar of the world".
Once the war became too expensive and too many dollars (or in essence..gold) were leaving the country, foreign nations began to doubt that we could even pay them back so they started cashing in. President Nixon knew that there wasn't enough gold in the treasury to pay his debts so he had to find a way to pay them. Once he took us off the gold standard, the dollar became a currency because it could be printed at will without the restraints that gold had on it. Because of this, the U.S. dollar would then compete against foreign nations currencies.
Thats why you hear about the dollar being strong or weak. If the dollar is strong it cost us less to by goods from other countries. If the dollar is weak, it cost us more to buy goods from other countries. With that, other countries would have to print or devalue their currency as we do because if they don't, then their currency will be to strong against the U.S. and their economy will slow because we won't be able to buy as much from them.
This is what I've learned so far from reading and getting financially educated. I never know anything about finances but the more and more I read and study the more excited I get. Thanks Robert for opening up my mind to things I always wondered about and now I'm having them answered! Really exciting!
Central-Bank-abolishing reformists like Jefferson and Jackson
Just as President Lincoln took America off the Gold Standard in order to finance the Civil war, it sounds as though Nixon did the same to pay for the costly war in Vietnam and the pricey Apollo missions.
I like to think that the current President will put the world back on the Gold Standard and usher in a new period of steady growth and prosperity, but unless a new philosophy of economic growth in the spirit of President Jefferson and President Jackson’s Central-Bank-abolishing reforms, I doubt that will happen.
I would like to hear more about how exactly the current currency standard affects the value of the dollar, and how this makes the rich richer and me poorer.
I understand that prior to 1971 gold is what gave value to the US dollar. A measurement of precious metal to equal a determined amount of money in paper bills. There is balance in this equation.
After 1971 debt was substituted for gold. Consumer debt began to flourish while the value of the dollar became weak. The economic
balance was lost and it is having a global impact today. The
economic balance can only be regained through financial education.
There is more to the Bernard Madoff story than first meets the eye. I encourage everyone interested to Google or Wiki Madoff. From what I read, he did more than head the NASDAQ. He essentially made it what it is by instituting a ground-breaking tracking system which provided transparency for trades in that exchange. I would imagine this is why people trusted him enough to invest with him. The guy did commit fraud. We know so because he admitted it. However, he may have committed fraud by virtue of being a legend in his own mind. In other words, by believing he had the ability to make money for people that he either didn’t have or didn’t apply. He claims he always intended to make it right by his investors.
According to William Black, a regulator during the Savings and Loan debacle in the 80s, Madoff was a “piker” (amateur) when compared to CEOs at some major banks. Interview by Bill Moyers, April 3, 2009. Read the transcript: www.pbs.org/moyers/journal/04032009/transcript3.html.
I think the discussion on the gold standard was over simplified and needs to be expanded upon. Most people don't know what the gold standard is and its significance. For instance, I don't understand why you are in favor of the standard.
I would also like to add that the U.S was never on a true classical gold standard, with exception to a few years in the late nineteenth-century. The Interwar gold standard led to an international financial crisis and contributed to the Great Depression. Policymakers' adherence to the orthodoxy of protecting the gold standard prolonged and exacerbated the crisis. It wasn't until after they abandoned the gold standard and used the reserves to stimulate the economy did we begin to recover from the depression.
Also, you should be more explicit about the role of the Fed. On one hand, its role is to print currency. On the other, it is also there to act as a "safety net" to prevent banking panics and other crises. As a basis for comparison, you may want to look at what happened after Jackson killed the Second Bank of the United States.
Last but not least, it is historically inaccurate to say that ALL of the founding founders were against a national bank. Alexander Hamilton and many of his contemporaries wanted to have one.
From the reading (and trying to filter out prior knowledge) I understand the gold standard to be a price fix of the price of gold vs the dollar to the point you could, at any time, trade it for the current set price. Say $30 USD for 1 oz of gold. Once that standard was abolished the price was set to swing with supply and demand.
What the book doesn't explicitly point out is that this standard was only for international trade. For US citizens it had been abolished much earlier.
As far as the impact it made the dollar a currency who's value could be manipulated by those that controlled it. If only I could literally just print it to pay off my debts...
Yes. I did understand your description of the Nixon issue on the gold standard. Basically, the value of money has been diminished because it can no longer be traded for gold. And amercia keeping printing and printing over the years to cover their debts making the dollar less valuable. The more they print the less valuable it becomes. Therefore our economy that runs on the dollar for many people is really an illusion, because the money is worthless esentially. The value of the dollar has fallen so much that it doesn't out run inflation. So people who deal in money are in a losing battle, because the government has sabotaged the value of our currency over the years.
But Gold and Silver, two commodities that are in limited supply; they can't just be printed for example. Gold used to be what america would exchange the dollar for until Nixon. The more rare an item is the more it holds value (I would imagine)vs the item you can find on every street corner. Gold and Silver are in limited supply and theirfore they keep their value and it increases as the dollar goes down in value. It's seems to be cyclical in nature, really interesting.
I didn't follow the discussion about gold standard. It went over my head. I have an MBA and a BSc and consider myself 'educated' but couldn't follow this.
I didn't follow why this tilted things in favor of the rich and powerful, what the gold standard is, or why this affects the world financially.
It may be late in the game for your book but I am now able to print/read it.
I can understand why you talk about a conspiracy of the rich, how ever you are doing everyone a dis-service by presenting inflammatory statements. Let me focus here on derivatives. They where not created to defraud. They where and are vehicles of distributing risk. The bankers involved where doing the correct thing by limiting their risk. People all over the work us derivatives to mitigate risk. You can look at your car, home or apartment insurance policies as derivatives. You are paying your insurance company to pay you off in case you suffer a loss. If you invest in stocks, you might buy puts to insure against sudden quick down turns. If you buy blocks of mortgages you buy credit default swaps.
The problem is when the insurer underestimates the risk. When they do so on a massive scale then you have a domino effect, because insurers don't take all the risk themselves, they spread it around with other derivatives.
If you want to talk about fraud, talk about Obama forcing the default and destruction of GM bond holders over the rights of his Union buddies. That is fraud.
Or the fraud created by Fannie and Freddie, there is another case of government sponsored fraud.
To be frank, NO! You do a great job of explaining when and how the switch occurred. I understand the switch must have had major implications. I see that you have connected the rough economic times that some are facing are connected with the switch. However, I would appreciate it if you could do a better job of connecting the events of teh 70s with today.
I address Robert directly to keep myself on point. I answer this question with 4 YESes. YES, based upon conversations I've had with many people on the money topic, I agree with that few schools ever address the subject. I know mine didn't. YES, if we assume this is true, then I think a few more sentences about the gold standard ARE necessary here. YES, it's enough to touch on the international Bretton Woods Agreement (1944), by stating that the value of the U.S. Dollar (actually the Federal Reserve Note) was tied to gold, and world currencies were tied to the "dollar". As a consequence, the U.S. Dollar became the world's "reserve currency". As of this writing, it still is. That said, you will then have context for your contentions that Nixon acted without the support of the international monetary system by closing the gold window in 1971, and that the resulting fall in the value of the dollar impacts economies worldwide. And YES, you have the unique opportunity and challenge of presenting what might otherwise by dry-as-dust information in your engaging, conversational style. By the way, your paragraphs on Buckminster Fuller came to me as totally new information. I appreciate it, and intend to read "GRUNCH".
I thought I had some understanding of the Gold Standard. But now I don't know exactly. I find it hard to understand how we could have existed economically that way for so long and not have collapsed long ago. Many years ago I had heard that Tricky Dicky had done this but thought it was just another conspiracy theory.
To be honest, I don't know exactly about gold standard since 1971 until today. After re-read again, it forced me to re-read again your book 'Increase Your Financial IQ'.. and you have highlighted to make more money and move from currency into real assets.
Gold standard were removed, because in 1971 US reached it's internal peak of oil production. US treasury run of gold. The president were forced to remove gold standard to facilitate the import of cheap oil from Saudi Arabia. Of course on the expense of Saudi Arabia people.
In year 2004 the whole world reached it's peak of oil.
I think all of you should take a look at
www.chrismartenson.com/crashcourse/chapter-1-three-beliefs
In your recent update you mention no to buy gold based on roubini's predictions for 2010 and the gold and/or precious metals bubble..
Your stance with Mike Maloney was the opposite and I understand that "money" can change over night...
Can you post a updated stance on how you feel about Mike Maloney's predictions and Roubini's..
To me I am seeing that you are aligning with Roubini over Maloney at this time but I would like to hear it directly from you. I do not want to assume but rather hear from you, what you think about what Mike Maloney is saying and why you think Roubini is right.
The update you posted cleary states your posistion but I want to see why and what changed from your point of veiw on "money", b/c there were fundamentals that you and Maloney speak of that do not make sense to me now. If silver/gold are a gauge to the printing press, we are printing more money then ever.. So how is silver/gold in a buble if this is the part where we are not seeing the effects of all this extra money.
PLEASE REPLY TO THIS TOPIC!
As a gold buyer, this took an effect to the market. It definitely impacted the balance of the economy.
The Gold Standard is a measure of value as gold is a valuable commodity that is universal around the world. Money is a paper promise that can be printed as fast as we want to make promises to make good on the payments. Money has No real hard value that can be melted down and used for jewelry. If it burns up, it's gone. The value is ZERO.
Dear, Robert,
In your August 20, 2007 Yahoo finance article "A silver lining for nervous investors" you recomend Silver ETF's as good option for general public to own silver. Nevertheless Michael Maloney in his book "guide to investing in gold and silver" places ETF's in one line with precious metals pool accounts, certificates etc - what he calls "paper gold" and "paper silver". the main reason (as I understand) is because "paper gold & silver" are actualy securities not the real precious metals, they are part if financial system (which is in a mess not), so if real currency crisis comes, I won't be able to get phisical gold & silver "out of" them. Whom should I believe in this question - you or Michale Maloney?
Arturs
To my understanding the gold standard meant that there was enough gold to match the dollars. Now that we're off of that standard, the govn't can just print as many dollar bills as it wants, but there is nothing to back it up. As you stated in another "money is an agreement". Once there is no agreement that these pieces of paper have value, paper money is worthless. That is why the price of gold is so high, because the dollars aren't worth much
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I understand that the USA had to back up the supply of currency with hard assets/commodities like gold & silver. This was to "guarantee" the solvency of the country to our creditors. By removing the standard, the governement could then print money without concern about having anything to back it up other than their word.
It is kind of like this. If I worked hard and earned money and saved it, eventually I could buy a home and make a substantial down payment say of 20%. This was what the mortgage companies required at one time because they wanted to limit their risk of exposure to me defaulting on my loan.
In todays market, most times we can buy homes for little or nothing down and not even anything more than a measly stream of income to back our purchase. This is essentially what the governement is doing and at some point in the future, this house of cards will crash down.
Robert I don't understand what you mean by the gold standard. Could you please explain it again?
The section pertaining to the gold standard is clear to those of us who lived through it, witnessed it, and later studied about it, but it could use another example or two of the exchange of cash for gold that was going on. What's not so clear is why a standard existed at all, and what its absence means. What is meant by the "full faith and credit of the United States"? Do people undersand slavery, indenture, etc.?
Right now tulips, chocolate and lead nickles are looking pretty good.
This cannot be understated: Value is dictated by perception.
If you base your currency on any one resource, whether it's gold, silver, corn or oil it will fail. If you base it on a combination of resources it will also eventually fail. Resources are finite and difficult to control. Our currency would be finite if it were wholly dependent upon resources. But currency is really just a representation of value and managing value is managing perception. Fiat currency is just that, backed by PERCEPTION. It doesn't matter whether or not fed notes have real worth as long as everyone believes they do (At the least our trading partners). If you can manage information you can inform perception. Influence and authority (PERCEPTION) are the basis of "wealth". That's how con-artists exist. Yes, scarcity, productivity, inflation and consumption all affect value but perception and information management ALSO dictate all of these things. The problem is we still think of the dollar as representing something tangeable. Instead, think of it as a brand. And not just A brand, it is THE brand of America. The economy went bust because of poor brand management (CONGRESS!!!). Nixon, the fed, they're just brand managers. Be your own brand manager, get the information, use it carefully and remember, YOUR brand is always appreciating in value or depreciating in value. You can control this. :)
I know this is all supposed to be common sense, but I still don't get it. Why does gold have to be the standard? Why can't it be diamonds for example, or silver or platinum or fur or a piece of bread for that matter? After all, the only use of gold is to wear it as a piece of jewelery and some industrial use. (Silver and copper are more useful for industrial use, I hear).
Beyond the fact that it glitters and it's yellow, why is gold supposed to have an intrinsic value? Is it not the fact that everything has a contextual value? For example, if I am in the middle of a desert and dying of thirst, no amount of gold is going to help. Water at that time is more valuable to me than gold. Same thing with large populations.
One thing I know about it is that it's extremely tedious to manufacture. So it's scarce to come by, no matter how hard we try to make more if it. So its supply is self regulated. The other is that it has a psychological value as gold has been associated with prosperity for ages.
What else? Why gold?
It seems that by taking the dollar off of the gold standard, it opened the door for our current credit crisis. How nice for uneducated americans to borrow at an aalrming right without consenquence. Just print more money it will fix everything
In 1968 I worked for a man with a degree in economics and he subscribed to Business Week. He had me read an article in one of them that said the dollar at that time was worth about 36 cents and was going down by about 3.9 cents each year. About the time the dollar was worth nothing we went off the gold standard. Amazing!!!
It seems to me what is more important is the relative value of the $USD against the major global curriencies, and to hard assets/commodities/metals.
If all other countries are being forced to undertake similar inflationary measures to prop up asset values in their countries, and keep the debt flowing to consumers so they can continue to purchase, then the $USD may hold its position RELATIVE to the other currencies.
This relative currency valuation will be adjusted via international trade, ie. if $USD gets too low relative to its trading partners, the trade balance will shift in favor of the $US, there by increasing GDP/GNP and bring more in income to pay off debt.
However, if a country has abundant natural resources that will be required over the next 50 years, and they are scarce, then these country currencies should increase in relative value to the $USD, assuming consumer demand in Asia and Emerging Markets fills the gaps left by the US and UK/EU consumer. No demand = no value, so someone has to fill the consumption gap left by the US or else commodities may not appreciate as much as Robert is speculating.
On the other hand, regardless of what the economic fundamentals are, if the masses suddenly precieve that oil, silver and gold are the only "safe" store of value, then those commodity prices inflate to bubbles and one could close the "hedge" position. Whi
Robert, if you are reading this, I would like your comments on the applicability for the average Rich Dad/ PD reader of an investment strategy consisting of owning high dividend paying equity in the highest quality (business model, managment, strategy, etc), debt free businesses that dominate the metals, oil, gas and agri-business, as well as holding them in $CND and $AUS or hedged against the $USD, combined with exposure Brazil, Korea, China, India, primarily in commodities, but also health care, real estate and banking. Obviously this could be leveraged, since the sustainable dividend yeild is about 6%-8%, which could be used to fund the debt costs.
Thanks
A Candian reader from the Calgary, Oil and Gas Center of Canada, and owner of Oil and Gas wells,
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Clear as wather
I do not any more understand the standard and worth of gold than before. What i do understand is that as long as gold and paper are dependent on each other, their worth will be as much as the actual dollars the Federal Reserve physically holds in its account, which I understand is zero, hence one's ability to make its own money. Maybe I continue to see this incorrectly, yet Mr. K would not have this website to talk about this particular book.
Something funny that I often say to my friends and family regarding currency: "Back in the day, paper (dollars) was valuable because you could trade it in for gold; nowadays, gold is valuable because you can trade it in for paper!"
Take a handful of gold dollars and a handful of paper dollars and light them both on fire... where has the value gone when the smoke clears? What are they each worth now?
I sort of understand this and sort of don't. I understand that when Nixon separated paper money from gold that allowed the government to print paper willy nilly w/o really having good backing to it right? Otherwise, I am completely lost!
It is of supreme importance to understand that the first agency of the newly formed eighteenth century government of America was the bureau of weights and measures. The reason for this is simple; they had to know what money was going to be.
It didn't take long to realize that the standard had to be weight, purity and durability. That's why congress chose gold and silver coin, not paper!
Paper doesn;t meet the three criteria listed above. To put it simply a one hundred dollar bill cannot have the same value as one hundred single dollar bills according to the weight standard one hundred singles weigh more.
It is of supreme importance to understand that the first agency of the newly formed eighteenth century government of America was the bureau of weights and measures. The reason for this is simple; they had to know what money was going to be.
It didn't take long to realize that the standard had to be weight, purity and durability. That's why congress chose gold and silver coin, not paper!
Paper doesn;t meet the three criteria listed above. To put it simply a one hundred dollar bill cannot have the same value as one hundred single dollar bills according to the weight standard one hundred singles weigh more.
You know Robert, I am already learning more about things than I learned in 70 years..."of fish, and ships and sealing wax, and if pigs really have wings"?
In my short years I remember that gold was artifically pegged at $20, then $35, and then I was counseled [in about 1961] to buy a St.Gauden's $20 gold piece for $61. Ouch!.
Subsequent to that, Ian Flemings' "Goldfinger" convinced me that there is no gold in Fort Knox. I think that is a writer's prophesy, explaning why the gold was to be rendered radioactive, as a reason to not handle it, count and weigh it, and that we guard it though it may not be "it" any longer.
Your teaching also reminded me that well before President Nixon, [in fact, prior to 1955], the S.F. Mint had stacks of gold bars [I saw them]. Thousands of bags of silver dollars; yet, people stood in line around the Mint to cash in thier silver paper certificates, gleening real silver.
Gold broke a thousand a few days ago, the St. Gauden's is easily worth a thousand dollars, and not because of its numismatic value, but because the Gold is as you say, not our standard; rather ink is our standard, and the rags it is printed on which we call Federal Reserve Notes.
You also taught me that there is no National Bank, and it certainly has no money. Scary, not unlike Germany devaluing the Mark.
I recall in the News Reels in the movies when I was a child, a Chinese woman going into a market with a wheel barrow full of paper money, in order to bring out a scant load of food.
My owner's manual tells of a time when it will take a day's wages to buy a loaf of bread. And that one World order will cause it to be necessary to be "marked" for identification.
With no standard, not much oil, no industry, and even our new Pesident printing money by the bushel, er, ah, pardon me, by the Billions and Trillions....
I am not sure we can blame Tricky Dick, however, since our coins don't even contain silver, and shortly the copper will continue to be replaced with a form of plastic, what do we have to offer the World?
Like yourself, I love this Country, worked for Uncle in the Pacific and the Atlantic, but I do not trust my Government as they are still practicing "Pork Barrel Politics", and as you have eloquently stated, "War is good business"; invest your son.
Let's not vilify the Federal Reserve nor glorify the gold standard.
There is one major problem in economics which has never been fully addressed and that is that: MONEY OR BETTER WEALTH CONCENTRATES OVER TIME IN THE HANDS OF THE MOST CAPABLE AND/OR THE MOST RUTHLESS!
Compounding of interest and debt expedites the problem. Once a monetary system goes exponential because of the compounding effect there will be a problem! This concentration of wealth has always caused big problems up to revolutions and wars. Under a gold standard and no central bank this concentration of wealth is very pronounced, very fast. Central banks and a fiat monetary system are a counterbalance to this concentration of wealth as the monetary base can be diluted to keep the system going. Inheritance taxes are also a regulatory instrument to level the playing field. That's why we came this far under a fiat monetary system. The real problem is mismanagement of the possibilities of a fiat monetary system. It lets politicians do what they could not get away with under a gold standard. Like war and a lot of waste! I think the following article (link provided) sums up many of the mistakes that were made but the Federal Reserve is not the real reason and a gold standard has only limited advantages in a very complex dynamic economic system!
http://www.kitco.com/ind/Karn/sep032009.html
Greetings!!! Stefan
Its clear,by being on the gold standard the government could only print the dollars comparable to the gold reserves.Now being off the gold standard the government can print until their out of breathe thus creating a statist welfare society with those unbacked notes.
Is it that our dollar has no value? If it can't be measured against anything such as the Gold standard it just becomes printed currency that we've valued because the US has has the biggest economy which has truly been slipping away into the hands of China?
I'm not clear if you are saying that Nixon made a mistake in taking us off the gold standard or not. I've never heard the argument that it was a bad thing -- allowing private ownership of gold seems like a good thing to me.
i really do nt understand hw this work.pls someone explain
Yes it is clear to me what exactly the gold standard is and the abandonment of it in 1971 has led to our current economic crisis. What is interesting that this event took place at the zenith of our nation. What I mean by this is that America was not only revered but respected by the rest of the world. Who would dare question such a economic policy move such a super power.
During the late sixties, I recall that the South African Rand was very strong against the US Dollar - probably because South Africa was a major producer of gold and could back up their (apartheid)debts against a solid asset.
My current understanding is that paper money was backed by gold. That is for every $1000 in paper money, there was $1000 worth of gold to back the paper money.
Because America can print as much money as it want to, to make payments without the backing of anything of value, the mindset of robbing Peter to pay Paul, this has contributed to the bankruptcy of America.
I'm no rocket scientist or Sherlock Holmes, but the financial crisis we are in today seems to been caused by this fact and allowed the banks to be more greedy than what they already were and now millions are jobless and hundreds of thousands are homeless.
Personally, I like what Robert says in his books: Money is what you want it to be.
There was a day when people bartered with goods, then someone decided certain minerals were worth something for whatever reason. Gold really isn't useful for anything, it's too soft. Somebody at some time waaaay back when must have decided since it was shiny and pretty that it would be used as currency. So now in America we are off the gold standard and just print money on paper which comes from wood that is more useful as it can be used to build things. If everyone decides to agree on paper as the currency, what's really any different than using a mineral? In futuristic sci-fi movies money is exchanged through computer connections through credits. The more credits on your account, the better. It just winds up being numbers at that point.
Do I understand why going off the gold standard is so important? All I can see is that we (as the USA) are saying one thing about money while others (the rest of the world) are saying another thing. There is no agreement and that causes confusion and hardship no matter who's disagreeing or what the disagreement is about, especially money (just look at the divorce rate). Once everyone is on the same page again as to what we will all agree money is, then things will move along better. Of course, we got to make sure everyone is educated on it - and make it a priority too.
Of course, I'm saying this all from ignorance not really having an education outside of Robert's books and other resources I've read over the last few years, so I probably don't really know what I'm talking about. But if we all agree on what money is, then it truly can be whatever we want it to be.
I know nothing of American economic history. However, it seems to make perfect self-interested sense to separate the gold standard from its symbol in paper money.
Gold, I guess, would have been chosen as the standard unit of value because of its universal exchange value in foreign trade over time. If the USA was in debt and had a war to finance, keeping the populace under the impression that the war was not effecting the US citizen's purse or public services detrimentally, would require such a slight of hand...
Then there is the international reputation of 'superpower' to uphold. Communism still had to be 'contained'. If the world saw the USA as poor as the Soviet Union (USSR back then!), well the choice of favourable system would have been less clear cut.
Of course, this is no doubt a simplistic analysis, but it certainly makes sense to have this act perpetrated behind closed doors, because whenever there is abuse of power, it is hushed up and kept private...away from scrutiny and judgement.
I have been making efforts to move away from my radicalised youth Robert, but all of my sceptical economic and political analysis is trickling back thinking about the subjects you raise. Where is all this leading I wonder...fascinating stuff.
I recentlly ran across an old video on the internet produced by a guy named Bill Still called The Money Masters, the video talks alot about the gold standard, how President Andrew Jackson defeted the bank and how in general there is a conspiracy of the rich, not sure if he's a conspiracy whack job but the video seems to have alot of the same ideas as Robert, I would love Roberts take on this video or if anyone knows if there is any valitity to it, thanks - Tim tim_turnipseed@hotmail.com
The U.S. dollar was pegged to gold at $35/oz. A few years prior, U.S. citizens had to cash in their gold because it became illegal to own them. The reason for this is because the government wanted people to get use to using the paper dollars as a medium of exchange.
Because of this, the U.S. dollar was in essence "as good as gold" because it was totally backed by it. With this fixed price at $35/oz the IMF created the Bretton Woods agreement so that other nations dollars would have an agreed upon fixed rate of exchange when compared to the U.S. dollar. Thus, the U.S. dollar became the most valuable in the world against any other, hence "the reserve dollar of the world".
Once the war became too expensive and too many dollars (or in essence..gold) were leaving the country, foreign nations began to doubt that we could even pay them back so they started cashing in. President Nixon knew that there wasn't enough gold in the treasury to pay his debts so he had to find a way to pay them. Once he took us off the gold standard, the dollar became a currency because it could be printed at will without the restraints that gold had on it. Because of this, the U.S. dollar would then compete against foreign nations currencies.
Thats why you hear about the dollar being strong or weak. If the dollar is strong it cost us less to by goods from other countries. If the dollar is weak, it cost us more to buy goods from other countries. With that, other countries would have to print or devalue their currency as we do because if they don't, then their currency will be to strong against the U.S. and their economy will slow because we won't be able to buy as much from them.
This is what I've learned so far from reading and getting financially educated. I never know anything about finances but the more and more I read and study the more excited I get. Thanks Robert for opening up my mind to things I always wondered about and now I'm having them answered! Really exciting!
Just as President Lincoln took America off the Gold Standard in order to finance the Civil war, it sounds as though Nixon did the same to pay for the costly war in Vietnam and the pricey Apollo missions.
I like to think that the current President will put the world back on the Gold Standard and usher in a new period of steady growth and prosperity, but unless a new philosophy of economic growth in the spirit of President Jefferson and President Jackson’s Central-Bank-abolishing reforms, I doubt that will happen.
I would like to hear more about how exactly the current currency standard affects the value of the dollar, and how this makes the rich richer and me poorer.
I understand that prior to 1971 gold is what gave value to the US dollar. A measurement of precious metal to equal a determined amount of money in paper bills. There is balance in this equation.
After 1971 debt was substituted for gold. Consumer debt began to flourish while the value of the dollar became weak. The economic
balance was lost and it is having a global impact today. The
economic balance can only be regained through financial education.
There is more to the Bernard Madoff story than first meets the eye. I encourage everyone interested to Google or Wiki Madoff. From what I read, he did more than head the NASDAQ. He essentially made it what it is by instituting a ground-breaking tracking system which provided transparency for trades in that exchange. I would imagine this is why people trusted him enough to invest with him. The guy did commit fraud. We know so because he admitted it. However, he may have committed fraud by virtue of being a legend in his own mind. In other words, by believing he had the ability to make money for people that he either didn’t have or didn’t apply. He claims he always intended to make it right by his investors.
According to William Black, a regulator during the Savings and Loan debacle in the 80s, Madoff was a “piker” (amateur) when compared to CEOs at some major banks. Interview by Bill Moyers, April 3, 2009. Read the transcript: www.pbs.org/moyers/journal/04032009/transcript3.html.
I think the discussion on the gold standard was over simplified and needs to be expanded upon. Most people don't know what the gold standard is and its significance. For instance, I don't understand why you are in favor of the standard.
I would also like to add that the U.S was never on a true classical gold standard, with exception to a few years in the late nineteenth-century. The Interwar gold standard led to an international financial crisis and contributed to the Great Depression. Policymakers' adherence to the orthodoxy of protecting the gold standard prolonged and exacerbated the crisis. It wasn't until after they abandoned the gold standard and used the reserves to stimulate the economy did we begin to recover from the depression.
Also, you should be more explicit about the role of the Fed. On one hand, its role is to print currency. On the other, it is also there to act as a "safety net" to prevent banking panics and other crises. As a basis for comparison, you may want to look at what happened after Jackson killed the Second Bank of the United States.
Last but not least, it is historically inaccurate to say that ALL of the founding founders were against a national bank. Alexander Hamilton and many of his contemporaries wanted to have one.
From the reading (and trying to filter out prior knowledge) I understand the gold standard to be a price fix of the price of gold vs the dollar to the point you could, at any time, trade it for the current set price. Say $30 USD for 1 oz of gold. Once that standard was abolished the price was set to swing with supply and demand.
What the book doesn't explicitly point out is that this standard was only for international trade. For US citizens it had been abolished much earlier.
As far as the impact it made the dollar a currency who's value could be manipulated by those that controlled it. If only I could literally just print it to pay off my debts...
Hi Robert
Yes. I did understand your description of the Nixon issue on the gold standard. Basically, the value of money has been diminished because it can no longer be traded for gold. And amercia keeping printing and printing over the years to cover their debts making the dollar less valuable. The more they print the less valuable it becomes. Therefore our economy that runs on the dollar for many people is really an illusion, because the money is worthless esentially. The value of the dollar has fallen so much that it doesn't out run inflation. So people who deal in money are in a losing battle, because the government has sabotaged the value of our currency over the years.
But Gold and Silver, two commodities that are in limited supply; they can't just be printed for example. Gold used to be what america would exchange the dollar for until Nixon. The more rare an item is the more it holds value (I would imagine)vs the item you can find on every street corner. Gold and Silver are in limited supply and theirfore they keep their value and it increases as the dollar goes down in value. It's seems to be cyclical in nature, really interesting.
Hi Robert
I didn't follow the discussion about gold standard. It went over my head. I have an MBA and a BSc and consider myself 'educated' but couldn't follow this.
I didn't follow why this tilted things in favor of the rich and powerful, what the gold standard is, or why this affects the world financially.
It may be late in the game for your book but I am now able to print/read it.
I can understand why you talk about a conspiracy of the rich, how ever you are doing everyone a dis-service by presenting inflammatory statements. Let me focus here on derivatives. They where not created to defraud. They where and are vehicles of distributing risk. The bankers involved where doing the correct thing by limiting their risk. People all over the work us derivatives to mitigate risk. You can look at your car, home or apartment insurance policies as derivatives. You are paying your insurance company to pay you off in case you suffer a loss. If you invest in stocks, you might buy puts to insure against sudden quick down turns. If you buy blocks of mortgages you buy credit default swaps.
The problem is when the insurer underestimates the risk. When they do so on a massive scale then you have a domino effect, because insurers don't take all the risk themselves, they spread it around with other derivatives.
If you want to talk about fraud, talk about Obama forcing the default and destruction of GM bond holders over the rights of his Union buddies. That is fraud.
Or the fraud created by Fannie and Freddie, there is another case of government sponsored fraud.
To be frank, NO! You do a great job of explaining when and how the switch occurred. I understand the switch must have had major implications. I see that you have connected the rough economic times that some are facing are connected with the switch. However, I would appreciate it if you could do a better job of connecting the events of teh 70s with today.
I'm still a little confused by this. I am obviously very financially illiterate!
I address Robert directly to keep myself on point. I answer this question with 4 YESes. YES, based upon conversations I've had with many people on the money topic, I agree with that few schools ever address the subject. I know mine didn't. YES, if we assume this is true, then I think a few more sentences about the gold standard ARE necessary here. YES, it's enough to touch on the international Bretton Woods Agreement (1944), by stating that the value of the U.S. Dollar (actually the Federal Reserve Note) was tied to gold, and world currencies were tied to the "dollar". As a consequence, the U.S. Dollar became the world's "reserve currency". As of this writing, it still is. That said, you will then have context for your contentions that Nixon acted without the support of the international monetary system by closing the gold window in 1971, and that the resulting fall in the value of the dollar impacts economies worldwide. And YES, you have the unique opportunity and challenge of presenting what might otherwise by dry-as-dust information in your engaging, conversational style. By the way, your paragraphs on Buckminster Fuller came to me as totally new information. I appreciate it, and intend to read "GRUNCH".
I thought I had some understanding of the Gold Standard. But now I don't know exactly. I find it hard to understand how we could have existed economically that way for so long and not have collapsed long ago. Many years ago I had heard that Tricky Dicky had done this but thought it was just another conspiracy theory.