Stocks, Gold, Silver, and the printing press.

[KittySlayer]

Time to print more money!

The paper they use to print money doesn't just grow on trees.

 

[ruger1800]

The paper they use to print money doesn't just grow on trees.

Thought money was printed on cotton

 

[pudly]

Thought money was printed on cotton

The vast majority of dollars are electronic bits now.

 

[Dosproduction]

printing dots on a computer has same result as printing it on some type of paper.

 

[Hohn]

Other commodities, land and collectibles are also valid investments to consider. The reason that the statement "has never been worth zero" is important is because fiat currencies have a nasty tendency to eventually end there and get replaced. No one, including Mike is claiming that gold and other precious metals don't rise/fall in price over over the short term. All investments do.

By your over-simple argument, investing in the S&P 500 after it went down ~55% in 2008 was a bad idea despite the fact it is worth 3x that now. If you don't want to invest in PMs, that is perfectly okay. It isn't for everyone and even most PM proponents only recommend it be part (5-10%) of your portfolio.

But even a fiat currency is never worth ZERO. Never. It has to be made from something-- even paper isn't worth ZERO. Nor is any coinage.


And to your point about cherry picking time period, a longer time frame still shows gold to be a pretty poor ROI compared to many other things. From 1833 to 2011, let's call the high $1900 in round numbers, that gives us an average ROI for the period of 1.026% per year.

Of course, we were on a gold standard for many years so the ROI of gold would be zero for that period. Since 1933 was when dollars were no longer convertible to gold, that period from 1933-2011 still shows an ROI of 1.056%. It hasn't even kept pace with inflation since 1933.

So much for 'store of value.'

 

[Hohn]

The vast majority of dollars are electronic bits now.

Exactly, which is why the amount of money 'printed' is kind of irrelevant. What matters is the amount of credit created in the market. The government is a major source of credit creation, but the private market creates money every day with no gov't involvement at all.

If you pay with a credit card, you create money, because the retailer gets paid and your bank account still has the money in it; the money temporarily exists in two places at once. You created money.

Every day credit is created and destroyed when transactions settle and the asset and liability are rectified.

As Mike Maloney often mentions, the Fed printed about $2T in 2009 and cranked up the monetary base to $2.8 from a previous $0.8T. That's an astoundingly large increase. The resultant inflation? Not so much. The created base money merely offset the money NOT being created in the economy on its own accord.

JH

 

[pudly]

Those are some bizarre conclusions you have come to. While the US was on the classical gold standard from the 1800s to 1933, you should expect a ~0% fluctuation in gold vs. dollar values. They were hard-linked. It said right on the face of the currency that it could be submitted to a bank to be exchanged for gold on demand. The classical gold standard dollar was not a fiat currency and had no way to fluctuate vs. gold.

Immediately after Roosevelt issued his executive order to confiscate privately-owned gold in 1933, the government decided by fiat to devalue the dollar from ~$20/oz to $35/oz. This was the first major failure of the dollar in the 20th century and resulted in a new currency being issued (but with the same name). The US was still on a gold standard in that the number of dollars in circulation had a pretty fixed relationship to the amount of gold held, just not a fully backed one and not one that would allow citizens to switch back-and-forth between gold and dollars. Still, the dollar-to-gold prices were basically fixed.

This system continued on with various bumps (including a major world monetary regime change in 1944), but the US continued fixing the price of the dollar vs. gold until this dollar system failed again and Nixon removed the US dollar (and indirectly all other currencies) from gold backing and made it a fiat currency in 1971.

Now, if you judge the price of gold vs. the dollar from 1971 onward when you are actually allowed to purchase gold as a commodity and their values weren't linked, you come up with a very different picture than you have been painting.

In rising from $35/oz in 1971 to the current (as of this writing) $1176/oz in 2015, gold has increased in value by an average of 8.3%/year. The includes all rises and falls in value over that period.

You are free to avoid owning gold and other precious metals. Feel free to hold dollars that the Fed has openly stated they plan to devalue each year via inflation. Feel free to purchase land, stocks, bonds or whatever investments you prefer. But why you find it important to misrepresent gold's value is puzzling.

PS- As for stores of value, the dollar is pretty much a champion of fail. Using the 1933-2011 dates you used above, the dollar lost 94% of it's value due to inflation. Even using the more recent 1971-2015 dates, the dollar has lost 80% of its value. In both cases, gold has more than held its own in real purchasing power.

 

[zippy23]

so should i buy gold? i'm thinking yes, i just need a few thousand bucks to get some

 

[Hohn]

Those are some bizarre conclusions you have come to.

Exactly which conclusions strike you so bizarre?

Now, if you judge the price of gold vs. the dollar from 1971 onward when you are actually allowed to purchase gold as a commodity and their values weren't linked, you come up with a very different picture than you have been painting.

In rising from $35/oz in 1971 to the current (as of this writing) $1176/oz in 2015, gold has increased in value by an average of 8.3%/year. The includes all rises and falls in value over that period.

You are free to avoid owning gold and other precious metals. Feel free to hold dollars that the Fed has openly stated they plan to devalue each year via inflation. Feel free to purchase land, stocks, bonds or whatever investments you prefer. But why you find it important to misrepresent gold's value is puzzling.

PS- As for stores of value, the dollar is pretty much a champion of fail. Using the 1933-2011 dates you used above, the dollar lost 94% of it's value due to inflation. Even using the more recent 1971-2015 dates, the dollar has lost 80% of its value. In both cases, gold has more than held its own in real purchasing power.

In that timeframe, yes, 8.3% CAGR.

Seems a bumpy ride, no? Would you be so enthusiastic if you bought in 1979 and this conversation was occurring in 2003?

 

[pudly]

Seems like nothing was learned from the 2008 Fannie Mae/Freddie Mac/real estate bubble bust:

Introducing Fannie Mae's Instant Underwater Mortgage - 3% Down, No Cash Needed

HFA Head Warns Fannie Mae, Freddie Mac May Need Another Taxpayer Bailout

 

[pudly]

Something Very Disturbing Spotted In A Morgan Stanley Presentation | Zero Hedge

 

[GodFearinGunTotin]

Yeah, I heard something about Yellen talking about negative interest rates and whether they'd be legal, here in the US. I didn't hear the details but the impression I got was it was a trial balloon being floated.

 

[pudly]

Oh, they want it really bad. Several European countries already have it. Japan started NIRP about a month ago. It would change a lot of things.

 

[GodFearinGunTotin]

Oh, they want it really bad. Several European countries already have it. Japan started NIRP about a month ago. It would change a lot of things.

But...Obama said it was all fixed!

 

[IndyDave1776]

It would change a lot of things, especially if they could work in the elimination of cash. The likely result would be a combination of the unimaginative getting screwed over royally and the remainder establishing an alternate currency, like cigarettes were in prison before the DOC banned tobacco (which I am convinced was the rationale rather than the proffered explanation of saving money on health care).

 

[pudly]

I think that alternate currencies would be a major beneficiary of NIRP and moving toward a cashless society. Bitcoin, precious metals, alt-coins (competitors to Bitcoin) would suddenly get a lot more attention as a way to get away from this new form of taxation on savings.

Just think: with negative interest rates, you don't want to save any more in banks than you need to, so it suddenly becomes worthwhile to have major tax deductions from our paycheck so that you can get the refund at the end of the year without paying interest in the meantime.

A lot of rules that we are used to will go wonky in a negative interest rate world.

 

[pudly]

I think they are doing a lot more than evaluating...
Yellen Says Fed Evaluating Possibility of Negative Rates

 

[rhino]

What the hell is a negative interest rate? Does that mean you get charged interest for deposits (i.e. loans to someone else)???

 

[pudly]

Yes. You buy a treasury bond, but you only get back $99.50 dollars for your $100 purchase. Or, your savings account is charged every month for the privilege of keeping money there. A lot of strange things happen when interest rates go negative.

There are about a half-dozen countries that now have negative rates in Europe and Japan. The US is headed in that direction.

 

[Jackson]

Didn't they just raise rates recently?