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Krugman in his usual arrogance neglects to consider the price and indeed monetary history of gold. It is and always has been "real money" and most people either

by Qasaur 6y ago

Krugman in his usual arrogance neglects to consider the price and indeed monetary history of gold. It is and always has been "real money" and most people either consciously or subconsciously trust gold more than the pieces of paper we call money, and its price is not a reflection of people chasing returns but rather people having less faith in the current monetary system (which is backed by nothing). The record physical delivery orders at Comex proves this [1]. If the dollar hyperinflates, where would people go? Crypto is obviously interesting, but gold is the supreme form of money that requires zero trust (while crypto is near trust-less, you still need to trust the cryptography to be secure). [1] https://reuters.com/article/gold-cme/102-tonnes-of-gold-changing-hands-on-cmes-biggest-ever-delivery-day-idINKCN24W1KW https://reuters.com/article/gold-cme/102-tonnes-of-gold-chan...

gridlockd 6y ago
> If the dollar hyperinflates, where would people go? The dollar is inflating right now, where are people going, besides gold? Why would the dollar hyperinflate?
- baconandeggs 6y ago
  Because the dollar is the reserve currency of the world, it will hyperinflate if and when the international community begins transacting en-masse in other currencies or even in gold, and dumping us bonds. Then all those dollars outside the US, which are most dollars, will go back to the US and hyperinflate. This could happen if the current instability in the US continues.
- Qasaur 6y ago
  Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.
  - gridlockd 6y ago
    > Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. That is not actually what hyperinflation means. > We already have extreme asset price inflation... Sure, but we don't have asset price hyperinflation. > In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. Dump the dollars for what? Most people have no savings, they have a monthly paycheck that goes right to expenses for the most part. That alone greatly limits the velocity of money and therefore the rate of inflation. Those people that (rightly) expect inflation (not hyperinflation) have already piled into other asset classes. Either way, there can't be hyperinflation without a commensurate increase in money supply, which can't be achieved just by people spending their money more quickly. > It is worth noting that every fiat currency throughout history, without exception, has hyperinflated and collapsed to nothing. That is untrue. Hyperinflation is exceptional. Inflation over a long time can erode a lot of the value, but that isn't hyperinflation and it's not necessarily a problem either.
    - imtringued 6y ago
      > That alone greatly limits the velocity of money and therefore the rate of inflation. Nitpick. It limits the potential increase in velocity of money. Spending your money as soon as you get it is pretty much as fast as possible. The reason why there is little inflation is that these people don't have enough money to buy all the things they want to buy, meanwhile someone else is sitting on a fat stack of wealth and wondering what to do with it.
  - qubex 6y ago
    There’s no actual definition of ‘hyperinflation’ that I’m aware of in the macroeconomic literature, beyond it being a quantitatively large value of inflation. What you purport to be the discriminante (economic agents’ perceptions, presumably households’?) isn’t actually tenable either, since famously “you need two cretins to make a transaction” (a buyer and a seller, both of whom think they’re getting a good deal).
- blaser-waffle 6y ago
  > where are people going, besides gold? As with stocks, the acronym TINA applies. As in, There Is No Alternative. Yes, there are literally plenty of alternatives, but most of them have (dealbreaking) shortcomings.
- ivalm 6y ago
  CPI is fine...
  - alasdair_ 6y ago
    CPI is also a measure that is altered over time by groups with a vested interest in keeping “inflation” low. As a very simple example of why this may be misleading, consider that house prices are not considered in the “basket of goods” that Americans buy, despite this being literally the most expensive purchase most people ever make. The formula itself is also changed from time to time. If we were using the “old” formula, inflation would be MUCH higher (shadowstats.com for current numbers).
    - perl4ever 6y ago
      >house prices are not considered in the “basket of goods” that Americans buy This is (widespread) mis/disinformation. The CPI carefully distinguishes between houses as capital goods and shelter/housing as something people consume. If you Google it, you will find that the equivalent rent for homeowners is incorporated in the CPI. Even if they ignored homeowners, the index would be very little changed if it was based on renters alone. See https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
      - alasdair_ 6y ago
        I’m aware of that. The problem with equivalent rent is that it’s seldom actually equivalent. In order to compute the CPI-U, the people doing the work essentially call up 14,000 people and, if they own a home, they ask them how much they would theoretically charge in rent if they rented their home out. The problem with this is obvious - most people do not do rent income estimates for a living and so the numbers are often quite far from reality. More importantly, people find it very difficult to estimate future interest rates and they fail to take into account things like the sunk cost fallacy (see: 2008 financial crisis, where people in crashing markets still guessed they would be able to rent their homes based on pre-crash prices). There is also the issue of a negative feedback loop, where low interest rates lead to lower than expected inflation, because “house prices only every go up baby!” - or in other words, people are perfectly willing to accept $3000 in rent even if the mortgage is $5000 if the house is increasing by $8000 a month in appreciation. This appreciation is hidden from the CPI because only theoretical rent is considered. The net result of the negative feedback loop is the fed sees that inflation is low, so it thinks it can keep rates low too, which leads to asset bubbles like in 2008. (And, likely, in 2020 with stocks too...)
daodedickinson 6y ago
There have been plenty of stories of hollow gold bars and, true or not, they've been trending again lately. Gold hasn't always or everywhere been real money, I've personally worked on an archeology site where I sifted out a tiny shell bead with an even tinier hole punched in it so it could attached to a string like ancient Chinese coins and so on. I once read a claim that J.P. Morgan said something like money is only worth the character of the person who wields it. I feel more like interactions with other people are more precious than precious metals. If the dollar hyperinflates, some people will go into bunkers. I'd maybe starve or hide... I don't have a plan, I'm way behind on stuff as it is.
- Qasaur 6y ago
  There have absolutely been cases in history where other forms of "money" have been used, but in a long enough timescale of a civilisation, gold and silver are organically adopted as money due to their unique properties that make them suited for it. Fiat, shell beads, and other forms of currency are exceptions to the rule.
  - daodedickinson 6y ago
    I dunno, I feel like Potosí being the highest population city in the Spanish Empire in the 1600s, even larger than Madrid, even though its elevation was about 13,000 feet, even though Denver's elevation is only about 5,000 something feet high, suggests an inorganic impetus, an illogical fetish for silver
    - ribble 6y ago
      you feel this, you feel that - your feelings are not facts.
- perl4ever 6y ago
  https://www.popsci.com/diy/article/2008-03/how-make-convincing-fake-gold-bars/ https://www.popsci.com/diy/article/2008-03/how-make-convinci... "Gold Plated Tungsten Bars - Alibabawww.alibaba.com › ... › gold › gold plated tungsten 570 products - Alibaba.com offers 570 gold plated tungsten bars products."
lottin 6y ago
The fact that gold has historically been used as money in some places doesn't mean it's money now. Money is a commodity that is used as a medium of exchange. Today, gold is not used as a medium of exchange, i.e. most people are not paid in gold and don't buy things with it. Therefore gold is not money.

by Qasaur 6y ago

gridlockd 6y ago

> If the dollar hyperinflates, where would people go? The dollar is inflating right now, where are people going, besides gold? Why would the dollar hyperinflate?

baconandeggs 6y ago
Because the dollar is the reserve currency of the world, it will hyperinflate if and when the international community begins transacting en-masse in other currencies or even in gold, and dumping us bonds. Then all those dollars outside the US, which are most dollars, will go back to the US and hyperinflate. This could happen if the current instability in the US continues.
Qasaur 6y ago
Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.
- gridlockd 6y ago
  > Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. That is not actually what hyperinflation means. > We already have extreme asset price inflation... Sure, but we don't have asset price hyperinflation. > In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. Dump the dollars for what? Most people have no savings, they have a monthly paycheck that goes right to expenses for the most part. That alone greatly limits the velocity of money and therefore the rate of inflation. Those people that (rightly) expect inflation (not hyperinflation) have already piled into other asset classes. Either way, there can't be hyperinflation without a commensurate increase in money supply, which can't be achieved just by people spending their money more quickly. > It is worth noting that every fiat currency throughout history, without exception, has hyperinflated and collapsed to nothing. That is untrue. Hyperinflation is exceptional. Inflation over a long time can erode a lot of the value, but that isn't hyperinflation and it's not necessarily a problem either.
  - imtringued 6y ago
    > That alone greatly limits the velocity of money and therefore the rate of inflation. Nitpick. It limits the potential increase in velocity of money. Spending your money as soon as you get it is pretty much as fast as possible. The reason why there is little inflation is that these people don't have enough money to buy all the things they want to buy, meanwhile someone else is sitting on a fat stack of wealth and wondering what to do with it.
- qubex 6y ago
  There’s no actual definition of ‘hyperinflation’ that I’m aware of in the macroeconomic literature, beyond it being a quantitatively large value of inflation. What you purport to be the discriminante (economic agents’ perceptions, presumably households’?) isn’t actually tenable either, since famously “you need two cretins to make a transaction” (a buyer and a seller, both of whom think they’re getting a good deal).
blaser-waffle 6y ago
> where are people going, besides gold? As with stocks, the acronym TINA applies. As in, There Is No Alternative. Yes, there are literally plenty of alternatives, but most of them have (dealbreaking) shortcomings.
ivalm 6y ago
CPI is fine...
- alasdair_ 6y ago
  CPI is also a measure that is altered over time by groups with a vested interest in keeping “inflation” low. As a very simple example of why this may be misleading, consider that house prices are not considered in the “basket of goods” that Americans buy, despite this being literally the most expensive purchase most people ever make. The formula itself is also changed from time to time. If we were using the “old” formula, inflation would be MUCH higher (shadowstats.com for current numbers).
  - perl4ever 6y ago
    >house prices are not considered in the “basket of goods” that Americans buy This is (widespread) mis/disinformation. The CPI carefully distinguishes between houses as capital goods and shelter/housing as something people consume. If you Google it, you will find that the equivalent rent for homeowners is incorporated in the CPI. Even if they ignored homeowners, the index would be very little changed if it was based on renters alone. See https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
    - alasdair_ 6y ago
      I’m aware of that. The problem with equivalent rent is that it’s seldom actually equivalent. In order to compute the CPI-U, the people doing the work essentially call up 14,000 people and, if they own a home, they ask them how much they would theoretically charge in rent if they rented their home out. The problem with this is obvious - most people do not do rent income estimates for a living and so the numbers are often quite far from reality. More importantly, people find it very difficult to estimate future interest rates and they fail to take into account things like the sunk cost fallacy (see: 2008 financial crisis, where people in crashing markets still guessed they would be able to rent their homes based on pre-crash prices). There is also the issue of a negative feedback loop, where low interest rates lead to lower than expected inflation, because “house prices only every go up baby!” - or in other words, people are perfectly willing to accept $3000 in rent even if the mortgage is $5000 if the house is increasing by $8000 a month in appreciation. This appreciation is hidden from the CPI because only theoretical rent is considered. The net result of the negative feedback loop is the fed sees that inflation is low, so it thinks it can keep rates low too, which leads to asset bubbles like in 2008. (And, likely, in 2020 with stocks too...)

daodedickinson 6y ago

There have been plenty of stories of hollow gold bars and, true or not, they've been trending again lately. Gold hasn't always or everywhere been real money, I've personally worked on an archeology site where I sifted out a tiny shell bead with an even tinier hole punched in it so it could attached to a string like ancient Chinese coins and so on. I once read a claim that J.P. Morgan said something like money is only worth the character of the person who wields it. I feel more like interactions with other people are more precious than precious metals. If the dollar hyperinflates, some people will go into bunkers. I'd maybe starve or hide... I don't have a plan, I'm way behind on stuff as it is.

Qasaur 6y ago
There have absolutely been cases in history where other forms of "money" have been used, but in a long enough timescale of a civilisation, gold and silver are organically adopted as money due to their unique properties that make them suited for it. Fiat, shell beads, and other forms of currency are exceptions to the rule.
- daodedickinson 6y ago
  I dunno, I feel like Potosí being the highest population city in the Spanish Empire in the 1600s, even larger than Madrid, even though its elevation was about 13,000 feet, even though Denver's elevation is only about 5,000 something feet high, suggests an inorganic impetus, an illogical fetish for silver
  - ribble 6y ago
    you feel this, you feel that - your feelings are not facts.
perl4ever 6y ago
https://www.popsci.com/diy/article/2008-03/how-make-convincing-fake-gold-bars/ https://www.popsci.com/diy/article/2008-03/how-make-convinci... "Gold Plated Tungsten Bars - Alibabawww.alibaba.com › ... › gold › gold plated tungsten 570 products - Alibaba.com offers 570 gold plated tungsten bars products."

lottin 6y ago

The fact that gold has historically been used as money in some places doesn't mean it's money now. Money is a commodity that is used as a medium of exchange. Today, gold is not used as a medium of exchange, i.e. most people are not paid in gold and don't buy things with it. Therefore gold is not money.