COMMENT: Martin, after reading your rather long post today entitled the paradox of inflation deflation, I found myself understanding it without having to read and re read it a number of times as I have in the past, its all coming together, thank you very much for the education that you provide to all including this little guy, looking forward to viewing the latest dvd you are offering that my son will order. By the way, I really don’t think that your statement about this blog not being for the fainthearted is complete without saying that it is also for realists, for only a realist will keep his head up and not hide it in the sand.
REPLY: A lot of emails have poured in expressing that this piece has turned on the light. Some still cannot see beyond the length of their nose and interpreted as Romans hoarded “real” money gold or silver. I do not know how to make this more clear. MONEY is whatever the people say it is for the other person has to accept it. Peripheral economies imitated gold and silver coins of Rome and even made them heavier than the Romans. If GOLD was the “money” then why are imitations heavier? It was the CONFIDENCE in the Roman currency just as there is CONFIDENCE in the US dollar compared to everything else. It was NOT the gold or silver in the coin or else they would have just traded lumps of metal. As soon as a government coined gold, it became fiat for they declared its value to be greater than it cost them.
Money began as food and became standardized as cattle. The Minoans helped to create the Bronze Age and money became ingots of bronze BECAUSE it was usable. Bronze was THE international currency – not GOLD. China issued bronze coinage never gold or silver until the 19th century. The coinage did not reflect a metal content so it was classic fiat.
Money has been sea shells for the same reason it was gold – they were desirable. People liked their shape and design and found them attractive. Gold became desirable because at first only kings were allowed to have it. As gold became more common, then the aristocrats adored it. Finally, gold became prevalent and the common people wanted it. But gold never had a practical use. It was desirable – but that was it.
What became the “reserve currency” was ALWAYS linked to the biggest economy. Today, 29% of households in the USA are hoarding cash outside the banks. It does not pay to deposit cash and receive nothing. Some banks now charge fees to accept cash from small business. They are trying to drive cash out of the system.
We are moving to electronic. Gold will rise when the CONFIDENCE shifts out of governments. Consumer Confidence in the USA reached a record high in January. This is typical moving into an 8.6 year high.
The sooner you look upon the world as a free flow of capital rather than everything viewed only from the gold portal, the sooner you will be able to survive. You have to go with the flow. Gold will have its day – just not yet. We elected a Weekly and Monthly Bearish Reversal in gold yesterday. Beware of the dollar rally.
