Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel Quote:
Originally Posted by alpha1 Well, do you mean that an ideal currency system would be the one that doesn't lose its value over time, but actually should increase?
I for one believe all currencies should actually get devalued with time. Otherwise there is no balancing force to the hoarding effect. Gold has extremely limited usage besides hoarding; a Gold back currency would behave extremely similar. And what does this decrease in money velocity lead to?
The purpose of currency is to establish a medium of transacting goods and services. If you want appreciation of value, buy some asset like real estate, shares/stocks, debt/bonds etc that galvanize economic activity ... or well you can also buy gold .
I am also surprised how you have arrived at a fair valuation of $1700 per oz figure? It should actually fluctuate according to the expected returns from other appreciating assets. Actually a plot of gold price vs cost of capital may be more informative for predicting the price movements. |
IMHO, an ideal currency system is the one which is either backed by Gold or Silver. In that case, there was no chance of inflation or deflation and price of the goods would be determined by supply and demand. This happened during the gold standard. The point of backing a currency with Gold (i.e. Gold Standard) is to keep politicians and central bankers from destroying the currency by overspending and overprinting.
There is also a counter argument that there is not enough Gold in the world. Thus, it will always be a case of too little money chasing too many goods. I think to balance that out the Gold must be priced correctly. If you launch a $ backed by Gold where Gold is redeemable for $20,000 Oz, it might just work.
On your point that all currencies get devalued over time. Yes it is true but only where Fiat currency is the legal tender.
I'm not sure where you have picked up $1700 an oz for fair valuation in my earlier post. I think you mean $20,000 Oz. I've explained that in an earlier post. $1700 is the current price of Gold which may have led to mix up. Quote:
a plot of gold price vs cost of capital
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I think it is best to compare it with House prices. Pricedingold.com already has a graph for it. Thought of sharing the same. Quote:
When measured in Pounds Sterling, UK Houses are over 20 times more expensive than they were in 1973 (the £ index has risen from 20 to 430). But measured in gold, house prices are about the same today as in 1973 (gold index 90 then, 84 at year end 2019)
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