Re: Anyone investing in stocks?
I personally don't quite understand the desire for gold. Are we saying that if the world hit the ____s that people will be bartering gold in exchange for things? Gold itself is a fiat in a way. Its practical uses seem trivial to me.
Gold has been historically (and we're talking clear back to the beginnings of civilization) been a cornerstone of value. Currencies go up and down and have no tangible value and are based on the confidence and credibility of the institution printing it, whereas gold is tangible and its value is well established making it safe (but not immune to a bubble). The dollar can go the way of the dodo, and gold will still be there, and still have value.
Gold is a dirty word to any government that uses fiat currency. US money used to be backed by physical supplies of gold and silver. The government could not print any more dollars than they had gold and silver to back it up, and I believe there was a time you could turn in dollars for physical gold. It was the gold standard. However, when your currency is tied to a commodity like gold, you cannot support the currency in dire times like our great depression through currency regulation. The Fed was established to ensure our currency's value is maintained, and they regulate its value by adding money to tweak inflation, and removing money from circulation to deflate the currency when inflation is beyond their acceptable parameters. You can't do that with a gold standard.
Fiat currency is a better system, when your regulators are being responsible. My problem lately with this, is that they've been printing money (quantitative easing, i.e. QE, QE2), to add liquidity to the banking system. This supports the equity markets and helps stabilize the system. It also comes at the cost of inflation once the banks start getting this money into the hands of you and I. So, those who saved, will find their savings goes less far than it did a few years ago, effectively "taxing" their savings to bail out the system. I guess we'll see how manageable that is as we go from here. If not handled properly, adding too much currency to circulation can result in hyper-inflation. Look up the
Weimar republic for a nice example of what that does to an economy. I'd like to point out, the dire economic times during the Weimar Republic, opened the door for the establishment of the Nazi regime. No, we're not in this situation, and probably won't be. But, it shows you how poorly managed fiat currency can wreck an entire nation.
The Federal Reserve is an unelected body, under congressional oversight, that has total power over the regulation of the value of the dollar. For the government to pay its bills, they can sell bonds to the Federal Reserve, who gives them the cash to operate. Do not underestimate the power the Federal Reserve has over our lives. IMO, it is more powerful than any branch of our government, and you don't vote for them.
They also sell bonds (debt) to countries like China. That makes foreign entities have a vested interest in the value of our currency, and printing more money makes them (investors) mad. If confidence in US bonds decreases, it can cause financial turmoil (see my earlier discussion about bank bonds and how confidence can spiral badly). Thus, the S&P downgrade of our credit rating, reduces confidence in our currency. This affects anyone holding our debt, which is basically the entire world. We are the benchmark currency of the world. Loss of that honor, would be a commentary on our currency and credit no longer being safe.
You can see how this whole thing is tied together, and we are in the middle of it, pretty culpable via overconsumption (debt). There's plenty of blame to spread around.
