Next to buying small amounts of gold and silver, I have made a couple of lucrative forex transaction. Since I receive my income in euros in Europe and live in Thailand (baht rate is connected to the dollar), I have been able to increase my income quite a bit when the dollar hits new lows.
I'm probably missing something. If the dollar is worthless because it isn't backed by real goods, why are gold and silver valuable? Just because of common consent, i.e. most throughout history have considered gold and silver to be exchangeable for goods? If that's your reasoning, then the same applies to the dollar, except on a lesser scale.
1. It is needed for industrial/electronics purposes.
2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each.
3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself.
4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.
Only items 1 and 2 represent sources of gold's 'value'.
Item 3 is simply a property of gold (which you may or may not find advantageous). For instance, the same thing can be said about granite. It does not rot like paper, but that has nothing to do with it's value as a currency.
Item 4 is simply an extension of item 2. The reason a single government cannot control the value of gold is because all the other government's of the world don't go along with it. This is great if your government is somewhat careless with it's money supply, but doesn't have anything to do with 'intrinsic value'.
Regarding 1, using gold as a currency drives up the costs of using it for industrial/electronics purposes, just like using granite as a currency would drive up the price of countertops. But the fact that gold has a practical use does impart it with some value.
However, the value of gold as a currency is entirely due to Item 2. Gold is worth something because everyone agrees it is worth something. It would be interesting to see how this came about. I'm willing to bet gold's value originated in it's scarcity (and the exclusivity of showing it off), but obviously it has nothing to do with anything 'intrinsic' to gold. It's just as likely that an accident of history would have revealed some other rare metal that royalty desired to show off, which would have imparted 'value' on this metal instead of gold.
The reason gold holds value today is entirely historical. People value it precisely because people have always valued it.
Well, quite. Tell that to Gordon Brown who flogged off the UK's gold reserves at 1/3 of the current price (he even announced weeks in advance that he was planning to dump a load of gold on the market which further drove down the price).
Common consent doesn't have much to do with the real value of precious metals.
The reason why gold and silver are "valuable" and the dollar is not, lies in the fact that gold and silver can not be created "out of thin air". This was exactly the reason why, in better days, currency was backed by gold or silver, thus transferring the intrinsic value of precious metals onto the currency.
No, the reason they have "value" is by common consent. The scarcity issue determines what options are available to manage the money supply, but gold/silver is still only valuable to me if someone else wants it.
If I were starving on an island, I'd much rather have a sandwich than a bar of gold. Gold is worthless without someone else around who wants it, just like fiat money.
The US government has "outsourced" control of the money supply to a cartel of private banks who have, as far as I know, no restrictions on the amount of money that they're allowed to create.
This is where it really get's odd, banks pretend to have money but they don't. When the big banks lend 1 billion they did not create 1 Billion even if it looks like they did. The secret is there is more money in circulation than there is cash. So when you write a check, it just get's deposited in another account somewhere. So your bank can then borrow that money back if it needs to.
In the end there is more debt than there is money. So there is a lot of people who are constantly looking for money and they can't all get it at the same time. The actual amount of money is less important than the amount of debt out there. If Debt > money then there is demand.
PS: It's far less harmful for society to mess with the value of pretend money, than to take a useful thing like gold, and prevent people from using it for useful things. And because people don't have gold debt it's value is far more flexible. I don't think gold is worth much, and I don't own any, but I don't want to get into gold trading because guessing when the bubble pops is risk I don't need.
So, you're saying the government won't do anything to stop banks printing off reams and reams of money indiscriminately? Sure, like all things, power can be abused. But no power is absolute. It is all dependent, at least to some degree.
"Money is created through forms of credit and debt, i.e., when banks make loans and debtors accept them, the money instantly exists. Only a fiat system can allow this form of money creation."
http://www.theoildrum.com/node/4611
Ok, I stand corrected, then. I didn't realize banks can make money whenever they want. Thus, money is really a form of speculation.
EDIT
I reverse my position. Sure, banks have the prerogative create money, but their ability to do so is based on people using the banks. Once banks no longer provide value for people, they lose their money creation ability. So, even banks are limited in their printing of money.
