Bank safe box storage diversification and other tips

Discussion of the Gold portion of the Permanent Portfolio

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Re: Bank safe box storage diversification and other tips

Post by MediumTex » Wed Jul 31, 2013 1:10 pm

technovelist wrote: That is one possibility. The other obvious possibility is that one government or some set of governments decides they are tired of the US getting away with murder via the "exorbitant privilege" and that they will stop it by creating a new currency regime based on gold, to supplant the dollar.

That's the one I expect.
Well, given how rocky the euro experiment has been so far, I'm not concerned at all about a euro-like gold backed currency coming onto the scene.

Why on earth would a sovereign nation give away so much control over its economy to some UN-like monetary authority that would manage this new gold-backed international anti-dollar currency?

I can almost guarantee that one of the very first problems with the new currency would arise when strong exporter nations tied to the new currency began to realize that it was no longer possible to enhance the competitive position of their export industries by tweaking the currency to devalue it a bit in relation to other currencies.  This is what China has been doing for years and it has caused enormous wealth to flow into China.  If you were to take that ability away from nations like China it would seriously damage their ability to maintain competitive export industries, which is one of the reasons that most nations would say they have no interest whatsoever in such a new currency.

In a global economy, no one wants a strong currency.  No one.  See Switzerland's euro peg in 2011 if you don't believe me. 

Whether we like it or not (and I don't like it), we live in a world in which many functions are simply being outsourced to those who do them best.  Thus, the world has outsourced manufacturing to China, it has outsourced energy production to the Middle East and Russia, and it has outsourced the efficient delivery of violence via military action to the U.S.

Despite what they say, no one really wants to disrupt this arrangement because too many people benefit from it.  They like cheap stuff from China, they like cheap oil and gas from other countries, and they like not having to maintain huge military budgets because they can just rely on the U.S. to deal with any problems that may arise which require lots of violence to resolve.

It's fine to say all of this stuff is stupid (and I would agree), but that's the way it is, and the U.S. dollar is an integral part of it all.
Last edited by MediumTex on Wed Jul 31, 2013 1:13 pm, edited 1 time in total.
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Re: Bank safe box storage diversification and other tips

Post by Mdraf » Wed Jul 31, 2013 1:13 pm

Pointedstick wrote:
technovelist wrote: That is one possibility. The other obvious possibility is that one government or some set of governments decides they are tired of the US getting away with murder via the "exorbitant privilege" and that they will stop it by creating a new currency regime based on gold, to supplant the dollar.

That's the one I expect.
Do you expect that the rest of the world--or a lot of it--will flock to that new country due to their stronger gold-backed currency and proceed to hand them the de facto crown of reserve currency issuer?
That's exactly what happened to the British Pound when it handed the crown to the USA:

Wikipedia:
"The gold standard was suspended at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, by the end of the war the country owed £850 million (£35.1 billion as of 2013),  mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%."
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Re: Bank safe box storage diversification and other tips

Post by Ad Orientem » Wed Jul 31, 2013 1:17 pm

Mdraf wrote:
Pointedstick wrote:
technovelist wrote: That is one possibility. The other obvious possibility is that one government or some set of governments decides they are tired of the US getting away with murder via the "exorbitant privilege" and that they will stop it by creating a new currency regime based on gold, to supplant the dollar.

That's the one I expect.
Do you expect that the rest of the world--or a lot of it--will flock to that new country due to their stronger gold-backed currency and proceed to hand them the de facto crown of reserve currency issuer?
That's exactly what happened to the British Pound when it handed the crown to the USA:

Wikipedia:
"The gold standard was suspended at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, by the end of the war the country owed £850 million (£35.1 billion as of 2013),  mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%."
You are reiterating one the many points from my earlier post. The gold standard is a joke because no one will adhere to it in a crisis. The first casualty of World War I was the old gold standard. The US also abandoned it when we entered the war.
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Re: Bank safe box storage diversification and other tips

Post by MediumTex » Wed Jul 31, 2013 1:21 pm

Mdraf wrote:
Pointedstick wrote:
technovelist wrote: That is one possibility. The other obvious possibility is that one government or some set of governments decides they are tired of the US getting away with murder via the "exorbitant privilege" and that they will stop it by creating a new currency regime based on gold, to supplant the dollar.

That's the one I expect.
Do you expect that the rest of the world--or a lot of it--will flock to that new country due to their stronger gold-backed currency and proceed to hand them the de facto crown of reserve currency issuer?
That's exactly what happened to the British Pound when it handed the crown to the USA:

Wikipedia:
"The gold standard was suspended at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, by the end of the war the country owed £850 million (£35.1 billion as of 2013),  mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%."
So who do you think that the U.S. will be handing the reigns to?

China?  They would NEVER want a burden like that.  Imagine how hard it would be for them to artificially depress the value of the new world reserve currency?

Maybe Russia?  Nah.

The EU?  Please.  An economic union that isn't aligned with a political union simply isn't a durable arrangement, which has been demonstrated frequently in recent years.

Japan?  The nation with far more debt than the U.S.?  No.

Maybe go back to the British Pound?  Just kidding.

The British handed the reigns to the U.S. because the U.S. was starting to eclipse Britain in virtually every way, but especially when it came to the strength of the U.S. military and the productivity of the U.S. economy.  Well guess what?  Those advantages are still in place 100 years later.  The U.S. still has the most productive economy in the world and it still has the most powerful military in the world.

There will come a day when it is time to decommission the U.S. dollar as world reserve currency, but today is not that day, and tomorrow won't be either.

Why not just enjoy living in such a nice economic and political arrangement?  Why complain so much about what might happen in the distant future (especially when you have no control over it whatsoever)?
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Re: Bank safe box storage diversification and other tips

Post by Pointedstick » Wed Jul 31, 2013 1:25 pm

I agree with Ad Orientem. Shackles so fragile that a government can simply remove them when it becomes inconvenient are no real restraint at all.

I would love to hear a good counter-argument to this. From my perspective, the gold standard seems like something that inherently tends toward being discarded everywhere it's been tried due to its inconvenience to the maintainer.
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Re: Bank safe box storage diversification and other tips

Post by Mdraf » Wed Jul 31, 2013 1:33 pm

I agree that it is easily abandoned.  As I said elsewhere everyone loves credit, the more the merrier and damn the consequences.  As for who will/can replace the US?  No country in sight right now.  That's why the dollar retains its value.
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Re: Bank safe box storage diversification and other tips

Post by MediumTex » Wed Jul 31, 2013 1:37 pm

Mdraf wrote: I agree that it is easily abandoned.  As I said elsewhere everyone loves credit, the more the merrier and damn the consequences.  As for who will/can replace the US?  No country in sight right now.  That's why the dollar retains its value.
You think the dollar wouldn't retain its value if there were another country to take over reserve currency status?

If that were the case, how would you explain the fact that the British pound is still a stable and viable world currency 100 years after losing its reserve status?

When Hall of Fame players retire, they don't feed them to the dogs.  Such players usually remain respected figures for the rest of their lives.  I wouldn't expect any reserve currency issuer to be treated differently, even after its playing days are over.
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Re: Bank safe box storage diversification and other tips

Post by Mdraf » Wed Jul 31, 2013 1:52 pm

MediumTex wrote:
Mdraf wrote: I agree that it is easily abandoned.  As I said elsewhere everyone loves credit, the more the merrier and damn the consequences.  As for who will/can replace the US?  No country in sight right now.  That's why the dollar retains its value.
You think the dollar wouldn't retain its value if there were another country to take over reserve currency status?

If that were the case, how would you explain the fact that the British pound is still a stable and viable world currency 100 years after losing its reserve status?

When Hall of Fame players retire, they don't feed them to the dogs.  Such players usually remain respected figures for the rest of their lives.  I wouldn't expect any reserve currency issuer to be treated differently, even after its playing days are over.
It only definitely lost its reserve status post WW2.  It's still a stable currency now but will only buy $1.50 instead of $5.00 then
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Re: Bank safe box storage diversification and other tips

Post by MediumTex » Wed Jul 31, 2013 2:21 pm

Mdraf wrote:
MediumTex wrote:
Mdraf wrote: I agree that it is easily abandoned.  As I said elsewhere everyone loves credit, the more the merrier and damn the consequences.  As for who will/can replace the US?  No country in sight right now.  That's why the dollar retains its value.
You think the dollar wouldn't retain its value if there were another country to take over reserve currency status?

If that were the case, how would you explain the fact that the British pound is still a stable and viable world currency 100 years after losing its reserve status?

When Hall of Fame players retire, they don't feed them to the dogs.  Such players usually remain respected figures for the rest of their lives.  I wouldn't expect any reserve currency issuer to be treated differently, even after its playing days are over.
It only definitely lost its reserve status post WW2.  It's still a stable currency now but will only buy $1.50 instead of $5.00 then
Steady and systematic currency devaluation is the goal of all central banks all over the world.

The U.S. is unremarkable when it comes to long term grinding currency devaluation, and such devaluation tells us nothing about the long term viability of the U.S. dollar in relation to other world currencies.

This chronic single digit devaluation is part of the reason that we hold 25% in gold.

Just to make sure I understand the point you are making, do you believe that the U.S. dollar is at a greater risk of seeing a decline in value than almost any other world currency in the world?  If so, I assume that the last five years have been happy times for you as the dollar has strengthened, rather than weakened, in relation to other world currencies.  Perhaps the pleasant surprises will continue.  I wouldn't rule it out.  In response to the worsening condition of the Japanese government's finances over the last 20 years, the value of the yen has remained stable or strengthened.
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Re: Bank safe box storage diversification and other tips

Post by Mdraf » Wed Jul 31, 2013 4:11 pm

MediumTex wrote: Just to make sure I understand the point you are making, do you believe that the U.S. dollar is at a greater risk of seeing a decline in value than almost any other world currency in the world?
Not at all. In fact the exact opposite. Sorry if I didn't make  myself clear.
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Re: Bank safe box storage diversification and other tips

Post by MediumTex » Wed Jul 31, 2013 4:23 pm

Mdraf wrote:
MediumTex wrote: Just to make sure I understand the point you are making, do you believe that the U.S. dollar is at a greater risk of seeing a decline in value than almost any other world currency in the world?
Not at all. In fact the exact opposite. Sorry if I didn't make  myself clear.
Oh okay, so we are back to the U.S. dollar basically being the best looking horse at the glue factory?

That's sort of how I see it.
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Re: Bank safe box storage diversification and other tips

Post by Mdraf » Wed Jul 31, 2013 4:45 pm

MediumTex wrote:
Mdraf wrote:
MediumTex wrote: Just to make sure I understand the point you are making, do you believe that the U.S. dollar is at a greater risk of seeing a decline in value than almost any other world currency in the world?
Not at all. In fact the exact opposite. Sorry if I didn't make  myself clear.
Oh okay, so we are back to the U.S. dollar basically being the best looking horse at the glue factory?

That's sort of how I see it.
Me too  since everybody is in fiat.  But what technovelist  was saying is that IF another country backstopped by gold then it would become a strong currency and possibly the world reserve currency. And I agree with him.  However a strong currency is a liability since it impacts negatively on balance of trade so nobody wants one in this age of globalization. The only economy which could -or rather used to - do well without the need to export is/or was the USA
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