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Hi doma,
paper money is a proxy for the value of goods and services exchanged within the economy.
Underlying the paper is the value of things like computers, oil, bushels of wheat, music, gold, land, stocks - anything we exchange and think is worth something.
We allow paper to be used to count up the economic value of the unique things we exchange and to divide the value into convenient small units.
The way I understand it, the market values that paper in total against the amount of value within the economy. If the Fed issues new money beyond the growth in the economy, then the value of the paper will decrease relative to the value of the assets. If the value of assets decreases, then the relative value of the paper will increase. We let markets manage this process.
I see you are still stuck on the idea that the shiny metal is the only thing with any value. Things that are scarce and that people want will have a high value. That's simple economics. Since gold was scarce in the ancient world, it accrued a value. But people also valued other things just as they do today. Things like land, food and cattle.
I don't know where to go with this with you unless you can get a little different perspective on value. The cautionary tale of King Midas is surely sufficient to demonstrate that gold's value is a wee bit limited. You can't eat it or drink it. You can't run a car on it. It is scarce. People use it to make jewellery. Dat's about it.
It's a normal kind of asset, just like any other. Demand is high because a lot of folks see it as being a last chance saloon for value in a scary economy. But that will unwind in my view as the economy recovers. The really critical asset in this story recently is the value of land.
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The above is a reply to the following message:
W.B special......
By: faul
in
ALEA
Sun, 26 Feb 12 1:30 AM
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Msg. 06716 of
54959
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Hi Alea....
Sorry, but i really have a hard time understanding how paper
money created from thin air has value over anything that is
produced.......& that we should be "Fearful" of the value of this
paper over Gold.........W.B is a NWO shill for the audience of
the masses....4 weeks & Gold will be over $2000.
"The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful"
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.
As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
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