From: cmk@athena.mit.edu (Charles M Kozierok)
Subject: Re: Views? :
Organization: Massachusetts Institute of Technology
Date: Mon, 14 Dec 1992 14:42:17 GMT

In article <1992Dec14.133558.19228@samba.oit.unc.edu> bolden@beta.math.unc.edu (Jeffrey Bolden) writes:
>>>>>
>>>>>	I think your discription of gold is slightly off.  The demand for
>>>>>gold is relativly small.  The supply is huge, the major holders of gold
>>>>>[text deleted]
>>>>
>>>>Oil as a store of value?? Have you SEEN the price of oil flunctuate over
>>>>the past decade? What you want for a medium of exchange is something
>>>>*stable*... otherwise, the price of EVERYTHING flunctuates with the price
>>>>of your store of value. Oil varies widely in price, has an extremely
>>>>limited supply, gets USED UP, and is primarily supplied by foreign
>>>>powers. Do you want the economy of the U.S. to sit firmly in the palms
>>>>of Arabian sheiks? (bear in mind, all they'd have to do is embargo to
>>>>cause mass deflation here in the U.S.)
>>>
>>>	Ok, if the price of gold isn't artificial, then why can't we sell
>>>of Fort Knox and end our annual budget deficit now.
>>
>>oh boy. i'm trying to stay with you, Jeffrey, but you are making it hard with
>>statements like that. as many other people will probably tell you in a
>>much less gentle way, you can't end an *annual* problem with a *one-shot*
>>sell-off of anything. i'd get that flameproof suit on quick... :^)
>>
>
>Sure you can solve an anuual problem.  A one shot sell off ending the
>budget deficit for even one year would do wonders for the American and
>world economy.  Think about it:

that solves an "annual problem"? i assume you know what the word "annual"
means... if we sell $400B in gold in '92, and still overspend the way we
are now, the deficit just comes back in '93 and every year thereafter.
a band-aid at best.

>1)  We don't issue 400 b. in bonds and save ourselves about 30b. in
>interist payments per year for the next 30 years, as well as 400b. in
>principle 30 years from now.
>2)  400b. dollars in bond money gets put into corporate investment rather
>than government waste.

in your highly optimistic opinion

>	Reading over your comment their may have been a misunderstanding,
>I was not saying that selling off Fort Knox would end the annual defecits
>for ever, just get rid of one deficit.

no, sorry, you said "end our annual budget deficit now". "end" means
"over, no more" not "temporary removal". i have heard the media make
this suggestion too, and it is very deceptive. i'm not saying there
might not be some value to it (of course there might be some major
drawbacks too), just that it is a temporary solution to a permanent
problem.

>>>3)  Stablize prices further on oil, by making bidding the price of oil up
>>>hundreds of times more expensive than it is now.
>>
>>i don't understand that. please explain.
>>
>
>Because the price of oil is fixed to the US dollar it becomes very hard to
>bid the price up.  Think of this way.  Your a bank issuing a $5b in
>currency off your stock of 200m barrels of oil.  The price goes up to say
>$30/barrel.  You will buy up $5b in currency and sell your oil reserves. 

to whom? what if they only want to pay $15 a barrel?

what if it costs me $5 a barrel to ship it to them? you think you can just fedex
a couple of million barrels of oil? 

this is no trivial shot at your theory: ease of transfer is an *essential*
property of a successful exchange medium. why do you think they started
using paper money in the first place? because even carrying around gold is
too inconvenient. compared to dealing with oil, it is a joke!

>The net effect being to either:
>1)  Force the person(s) driving up the price of oil to come up with more
>cash than is the entire US economy.

baloney. there are other countries out there now. the US doesn't control
the world market like it did in the mid-20th century. this trend is only
going to continue.

>>>4)  All of the above would lead much more stable oil prics ->  much more
>>>stable energy prices ->  better profits for industry.
>>
>>but don't you see the problem? let's suppose we say "from now on,
>>oil is worth $20 a barrel". if OPEC starts pumping oil and sells to
>>germany for DM30 per barrel, that sets our exchange rate at $1 = DM1.5.
>>if either OPEC or germany changes the price, they change our exchange rate.
>>we lose control over it. if OPEC floods the world with oil, our dollar
>>becomes worthless. if they shut off the pipes, our money supply disappears.
>
>OPEC only controls 35% of world oil exports at this time.

that's more than enough to have a significant impact on our economy, IMO.

>It is doubtful
>that with guananteed prices for oil (you can always "deposit" it in a US
>bank for $25 barrel) that this wouldn't fall to about 20%. 

yeah, but now you're argument becomes circular. you get a
"guaranteed" $25, but what does that $25 mean? remember, you defined it
as a barrel of oil. nobody else has to accept that definition.
all the guarantee means is that you can exchange
your barrel of oil for whatever the rest of those people who accept
dollars say their product is worth in dollars.

let's say you have oil and you want to buy widgets. let's say the
current price of widgets in the US is $5, for simplicity. therefore
a barrel of oil is worth five widgets. now let's suppose that in
denmark (to pick a random example), someone says "well, i don't
accept US dollars, but i'll give you *ten* widgets for your oil".
what does the seller care about our dollars then? replace "widget"
with a few important commodities and you will see my point.

the net effect is that we lose control of our currency. to be fair,
i have not yet heard a good answer to this question from the gold-backers
either.

>	So lets say OPEC floods the market.  And we buy their entire
>supply of oil (I think they havew 500b on hand currently).  So what? 

all they say is "sorry, we don't accept US dollars, since you arbitarily
set their value relative to our product". then what?

>We've bought up like five years worth of oil at a reasonable price and
>industry will be very very happy.  Plus OPEC has to deliver it to us to
>claim the $25/barrel price.

they have to do no such thing. they can sell to someone else. there's
no shortage of demand for oil with the US removed from the market.

>>note: the above argument would be true of gold as well. i'd like
>>to hear how those who support a gold standard would deal with this
>>problem. i realize off the bat that it wouldn't be as bad because gold
>>is not really controlled by any kind of a cartel, but the control issue
>>is still there.
>>
>
>No it's much worse for gold, because unlike oil if you get stuck with lots
>of gold their is nothing you can do with it but sit on it, and hope
>someone will trade you trillions is product for a metal whose primary
>value is that lots of people think it looks pretty.

not true. people will always trade for gold. it has been that way for
thousands of years. if it is so "useless", why was it picked by almost
every civilization which had access to it to be their medium of exchange?

the fact that it looks pretty (has other values too, of course) is a damn
good reason to use it. have you seen what "pretty paintings" sell for?
are they "useful"?

a few more things too: what happens if someone sets your oil stocks on fire?
or they spill out into the ground? or they decompose? or an alternative
energy source is discovered?
--
charles
Newsgroups: alt.politics.libertarian