From: bolden@beta.math.unc.edu (Jeffrey Bolden)
Subject: Re: Views? :
Organization: University of North Carolina
Date: Mon, 14 Dec 1992 13:35:58 GMT

>>>>
>>>>	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]
>>>
>>>Horsepucky. You think my discription [sic] of gold is slightly off. You
>>>think wrong. If you think that the price of gold is limited by people
>>>choking off supply, I invite you to visit COMEX and watch the gold
>>>trading pits. MILLIONS of ounces of gold trade hands EVERY DAY. There
>>>is no shortage of a free market in gold.
>>>
>>>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:
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.
	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.

 >
>>In the early 60's the
>>value of the holding in Fort Know was around 50 billion, and the price of
>>gold was what $50- ounce.  Then on today's market that's worth at least
>>400 billion, or larger than the annual deficit.
>
>for '92. what about next year? sorry...
>
See above.

>
>>	Finally on the issue of price fluctiations, fixing the value of
>>the dollar to oil would do several things:
>>1)  Guarentee a level of return for oil production, thus increasing supply
>>to the level of maximum demand.
>
>but what should that level be? and what if the owners of the oil
>all tell the US to shove it? that may be the biggest problem with
>putting in place a backed currency now, compared to before. we are no
>longer the big, dominant economy. the rest of the world just doesn't
>care as much as it used to about what we think things are worth.
>

I think the rest of the world's confidence in the dollar is only going to
go up with backing it in gold not down.  They all seem to be willing to
take dollars for goods now, so why shouldn't they appreciate except them
when their backed in something.
	As for the value, something on the order of $20 barrel seems
right, maybe a little higher like $25.

>>2)  Encourage the maintance of large hords of oil, by giving them a cash
>>value.
>
>but who has the biggest hordes now?
>

Unclaimed Ocean followed by Saudi Arabia, the USSR, and then who knows.

>>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. 
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.
2)  Prevet these persons from moving the price of oil more than a few cents.

>>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.  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%. 
	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? 
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.
	If they close off the pipeline your arguing that oil would become
very valueable, hence the dollar would increase in price and we would have
massive deflation.  Maybe, but a rise in  oil prices that dramatic should
natural lead to massive inflation (especially since we'd be much more
dependant on oil under my scheme).  I think it might come close to
balancing, but then again the same thing could be argued for gold.  My
arguement is just that oil is better than gold.

>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.

>>
>>	Finally unlike gold, oil is usable in large quantity.  Now gold is
>>pretty and in some industries is useful in small quantities, but no way is
>>all the gold in the world worth the current quantity of American currency.
>> Contrast this with oil where there is plenty of surplus value to go around.
>
>doesn't have to be useful. it just has to be wanted. how useful are gem-quality
>diamonds? not very, but pretty damn valuable.
>

I think you missed the point.  do you believe that the world's supply of
gold is worth as much or more than the entire value of all US currency. 
If your answer is no, than we probably shouldn't have a gold standard.


>--
>charles


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