John Redwood’s banknote theory

Reproduced from the BBC Newsnight live blog with permission.

James Clayton, Newsnight political producer.

John Redwood thinks all you need to illustrate the problems of the Euro are two banknotes – one €20 and one £20 note.

First of all look at the British £20 note

 

* The Queen represents the British Government

*There is a statement from the Bank of England:  “I promise to pay the bearer on demand the sum of twenty pounds”

* It is signed by the Chief Cashier of the Bank of England

* It has a picture of… the Bank of England

* It has a logo of… the Bank of England

In short – this is a pretty unequivocal IOU. It’s an explicit “promise to pay” from the Bank of England, assured by the British Government.

Now take a look at the €20

 

What does this note actually mean?

*  The gothic windows are not real, they don’t exist. They’re a symbol of “an artistic period” of European architecture

* The flag on the note is the EU flag – despite nine countries within the EU having nothing to do with the Euro

* There is a signature, but it’s not explained who it is or what their role is

* There is no explanation as to what his note actually means for the owner

* There is only one reference to the European Central Bank on both sides of the note

Redwood argues that this tells you all you need to know about how the Eurozone works. The Euro notes are unclear, ungrounded and do not adequately represent the governments that back the ECB.

73 Comments

  1. DaveM
    July 16, 2015

    John – very good.

    Please don’t take this too seriously, but I should point out that the Queen represents the sovereignty of the UK, and the Government represents the Queen!!

  2. Horatio McSherry
    July 16, 2015

    Mr. Clayton seems personally insulted by your remarks.

  3. Mark B
    July 16, 2015

    Good afternoon.

    Im would like to aks the BBC, if the money that they recieve from the EU is in Euros or Sterling ?

    Just a thought.

  4. Kenneth
    July 16, 2015

    Any currency is only as good as the faith we have in it. The problem is that the Euro is a product of fantasists and extremists.

    Look, we have a parliament! Look, we have courts and judges! Look we have our own banknotes!

    No, you have bunch of nobodies elected by a tiny amount of people in an expensive 6th form debating society talking shop alongside a ‘court’ mainly made up of extremist politicians with a currency which is only a couple of defaults away from being confetti.

    The eu and all of its fantasist supporters alongside its pretend parliament, pretend courts and pretend currency are an embarrassment to the UK and we should extract ourselves from it as soon as possible.

    The problem is that these people are now starting to hurt real life people and that has to stop.

    The teenage dreamers need to grow up and make up their minds: do they want ‘solidarity’ or democracy, for they can’t have both.

    1. Edward2
      July 16, 2015

      I agree Kenneth.
      I notice how the EU is acting as if it was a nation in itself.
      The way it talks to member states is like the EU feel they are the most powerful nation in Europe rather than just the central organising committee for a group of nations.

      1. Cliff. Wokingham.
        July 16, 2015

        I agree; it was interesting to see the EU, with it’s sharp elbows, forcing it’s self into the Iran nuclear summit. Why were they there and just whom did they represent? Were the Germans and UK representing themselves or were they being directed by the EU?

        If I were young and still keen on life, I would bring out novelty toilet roll…It would be blue with a ring of gold stars on it…..Do you think it would sell and be a winner?

        1. Denis Cooper
          July 17, 2015

          Successive British Prime Ministers agreed to the EU running its own foreign policy and got Parliament to approve the treaties allowing that, so they are only doing what our elected MPs have agreed they could do.

  5. CHRISTOPHER HOUSTON
    July 16, 2015

    I believe polymer/plastic notes first introduced in Australia in 1988, adopted recently for Canada’s Loonie, and set for the UK in 2016 have been rejected by the ECB who will print in ever increasing amounts, necessarily, their banknotes using cotton derivatives.

    I wonder if this is a You Scratch My Back, I’ll Scratch Yours deal with the Peoples Republic of China since cotton fields there need a huge old-fashioned customer. It may explain why China has historically bought massively at frequent and regular intervals the Euro currency far in excess of its possible national requirements. When China decides to get into the 21st century and suddenly rids itself of cotton currencies exchanging with those of polymer, the ECB will feel the fire of the Chinese dragon. It may burn the UK too if we don’t distance ourselves.

  6. fedupsoutherner
    July 16, 2015

    Great comparison John. The Euro note could be Monopoly money for all we know and at the rate Europe is going it might be used in a game of Monopoly one day!

  7. Alan
    July 16, 2015

    Yes, but just try getting £20 for your banknote. All they’ll do is give you another one. It’s a meaningless promise.

    The best explanation of value actually written on a banknote that I know of is the US dollar: “this note is legal tender for all debts, public and private”. We should put something like that on our banknotes, in my opinion. And on the euros, of course, since one day we will be using them,

    Reply You can always get your £20 note from a UK regulated bank, but can’t get your Euro 20 from a regulated Greek or Cypriot bank some times.

    1. Denis Cooper
      July 17, 2015

      “And on the euros, of course, since one day we will be using them”

      You hope, misguidedly, and maybe your hope will be realised.

  8. Margaret B-J
    July 16, 2015

    Mr Redwood does have a point.

  9. Peter van Leeuwen
    July 16, 2015

    What a creative mischievous presentation once again!
    I now expect a statement that the only real parliament resembles the uncomfortable green benches of the H.o.C., must have a shouting culture as in PMQ and must be between a government and one opposition. If only you could see for yourselves how superior the level of debate is in a Dutch parliament (and probably in a few other continental parliaments)!
    As for the bank note:
    Mr Draghi (or Mr Trichet before him) has signed exactly the same kind of IOU to the bearer of this €20 note. Absolute trust in the euro is reflected by the financial markets.
    Of course we forgive you your old-fashioned imagery, your queen not included of course. (not even when someone has tried to write euro next to her face 🙂 )

    Reply The issue is who and what stands behind the banknote – as people found out to their cost depositing Euros in Cyprus and Greece. People who placed deposits in UK banks got their money during the crisis of 2007-8, because the Central Bank and Uk taxpayers stood behind it.

    1. agricola
      July 16, 2015

      Reply to Peter.
      What you say of trust in the Euro is a load of cobblers. Today it is running at Eu 1.43 to £1.00. This downward trend has been there for a long time. If that is “Absolute trust” Dutch style I would be very surprised. As you might gather from my principal submission I do not have much faith in any of the paper currencies, Sterling included.

      1. Peter van Leeuwen
        July 16, 2015

        @agricola: Don’t forget that before the devaluation of the pound sterling the exchange was €1.5 to £1 and the pound was even stronger around 2001 (€1.7 to £1 ).

      2. Denis Cooper
        July 17, 2015

        Floating currencies float up and down, and the euro is no exception.

    2. Peter van Leeuwen
      July 16, 2015

      reply to reply: the internet tells me that the deposit guarantee in UK banks is £85000 (to become £75000) and in the EZ countries is has been increased from €40000 to €100000. Mr Draghi had interesting things to say about providing liquidity under the ELA scheme this afternoon. Under the rules governing the ELA there has been quite sufficient liquidity provision. A “bail-in” as in Cyprus hasn’t yet happened in Greece, as far as I’m aware.

    3. Richard1
      July 16, 2015

      I am in Greece at the moment as it happens. At least where we are there is no air of collapse or panic or shortages. But it is clear that no-one trusts that if they have €1,000 in the bank they will not be offered €500 for it. In conversations it is also clear that there has been a wholesale cultural change since Greece joined the euro – the culture of big spending govt and sundry beneficiaries therof have been exceptionally damaging to an ancient culture of self reliance and local business.

      I have no doubt Greece should get out of the euro zone. Maybe they could even carry on using the euro as Panama uses the US$ or Bulgaria the €. It’s essential they break free of the current dead end of blackmailing and begging the rest of the EZ and get back to providing competitive products and services. Take a look round Greece – it should be as prosperous as Switzerland!

      1. Denis Cooper
        July 17, 2015

        Actually the Bulgarian lev is being widely used in some parts of Greece.

  10. Atlas
    July 16, 2015

    Good point John, except, pray what is “20 Pounds” exactly? It certainly is not gold – or even silver.

    Indeed on that metal point could you oblige please with a quick explanation as to what the difference is in principle between the Euro and Gold? In so far as the Greeks cannot print Euro notes so they could not magic up Gold either. So is being in the Eurozone like using Gold for currency? When you’ve run out of Gold, you’ve run out of gold and no stamping of feet (or Referendum) will alter that fact.

    1. libertarian
      July 18, 2015

      Atlas,

      The amount of gold actually held versus the amount of notes issued isn’t the same. Many 100’s of years ago the Goldsmiths realised that people didn’t redeem physical gold very often. They invented Fractional Reserve Banking, the notes they issued as tokens representing a gold holding became tradable commodities. The difference between free banking, fractional reserve banking and the fiat currencies we have now is that private banks issued the notes and were responsible for losses. Now government manipulates the money supply normally by accruing massive taxpayer debts. ( This is a very simplistic and potted answer I know).

  11. Jerry
    July 16, 2015

    Summer is here… Given that a Cheque can be written on just anything and be valid if it contains all the important information and is signed by the payee (without any need for a life history or explanation of were and for who the person works) I’m not sure what your point is John, surely much the same can be said of banknotes – even if your points are valid they are easy to fix but would the EZ be any better.

    1. Edward2
      July 16, 2015

      Its a bit subtle Jerry but its about creating confidence that behind a piece of paper is a central bank which issues and stands behind its currency in times of need.
      The Pound has that important promise stamped on its paper money the Euro does not.
      We are seeing the results of that unadopted Euro currency now with the lack of clarity in the dealings with Greece.

      1. Jerry
        July 16, 2015

        Edward2; “The Pound has that important promise stamped on its paper money the Euro does not.”

        If only the EZ problems were so simple and so easy to solve….

        1. Edward2
          July 16, 2015

          Indeed Jerry it is quite simple all the Eurozone has to do is to agree who is signing for that promise.
          Who is responsible or the last resort?
          It seems no one wants to be that entity.
          So the Euro is a currency without a backstop.
          We have the Bank of England.

          1. Jerry
            July 17, 2015

            @Edward2; But it is not that simple, it matters not who the named “lender of last resort is” if that is not backed up by the political will, the Euro was always envisaged as a part of a federal; EU not a group of 19 (28) legally independent nation states – hence that European Constitution and the road map to a full federation.

            We do indeed have a Bank of England, whose powers are actually more like a ‘Bank of Great Britain and NI’, thus some of the issues that were discussed at the time of the iScottish referendum.

          2. Edward2
            July 17, 2015

            I feel you are making the point for me Jerry.
            No one in the Eurozone formally takes the role of “lender of last resort”.
            There is no federation of states like in the USA or an established Union like in the UK.
            There is no formal agreement among Eurozone members to share liabilities in hard times.
            That is why the there are these current problems.

          3. Jerry
            July 18, 2015

            @Edward2; “No one in the Eurozone formally takes the role of “lender of last resort”.”

            But the ECB is the “lender of last resort” (and always has been), hence its five billion odd Euro reserves. There doesn’t need to be a persons name printed on to a banknote, the idea that you (and our host) seem welded to, a EZ banknote is as valid without that personal signature as one with, but it would be very easy, as I said, to add the (on issue) current ECB President’s signature if that is all it will take to sort out the EZ mess! Somehow I doubt it would alter one single problem.

            “There is no formal agreement among Eurozone members to share liabilities in hard times. That is why the there are these current problems.”

            Indeed and that is a political problem, not a currency problem, that of the non existent Federal Europe, that USoE – hence why the IMF and USA have stated that the real solution to the EZ problems has to be “more Europe”.

            Reply Mr Draghi does sign the note, but does not explain who he is- the EU flag also appears on the note when 9 of the EU countries do not stand behind it

          4. Jerry
            July 18, 2015

            @JR reply; “the EU flag also appears on the note when 9 of the EU countries do not stand behind it”

            But all EZ countries do stand behind the Euro and the ECB!

            As for the EU flag and who stands behind the EUR currency… The UK is the founding member of the Commonwealth of Nations, does that mean the AUD would have the same problems as the EUR should the Royal Australian Mint place the Australian flag onto their banknotes and the UK (along with other CoN members) refused to stand behind the AUD as if we are in the federated Commonwealth of Australia – after all the Australian flag has our flag within, some AUD banknotes also have the Queens head on them, all without explanation. The EZ problems are not being caused by that dammed flag or any other flag, nor what artwork is used!

          5. Edward2
            July 19, 2015

            The comparison with the Commonwealth is really your most eccentric argument ever Jerry.
            I know you refuse to give up and I am used to your endless imaginative arguments when you are obviously defeated but this one is quite ridiculous.

          6. Jerry
            July 19, 2015

            @Edward2; No the eccentricity, if there is any, comes from those who think that a printed picture of a recognisable flag, never mind any of the other artwork, never mind an apparently unexplained signature, on banknotes caused the EZ problems and/or Greek debt crisis! Talk about a theory looking for a problem…

          7. Edward2
            July 19, 2015

            You are relentless today Jerry
            Still wrong of course.
            No one said what you claim they said.
            Its about who comes forward to support a currency in times of need.
            We in the UK know who this is.
            But who is coming forward at the moment of the various Eurozone members.
            Its an orphan currency.

  12. Duyfken
    July 16, 2015

    Love it. Full marks to Redwood.

  13. acorn
    July 16, 2015

    Nice one JR but probably a bit complicated for Newsnight. You well know, that both notes are “tokens” of two fiat currency systems; and, if you exercised the “promise to pay” thing, all you will get is another bit of paper that looks exactly the same as the one you had previously.

    Anyway, please can I quote the following, you will like it. Describing arguments with John Major about the topic, Margeret Thatcher said:-

    “We had arguments which might persuade both the Germans — who would be worried about the weakening of anti-inflation policies — and the poorer countries — who must be told that they would not be bailed out of the consequences of a single currency, which would therefore devastate their inefficient economies.”

    http://www.bloomberg.com/news/articles/2015-07-15/nine-people-who-saw-the-greek-crisis-coming-years-before-everyone-else-did

    1. Jerry
      July 16, 2015

      @acorn; But the problems faced by the PIIGS were/are not “the consequences of a single currency”, they are the the consequences of excess credit, offered to both nations and individuals. It is a credit/debt problem, not a currency problem.

      1. Edward2
        July 16, 2015

        You miss the point Jerry the two things are strongly connected.

      2. acorn
        July 17, 2015

        Wrong way around Jerry IMO. The fact that Greece was using a foreign currency it couldn’t control, caused the easy credit and debt problem. If Greece had had its own currency it could have used its own monetary policy (interest rates) to put the brakes on broad credit. It could have used fiscal policy (government spending and taxation) to discourage imports and the FX market would have told Greece what the score was.

        1. Jerry
          July 18, 2015

          @acorn; No one was being forced to give such large amounts of credit to Greece, so one has to ask why they did, what were the benefits to them.

      3. Denis Cooper
        July 17, 2015

        One of the main reasons why politicians in poorer countries have wanted to join the euro has been to get easier credit by sharing Germany’s credit rating, or something close to it, so it is at root a currency problem.

        1. Jerry
          July 17, 2015

          @Edward2: “the two things are strongly connected”

          Only amongst Europhobes, looking for an argument about (the loss of) sovereignty.

          @Denis Cooper; “politicians in poorer countries have wanted to join the euro has been to get easier credit by sharing Germany’s credit rating”

          Indeed and such countries and Germany are now paying the price for such a foolishness! Not only was this brought on by many of the PIIGS alone, the situation was encouraged by Germany’s wish to extend such credit to those countries so that these generally poorer EZ countries could then buy train loads of German made cars and household white goods etc.

          1. Edward2
            July 17, 2015

            No Jerry, not just among “Europhobes” as you casually call them.
            There is a straightforward economic link between the excess credit offered to some Eurozone members and the Euro currency.
            It is because the credit worthiness of members is partly rated by reference to countries like Germany so credit is easier to obtain.
            Its nothing to do with being for or against the Euro or the EU in general.

          2. Jerry
            July 18, 2015

            @Edward2; In your, Europhobe, opinion. Try extrapolating your argument to another currencies/country, what you seem to be claiming is that because Mr Rich here in the UK can access credit it is a fault of the currency (and thus BoE) that Mr Poor is also allowed credit by those wishing to sell or have sold the goods and services offered by Mr Rich and his company. That is not a currency problem, it is a pure credit/debt problem as the debt is not with the BoE (unless it becomes necessary to bail-out crippled and overdrawn banks).

          3. Edward2
            July 18, 2015

            Your argument is a false comparison because you are now trying to twist it to an individuals ability to gain credit not a member of the Eurozones ability to get money from other Eurozone members banks and then like Greece and others plight at being unable to escape their plight by the traditional methods most sovereign nations apply.

            PS I do not see myself as a “Europhobe” you have started to label me as your latest attempt to insult me, as this would be someone who had an automatic irrational hatred of the EU and perhaps even all things European.
            And I do not have that mindset.
            As I have stated to you before several times I voted yes in the 1975 referendum.
            But because the EU has led to distress, poverty and rising unemployment and has lurched from a trading bloc towards a cenralised socialist minded outfit, my enthusiasm over the years has gradually waned.
            If it were successful and I really wish it was successful, I would support it enthusiastically as I did all those years ago.
            My position is a mixture of the current Government and Mr Redwoods attitudes.

          4. Jerry
            July 18, 2015

            @Edwasrd2; Err, much of Greece’s problems do stem from excess individual debt!

          5. Edward2
            July 19, 2015

            Wrong again, the Greek problem is Goverment debts.

          6. Jerry
            July 19, 2015

            @Edward2, Nonsense. It was originally private debt just like the UK’s 2007-8 financial debt crisis was, just as ther US’s 2007-8 financial debt crisis was – they might now be classed as state debts but that is the result not a cause.

          7. Edward2
            July 19, 2015

            Its not a nonsense Jerry.
            As you say yourself its classed as State debt.
            Created by state overspending and overborrowing.

  14. Denis Cooper
    July 16, 2015

    Well, Greece had some nice drachma banknotes, and indeed at certain times in some areas they had nice banknotes of other currencies issued by foreign occupiers, including by the British army during the last months of the Second World War:

    http://www.greekbanknotes.com/greek-banknotes/british-occupation-forces/

    However most Greeks would still prefer to have euro banknotes, just more of them.

    to the old drachma banknotes

  15. Peter Stroud
    July 16, 2015

    Monopoly money comes to mind.

  16. agricola
    July 16, 2015

    Well John a UK bank note carries a lot of history and tradition with it, not surprising ,it’s been around a long time.

    Neither the Pound nor the Euro have any backing of substance, that went out of the door when the gold standard was abandoned. Now they are both at the mercy of an infinite amount of manipulation and neither are of the same value as the day they started out. Really they are no more than a convenient means of exchange at a given point in time. As we have seen even their relative value, lets say Pound to Euro, is subject to manipulation and that is putting it mildly.

    If you have a lot of them then better convert them to assets of limited or diminishing availability. In extremis, think of the recent Mark 1 Spitfire, built for about £10,000 in 1939 and sold for over £3,000,000 a week ago. In ten years you could double that figure while halving what you could buy with a bank note.

    Reply But it does have serious backing – the pound is backed by the Bank of England and by the whole taxable wealth of the UK, as symbolised by the Queen and the Bank of England on the note. Which tax revenues stand behind the Euro?

    1. agricola
      July 16, 2015

      John, for all the backing you site, and it sounds good on paper, why are the amount in goods you can get for it constantly diminishing. Without wishing to sound tedious, it is because Government and the Bank of England are printing more paper than the wealth of the country can possibly justify, and mostly to cover their own excessive spending.

      Reply Inflation is currently zero

      1. Jerry
        July 16, 2015

        @JR reply; Indeed the official inflation rate is zero…

        1. Edward2
          July 16, 2015

          Do you have your own correct “Jerry” rate?
          If so please tell us what the correct rate is with all the scientific data you use to come to this statement.

          1. libertarian
            July 17, 2015

            Edward2

            I think you’ll find Jerry believes that inflation is currently 5.1% as that is the rate in May 1937 which is the decade that Jerry permanently inhabits.

          2. Jerry
            July 17, 2015

            @Edward2 @libertarian; Unlike you two (it seems) some of us live in the real world, not a world of statistical spreadsheets that only measures selected items placed into a largely unrealistic virtual shopping-basket.

            Heck politicos can’t even decide what measure to use, CPI or RPI, even out host has in the past criticised the use of CPI as not giving a true picture and thus correct set of economic policies -although this was in January 2007, so he might just have wanted to criticise the Blair/Brown government, not the worth of CPI over RPI…

          3. Ted Mombiot
            July 18, 2015

            So what is the correct rate and method if calculation Jerry

        2. libertarian
          July 18, 2015

          So Jerry

          Please tell us what inflation actually is at the moment and how you’re calculating it oh and remember you can’t use a spreadsheet ( i have no idea why you can’t Jerry, your ramblings get more and more obtuse, very soon you will have a whole thread where you can argue with yourself)

      2. gary
        July 17, 2015

        @inflation is zero

        that’s a joke. They leave housing, bonds and fuel out of the calculation ! Savings are being confiscated. Yes, ” inflation is zero” a joke that only politicians believe.

    2. gary
      July 17, 2015

      some backing ! the pound has lost 99% of it’s value in 100 years. It may as well have fairy dust backing.

  17. gary
    July 17, 2015

    they’re both irredeemable fiat pieces of paper that will ultimately achieve their intrinsic value of zero. The pound note has lost 99% of its value in the past 100 years. So, has the dollar. The Euro will also lose that much, it just hasn’t been around long enough. So much for comparing rubbish with rubbish.

    1. Edward2
      July 17, 2015

      Are you not mistaking the effect of domestic inflation for confidence in our currency when you say it has lost 99% of its value?

      1. Gary
        July 17, 2015

        no, I mean the pound has lost 99.42% of its value in 100 years, against the only currency that has been around for 3000 years and tracks the real interest rate better than any substance known to man in the “most solid relationship in all economics”(see Keynes and Gibson’s Paradox), because it is sound money.

        “The fate of the pound sterling has been even
        worse than that of the dollar. One ounce of
        gold today is £692.26. So if a pound sterling
        pre World War I was just a name in
        the UK for 1/4 of an ounce of gold, it would
        imply that the pre World War I purchasing
        price was 1/4 of £692.26 or £173.06. In fact
        the pound sterling has lost 99.42% of its
        purchasing power in 100 years. One pound
        should buy something like a good week’s
        food shop for a family of four and not just
        one daily newspaper like it would today.”

        http://www.cobdencentre.org/2010/02/how-much-is-your-pound-or-dollar-actually-worth-since-government-has-been-in-control-of-money/

        1. Edward2
          July 18, 2015

          First gold is a traded precious metal which has risen in price as people all over the world want it for engineered products and jewellery as well as an investable product in itselfTo cpmpare it to a paper currency not linked to gold is meaningless.
          Secondly we are better off today despite your theory because we get paid more in value and spending power than we did years ago.
          Again you are actually demonstrating inflations effect.

        2. libertarian
          July 18, 2015

          Gary

          According to a website calculator I just found £1 in 1900 now purchases equivalent £96 . The fact that the price of gold has risen is a false comparison, things changed a long time ago since coinage was actually gold or silver

  18. bluedog
    July 17, 2015

    The Euro became implicitly worthless the evening that the ECB withdrew support from its agent in Greece, the Bank of Greece.

    You now know at a moment of its absolute discretion the EMU, acting through the ECB, can and will destroy the banking system of any Eurozone member. There are no inhibitions about doing so. We also know that the European Commission can and will garnishee the funds of any member of the EU at the absolute discretion of the President of the EC. Juncker has just done it.

    Looking at this situation from the outside, what nation state could sensibly join the EU? The actions of the EU are no better than those of a bunch of spivs.

  19. Martin
    July 17, 2015

    Given your views on banknotes perhaps you should compare the latest Bank of England notes with the latest Swiss National Bank Notes

    http://www.snb.ch/en/iabout/cash/current/design/id/cash_current_design_20

    Norway’s are also interesting!
    http://www.norges-bank.no/en/Published/Press-releases/2014/Press-release-7-october-2014/

    Incidentally the present Queen is one of the few monarchs ever to be on bank notes in the UK.

    As ever the BBC did not do their homework and challenge your views !

    Reply Yes, I see the Swiss notes are clearly backed by the Swiss National Bank and illustrate famous Swiss people to show the nation backs them. The Norwegian ones also have the backing of their Central Bank and the
    Norwegian flag to show their country is behind them, as well as recognisable symbols of Norway e.g. the long ship

  20. Gary
    July 19, 2015

    gold is money.
    jewellery is a store of value, which is a characteristic of money. gold jewellery is gold money in a wearable form. It is still money, it is still gold.

    money is the most liquid commodity ie. it has constant marginal utility. There is always constant demand for an extra until of gold, regardless of how much is already held.

    the implication of the above is that money must have certain characteristics to make it the most liquid commodity. It must be portable, fungible, non counterfeit able (unlike fiat paper money which is constantly counterfeited by banks alone) , durable, divisible, non ubiquitous, and not consumed by industry. Almost all gold ever mined is still around. A consequence of this is that gold is demand sensitive only. Incremental added supply is inconsequential to the existing supply

    Nothing else has these money qualities as much as gold. Try to name them ? These qualities cause gold to be the most sound money and this can be seen that the the demand for gold (value) tracks the growth in the economy. (in a free market). Keynes observed this, Larry Summers and Barskey corroborated it in an important paper.

    Like almost everyone today, you don’t understand gold. It’s not your fault, the study of gold has been (studiously) abandoned. No formal education is available. We will all learn about it again the hard way.

    PS. some cryotocurrencies are emerging to challenge gold. They surpass gold in portability and storage convenience

    1. Gary
      July 19, 2015

      this post was for Edward2 (and “libertarian”)

    2. Edward2
      July 20, 2015

      Yes I know all that you have said about gold.
      You were saying originally compared to gold our pound is worth much less than it was.
      I was saying the comparison was faulty because there is no longer any formal link between the two items.
      As a statistic it may be true but it has no real impact.
      Since we abandoned the gold standard standards of living have risen greatly.
      As you say paper money has no real value it has a confidence accepted by everyone using its convienience backed by our countries economic performance and the proberty of its central bank.

      1. Gary
        July 20, 2015

        gold is the touchstone against which all money is measured. that’s how we can make the statement “the pound has lost 99.42% of its value in the past 100 years”

        If we had a gold standard we would have even been better off. The growth under the Bretton Woods gold standard, imperfect as it was implemented, surpassed anything else in the post war period.

        The opportunity cost of not using gold is unseen, but Bretton Woods gives us a clue. The opportunity cost of anything the govt does is unseen , but it’s massive. That’s how govt fools people, by hiding the opportunity cost. If people could see the opportunity cost, govt would be removed before the morning

        See Bastiat’s Broken Window Parable as the best tract ever written about this. imo

        Reply Gold is a volatile commodity which has just lost a large chunk of its value in dollars or pounds, hitting a new multi month low yesterday. We no longer have a gold currency so you need to switch gold into pounds to buy anything in the shops.

        1. Edward2
          July 21, 2015

          Well gold has just had a huge drop in value does that make me richer or poorer gary?

        2. Gary
          July 21, 2015

          On this Monday, there was 40% more gold derivatives contracts dumped in one minute than the total Registered physical gold inventory of COMEX derivative exchange. 7000+ contracts worth against under 500,000 oz of Registered. That is where the price of gold is set, in the derivatives paper market.

          There is no quoted spot physical price of gold, only a derivative paper price of the nearest month. Why is that ? Well, we know for a fact that during the 60’s and early 70’s they pooled physical gold in order to sell into a rising market to cap the price. That was called the London Gold Pool and that imploded when France knew the game was up and sent a battleship to NYC to retrieve France’s gold. So there is form. Now they dump paper derivatives contracts and abolish the physical quote, in a modern form of the gold pool. Germany now cannot get its requested physical gold repatriated, just as France suspected would happen to it all those yars ago.

          Keynes noted , after looking at 200 years of data of gold standards, that the price of gold moves in lockstep with the real interest rate(inversely) ie. the price of gold matches the real(not nominal) growth rate. He said it was the most solid relationship in all of economics and called it Gibson’s Paradox. So, if the price of gold is more volatile than the rate of growth of the economy, then we must reasonably suspect that the “most solid relationship in all economics” is being violated and that the price of gold is being manipulated , and manipulated with extreme volitility.

          PS

          If you use gold to pay employees and do transactions, and not the decreed fiat papar, you will go to jail as tested by a recent case in the USA. Gold as money is outlawed by decree.

          1. Edward2
            July 21, 2015

            As Keynes once said “In the long run we are all dead”
            Quoting Keynes in 2015 is like wanting Chopin to be top of the pops
            Nice thought but not relevant to modern times
            The gold standard was abandoned decades ago and with good reason.

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