Iran melting down | 54 comments (54 topical, 0 editorial, 0 hidden)

Re: Iran melting down (none / 0)

You're right, liquidity is the right word to use, but I don't think your story makes that case because of the fact that foreign currency's supply is fixed, just like gold. This means you can't separate the demand for gold or dollars as scarce commodities -- investments to hold, not currency to trade -- from the characteristics of demand for either as a form of money. If there were no limit on the supply of dollars, and people still made runs on the bank for gold and not dollars, then your account of cause and effect would hold.

by santiago on Fri Dec 30th, 2011 at 11:03:11 AM EST
[ Parent ]

Re: Iran melting down (none / 0)

Santiago,

I'm not in Teheran and I don't speak Farsi. But taking the words from Iman a rumor emerged that fake dollars where flowing to the black market. Even if not true, this rumor itself creates the expectation of expanding supply and has an impact on the velocity of this asset.

luis_de_sousa@mastodon.social

by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Fri Dec 30th, 2011 at 03:50:30 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

Wouldn't a rumor of counterfeit have the opposite effect -- of creating an expectation of contracting supply for real dollars and a desire to hold onto the real dollars instead of use them since if the rumor were true it would mean that every dollar held contained the change that it would be unusable in an actual transaction? It's the threat of counterfeit that would drive people away from using dollars as money, not that gold in of itself would be more preferred than dollars. The same could be said of gold if an effort to counterfeit gold or, lower the weight of gold coins, were also to occur, something which is easier to do than counterfeiting dollars. The issue isn't that you're wrong but that the Iranian case doesn't seem to have the elements necessary to back up your point.

by santiago on Fri Dec 30th, 2011 at 04:45:53 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

I wonder if there is an easy way to get an accurate measurement of the purity of your gold cache.

Obviously you can weigh it, find the volume, and calculate the density, but can you do it accurately enough to get a useful result? Worse, I can think of several ways to make a counterfeit gold coin without even working at it; how do gold enthusiasts claim to protect themselves from this problem?

by asdf on Fri Dec 30th, 2011 at 11:29:36 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

Interesting how this thread became so gold focused. I find here the same religious attitude towards gold that I find at Kitco, all that differs is the stance.

If you're so interested in assaying gold coins at home you can do it by yourself using a bit of high-school chemistry, the periodic table and some instruments to measure volume and electrical conductivity.

luis_de_sousa@mastodon.social

by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Sat Dec 31st, 2011 at 05:38:08 AM EST
[ Parent ]

Re: Iran melting down (none / 1)

Looks to me like the answer is that you can't actually do a good test at home.

http://commoditybullmarket.blogspot.com/2009/04/how-to-detect-counterfeit-gold-coins.html

If you have the facilities to melt a bar, you can adulterate the alloy to reduce the gold content. For example, if you start with a tungsten slug and wrap it in aluminum you can get the density of a core correct, and then surround it with gold you can get a bar that will pass everything except a melt-down or an x-ray. Whether that will be cheaper then the underlying gold is an interesting question.

Apparently it all boils down to trust, where you buy from somebody you trust and then trust that somebody else will buy it from you when the apocalypse arrives.

Also it seems, based on cursory investigation, that it's not illegal to sell "counterfeit" gold. It's a commodity, not government-issued currency.

by asdf on Sat Dec 31st, 2011 at 03:23:05 PM EST
[ Parent ]

Re: Iran melting down (none / 1)

asdf:

Also it seems, based on cursory investigation, that it's not illegal to sell "counterfeit" gold. It's a commodity, not government-issued currency.

I would not be counterfeinting, but surely there are laws in most countries against selling a commodity while claiming it is another?

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by A swedish kind of death on Sun Jan 1st, 2012 at 06:08:35 AM EST
[ Parent ]

Re: Iran melting down (none / 0)

Sure, but you can buy "copper" at the hardware store. What is the purity, the alloy details, etc?

The gold bug thing has fraud written all over it...

by asdf on Sun Jan 1st, 2012 at 07:32:27 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

The only way I can think of it wouldn't be illegal would be by selling bars or coins without any information (fineness, metal, value) stamped/coined. Would you buy such a thing?

luis_de_sousa@mastodon.social

by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Mon Jan 2nd, 2012 at 03:43:47 AM EST
[ Parent ]

Re: Iran melting down (none / 1)

well maybe not illegal to sell counterfeit gold, Apart from the fact that it would be fraud to sell gold, and it turns out to be gold wrapped round whacky metal composite. But most gold buyers buy in the form of coinage, and those it would be illegal to counterfeit. You do get jewelers buying in bar form and those odd gold bar vending machines, but I've always seen them more as a PR stunt than anything like a proper business venture.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Sun Jan 1st, 2012 at 09:13:34 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

It's the threat of counterfeit that would drive people away from using dollars as money, not that gold in of itself would be more preferred than dollars.

Precisely. Under this scenario the velocity of greenbacks goes up while for gold it remains stable.

luis_de_sousa@mastodon.social

by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Sat Dec 31st, 2011 at 05:40:01 AM EST
[ Parent ]

Re: Iran melting down (none / 0)

Except for the fact that it is a lot easier to rip people off with fake or reduced weight gold when used for currency than it is to print counterfeit dollars or euros, so the counterfeit threat doesn't add anything to the story here.

by santiago on Sat Dec 31st, 2011 at 03:05:20 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

It does not have to be more difficult to counterfeit gold for people to prefer gold to dollars. It only has to be believed that it is more difficult to counterfeit gold...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 31st, 2011 at 04:31:56 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

True, but such a condition can only last for a short time before actual gold counterfeiters begin to compete with each other, and with currency counterfeiters, for business. Once people stop trusting the weight of gold involved in everyday, local transactions, any advantage of gold over currency disappears and "bad money" starts again "drive out the good" as people hoard the gold instead of using it as currency.

by santiago on Sun Jan 1st, 2012 at 12:06:12 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

People don't use gold as currency, they use it as a presumed safe store of value during a run on the currency. Runs are, of necessity, reasonably short affairs, so the belief doesn't have to last that long and the time window for the creation of fake gold to respond to popular demand is fairly narrow.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jan 1st, 2012 at 03:59:43 PM EST
[ Parent ]

Re: Iran melting down (none / 0)

Exactly. Gold is not being used as money, so any arguments about it being better than paper currency because people seem to want it (and also want foreign paper currency) now in Iran for wealth preserving purposes and not transaction purposes say nothing about gold used as money as the diary talks about -- just that people may want to hedge wealth in Iran now more than before for whatever reason.

by santiago on Sun Jan 1st, 2012 at 04:10:09 PM EST
[ Parent ]

Re: Iran melting down (none / 1)

It comes down to a fundamental dispute over whether money should function as a long-term store of value. The gold bugs believe that money should store value long-term, and so see the failure of paper currency to do so as evidence that it is a poor form of money.

I believe - and you seem to agree - that money should store value only long enough that its depreciation is not an inconvenience in ordinary transactions, because money is an instrument for organising transactions. In this picture, the failure to store value over years or decades says nothing about the suitability of currency to function as money, because money only needs to store value on the order of weeks and months.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jan 1st, 2012 at 06:23:42 PM EST
[ Parent ]

Gold Buggery...who benefits? (none / 0)

The beneficiaries of gold buggery are the traders, not the hoarders.

There are huge parallels here to the financialization of commerce that brought the booms and busts.

Gotta have booms and busts. Higher money velocity generates higher returns for financial parasites. I'm reminded of Kurt Vonnegut's analysis of lawyers:

"To encourage movement of money and always take ten percent."

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Thu Jan 5th, 2012 at 11:04:08 PM EST
[ Parent ]

Iran melting down | 54 comments (54 topical, 0 editorial, 0 hidden)

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