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EnergyCzar79 (66.67)

Is gold worthless?

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October 21, 2008 – Comments (50) | RELATED TICKERS: GLD

In the spirit of the Motley Fool, I am about to ask the one question that dare not be asked. I am sure it will bring a fire storm of protests, but the question will remain.

OK, here goes...

 

 

 

Isn't gold a fiat currency?

 

 

 

I hear a lot of people wanting to rush to gold to protect their assets. One day I stopped to ponder why.

I decided to look around my house to see what purpose gold served in my life. I found the following:

1) My wife had a small amount of gold jewelry, I had a gold wedding band, my fancy pen had a gold ring on it.

2) Our nice china had a very thin gold ring all the way around the outside edge of the plate.

3) My A/V receiver in the living room had gold plated input/outputs on the back.

 

That was it. The first two uses of gold were for ornamental/decorative purposes only. The third supposedly had an electronic function but my other A/V receiver without gold plated I/Os sounded just as good as that one.

So I asked myself, "If gold were suddenly removed from my life, how would my life be compromised?"

The answer was rather shocking. Not at all.

My wife would still be as pretty. I would still be married without the wedding band. My pen would still write. My plates could have a different color edge and I don't think I'd really care. And my music would sound the same as far as I can tell.

 

Hmmm... So why is gold so valuable?

 

I searched the web, the industrial uses I found for it were minimal at best. Most could replace gold with some other substance.

I still hadn't answered the question. There was no reason that I could see that gold couldn't be totally removed from the Earth and we probably wouldn't blink an eye.

Gold had been used as a medium of exchange in the past, but so had cowrie shells. There was really no difference between the two. They both were a limited commodity that one could occasionally find with a lot of effort.

The only conclusion I could come to was that gold is valuable because we believe gold is valuable. Circular reasoning.

That is the classic definition of fiat currency.

It would also explain why gold has refused to shoot through the roof with the recent stock market decline.

It occurred to me that in this global re-evaluation of values, people worldwide are shaking off their belief that gold has value.

Whoa, that was a mind numbing thought to me.

So the question remains...

 

"Isn't gold just another form of fiat currency?"

 

OK, your turn...

50 Comments – Post Your Own

#1) On October 21, 2008 at 7:45 AM, Nainara (< 20) wrote:

Gold has few industrial purposes and is almost always hoarded. In that sense it is a fiat currency.

On the flip side, history has demonstrated that throughout crisis times and war times, unlike paper, gold tends to retain much of its value. Or, more precisely, gold retains the illusion of value as a medium of exchange even in times of economic duress. Moreover, the total supply of gold is not easily manipulated by governments. (although the market supply certainly is!)

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#2) On October 21, 2008 at 8:41 AM, dinodelaurentis (56.46) wrote:

perception is reality.

when tulips come back in fashion, my mother will be a trillionaire...

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#3) On October 21, 2008 at 8:47 AM, carcassgrinder (45.92) wrote:

Gold used to back currency....so it had a tangible representative value.  This is no longer the case.  Gold is a lot like a bundle of bad mortgages these days, it is only worth something if there is confidence in it's percieved value.  Once that confidence drops...all you're left with is a rare, soft metal with very few practical uses.

Gold has become all but worthless over the last 2 decades, and it is only a matter of time before the market catches up.

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#4) On October 21, 2008 at 9:19 AM, johnw106 (60.90) wrote:

Gold has value for three reasons.

Easily shaped and worked with.

Hard to find.

Its shiny.

As a currency in the modern world its worthless. If the Global economy crashes, chaos and anarchy set in, half the world starves to death and we fall into a second dark age, then gold will be worth having as a bartering tool.

 

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#5) On October 21, 2008 at 9:34 AM, bendlund (99.81) wrote:

I'll trade a can of beans for a bar of gold, any takers?

 Seriously, I don't understand the appeal of gold - it's grossly overvalued. 

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#6) On October 21, 2008 at 10:07 AM, GNUBEE (24.82) wrote:

YES.

Oil, and other necessary commodities are going to be the new gold. Although the gold to population ratio is at its lowest ever, so there might still be enough people to see gold as "scarce" and drive its value

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#7) On October 21, 2008 at 10:30 AM, LordZ wrote:

Gold bullets rules...

Oh wait isn't it silver ??

Um no thats for vampires and were wolves...

It is what it is

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#8) On October 21, 2008 at 10:40 AM, XMFSinchiruna (28.58) wrote:

Oh, my fellow Fools.... how far have you strayed from wisdom here. I have posted enough information on my blog over the past year or so that anyone with a desire to learn has the resources they need to understand gold more fully. Can it be true that no one is going to come to the plate in defense of gold?

Let's begin by discounting the ridiculous attempt to pair the words gold and fiat in any sentence that doesn't portray them as opposing contructs. Since the very definition of fiat is predicated on the difference between paper money and gold, then from the onset it's clear the word can in no way be used to describe gold:

http://en.wikipedia.org/wiki/Fiat_currency

The terms fiat currency and fiat money relate to types of currency or money whose usefulness results not from any intrinsic value or guarantee that it can be converted into gold or another currency, but instead from a government's order (fiat) that it must be accepted as a means of payment.

Historically, societies have relied on monetary systems where currency used in trade was either composed of a physical commodity (such as gold coin-- see commodity money) or else if not directly composed of the commodity, was exchangeable for a predetermined amount of a physical commodity. This could be a precious metal such as gold, silver, or copper, although some systems had representative money that was redeemable for a fixed amount of other commodity items such as crops, beasts of burden, or food.[3] For more information on currencies made of, or backed by, commodities, see representative money, commodity money, gold standard and/or silver standard.

Now...as to those who cla

carcassgrinder

Back to the drawing boards, man. Your understanding of gold is fundamentally flawed. You're getting it backwards... money used to be backed by gold, so it had a tangible representative value. Now paper money is backed by nothing, and itis worth something only as long as there is perceived value. When that confidence drops,all you're left with are some silly pieces of paper, with no practical purpose except as kindling.

bendlund

I'll take that deal! How's shall we do the swap? Name the time and place. :)

To those who see gold as some sort of irrelevant relic, may I remind you that we've been just 37 years with this modern experiment with full-fledged fiat currency. And in case you haven't noticed, it's not going so well. We're printing trillions of these new fiat dollars to address a crisis within another new experiment: the 9-year experiment with the complete retraction of all post-depression restrictions on the financial sector.

As all this paper crap unwinds, and the currency is irretrieveably debased by a flood of new money, can you really stand there and dis gold with a straight face? Do you know the kind of inflation we're due for.

Gold is a currency. It has been throughout history, and it remains so today. It is the only currency recognized everywhere in the world as such, and because of that universal acceptance its value is more intrinsic than ascribed.

The USD is experiencing a disjointed rally as the world's economies come to grips with the scale of the crisis we gave them, so there is apparently still a little time to do some research and learn something about gold. I don't revere or idolize the stuff... hey, it's only money... but is is the only true form of money in the world, with silver a close second.

I am weary from constantly having to defend gold as a safe haven from those who would dismiss it as a relic. At some point, I have to throw my hands in the air and say fine... enjoy your USD... hope that works out for you.

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#9) On October 21, 2008 at 10:41 AM, XMFSinchiruna (28.58) wrote:

GNUBEE

Et tu, Brutus?

:(

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#10) On October 21, 2008 at 11:03 AM, carcassgrinder (45.92) wrote:

Indeed TMF. Your constant defense of gold sounds more like you trying to convince yourself of these points.

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#11) On October 21, 2008 at 11:35 AM, johnw106 (60.90) wrote:

Well I do not see gold as a relic of by gone days. It does have value as a decoration. Status symbol. It is one of the few mallable metals you can wear that doesnt poison you.

As a useful commodity? You cant eat it. You cant drink it.

It is worthless for building tools or machines. It does have limited uses in industrial applications due to its anti-corrosive and conductive properties,namely as contact and interface points where heat is not an issue.

The issue isnt that gold is worthless, the issue is how to use it in day to day transactions? Walk into any store in the developed world and hand them a troy ounce of gold as payment for 100.00 dollars worth of goods and ask for your change.

If push came to shove in a world gone crazy, I would rather have 50 pounds of dry beans and rice than 50 ounces of gold stashed in a coffee can. Until the new dark age descends and the lights go out I will stick to the paper US dollar.

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#12) On October 21, 2008 at 11:50 AM, rofgile (99.00) wrote:

Gold is different than paper money, hydrocarbons, diamonds and many other substances.

 

Gold is a rare element with some nice properties- it is easily worked with for making jewelry, it doesn't tarnish, and it is pretty.  Those are most just nice attributes.  The key thing is that gold is an element that is rare.

 We cannot make elements like gold (many an alchemist has tried!).  The only way to make gold is by fusion reactions, which we are not really doing so well at.

 Paper money we can always print more of.  Digital money we can always expand.  Hydrocarbons we can replace with another energy source.  Diamonds we can now synthesize.  The difference between gold and other elements and everything else is that we cannot make more of them.


That is why they are not fiat currencies, we cannot control how much exists.  By mining we can increase the amount above ground, but that is limited by how much we can dig up.  The fundamental difference of gold and every other thing is that we cannot just one day increase the amount in circulation by 10%, etc.  Whether that makes it worth something is up to you.

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#13) On October 21, 2008 at 12:05 PM, anchak (99.84) wrote:

I was wondering looking at the first page of this post - where Chris(TMFSinchiruna) was.

Folks..... I am not a gold bug. If you notice my posts on the topic of Gold ( only on other people's blog - I do not consider myself an expert) - my position pretty much thru the summer had been that Gold would take a dive - see everybody is buying this total asset price deflation thing.

I do hold gold in my accounts and have traded it in the past ( all profitable) - currently all my positions are under water ( Big time - in AUY) . I started buying at $810-820 range and dollar costed a bit.

Please before bashing Chris - read. He has a vested interest and he's all upfront about that. Q to yourself should be whether it makes sense or not.

Gold because of the fact that it had been a currency since ancient times and MORE IMPORTANTLY - its a precious metal and there are only finite quantities of it - will always make for a natural index/baseline of UNBOUNDED currencies of the world. It really has little to do with its physical uses.

Majority of the physical consumption of Gold is driven primarily by 2 countries - India and China ( to a lesser extent). The other big hoarder/repository of Gold these days are the Exchange Traded Funds depositories ( ie the people who hold the physical on their behalf). But this is all incremental.

The highest concentration of Gold holdings have always been the Biggest Central/Sovereign Banks of the world including IMF. 

Yes there is tremendous price manipulation of Gold - but to say that its not an inflationary hedge, is trifling with the concept. It is a kind of a trade - you do need to buy cheap and sell dear.Otherwise you hoard - please show me one instance of Central banks gold holdings showing any disruptive pattern. They continue to hold and WILL HOLD. 

 

 

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#14) On October 21, 2008 at 12:37 PM, GNUBEE (24.82) wrote:

Sinchy,

That was deserved.

In response to "Is gold worthless" I guess I should follow up my simple "yes" with a "gold still has value, but not to the extent that it has historically had."

After watching the run up in oil and other "necessary" commodities I can't help but think that as an investment, people will gravitate toward goods with a known stable demand. Meaning you can pretty much guarantee a certain volume of oil consumption, fertilizer consumption etc. This known required consumption adds security (as investments go I like security). If a nation/government must secure the future needs of its population, it would do so by trying to "lock up" needed resources, thus driving up prices. Not by purchasing gold.

If it comes down to giving up your gold, or your grain upon threat of starvation, gold becomes worthless.

Now it is up to you to decide if the world has a limitless supply of resources to support human existence. In our lifetimes, barring any complete chaotic global meltdown. Gold will remain a stable store and exchange of wealth among the wealthy (Rich and Goverments) but once the needs of the populus begin to the require basic commodities above equilibrium levels, their values will increase exponentially.

In conclusion, Sinchy and I will be alive in our lifetimes so I do not see gold as worthless, but requiring some thought as to it's value moving forward. Yes Gold will most likely appreciate. But as investments go I think there is too much chaos now, and fear of starving will garner larger returns.

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#15) On October 21, 2008 at 12:47 PM, JakilaTheHun (99.93) wrote:

Gold is, in a sense, "fiat currency"; however, it's a particularly good form of fiat currency that is less subject to manipulation than paper. 

Great blog one way or another. 

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#16) On October 21, 2008 at 4:14 PM, GeneralDemon (22.95) wrote:

Oh boy, it is shocking how so many can remain so clueless. Sorry to be so blunt.

The value of Gold is tied to the cost of locating it and digging it up and refining it into a measureable state, coin, bar, etc.

If I want to make a dollar, all I have to do is print ink on a piece of cotton (dollars are not paper). 

If I want to make gold, let me see, humm..... oh.

Douglas Casey has stated that the only way gold will actually lose some relative value is when scientists learn how to extract large amounts of gold from seawater (by genetically programed bacteria). Until that happens, we will live with gold valued as it has for over 5 thousand years. 

Why do people always think the times they happen to be living in are different? They happen to be so special, that they live in the time when 5 thousand years of history becomes unimportant???

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#17) On October 21, 2008 at 4:31 PM, XMFSinchiruna (28.58) wrote:

carcassgrinder

Trust me.. I need no convincing. Every long-term Fool in here will attest to the consistency of my views on gold for as long as I've been active at this site. Disagree with me if you wish, but I hope you will appreciate that my efforts to educate my fellow Fools about the importance of gold ownership at a time like this comes straight from the heart.

TheHuney

Unfortunately, gold has been the target of rampant manipulation by major brokerages and central banks for years... with a particularly stepped up effort lately to prevent this from happening.

From French bank Credit Agricole's 2007 report The Remonetization of Gold: "Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000" the Chevreux report announced seven years later. "This gold has been lent to bullion banks and their counterparties and has already been sold for jewelry, etc. Non-gold producers account for most [of the borrowing] and may be unable to cover shorts without causing a spike in the gold price."

GNUBEE

If our financial system is truly breaking down to the point you suggest, then gold will skyrocket in value just in time for you to convert it to massive quantities of food if you so desire. Global financial systems don't disappear overnight, and the messy chaotic stage is the prime environment for the preservation of wealth through gold. Again, it's a relative question... how many cans of beans will you be able to buy with paper money in a systemic collapse scenario? By all means, stock up on food supplies... as I suggested people consider in my above-linked post from December... but that doesn't mean there's no room for gold ownership.

johnw106

Gold is not a commodity. Gold is a currency, and one which happens also to have a few industrial / aesthetic properties that further support the currency's value.

Gold is in NO sense a fiat currency. It made for a shocking opening line to this blog post, but there is no truth to the notion. EnergyCzar, since you asked yourself whether your life would be any different if you removed all the gold from your house, I ask in return, would your life be different if you removed all the paper money from your possession? If your bank accounts were dried up instantly, would your life change? Of course it would. Gold, for all the ire it seems to attract from you guys, can still be easily converted to the fiat currency of your choice. The point is to hold it through the impending hyperinflation which will arise as a direct consequence of coordinated efforts to prevent a systemic collapse... and then convert back out of gold when the time is right. History clearly demonstrates that those who execute such a plan effectively can completely side-step the ravages of rampant inflation.

Keep in mind... there is no rationality in any market at the moment. The Dow above 9,000 doesn't even begin to be comensurate with the scope of the problem, and AUY around $5 is as irrational as Fannie Mae was a year ago at $60. The markets are so severely disjointed by indiscriminate selling, option calls, and other forced liquidation activities that no aspect of the short-term tape holds any meaning whatsoever.

I hold for the longer-term trend, and await the return of rationality and fundamental analysis to the markets when we can again discuss these issues in the context of a more realistic price environment.

Sorry to spew at such length, but as always, I simply want my fellow Fools to fully understand the issue. I don't claim to have any kind of monopoly on truth here, by any means... I'm just one man with a concerted opinion. I respect those who hold alternative views on the subject, and I engage in debates of this nature purely out of a sense of concern for the financial well-being of us all.

What's more... I hope I'm wrong. I hope they have some magic plan in place to save the dollar from collapse and place the world on a path towards equitable prosperity. Because I fear the alternative, I hope the dollar continues to rise and continues to find buyers by the billions. Since my investments both in real life and in CAPS are unhedged and focused primarily on precious metal equities, you see I am essentially saying I am hoping to lose everything. I would rather lose everything I've worked hard to save and live out my life in a world of peace and prosperity than to make a bundle as gold skyrockets amid global financial chaos. Unfortunately, I view the latter scenario as more likely to persist, and so I remain invested this way.

Whether you agree or disagree with my opinions on the matter, I am thankful that we have this great forum to discuss these important ideas, and I hope you will nonetheless continue to enjoy my articles and posts on the topic.

Fool on!  :)

 

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#18) On October 21, 2008 at 4:51 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

 

Not to put too fine a point on it but I think you kind of underscored my point.

The reason gold has an intrinsic value is because so much ENERGY is used trying to retrieve it and refine it.

Again, I'd ask, "To what purpose since gold has little utilitarian value?"

Don't we have more productive ways we can use our energy?

Dogs go around digging holes for no discernible reason.

I'd like to think we are a tad more intelligent than dogs.

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#19) On October 21, 2008 at 5:11 PM, GNUBEE (24.82) wrote:

Sinchy,

 I read your post above, and we are both saying the same thing.

I do not think gold is a "magic bullet", but it should be part of a portfolio. We both think tangible assets, as opposed to 011010's, are where the money is to be made. We seem to differ in percentages though.

I do not see meltdown chaos ahead, but lots of fear, and that is the perfect breeding ground for gold. Gold is good when people have and want to protect wealth, but can still afford to eat.

As long as people have wealth and food, gold is a good place for riding out the storm, just not the only place.

I just wanted to point out that to decide your allocation between gold and basic materials, you have to figure out how close do you think we are to that meltdown. For me the impending consumption that China's population will put on resources makes the input commodities look more promising.  So for me it is basic metals, oil, gas, foodstuff first, with a sprinkling of gold/silver on top. YMMV

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#20) On October 21, 2008 at 5:47 PM, GeneralDemon (22.95) wrote:

EnergyCzar79,

I would agree that energy is an important variable - but you are not looking at the entire history. That is why I used the term "cost". My grandfather was a gold miner in the 1930's - he did it the old fashioned way, human sweat (cost). He used a hand rocker, pan and quicksilver - no energy besides home grown food.

As to your question - gold has a multitude of fall-back industrial uses but some are without any peer. Circuits and equipment that need materials that will not oxidize. 

Also I just referenced your excellent post in a blog of my own (here) about the crazy responces.

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#21) On October 21, 2008 at 5:53 PM, eldemonio (98.84) wrote:

Gold, like stocks, is worth whatever people are willing to trade for it. 

It is simplistic to make the argument that because something doesn't seem useful in our daily life,  it is not valuable.

Talk to collectors who pay lots of money for baseball cards, rare coins, stamps, Pez dispensers, etc. 

The fact that millions upon millions of people around the world trade in gold means that it is valuable.  Demand sets value, not some dumb a$$ sucker writing a blog. 

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#22) On October 21, 2008 at 6:09 PM, EnergyCzar79 (66.67) wrote:

TMFSinchiruna,

I will concede that the term 'fiat' was perhaps inappropriately used since there is no government mandate that gold should be accepted as currency.

I should have used the term 'belief based' currency.

Now that we have successfully negotiated picking that nit, we can move on to the original question.

I, as well as you, am interested in the Motley Fool's members being able to retain the value of a lifetime of work.

I would hate to see it destroyed because of the failure of a belief system; whether it be in US dollars, gold specie or cowrie shells.

Therefore, I would propose the idea that, as my screen name implies, I feel that ENERGY is a true form of wealth preservation.

Without energy no work is done. Basic law of Physics.

In tough economic times, I'd rather back myself with the Laws of Physics than a belief system.

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#23) On October 21, 2008 at 6:32 PM, EnergyCzar79 (66.67) wrote:

 

eldemonio,

I couldn't agree more that "Demand sets value, not some dumb a$$ sucker writing a blog."

Destroy the messenger if you must, but the question still remains.

Demand is a shifting variable. Tulip bulbs being a prime example from history.

Are there things in which the demand will shift but never go to zero?

Perhaps... ENERGY?

 

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#24) On October 21, 2008 at 6:42 PM, GeneralDemon (22.95) wrote:

EnergyCzar,

Destroying the messeger is a high art here on CAPS - you have to chuckle though "dumb a$$ sucker writing a blog" is pretty damn funny.

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#25) On October 21, 2008 at 7:00 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

I would beg your indulgence for just a moment.

You said your grandfather used, "...no energy besides home grown food."

What about his years of toil? Don't his man/years of labor count as energy usage?

I'm a little confused about your definition of cost vs. energy. Could you clarify this for me?

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#26) On October 21, 2008 at 7:09 PM, DemonDoug (98.84) wrote:

The only conclusion I could come to was that gold is valuable because we believe gold is valuable. Circular reasoning.

That is the classic definition of fiat currency.

Wrong conclusion.  Gold is a store of value mostly because of it's scarcity.  Gold became monetary when some ancient Egyptians decided that gold was awesome, so they valued it - and therefore that valuation has traveled down through time, so it is valuable not because we believe it, but because historically someone else believed it, and that valuation, along with scarcity, has made it a medium of exchange.  Silver, copper, and platinum have also been used as media of exchange.  Again, this mostly has to do with scarcity.

What scarcity does fiat money have? Answer: absolutely zero.  Hence your second conclusion is wrong, beacause fiat currencies have no scarcity or rareness, and can be created out of nothing, whereas commodities and currency metals cannot be created out of nothing.

BTW gold does have some significant industrial uses, it's not as worthless as you (and others claim).

"Isn't gold just another form of fiat currency?"

I'm going to be super insulting in response to this, and say next time you think about asking a question like this, do like 5 seconds of research on what you are asking before you make a complete idiot out of yourself again.

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#27) On October 21, 2008 at 7:11 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

My vanity (or lack thereof) is of little consequence when trying to put forth an idea of such monumental importance.

As I said in my original post, I expected a fire storm of protests.

Protesting is one thing. Proposing a convincing counter-argument quite another.

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#28) On October 21, 2008 at 7:20 PM, eldemonio (98.84) wrote:

EnergyCzar - please don't take offense at my nonsensical ramblings, look at my score and you will immediately feel better. 

By ENERGY, do you mean SOLAR, WIND, NUCLEAR, TIDAL, OIL, GAS, HYDROGEN, GEOTHERMAL, ETC?  Jeez, don't blog-yell at me dude. 

I don't see our energy demands shrinking over the long term, that's why I've been hoarding Duracel batteries during the last 6 months. 

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#29) On October 21, 2008 at 7:23 PM, EnergyCzar79 (66.67) wrote:

DemonDoug,

Oh contraire my horn-ed friend, being a complete idiot is what the most Foolish of Motley Fools do.

You said that gold, "...is valuable not because we believe it, but because historically someone else believed it, and that valuation, along with scarcity, has made it a medium of exchange."

Therefore belief begats belief.

Interesting, yet uncompelling.

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#30) On October 21, 2008 at 7:26 PM, GeneralDemon (22.95) wrote:

Hey EnergyCzar -

Please don't confuse me with DemonDoug (no relation). I am a separate Demon who has been lurking around the internet since 1995 under the ID GeneralDemon. Additionally, DemonDoug finds me to be a liar with no credibility - but I enjoy his posts.

To answer your question. Yes, my grandfather used his muscles and brain to seperate gold from mother earth. The energy he used came from his cells burning food that was grown from the sun's energy.

But you fail to grasp the fine point here. Any human endevor is undertaken under a COST/benefit equation - NOT a energy/benefit equation. Costs include energy, but only as a subset component.

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#31) On October 21, 2008 at 7:27 PM, eldemonio (98.84) wrote:

I'm going to be super insulting in response to this, and say next time you think about asking a question like this, do like 5 seconds of research on what you are asking before you make a complete idiot out of yourself again.

I thought that announcing the insult beforehand would soften the blow, but damn, that must have still hurt pretty bad.  That makes my "dumb a$$ sucker" a practical term of endearment.

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#32) On October 21, 2008 at 7:53 PM, EnergyCzar79 (66.67) wrote:

eldemonio,

My profound apology for the caps-lock.

 

By energy, I am indeed referring to all of them.

 

Currently, do to infrastructure, we are stuck with oil, gas and coal.

 

There is currently a raging debate as to viable alternatives.

 

The only real question is when will everyone come to the conclusion that wind is the most viable transition alternative. It uses cheap, existing technology. It can be easily incorporated into the existing power grid. It has the highest $/cost return.

 

In the future we will have to expand to other technologies to make up for the huge shortfall of wind energy and declining affordability of hydrocarbons.

 

You see, unlike some believe, I have done my homework. Do yourself a favor sometime and calculate the BTUs generated by a small amount of hydrocarbons. It's enormous. Now consider how many BTUs are contained in a single oil tanker. Then multiply that by the number of oil tanker-fulls of hydrocarbons American goes through in a single 24 hour period. The numbers will dwarf any Treasury bailout calculation.

 

I have calculated and thought for many years on this and I have developed a "most likely" scenario for the world's transition away from hydrocarbons to other forms of energy generation.

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#33) On October 21, 2008 at 8:10 PM, EScroogeJr (< 20) wrote:

Wow. For the first time in the last few weeks, a post that I agree with 100%. Gold has no intrinsic value. It produces no cash flow like real estate, it cannot be burned in an engine like oil, and it's not even edible like grain futures. The only thing to do with it is put it in a safe and hope some greater fool will want to repeat your mistake in the future. The surest way to bleed your portfolio to death over any 30-year interval is to buy bullion. By buying bullion instead of stocks, you've locked yourself out of the wealth-creation that's happening in the real economy. You've given away a productive asset that grows with time in exchange for a still-life piece that only gets cheaper because it has no utility and because mining companies keep producing more and more of it. If you want to own commodities, do yourself a favor and buy grain, timber, zinc, nickel, or whatever commodity you can think of. Even a cigar-butt investment like oil would be a better idea: at least it will have some applications in chemical industry for the next 10-20 years.

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#34) On October 21, 2008 at 8:16 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

I understand your concept of cost/benefit vs. energy/benefit, but I would ask a further question with your patience.

Oil just recently hit $147+ a barrel.

What happens to your equation when energy, being a subset of costs, rises dramatically?

If energy cost approaches total cost, we find ourselves with cost/benefit equivalent to energy/benefit.

Bit of a sticky wicket that, eh?

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#35) On October 21, 2008 at 10:41 PM, GeneralDemon (22.95) wrote:

EnergyCzar,

The total cost, in market economics will contain sub-costs that bring the most efficiency.

Energy costs as a component of total costs has not changed much. You can see this today with comparing the cost of a man digging a pile footing excavation (human labour + shovel) versus hiring a drilling rig (machine + petrol) - the costs are very close.

Today's petroleum is not the first energy type that has become scarce (look up sperm whale oil and the market impact). When petroleum costs rise up enough to bring other types into range with competing types the equilibrium will be met.

Also, new advances in active solar can potentially force downward pressure on all other energy costs per watt. 

Solar energy striking the earth for 40 minutes equals total global energy consumption for an entire year!! The American Southwest receives 4,500 quadrillion Btu's a year.

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#36) On October 21, 2008 at 11:22 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

 

To quote: "Also, new advances in active solar can potentially force downward pressure on all other energy costs per watt."

 

I would direct your attention to the word "potentially."

 

There are lots of "potentially"'s in the world. The DOW "potentially" could go to 20,000. The DOW "potentially" could go to 42.

 

Not much help there, really.

 

In my earlier post I was discussing what is here, now.

That's what we have to work with. NREL (National Renewable Energy Laboratories) is just a few blocks away from me. I keep a very close eye on where we are and what could be coming in the near future. I can't say that I've seen a quantum leap in efficiency of solar panels. Some promising ideas. But nothing new just yet. That is not to say that they don't have some proprietary stuff in the back room, but I have yet to see anything definitive with regards to significant increases in solar panel efficiency or production cost reduction.

 

The figures you quote are true. The only hang is conversion efficiency. I expect the next step from wind power to be solar collection. It's just that the (silicon based) panels cost so much to manufacture there is hardly any net gain at the end of the panel service life.

 

I'm not discounting panels. They are certainly worth the R&D, but if you think we are going to run the national grid system exclusively on them in less than 10 to 20 years without a major breakthrough... well, let's just say that I wouldn't bet my money on it. Especially when we are throwing up wind generation sites like nobody's business right now.

 

We have a major one here in Colorado on the Colorado/Wyoming boarder that is operational right now. I'm already starting to see the effects on my power bill.

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#37) On October 21, 2008 at 11:23 PM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

P.S. - The wind turbines were built by British Petroleum. ;> 

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#38) On October 22, 2008 at 12:33 AM, AnomaLee (29.20) wrote:

I just want to re-inforce the point that gold is not a fiat currency, as others have stated...

I've stated my opinion on gold many times through my blogs and comments here, but I find humanity's obsession to be fascinating and bizzare. I find it amazing that we continue to fortify and vault vast quanities of gold to this day, and that advanced civilizations in times past found such a great importance in gold --- searching the ends of the known world for it and burying vast quanities in tombs and pyramids....

I think the belief in the value of gold is Comparable to different religious beliefs. There is either validity or a the ideal is self-reinforcing  and comparable to faith.

Nanomaterial turns radiation directly into electricity (Link)

"Dispensing with the steam and turbines makes those systems smaller and less complicated. But thermoelectric materials have very low efficiency. Now US researchers say they have developed highly efficient materials that can convert the radiation, not heat, from nuclear materials and reactions into electricity.
Power boost

Liviu Popa-Simil, former Los Alamos National Laboratory nuclear engineer and founder of private research and development company LAVM and Claudiu Muntele, of Alabama A&M University, US, say transforming the energy of radioactive particles into electricity is more effective.

The materials they are testing would extract up to 20 times more power from radioactive decay than thermoelectric materials, they calculate.

Tests of layered tiles of carbon nanotubes packed with gold and surrounded by lithium hydride are under way. Radioactive particles that slam into the gold push out a shower of high-energy electrons. They pass through carbon nanotubes and pass into the lithium hydride from where they move into electrodes, allowing current to flow."

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#39) On October 22, 2008 at 12:33 AM, GeneralDemon (22.95) wrote:

EnergyCzar,

Ah ha, you read my blog on BP?

Have you heard about the nano tech photo-voltaic paint? This will change everything. I have read the tipping point will be the year 2050 - and by 2100 - 100% of all requied energy will be met by renewables. But you're right, that's a long time away, unless there is something about ready to hit the world (Ray Kurzweil style).

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#40) On October 22, 2008 at 12:44 AM, GeneralDemon (22.95) wrote:

If you find yourself anywhere near San Antonio, all you will see on the I10 freeway is semi after semi with those turbines and blades headed out of town. The're huge up close.

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#41) On October 22, 2008 at 1:12 AM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

Yes, I heard about the paint a couple of years ago. Back then it was supposed to be commercially viable by the fall of 2007.

Oh well...

I don't know about you, but something just doesn't strike me right about the idea that I could touch my house and be electrocuted to death.

But then again, maybe that's just me...

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#42) On October 22, 2008 at 1:18 AM, EnergyCzar79 (66.67) wrote:

GeneralDemon,

You ought to see those babies in operation. If you ever get to Northern Colorado, you should stop by the wind generation site.

And some people call them an eye sore...

I guess we could put flamingo heads on them and make them look like lawn decorations from a distance.

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#43) On October 22, 2008 at 1:34 AM, GeneralDemon (22.95) wrote:

In the Palm Springs area , there are enormous fields of them (all different generations, small to large) and the animal rights people are all atwitter (sorry) -

How can a bird not see these things ten miles away like we can?? For some reason they may attract blind birds, or suicidal birds.

If you had a turbine in your backyard, you'd never go hungry.

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#44) On October 22, 2008 at 1:43 AM, DemonDoug (98.84) wrote:

EC: I'm not a 100% goldbug so I'm not in the "gold is everything" tin foil hat crowd.  My point is that you are asking a question, and the answer to that question is "No" and the reason the answer is "No" is because of one word: scarcity.  Commodity based currencies have a finite supply, and some are more rare (or scarce) than others.

I will agree that gold has little utility, but it doesn't have no utility.  The computers you and I are using have gold in them, for example.  However, there are plenty examples of other cultures who valued gold higher, and others who did not value gold at all.  Many north american native americans had no use for gold.  It was not used as a medium of exchange.

Any medium of exchange has to have some sort of belief behind it, and that belief is that if you trade that media, you can get something of utilitarian value in return.  The difference between fiat and hard money is the infinite nature of fiat currency, versus the finite nature of hard money.  A nation's currency is not necessarily fiat - unfortunately, the Swiss removed the gold standard in 2000 as the franc was the last bastion of gold-backed money.

Functionally, the difference between fiat and hard money is huge.  Try loaning out 10 pounds of gold when you only have one pound.  Obviously you can't do it.  And what happens when mines supply the world with more gold one year, and far less in another.  There are of course advantages and disadvantages to each system.

Many of us who are for fair currencies would prefer to see national currencies pegged to a basked of hard currencies, mostly copper, gold, platinum, and silver, and maybe iron, zinc, and magnesium if you want to spread it around further.  Any one commodity can easily be manipulated, but not all of them all at once.

Therefore belief begats belief.

Interesting, yet uncompelling.

I find it very interesting and compelling that you have a belief that begets another belief, yet you will not acknowledge 3000+ years of human history.  If we did not have any currency or media of exchange, we would all be stuck on the barter system.  The bottom line is your supposition is 100% wrong, and if you want to have a discussion about money, then you should be reading itulip, mish, and many other commentators out there that talk about inflation deflation and hard assets.

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#45) On October 22, 2008 at 1:45 AM, EnergyCzar79 (66.67) wrote:

AnomaLee,

That's the first cogent argument I've heard today.

Bravo!

Your right, it is like religion. Either you believe it or you don't.

The only question is how many believers are left.

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#46) On October 22, 2008 at 2:10 AM, EnergyCzar79 (66.67) wrote:

DemonDoug,

You are probably right that gold will never go to zero.

There are some uses for it and there will probably always be believers.

 

Given, however, that we are facing a situation the world has never seen before, I'm not sure I'd go whipping out my history book for a solution.

We are all interested in loosing as little money as possible and hoping to even gain some.

To that end, I still stand by my original assertion that energy is the basis of society, the common thread that binds us all.

Whether we are in an agrarian barter society or a society involved in the race to Mars, cheap energy availability is the underlying motive force. Therefore, I would posit that energy, in whatever form, will provide the stability of a culture, not a perceived form of currency.

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#47) On October 22, 2008 at 2:56 AM, EnergyCzar79 (66.67) wrote:

 

To All who participated,

I am now approaching 19 hours in the blog-o-sphere. Even Energy Czars run out of energy eventually.

I wish to give a heart felt thanks to everyone who participated in this discussion.

As TMFSinchiruna wrote earlier:

"Whether you agree or disagree with my opinions on the matter, I am thankful that we have this great forum to discuss these important ideas..."

You all have given me a great deal to consider. I hope I have done the same for you.

 

Sincerely,

EnergyCzar79

 

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#48) On October 22, 2008 at 3:51 AM, dexion10 (28.29) wrote:

GOLD PROTECTS WEALTH ... IT DOESN'T CREATE IT.

In armagedon: 

 - the gold to oil ratio will remain the same

- the gold to land ratio will remain the same

All that changes is that gold will get you more dollars... but so what they'll be worthless in an armagedon situation

 

IN THE MEANTIME - I WAS SHORT GOLD:

I was short ABX... with real money.  Gold was the easiest short in the world at the end of September.

The armagedon trade doesn't pay .... deflation applies to gold too!

Additionally even if the worlds fiat currencies fail... gold will not buy you more of anything else

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#49) On October 22, 2008 at 4:19 PM, XMFSinchiruna (28.58) wrote:

EScroogeJr

Everything you said about gold can also be said about USD, except that over time those USD in your safe will lose out to inflation while gold will ultimately hedge that loss.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation." - Alan Greenspan, 1967

"Gold still represents the ultimate form of payment in the world". - Alan Greenspan, 1999

And as to the most unfortunate mis-statement in your comment, gold bullion has in fact OUTPERFORMED the S&P500 on a nominal basis for the entire 36-year period from January 1971 through January 2008!! 36 years is a very long race to win against one of the darling benchmark indeces. I hope no one was"locking themselves out of wealth creation" by owning the S&P500 for the past generation.

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#50) On February 16, 2009 at 9:00 PM, walt373 (99.85) wrote:

Gold is a type of currency that is a level below paper currency. If paper currency fails or becomes unstable, people fall back to gold. But if a doomsday scenario plays out and the entire world economic system collapses, gold will fail as well.

I mean if you are struggling to survive in a post-apocalyptic world, pretty sure having food to eat will be more important than having a useless shiny metal. But given that this scenario is perceived as almost impossible, gold is seen as the standard. But in reality, gold has no intrinsic value.

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