Silver not Fiat

[TenOunces]

I was wondering if anyone could help me explain hoe buying silver and gold et al is basically pulling money from the system.  Lowering the demand for (in my case) dollars or any other fiat currency.  I understand it, but I can't explain it.  Maybe one of you are better at explaining stuff in words than I am.  Some one said that I am not really pulling money out of the system, but just recycling the fiat.  And also I am acctually speeding up the velocity of money by trding my dollars for silver.    I see it as I traded my dollars for a hard asset that is part of the fractional reserve banking system and silver is not a fiat currency. 

[Carpe Diem]

I'm no expert but I believe it has something to do with the fact that when you buy gold you have tied up that money or "liquidity" in the economy, and the knock-on your purchasing of gold has on the country's finances.  

 

The more people buy and store gold, the bigger the effect on the country's current account deficit (i.e., more goods and services are imported than exported).  This deficit, caused by more outflows of money and less income to the country is further compounded as when a UK citizen buys gold it is more than likely imported as the UK doesn't produce that gold.  This means the £ you spent on that ounce of gold leaves the country and accounts for debit in the country's accounts.  

 

The reason this current account deficit is significant and is a further nail in the coffin of a fiat currency is because it can cause a confidence hit to foreign investors, who may remove investments from that country which can devalue the currency further, causing the cycle of lower confidence and so compounding problems for society and the economy,

 

Those £ leaving the country as a result of the gold buying increases the supply of that currency meaning that it sees a fall in its exchange rate.  This means that country's exports are cheaper too and so, in theory should make the UK more competitive, thereby reducing the deficit.  This hasn't happened in the UK's example because of general slow growth globally and the fact we have little demand for UK exports when compared to the likes of China (UK 800 billion USD last year, China 2.21 trilion USD).

 

Again, I'm more of an armchair economist than anything but that's what I understand (and more than happy to be educated and corrected here), it's not just the fact we're running at a current account deficit but the compounded effects of having sold our country's family silver and are no longer exporting enough to make ourselves (the UK economy) stronger.  When you look at China buying a shi*t load of gold it's a way for it to give worthless, unbacked paper (USD) for something that has intrinsic value.  For a while China has exported huge amounts in Dollars for his hard work and got paper in return but the tide is changing. 

[garthy]

There's something called money velocity which is basically the amount of times a dollar in your case changes hands within a year, the governments around the world need money velocity to create growth, the worst thing we can do is to withdraw our money from the banks and hold it in cash at home, apart from burning your money the other thing they don't want us doing is sitting on gold and silver, we are in some ways withdrawing currency from the system, if everyone did this the dollar would get stronger and stronger and make everything cheaper and they can't tax falling prices. 

 

A strong dollar equals a contracting money supply which in turn causes deflation, our countries would default on their debt because we don't have the capital to pay the debt plus inflation, that's why they started QE, to plug the deflationary hole.

 

Buying gold and silver does create money velocity but not in the same way as say buying stuff that deteriorates through time and that's where they want our money, because that's what causes the money velocity they crave.

[HelpingHands]

One person converting fiat to silver will obviously have no impact (other than the possible consumerist effect I think your friends were getting at) but it may do if lots of people did.

Fiat is the currency/instrument/tool/weapon of the banks so the more people move away from it and save in another form the less significant it will be.

What if everybody in the US decided to save in Canadian dollars instead of USD? There would be less demand for USDs and people would start exchanging Canadian dollars for goods and services.

It may take some sort of metal backed independent currency like a gold bank with debit cards or cryptocurrency to work like the example above and something more practical than carrying ASEs around in your pocket. I personally think if people saved in metals and used crytpos for daily transactions we'd see a huge impact on bank issued fiat.

[TenOunces]

One person converting fiat to silver will obviously have no impact (other than the possible consumerist effect I think your friends were getting at) but it may do if lots of people did.

Fiat is the currency/instrument/tool/weapon of the banks so the more people move away from it and save in another form the less significant it will be.

What if everybody in the US decided to save in Canadian dollars instead of USD? There would be less demand for USDs and people would start exchanging Canadian dollars for goods and services.

It may take some sort of metal backed independent currency like a gold bank with debit cards or cryptocurrency to work like the example above and something more practical than carrying ASEs around in your pocket. I personally think if people saved in metals and used crytpos for daily transactions we'd see a huge impact on bank issued fiat.

 

 

But remember, my fiat is not in the bank to be loaned out 9x in fractional reserve banking.  Slowing the velocity and the amount in "circulation".  I don't trust cryptocurrencies.  They already been hacked and stolen from. I don't care how "secure" and "encrypted" they say it is, it isn't safe or secure.  I'm in the IT field, I deal with this stuff all the time.  There is NOTHING that can't be hacked.  Like I have heard and have said many many times. If you can't hold it, you don't own it.    That goes for PMs, paper currency, et al.  I see from one place I buy silver from that they have a FREE shipping choice to be stored in their vaults secured by Brinks.  I can request it at any time they say, it is secure they say.  Uh hu.  right.   I can't hold it, I can't see it.  I don't know if they really have it or not. 

[HelpingHands]

You don't have to hold cryptos to appreciate that they are doing a job of chipping away at fiat. I'm not sure whether there is a ratio for fractional reserve banking. They can create as much as they like and over value any assets they have.

That said, I think most people stack not to bring down the system but to be prepared for when they bring it down themselves.

[TenOunces]

You don't have to hold cryptos to appreciate that they are doing a job of chipping away at fiat.

 

True!

 

I'm not sure whether there is a ratio for fractional reserve banking. They can create as much as they like and over value any assets they have.

 

Yes, well here in the US, banks can loan 90% of every dollar in deposits.  Example-- I deposit $100, now the bank can loan $90 to Jim. Jim takes that deposits it and now the bank can loan $81 so on and so forth.  And banks also have capital requirements.  Bank create money by loans (leverage).  The loans are spent and money enters the money supply. making the treasury to have to print more physical paper dollars, count more digital money as being in the money supply (inflation).  When people pay off credit or de-leverage, the money supply shrinks, velocity goes down, the demand for Dollars goes down creating deflation. So the banks can't create all the money they want.  There has to be demand for that money.  The Fed is just simply supplying liquidity to the banks at very low rates.  The banks in turn loan out that money.  Now the kicker it that most of this money isn't making it's way much past Wall St.  It is being used for stock buy backs by big corps and to be gambled in stock and bonds.  And when they loose that money, they will take depositors funds to make it up, read MF Global.  What people also don't understand is that when you put money in the bank, that money now belongs to the bank.  It is not your anymore and the bank can with it what it pleases.  You loan your money to the bank in return for interest payments and they promice to repay you on demand.( Same goes when the bank gives you a unsecured credit card, Absolutely no difference.  Well you can't drag the bank into court to get your money back like they can you, but that's a different story). Now if more people go to the bank to pull out money than what the bank has in reserves, now we have a RUN on the bank. That's what we stack for, or one of the reasons.  The Lost confidants in the banking system.  When people realize the bank notes are better than bank deposits.

 

  

That said, I think most people stack not to bring down the system but to be prepared for when they bring it down themselves.

 

This I also agree with. And is one of the reasons I stack.