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-   -   Crazy idea - anyone in Economics care to chime in (http://www.wakeworld.com/forum/showthread.php?t=799386)

sidekicknicholas 08-02-2013 1:38 PM

Crazy idea - anyone in Economics care to chime in
 
So I was reading the other day about Gold -

It has been estimated that all the gold mined by the end of 2011 totaled 171,300 tons
The USA has has ~ 8,135 tons of gold in its reserves (around ~5% of all Gold ever mined).
The total of the top 100 gold holding countries is 31,868 tons of Gold (USA has ~25%).


What if the USA sold off 100% of its gold at around $1400/oz. into the market place. If it is as simple as high school economics (all I know), a huge influx of supply means the price drops like crazy.... then they buy back their Gold an a vastly cheaper price, when it drops. Or is Gold rare enough that even adding that much into the trading system wouldn't effect price.

Clearly this probably wouldn't work or we would be doing it, but seeing the USA has such a substantial quantity of gold, could they manipulate the price.

.... idea popped into my head today, I just need someone to tell me I'm stupid for even thinking it so I can let it go,

Thanks

ian_ashton 08-02-2013 3:07 PM

Buying it back would cause the price to increase.

It's not like they'd sell to one person for a set amount, as you sell (ie increase supply) and demand dwindles you have to lower your price.

Same thing happens in reverse when you start buying it back.

onthecreek 08-02-2013 5:01 PM

you have an assumption that 25% of the top 100 country's gold supply could be sold at the current market price. that won't happen. you'll sell some at that price but there aren't enough buyers to sell all of it. you'll have to lower the price to bring others into the market.

same will happen in reverse when you start buying.

in the end it will mostly be a wash with the exception of the market makers and anyone charging a transaction fee taking x% off the top. that alone makes this a losing proposition but an exercise in how markets work. the house never loses.

Pad1Tai 08-02-2013 7:18 PM

Whats in the smoke?

sidekicknicholas 08-02-2013 9:45 PM

Quote:

It's not like they'd sell to one person for a set amount, as you sell (ie increase supply) and demand dwindles you have to lower your price.
That is the point. Unload it all in one quick dump at current market price ~$1350/oz.
.... the huge influx of supply drops the price like a rock. Buy up a ****load in one quick buy at new low price. Price skyrockets again because of the lack of supply..... repeat.



You (the USA) would control enough of this asset to artificial change the price on a whim.... since they know the buy and/or sell is coming, they're always going to be on the winning end of it since their actions cause the drastic reaction.

ian_ashton 08-03-2013 5:02 AM

What any 1 entity would have the means and desire to buy such a massive quantity, knowing that if they don't hold they are tanking their own investment.

Intrlaz 08-03-2013 9:59 AM

Quote:

Originally Posted by sidekicknicholas (Post 1837045)
That is the point. Unload it all in one quick dump at current market price ~$1350/oz.
.... the huge influx of supply drops the price like a rock. Buy up a ****load in one quick buy at new low price. Price skyrockets again because of the lack of supply..... repeat.



You (the USA) would control enough of this asset to artificial change the price on a whim.... since they know the buy and/or sell is coming, they're always going to be on the winning end of it since their actions cause the drastic reaction.

You can't just unload it all at once. There is no bid for that size. If you went to the futures market and put the offer out the price would tank immediately before you sold any.

polarbill 08-04-2013 7:45 AM

I bet this guy would want that much gold.

http://www.youtube.com/watch?v=aDaTr8_QzdI

fly135 08-05-2013 7:36 AM

So the US has $365 Billion in gold and some people think we should go back to the gold standard. Wonder how that would work?

monkey_butt 08-05-2013 1:17 PM

Nick - despite going slightly off topic - John kinda hinted at something I was tempted to say earlier ...

w/o going into the market price discussion (or only partially) - here's more input to your thoughts. First - think how the Fed would buy gold today. They would go on the market and buy 100 tons of gold. The more important question is: How do they pay for it? Oh well - let's just print some money shouldn't we? That will work for a while but will eventually lead to a surplus of USD in the market which in turn makes the dollar worth less against other currencies - pretty much the same result when the US is supplying the market with liquidity which is what we're doing when we issue treasury bills.

So obviously we're not making a lot of money by selling our gold when we can have it for free anyway - inflation would be the result and shouldered by the economy overall.

The gold standard (google Bretton Woods) was abandoned a long time ago simply because it made no longer sense to allow the conversion of 20$ (or the currency of that particular country) to the equivalent in gold at any given time because the arbitrary set price for gold did no longer match the market value. There's a lot more to this but that's why should look up Bretton Woods (wikipedia has an excellent article about it and explains it better than I ever could).

The reason that citizens usually trust their government to honor the value of each bill w/o gold backing is simple: Most Feds are independent from the government - so the government can't just turn on the press to fund themselves - so the monetary control/liquidity lies within the government but outside of reach of the executive branch. If it doesn't - you see hyper-inflation. The feds will supply the market with the required liquidity - not allowing the government to go on spending spree.

So to conclude this: Selling our gold wouldn't provide us with cash - we would actually get the money back we issued when we bought it (or issued treasury bills). This is the same reason why you could be worried about the Chinese holding so much US currency reserves - because if they would dump it tomorrow - we would be screwed - except pretty much everybody along with us - we would no longer be able to afford any foreign goods and any country which holds US currency would be mad at the Chinese too (this is very simplified - so folks - don't get all jumpy).

When Ron Paul said he wants to go back to the gold standard we have to understand first and foremost: Gold is not what makes our money worth something - it's our economy and it's output (government and private sector) - simply put our GDP. If we stop tomorrow making anything as a society and simply use our gold to buy the stuff outside of our economy (speak US) we will be ok until our gold is gone. At that point we better start producing something - because nobody will give us anything for our paper money. Again - very simplified - we can continue the discussion if you make it out one more time before the season is over ;-)

timmyb 08-05-2013 1:52 PM

They don't have to buy the gold back at $1,400 if they want it, they will just make it illegal for you to own it and buy it at whatever rate they want like they did back in 1933:
http://en.wikipedia.org/wiki/Executive_Order_6102

pierce_bronkite 08-06-2013 2:46 PM

Expect a visit by the FBI. Lol.


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