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Jim Grant on gold


Eric50
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Here is a quick interview of Jim Grant. He has an interesting way of seeing gold:

 

"To me the gold price takes the form of a very uncomplicated formula, and all you have to do is divide one by ‘n.’  And ‘n’, I’m glad you ask, ‘n’ is the world’s trust in the institution of paper money and in the capacity of people like Ben Bernanke to manage it.  So the smaller ‘n’, the bigger the price.  One divided by a receding number is the definition of a bull market.

 

You’ll notice that this had nothing to do with security analysis.  This is conceptualizing, brainstorming, nothing to do with price/earnings ratios, other valuation methods like cash flows.  It is a proposition or a hypothesis on what is driving the gold market.  So the gold market is necessarily a speculative piece of business.  It’s not to be confused with the kind of investment that Ben Graham wrote about.  Anyway, I happen to be bullish on it, but not for reasons that I can readily defend before a member of the fraternity of chartered financial analysts.”

 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/14_Jim_Grant_-_US_Will_Resolve_Debt_by_Returning_to_Gold_Standard.html

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Reminds me of the economic theories that have equations including things like "utility".

 

How on earth does one quantify "trust", "utility", or anything else which is not only different from person to person, but in each and every individual can change from moment to moment?  And even in one individual at one moment there are no units so no way to quantify it and assign it a specific numerical value.

 

Sure you can say the price of gold in any fiat monetary unit tends to be inversely proportional to the trust in that fiat money, but using a mathematical formula is inappropriate in this case.

 

Also this guy is dreaming if he thinks the U.S. dollar will ever again be redeemable for gold.  The political class never gives up power willingly or peacefully.  I can't imagine this happening, even though it should.

 

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Rkbabang,

your thoughts on Jim Grant tell me much more about you than him.  You should read what he has said over the years instead of making derogatory assumptions.

 

Wow.

 

1)  Thou shall not criticize anything anyone says unless you have read what he has said over a period of years.

I'll try to remember that.  I guess I should go back and read years worth of your writings before criticizing this statement of yours, but since I disagree with it I won't.

 

2) I agree with almost everything he said I just made 2 small criticisms.  One, that you can't put a number to "trust".

And two, that regardless of what should happen I don't think the US will go back to the gold standard.

 

3) It is much easier to launch an ad hominem attack than to criticize the content of someone's comments.  Which says a lot about yourself.

 

--Eric

 

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Guest broxburnboy

Just to get back on topic..Jim Grant and gold..

 

Grant is a fairly recent convert to accepting the dynamic that gold trades inversely to the dillution of fiat money, in this case the USD.

But there is another dynamic as well, the simultaneous ongoing fiscal deficits which decrease the value of the whole enterprise asset base.

So we have an ongoing situation where fresh money is created and is backed by a decreasing real asset base.

 

Gonzalo Lira says it better than Jim Grant.

 

http://gonzalolira.blogspot.com/2011/04/burning-candle-at-both-ends-raising.html

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Just to get back on topic..Jim Grant and gold..

 

Grant is a fairly recent convert to accepting the dynamic that gold trades inversely to the dillution of fiat money, in this case the USD.

But there is another dynamic as well, the simultaneous ongoing fiscal deficits which decrease the value of the whole enterprise asset base.

So we have an ongoing situation where fresh money is created and is backed by a decreasing real asset base.

 

Gonzalo Lira says it better than Jim Grant.

 

http://gonzalolira.blogspot.com/2011/04/burning-candle-at-both-ends-raising.html

 

Excellent article thanks.  Gonzalo has a more realistic assessment of what the government is actually going to do...exactly what it has been doing.  It will burn that candle until the wax is gone then try to deny that the candle no longer exists when it's gone.  I just can't imagine them doing what needs to be done.  Not this year, or next, or ever.  The tone of my first post may have been a little harsh, but to state that the US dollar will (not "should", but "will") be made redeemable by gold is quite a wishful statement.  I just don't see that happening.

 

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If we get to the point where the currency that the world has  been used for the last 70 years as a reserve currency has lost its place because of a lack of faith by the majority we are all screwed . The Weimar ? Republic and Zimbabwe were not wonderful places for any one to try to raise a family and make a living the best advice is to get out  of the country if you can before it happens. It seems that in the part of the article posted Jim is saying "this time is different" which of course can be true but usually is not.

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rkbabang, sorry for the comment,  was unnecessary and thoughtless on my account

 

No problem.  I've typed many a thing in haste on-line that I regretted afterward.  We all do it.

The tone of my initial post was somewhat inflammatory now, that I go back and read it, as well, for which I apologize.

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