Lonestar1

De-Leveraging Is Not Deflation

Even during war, a person would be willing to exchange his gold for the currency being used. But he is going to exchange only the amount to get by, not the whole amount he has. Of course, he can pay in bullion gold, if not for the problem of decimal inconvenience. The point is, he wants to hold on to his gold.

This would also be the case in an economic calamity when people believe gold may be the only trustworthy form of money.

It's all about the trust, whether it's gold, $, Yen or Sterling. Back in 80's, if you traveled in any 3rd world countries, they would be very happy to be paid by $ instead of the local currency. This is not true any more.

The theory of gold backwardation explains this well. It shows two things:

(a). demand outweighs supply in spot market,

(b). Supply by short in futures market is subject to increased probability of default as the short either has no gold, or tries to default and let the long suit.



On Jan 21 09:42 AM joegold wrote:

> one question, one only. Everyone says all fiat currencies will fail
> fine. Gold is the answer fine. IF this is the case, and the dollar
> and all other fiat currencies are worthless paper...why would anyone
> ever exchange one tenth of one millionth of one ounce of gold for
> paper money? I am not trying to be snarky, I am just trying to understand
> the argument.