Monday, 17 September 2012

Value of Money

 The Value of Money

We are all familiar with money. Indeed, most of us would like to be more familiar with even more of it. But we all get the basic idea, do we not? Money is all about what you can do with it. Those that have plenty of money get to do what they like and employ people: who haven't much money themselves, to work on their behalf. Those with little or no money have to work for those that have, and spend a lot of their time: a considerable portion of their adult lives, doing what rich people tell them to do. Now this isn't a charitable undertaking: the rich only employ poor people in order to enrich themselves even further. So money isn't just about buying things. More importantly, money is about power: the power, for those that possess it, to control other people's lives.
So, if I were to ask you, who are the more important in the money equation: rich people or poor people, you wouldn't have much trouble coming up with the answer. 'It's got to be the rich,' you would reply. Well, you would be wrong.
Now please bear with me as I attempt to justify that assertion. I would also ask you, the reader, to work with me as we progress. We need a few answers here: lets see if we can find them together.
The first question that we need to both ask, and answer, here is: what is money? Or, to rephrase the question for clarity's sake: what gives money its value? Now I'm not talking about fluctuating values; forget inflation or the value of a country's currency on the money markets. Think basic and ask: why does the money in my pocket possess value? Why is it worth anything at all?
Perhaps it would be better if we broke this question down even further and asked: what is it that defines value?
Let's take a look at something that everybody considers to be valuable: gold. Now why is gold valuable? Well, we've already provided the answer to that particular question. Gold is valuable simply because virtually everybody agrees that it possesses value. Furthermore, if people all over the world were to suddenly stop buying gold – if they suddenly stopped according it any value whatsoever – it would become virtually valueless in an instant. This is because it doesn't possess any intrinsic value of its own. Consider this: if you were on the point of starving to death, and the price of a loaf of bread was a billion dollar's worth of gold, would you pay that price - if you had it – or choose to die instead?
Gold is, therefore, only worth what people are prepared to pay for it. The catch here, however, is that the price that people are prepared to pay: their perception of what gold is worth, can be easily manipulated. We are all encouraged: by convention, to want to own gold. Convention dictates that certain milestones in our lives: becoming engaged or getting married, for instance, must be marked by the purchase of a gold ring. The ownership of these trinkets then serves as a constant reminder: to the relative poor, that gold is worth having and that they should constantly aspire to acquire as much of it as they can. What the poor do not realize is that by harboring these aspirations they are actually defining who is rich: those that possess gold in quantity, and who isn't.
We mustn't, either, delude ourselves that the price of gold (along with that of other precious metals, such as silver) is dictated solely by the supply and demand equation. These days, for every ounce of physical gold being traded on the markets there exists around a hundred or so gold certificates (quite literally: paper gold). All that is needed, in order to depress gold's value, is for thousands of these certificates to be dumped onto the markets. The opposite can be achieved: the price can be forced up, by financial institutions that buy gold from - and also sell gold to – the different subsidiary companies that they, themselves, own. This increases volume sales. Investors then see the accelerating activity in the market: which prompts them to start buying gold, and the price begins to rise along with the growth in demand.
So, we know that gold doesn't possess any intrinsic value of its own and that the cost of buying it isn't, either, dictated by market forces. In fact, what we have seen is that any value ascribed to gold is entirely synthetic. It is the result of manipulation designed to depress the price when the big financial institutions: many of whom have more economic clout than some nations, are in the market to buy physical gold and – on the flip side of the coin - to raise the price when those same institutions wish to sell.
There is, as well, another reason why the price of gold is often manipulated. In this instance the price is always depressed. Let me explain. There are times when gold can seem a much more attractive proposition to investors than just leaving their money in the bank, or buying shares. These include times of great uncertainty. Times when national economies: and the industries they encompass, appear to be under threat and a collapse in the value of the currencies associated with them becomes a very real possibility. It is during these periods that we are most likely to see 'runs on the banks': when depositors fear that a collapse could wipe-out their savings and so begin queuing round the block to withdraw their money. Once withdrawn that money needs to be converted into a 'store of value': something that – the ex-depositors hope – will retain its value until after the crisis has passed.
The preferred choice for people facing this scenario is, of course, gold (with silver coming in a close second). Now the banks are not going to just sit still and let this happen. Their very survival is at stake. They are going to do everything in their power to prevent a run on the bank from wiping out their capital base. And the main stratagem that they will adopt to protect their interests is precious metal price manipulation. The logic that the banks are employing here isn't hard to understand: when money starts to look bad, make buying gold and silver look a whole lot worse.
Evidence: that the central banks do, indeed, deliberately depress the price of precious metals has been mounting for years. However, despite this evidence, you will still come across 'analysts': on the financial blogs and in the press, that deny that this occurring. Do not listen to them.