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Warren said that when central bank buys gold it is the same as government deficit spending.
Is selling the gold back equal to taxation? The central back gets currency out of the economy, but nongovernment sector has the gold now?
CB purchases and sales of gold, which is a standard cb operation, increases and decreases consolidated non-govt net financial assets in aggregate, like fiscal operations do.
Tom, but isn't there a bit of a difference in that while buying gold is the same as government deficit purchasing of any other good or service, the selling of gold back isn't quite the same as taxation?
cb's use gold to stabilize currency as functional uses fiscal policy to stabilize growth, employment and price stability. Basically the same principle of increasing and decreasing $NFA holds, as I understand it anyway.
the govt selling gold or anything else removes that many net financial assets from the economy, just like taxes. in fact, you can think of taxes as the govt. selling not being sent to jail for non compliance
cb's regularly intervene to "stablize" their currencies in the fx market, and that is considered OK. They are not supposed to intervene to devalue their currency to gain advantage in the export market, but they do this too on occasion. When many do, it is considered a currency war.
They do this either by buying-selling other currencies to increase or decrease the availability of their currency, or they use gold. CBs are big movers of gold and a lot of the gold run-up was apparently due to cb buying, e.g., Russia, China, and India.
"CB's holding gold as an asset and trading it also is a key point in the argument for calling gold bullion "money."
Historically this applies to silver too. "Pound sterling." But silver is less evidently money than gold because it is an industrial commodity."
Yes. I agree with all your points Tom and I was just kind of goofing around and setting you up in a way, but I confess to being a bit surprised by your reply. I thought most people on this blog view gold as a barbarous relic?
I see it as a fetish. That is to say, it's all psychological. From the economic point of view, that may mean it is essentially irrelevant now. But from a trader's perspective, it's all psychology.
16 comments:
Warren said that when central bank buys gold it is the same as government deficit spending.
Is selling the gold back equal to taxation? The central back gets currency out of the economy, but nongovernment sector has the gold now?
Warren said that when central bank buys gold it is the same as government deficit spending.
Is selling the gold back equal to taxation? The central back gets currency out of the economy, but nongovernment sector has the gold now?
CB purchases and sales of gold, which is a standard cb operation, increases and decreases consolidated non-govt net financial assets in aggregate, like fiscal operations do.
Tom, but isn't there a bit of a difference in that while buying gold is the same as government deficit purchasing of any other good or service, the selling of gold back isn't quite the same as taxation?
cb's use gold to stabilize currency as functional uses fiscal policy to stabilize growth, employment and price stability. Basically the same principle of increasing and decreasing $NFA holds, as I understand it anyway.
the govt selling gold or anything else removes that many net financial assets from the economy, just like taxes. in fact, you can think of taxes as the govt. selling not being sent to jail for non compliance
Yes, got it.
The example with the "not going to jail" sale was helpful too!
"the govt selling gold or anything else removes that many net financial assets from the economy, just like taxes".
Unless you consider gold to be a financial asset.
For example:
Fed buys gold from private sector:
Fed: + gold
Private sector: + reserves and deposits.
Private sector net financial wealth has increased, apparently.
"cb's use gold to stabilize currency as functional uses fiscal policy to stabilize growth, employment and price stability."
Huh? Central banks can use gold to stabilize currency?
Not what I would expect to hear from an MMTr.
cb's regularly intervene to "stablize" their currencies in the fx market, and that is considered OK. They are not supposed to intervene to devalue their currency to gain advantage in the export market, but they do this too on occasion. When many do, it is considered a currency war.
They do this either by buying-selling other currencies to increase or decrease the availability of their currency, or they use gold. CBs are big movers of gold and a lot of the gold run-up was apparently due to cb buying, e.g., Russia, China, and India.
So... CBs use gold as a monetary asset?
CBs use gold as a monetary asset?
CB's holding gold as an asset and trading it also is a key point in the argument for calling gold bullion "money."
Historically this applies to silver too. "Pound sterling." But silver is less evidently money than gold because it is an industrial commodity.
"CB's holding gold as an asset and trading it also is a key point in the argument for calling gold bullion "money."
Historically this applies to silver too. "Pound sterling." But silver is less evidently money than gold because it is an industrial commodity."
Yes. I agree with all your points Tom and I was just kind of goofing around and setting you up in a way, but I confess to being a bit surprised by your reply. I thought most people on this blog view gold as a barbarous relic?
I see it as a fetish. That is to say, it's all psychological. From the economic point of view, that may mean it is essentially irrelevant now. But from a trader's perspective, it's all psychology.
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